Congress Extends Tax Breaks for 2015 and Beyond

December 29, 2015

tax_refund_336x280In what has become an annual ritual, Congress recently passed a last minute bill to extend tax laws that expired at the end of 2014. The good news is that some of these extenders are now permanent, which will eliminate the need to extend them in future years. Other provisions were extended just through 2016 and others were extended through 2019.

The Protecting American from Tax Hikes (PATH) Act of 2015 was signed into law on December 18. Here is a summary of the most popular provisions that were extended or made permanent.

Extenders that are now permanent include:

Tax free distributions from IRAs to charities: The PATH Act permanently extends the provisions allowing tax-free distributions by individuals age 70½ or older directly from their IRAs to qualified charities. The annual limit is $100,000 per taxpayer.

American Opportunity Tax Credit: The PATH Act makes permanent an enhanced AOTC, with a maximum deduction of $2,500 and phaseout thresholds of $80,000 for single filers and $160,000 for joint filers. 

Deduction for state and local sales taxes: Taxpayers may elect to deduct state and local sales taxes in lieu of deducting state and local income taxes. This optional deduction, which is especially valuable to residents of states without a state income tax and purchasers of certain big-ticket items, is now permanent.

Child Tax Credit: The enhanced child credit, which allows for a refundable portion with a reduced income threshold, is made permanent. This provision was scheduled to expire after 2017.

Earned Income Credit: The PATH Act makes permanent certain enhancements in the EITC for lower-income taxpayers. Previously, the enhancements were only available though 2017.

Deductions for teacher’s expenses: The deduction for up to $250 of out-of-pocket eligible educator expenses is now permanent. It will be indexed for inflation beginning with 2016 tax returns. You claim this deduction “above the line,” meaning it’s available even if you don’t itemize. If you do itemize, you can also generally claim qualified expenses above $250 as a deduction subject to a 2% of adjusted gross income limit.

Section 529 plans: The PATH Act permanently extends the rule allowing computers and related equipment to be treated as qualified expenses.

Section 179 expensing: The PATH ACT permanently restores the maximum expensing deduction of $500,000 for qualified business property with a phaseout threshold of $2 million. (It was scheduled to drop to $25,000 with a $200,000 phaseout threshold.) It will be indexed for inflation for 2016 and thereafter.

The following provisions were extended through 2016

Tuition and fees deduction: If you or a family member is an eligible student, you may be able to claim a tuition and fees above-the-line deduction for qualified higher education expenses for 2015 and 2016. For 2015 tax returns, the maximum deduction is $4,000 when your adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers). The maximum deduction is $2,000 when your AGI is less than $80,000 ($160,000 for joint filers).

Residential energy credit: The latest version of the residential energy credit, which provides a lifetime credit of up to $500 for 10% of qualified expenses, is extended through 2016.

Mortgage debt exclusion: The tax exclusion for mortgage forgiveness on up to $2 million of debt on a principal residence is extended, with certain modifications through 2016.

Deductibility of mortgage insurance premiums: This provision allows taxpayers to deduct mortgage insurance premiums subject to a phaseout beginning at $100,000 of AGI. The deduction is extended through 2016.

50% bonus depreciation (extended through 2019): Although 50% bonus depreciation for qualified business property is retroactively extended to 2015, it will be reduced to 40% for 2018 and then 30% for 2019. Bonus depreciation will completely expire after 2019 unless it is extended again.

These are just a few of the tax extenders included in the 231 page PATH Act passed last week.  For a more detailed list of the tax provisions that were extended please see  “SECTION-BY-SECTION SUMMARY OF THE PROPOSED PROTECTING AMERICANS FROM TAX HIKES ACT OF 2015”

Kristine McKinley is a fee only financial planner in Kansas City, Missouri.  Kristine provides retirement planning, tax preparation and planning, investment reviews and comprehensive financial planning on a fee-only, as needed basis.  To schedule your complimentary introduction meeting, please contact Kristine at kristine@beacon-advisor.com.

Budget Deal Eliminates Important Social Security Filing Strategies

November 5, 2015

social security strategies eliminated Earlier this week President Obama signed the 2016 budget deal which included several surprise provisions for Social Security.

The two biggest changes will be to the “file and suspend” strategy and the ability to file a “restricted application”. The loss of these two strategies will affect many Americans’ retirement plans as they were relying on these strategies to boost their retirement income. People who were relying on the additional income from these strategies will need to re-evaluate their retirement plan to determine if they can still retire at their goal date or if they will have to work longer to replace the lost income.

File and Suspend

The biggest change is to the “file and suspend” strategy.

First a little background on the strategy… In order for spouses to collect the spousal benefit, the other spouse must have already filed for benefits. Often times the higher earning spouse is not yet ready to receive benefits though, so in the past he got around this by filing for benefits and then immediately suspending them. This allowed his spouse to start receiving spousal benefits while he delayed his own benefit (usually to age 70). The benefit of this strategy was that the higher earner could continue to earn accrued benefits (at a rate of 8% per year) on his own benefit while allowing his spouse to start receiving a spousal benefit on his earnings record.

Under the new law, spousal benefits are no longer payable while the other spouse’s benefits are under suspension. In other words, spousal benefits can only be collected if the other spouse is actually receiving his benefits. The husband can no longer file and suspend his benefits; he must actually be receiving them for his spouse to collect spousal benefits.

In previous versions of the budget deal, anyone receiving spousal benefits based on a suspended benefit would have had their benefits terminated within six months if the other spouse didn’t reinstate his benefits. Thankfully the bill was changed so that people already receiving spousal benefits on a suspended benefit will not lose their benefits; however, this strategy will not be available going forward.

Another benefit of suspending benefits was the ability to request a retroactive lump sum for the amount that the person would have received if he/she had not suspended her benefits. This benefit has also been eliminated under the new budget deal.

In effect, the only reason to do a voluntary suspension under the new law is if you take Social Security benefits early and you later decide that you made a mistake and want to delay your benefits. In that case, you will still be able to suspend your benefits, but only after you have reached your full retirement age, and your spouse and other dependents will not be able to claim benefits while your benefit is under suspension.

Restricted Application

The other strategy that has been eliminated is the ability to file a restricted application for spousal benefits only.

Under the old law a spouse who was eligible for both a spousal benefit and her own benefit could choose to receive the spousal benefit only (at her full retirement age) and delay her own benefit to age 70. This was the best of both worlds as it allowed her to delay her own benefit to the maximum amount while still collecting a benefit at her full retirement age (the spousal benefit, which is half of her spouse’s primary insurance amount). This strategy was called the restricted application.

Unfortunately, under the new law this will no longer be allowed. If you apply for benefits you will be considered to have “deemed” to have filed for your own benefits. The only way you would receive the spousal benefit instead of your own is if the spousal benefit is higher than the benefit you would receive based on your own earnings record.

The impact of this change is that spouses will either have to start claiming their own benefits early or they will delay to age 70 but they won’t be able to receive a spousal benefit between full retirement age and age 70.

Widow’s Benefits

The changes above apply to retirement and spousal benefits only, they do not apply to survivor benefits. Widows who choose to receive survivor benefits can still elect to delay their own benefits to full retirement age or later to receive the delayed credits.

Time-Line: When Will the Changes Take Place

File and Suspend:

The key date for the file and suspend strategy is May 1, 2016.

If you have already filed and suspended, this bill will not affect you. Your spouse can still collect spousal benefits even though your own benefits are suspended.

If you have not yet filed and suspended benefits (but are eligible to do so), you can still file and suspend before May 1, 2016 and your spouse will still be able to collect spousal benefits.

If you turn age 66 within six months after the law is enacted (the law was officially signed on Monday 11/2/15 so you must reach age 66 by May 1, 2016), you can still file and suspend benefits allowing your spouse and dependents to receive benefits on your earnings record.

After May 1, 2016 no one will be able to collect benefits on another person’s earnings record unless they are actually receiving benefits. If someone has filed and suspended their benefits, then no other benefits will be paid on that account.

The only reason someone will want to file and suspend benefits after May 1, 2016 is to correct a mistake. For example, if you retired at 64 and immediately started receiving Social Security but then decided that may not have been the best idea, you can still suspend your benefits once you reach your full retirement age. However, no one will be able to receive benefits on your earnings record while your own benefits are suspended.

Restricted Application:

The key age/date for the restricted application is people who will be age 62 or older by the end of 2015. Basically, people born before January 1, 1954 will be grandfathered in for the restricted application strategy.

Here is the time-line for the restricted application elimination: If you are already receiving spousal benefits then you can continue to receive those benefits, they will not be taken away from you.

If you will be age 62 by the end of 2015, then you may still file a restricted application to claim spousal benefits only when you reach age 66. However, the person who’s earnings you are claiming benefits on must either be collecting benefits when you apply or they must have filed and suspended their benefits within the time-line above. Divorced spouses who are age 62 by the end of 2015 can collect spousal benefits at age 66 even if their ex-spouse is not yet claiming benefits (as long as they are at least age 62).

Anyone younger than age 62 at the end of 2015 will not be allowed to claim spousal benefits only going forward. This will primarily affect people who have benefits based on their own earnings record that are higher than the spousal benefit would be. In the past, you could elect to take the spousal benefit only, even if it was lower than your own benefit, and delay your own benefit until age 70. Now when you apply for benefits, you will only be awarded the spousal benefit if the amount is greater than your own benefit would be.

Conclusion and What to Do Now

The purpose of the changes above was to “close several loopholes in Social Security’s rules about deemed filing, dual entitlement and benefit suspension in order to prevent individuals from obtaining larger benefits than Congress intended.”

Unfortunately this reform will affect more than the top 1% that Congress was supposedly targeting. Millions of middle income Americans use these strategies to improve their qualify of life during retirement, including divorced women who will likely be hit the hardest.

Reform measures of this magnitude usually take years to happen. These changes took place over just a few days and will be implemented quickly, leaving very little planning time for the people who will be impacted.

If you are already retired or are close to retirement and were planning on taking advantage of the file and suspend or restricted application strategies, please contact me for a review.  We will need to re-evaluate when you will start receiving Social Security as well as how that will impact your overall plan.

Kristine McKinley is a fee only financial planner in Kansas City, Missouri.  Kristine provides retirement planning, tax preparation and planning, investment reviews and comprehensive financial planning on a fee-only, as needed basis.  To schedule your complimentary introduction meeting, please contact Kristine at kristine@beacon-advisor.com.

The SSA Announces: No Social Security Increase in 2016

October 16, 2015

social security increase

One of the best features of Social Security is the annual cost of living adjustment or COLA.

The COLA was created to help seniors keep up with rising costs. This is especially helpful to retirees who depend on Social Security for the majority of their income (note: according to the Social Security Administration, retirement benefits make up at least half the income for approximately two-thirds of the people collecting Social Security, and 90 percent of the income for at least one third of Americans receiving benefits).

The COLA has averaged 2.65% since 1990.

Here are the COLAs received from 1975-2015:

July 1975 — 8.0%
July 1976 — 6.4%
July 1977 — 5.9%
July 1978 — 6.5%
July 1979 — 9.9%
July 1980 — 14.3%
July 1981 — 11.2%
July 1982 — 7.4%
January 1984 — 3.5%
January 1985 — 3.5%
January 1986 — 3.1%
January 1987 — 1.3%
January 1988 — 4.2%
January 1989 — 4.0%
January 1990 — 4.7%
January 1991 — 5.4%
January 1992 — 3.7%
January 1993 — 3.0%
January 1994 — 2.6%
January 1995 — 2.8%
January 1996 — 2.6%
January 1997 — 2.9%
January 1998 — 2.1%
January 1999 — 1.3%
January 2000 — 2.5%
January 2001 — 3.5%
January 2002 — 2.6%
January 2003 — 1.4%
January 2004 — 2.1%
January 2005 — 2.7%
January 2006 — 4.1%
January 2007 — 3.3%
January 2008 — 2.3%
January 2009 — 5.8%
January 2010 — 0.0%
January 2011 — 0.0%
January 2012 — 3.6%
January 2013 — 1.7%
January 2014 — 1.5%
January 2015 — 1.7%

Unfortunately, the SSA recently announced that there will not be an increase in benefits in 2016. This is only the third time in 40 years that there has not been a COLA.

You may be wondering how there can be no COLA when the cost of food, housing and medical care (the top expenses for retirees) keeps going up. The COLA is based on the CPI-W, which is a measure of a basket of goods consumed by workers. One of the top expenses in this measure is the cost of transportation. Since the cost of oil was down in 2015, the overall index was down in the third quarter – the quarter used to determine the COLA for the next year. Many argue that the CPI-W is not an adequate measure of retirees expenses (after all, transportation costs generally go down significantly once you retire) and should not be used to calculate annual cost of living increases for Social Security benefits. While this may be true, unfortunately, it’s the measure that is required under current law.

To make matters worse, the SSA is warning to expect large increases in Medicare premiums (up to 52% higher) unless Congress acts soon.

The only silver lining is that people who are already receiving Social Security cannot have their benefits reduced by rising Medicare premiums. This is known as the hold harmless rule.

The inflation protection that Social Security provides to seniors is very valuable. Unless you are a teacher or government employee, there is no other benefit that increases as your living expenses increase. For this reason, I generally encourage people to maximize their benefits as much as possible. This typically means delaying your benefits as long as possible and implementing spousal and other filing strategies as appropriate.

However, if you are planning on applying for Social Security in the next few months, it might make sense to apply for benefits now so that you will be considered an enrollee for Medicare before premiums go up. Your goal should be to maximize your Social Security as much as possible, so please don’t apply early just to avoid the Medicare premium increase, but if you were planning on starting Social Security in early 2016 anyway, applying a few months early could save you up to $600 in Medicare premiums in 2016.

You can read the full announcement regarding the 2016 COLA at https://ssa.gov/news/press/releases/#/post/10-2015-1


Kansas Residents May be Entitled to Refund of KC Earnings Tax Paid

August 24, 2015

Thanks to a recent ruling from Topeka, Kansas residents who work in Kansas City (and pay KC earnings tax) may be eligible for a refund of the KC taxes paid.

I am reviewing the recent ruling and will contact any clients who I believe may benefit from it. However, if you are a current tax client and you believe you will benefit from this rule, you are welcome to contact me and get your name on the list of amended tax returns to be completed.

Here is an article describing the new ruling:

Kristine McKinley is a fee only financial planner in Kansas City, Missouri.  Kristine provides retirement planning, tax preparation and planning, investment reviews and comprehensive financial planning on a fee-only, as needed basis.  To schedule your complimentary introduction meeting, please contact Kristine at kristine@beacon-advisor.com.

Stock Market Update: Don’t Panic!

August 24, 2015

I sent out an email to my clients today telling them why they shouldn’t panic in face of the recent stock market volatility.  I”m sure many people are nervous after three large down days in a row, so I thought I’d post a copy of the email I sent out below:



I just wanted to check in with you.  If you’ve been around me for a while, you know I tell people not to watch the market on a daily basis.  However, I know its human nature to do so anyway, so you have probably seen the news that US stocks fell sharply lower last week with the Dow losing 800+ points on Thursday and Friday.  While it never feels good to see stocks tumble into the red, it is by no means time to panic.  Here’s why:


  • The market moves in cycles.  While we all would like to see our portfolios go up all the time that just isn’t how the market works (nor is it realistic!).  Having said that, it’s important to note that since 1900 there have been 35 declines of 10% or more in the S&P 500.  Of those 35 corrections, the index recovered fully within an average of 10 months.
  • The S&P 500’s average annual total return over the past 50 years is 10%.  This is even with large corrections such as those that occurred after 9/11 and during the 2008 economic recession.  As you know, I use a pretty conservative rate of return in your retirement projection (6-7%), so your plan should still be solid even with the current market volatility.
  • We’ve been in a very strong bull market the last five years or so.  The S&P 500 more than doubled in value from March 2009 through 2013 with annualized returns of more than 20% through the end of 2014.  Knowing that, I have been telling clients that a correction is overdue, if for no other reason than to bring market values back down to “normal” levels.  So a correction this year was certainly not unexpected.
  • However, the volatility of the past few days has been greater than expected for a “reversion to the mean” type of correction.  This has been due to a combination of events including China’s devalued currency, speculation over the Fed’s plans for US interest rates, declining oil prices, ongoing uncertainty in Greece, and so on…  Each of these factors on its own can have an effect on the market; combined, their impact has been more dramatic.  Even so, none of this news was entirely unexpected.
  • Key US economic factors (manufacturing orders, housing starts, auto sales, P/E ratios, etc.) remain strong, which is why most analysts are viewing this week’s activity as a correction rather than a bear market.  This means from an investment perspective, this may be a great buying opportunity rather than a time to sell.
  • If economics and history repeat themselves – and to date they haven’t failed in this regard – the market will rebound, and long-term investments will continue to provide value.
So what should you be doing now?


  • Make sure you have a portfolio that matches your risk tolerance, time frame and goals.  This has always been my highest priority, so if you’ve been in for a review recently, your portfolio should already match these goals.
  • Rebalance your portfolio annually.  This ensures that you don’t become over-weighted in any one asset class, thus putting your portfolio at greater risk during a decline.
  • Keep adequate liquid funds to cover living expenses (if retired) or emergencies (if still working).  A good rule of thumb is to have 3-6 months of living expenses set aside if you are still working, and 12-24 months of living expenses set aside if you are retired or close to retirement.
  • And finally, don’t panic.  People who try to time the market lose on average 50% more than people who stay the course.  This is because when you sell after a large decline you are locking in your losses with no way to recover them.
If anything shifts to change my thinking, I will let you know right away.  But for now, I urge you to sit back, relax and enjoy the rest of this beautiful day.  If you are too concerned about the immediate days ahead, please send me a note and I’ll be happy to address your concerns individually.
In the meantime, turn off the TV and don’t listen to the talking heads screaming doom and gloom headlines (remember, they are emphasizing the negative in order to keep people watching).  Practice patience and assess your own comfort level in weathering what may be some choppy days ahead.


All the best,


P.S.  Here is one of my favorite graphs regarding stock market volatility:
As you can see from this graph, market declines are normal with a 94% chance that a 5% decline will happen in any given year, a 59% chance of a 10% correction every other year, a 21% chance of a 20% decline every five years, etc.  Based on these probabilities and the unprecedented returns we have seen in the S&P 500 over the last five years or so, we are actually long overdue for a correction.  While that may not be very comforting, it’s important to put historical market corrections into perspective and to understand that corrections are a normal part of the stock market.


A Guide to Withdrawing Retirement Assets

June 12, 2015

financialA lot is being written about how much money Americans can withdraw from their investments to fund their retirement years. Now, a new research institute launched by Fidelity Investments has outlined the order in which money should be withdrawn from various tax-deferred and taxable investment accounts. Described as the ‘withdrawal hierarchy,’ the Fidelity Research Institute suggests the order, with modifications made courtesy of other financial planning experts.

1. Take your minimum required distributions (MRDs) from qualified accounts and IRAs. If you are age 70½ or older, make sure you know which of your accounts require such distributions and how large those distributions need to be, and then meet the requirements and deadlines, avoiding the application of the 50 percent income tax penalty that will be assessed if you fail to make timely withdrawals of required distributions.

2. Liquidate loss positions in taxable accounts. Some investments in your taxable accounts may be worth less than their tax basis. In addition to offsetting realized losses against realized gains, at the federal level you can usually use up to $3,000 ($1,500 for married couples filing separately) of net losses each year to offset ordinary income including interest, salaries, and wages. Unused losses can be carried forward for use in future years.

3. Sell assets in taxable accounts that will generate neither capital gains nor capital losses. Such assets generally include cash and cash-equivalent investments as well as capital assets which have not increased in value. If your withdrawals from this tier in the hierarchy largely come from cash-equivalent investments, sufficient liquid assets holdings should remain intact in order to cover short-term financial emergencies. And be especially mindful of portfolio rebalancing issues.

4. Withdraw money from taxable accounts in relative order of basis, and then qualified accounts or tax-deferred saving vehicles funded with at least some nondeductible (or after-tax) contributions, such as variable annuities and Traditional IRAs that contain non-deductible contributions. The choice depends on the circumstances, and in some cases it might make more sense to tap the tax-deferred vehicle first, but for most retirees, capital gains rates are lower than ordinary income tax rates and generally liquidating capital assets first would be beneficial.

Assuming there is a significant difference in the basis-to-value ratio of the assets to be liquidated in two accounts, the better tactic for choosing between these two types of withdrawals may be to liquidate the assets with the higher ratio. That is, the assets that have generated the smallest gain or the largest loss as a percentage of their basis. If the basis-to-value ratio of the assets to be liquidated in each account is relatively low due to significant investment gains, it often will be preferable to liquidate the assets in the taxable account.

Conversely, if the basis-to-value ratio of the assets to be liquidated in each account is relatively high, it may be preferable to liquidate assets in the tax-deferred account if portfolio demands require it. Note that IRAs are generally subject to certain aggregation requirements when allocating basis. When liquidating gain positions in taxable accounts, it usually makes sense to sell assets with long-term capital gains first, since they should be taxed at lower rates than short-term gains.

5. Withdraw money from tax-deferred accounts funded with deductible (or pre-tax) contributions such as 401(k)s and Traditional IRAs, or tax-exempt accounts such as Roth IRAs. It may not make much difference which account you tap first within this category since all withdrawals from any tax-deferred accounts funded with fully deductible (or pre-tax) contributions are taxed at the same rate. When withdrawing money from tax-deferred accounts funded with fully deductible (or pre-tax) contributions, you may wish to request that taxes be withheld.

If you believe that the withdrawals you make may be subject to different tax rates over the course of your retirement (whether due to changes in tax law or to varying tax brackets as a result of fluctuations in income) you may be better off liquidating one type of account within all of these guidelines before another. For example, it may make more sense to leave your Roth account intact if you thought your ordinary income tax rate was likely to rise in later years, increasing the value of the Roth’s tax exemption.

Estate planning considerations may also significantly impact the entire hierarchy. Generally, qualified and tax-deferred assets may be given a higher order within the withdrawal hierarchy in the case of larger estates expected to hold “excess” assets which will pass to heirs or be subject to estate taxes. Capital assets receive a step-up in basis at death, while qualified and tax deferred assets are considered to contain “income in respect of a decedent” and do not receive a step-up. A number of other issues may also have an effect on the recommended order of withdrawal, like if the retiree’s income approaches the threshold of paying taxes on Social Security income.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Kristine McKinley, CFP, CPA, a local member of FPA.

The Importance of an Annual Financial Checkup

September 7, 2014

It’s one of the six steps of the financial planning process. But, oftentimes, it’s the one step that gets overlooked. It’s the sixth step – the annual financial check-up.

The annual financial check-up is indeed the most important of the financial planning steps. And yet, financial planners and clients sometimes downplay its significance.

What is the annual review and why is it so important? In short, the annual review is the opportunity to measure a client’s progress against their plan of action. It’s also the one time when planners and clients can examine the many changes that typically occur any given 12-month period – the birth of a child, the death of a loved one, the loss of a job, a major purchase – and then readjust the client’s financial plan, charting a new course if need be or further affirming the client’s progress towards their personal financial goal achievement.

Indeed, lives are seldom static and that’s why financial plans are not necessarily set-and-forget documents. But what exactly should financial planners and clients examine in their annual meetings? And when should they conduct their annual meetings.

Typically, financial planners will collect a client’s data, prioritize their goals, examine their resources, make recommendations, and implement a plan as part of the financial planning process. In an annual review, the financial planner will do much of the same and then some. They will first typically examine a client’s progress against the plan time frames. This sort of monitoring benefits both planners and their clients. Clients get an opportunity to step back from their busy lives and review their goals and confirm that their priorities remain the same Planners have a chance to reconnect with their clients to affirm their positive actions towards goal achievement or to help refocus them so that they don’t get too far off track. And planners get a chance to enhance the relationship and trust.

In some cases, planners and clients will want to establish a regular appointment, meeting on an annual basis, and in some cases on a quarterly or semi-annual basis. Typically, the planner and client will review in these meetings short-term goals, examining what if anything may have changed. In some cases, the planner will make changes to a client’s investment portfolio in light of tactical or strategic asset allocation models in place. In other cases, a planner will suggest changes based on certain life events. The birth of a child or grandchild may require a discussion about 529 plans. A divorce may require changing beneficiary designations on retirement accounts and life insurance policies.

In addition a planner may want to review with their clients new research that has become available in the interim to either confirm rationale or provide a basis to alter a client’s short-term or long-term strategies. For instance, new research that shows the escalating costs of nursing homes or health care in retirement wouldn’t change the goal of “secure long-term retirement,” but it would change the strategy to achieve that goal.

Besides reviewing family developments, planners would also address in an annual review regulatory and other changes that could affect adversely or positively a client’s financial plan. The new Medicare Part D plan or the introduction of the Roth 401(k) could prove useful to some clients. In other cases, the annual review is a chance to review potential changes, changes in the federal estate tax laws, for instance, and devise possible plans of actions.

Planners and clients will often want to measure the “performance” of the investment portfolio as part of the annual review. Typically, performance should be measured against several benchmarks, the most important of which is the client’s own personal goals. For instance, if the planner and the client established that a portfolio should grow by 5 percent per year before taxes then the performance should be measured against that yard stick. To be sure, it’s important that portfolios be measured against standard benchmarks. But only as a point of reference. Meeting personal investment goals is far more important that over performing or underperforming the Dow Jones industrial average. By and large, it’s imprudent for planners and clients to make wholesale changes to a portfolio bases solely on one quarter as well as one year of performance.

In summary, annual reviews provide a chance for planners to examine a client’s long-term goals. These reviews can establish whether the client is generally on course to meet their goals. It’s also a chance to review changes that have occurred and begin to anticipate changes that may occur. It’s a chance to implement any new plan of action that has been developed in light of changing goals or changing performance. And then last, the annual review provides the perfect opportunity to establish future review meetings.

One of the most important worksheets to review is a balance sheet or net worth statement. If reaching all of the client’s goals will require a net worth of $1 million at some point in the future, it is the balance sheet that will demonstrate movement toward or away from that goal. It is a road map. When going out of town, a map is almost always consulted before and during the trip. Progress toward your ultimate destination is noted by each passing town or landmark. It is easy to see when you move off track and what corrections should be made to get you back on the correct path in the least amount of time or distance. The balance sheet measures your progress toward your monetary goal in a finite manner. What the numbers show from year-to-year are not as important as what they show after several years looked at as a whole.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Kristine McKinley, a local member of FPA.  Kristine is a fee only financial planner serving the greater Kansas City area.

Common Social Security Retirement Questions

June 23, 2014

social security questionsAs Baby Boomers are getting closer and closer to retirement, they have many questions about Social Security, such as…

Will Social Security be there for me when it’s my time to collect benefits?

For a long time the media has been telling us that Social Security is going bust. Millions of Americans depend on Social Security to fund all or part of their retirement, so this is a huge concern in our country. So do we really need to worry about Social Security going under before we start collecting our retirement benefits?

The 2009 Social Security Trustees Report anticipates that Social Security benefits paid to retirees will exceed Social Security taxes paid in by workers (and earnings on the funds in the trust) beginning in 2016.  In addition, the trust fund could be exhausted by 2037.  Once the trust fund is gone, benefits will still be paid out, but the taxes collected from people still working will only be enough to cover 76% of the benefits promised.

Read more

Got Retirement Questions? Chat with an Expert for Free on Feb 7 and Feb 12

January 27, 2013

Kiplinger magazine and the National Association of Personal Financial Advisors (NAPFA) are teaming up for the annual Jump-Start Your Retirement Plan Days to bring you free one-on-one personal finance advice.

NAPFA members (including me!) from across the U.S. will be standing by to answer your questions from 9:00 a.m. to 5:00 p.m. ET on Thursday, February 7 AND Tuesday, February 12, 2013.

This year, Jump-Start Days will feature four separate chat rooms, each hosted by expert financial advisors:

Chat Room #1: Taxes and Retirement

Chat Room #2: Saving for Retirement

Chat Room #3: Income in Retirement

Chat Room #4: Other Financial Challenges

The chat rooms will be open a week in advance so you can get your questions in early.  To submit a question, simply follow the link above that best fits your question.  Advisors will answer questions in the order they come in.  

I will be in the Taxes and Retirement chat room from 11-1 on February 7.  I look forward to answering your questions!

Read more at https://www.kiplinger.com/article/retirement/T047-C000-S001-jump-start-your-retirement-plan-days.html#D3iXVK9A45kfobIk.99

Fiscal Cliff Averted, For Now…

January 2, 2013

In true Congress style, a deal was passed at the last minute to keep the US from going over the fiscal cliff.

On Tuesday night the House passed a bill that will extend the Bush tax cuts for most of Americans, extend unemployment benefits, and delay spending cuts. Unfortunately, the bill left a lot of big issues on the table.

Here are the details:

The fiscal cliff related to both the tax laws that were scheduled to expire on December 31, 2012 and the spending cuts that were set to take place automatically on January 1, 2013.


The deal raises taxes for higher-income people (individuals who earn more than $400,000 and couples who earn more than $450,000), but keeps taxes the same for everyone else. Basically, the Bush tax cuts were made permanent for everyone except those who earn more than $400,000. If you earn more than $400,000 the Bush tax cuts will expire for you, causing your top tax rate to jump from 35% to 39.6%.

The lower and middle income groups didn’t escape increased taxes completely, however, as the 2% payroll tax cut was allowed to expire. That means most Americans will see their first paycheck in 2013 go down. This was expected so no surprise here…

One good thing to come from the bill is that the alternative minimum tax will be adjusted permanently for inflation. The AMT has never been adjusted for inflation causing more and more people to owe it every year. Without a legislative change, up to 30 million Americans would have had to pay the AMT for the first time on their 2012 income tax returns. The bill will permanently adjust the income exemption amount for inflation.

The itemized deduction and the personal exemption phaseouts were extended, meaning people who earn less than $250,000 (single) or $300,000 (married filing jointly) will not see their deductions phased out.

Capital gains and dividend tax rates will remain low for most taxpayers. A 20% rate will apply for individuals above the top income tax bracket, middle brackets will pay 15% and the zero rate is retained for taxpayers in the 10% and 15% brackets.

Parents will be happy to hear that the expanded American Opportunity Tax Credit, Child Tax Credit, Child Care Credit and Earned Income Tax Credit will all be preserved for the next five years. These credits were expected to return to pre-Bush levels on January 1, making many people ineligible for them.

Oh and remember the marriage penalty? You know, the smaller 15% tax bracket and the smaller standard deduction that applied to married taxpayers (compared proportionately to single taxpayers)? Well you can breathe easier, the marriage penalty has been permanently banished from the tax law.

Teachers will be happy to learn that the deduction for books, supplies, etc., was extended (although $250 is nowhere close to what most teachers pay for classroom supplies, every deduction helps). Also extended were the tuition and fees deduction and the ability to deduct state and local sales taxes in place of state and local income taxes. These were extended for one year.

Retirees can continue to make charitable donations from their IRA; the tax-free distributions from IRAs for charitable purposes provision was extended through 2013. This is a win-win for both retirees and charities, so hopefully this will be made permanent in future legislation.

Estate taxes were also addressed in this bill; the current exemption of $5.12 million will be preserved but the top tax rate will go up to 40% from the current 35%, however, that’s lower than if the bill had been allowed to expire completely.

While taxes will remain low for most people, there are a couple of new taxes for high income taxpayers. The additional 0.9% hospital insurance tax on high income taxpayers ($200,000 if you’re single, $250,000 if you’re married and filing jointly) took effect on January 1. Also effective on January 1 is the 3.8% Medicare tax on the lesser of an individual’s net investment income or the amount the individual’s modified adjusted gross income exceeds a threshold amount. The threshold amounts are the same as the additional hospital insurance tax.

One of the surprises in this bill, for me anyway, is that the higher floor for deducting medical expenses was not axed. In 2012, you could deduct medical expenses that exceeded 7.5% of your adjusted gross income (AGI). Starting in 2013, the “floor” was raised to 10% of your AGI. The bill does include some relief; if you or your spouse has turned 65 before the end of the year the increased floor does not apply, but only for the years 2013-2016. So retirees will still be able to deduct medical expenses, but the higher floor will mean many taxpayers under age 65 will no longer be able to deduct medical expenses.

Spending Cuts

The deal also delayed the automatic spending cuts from happening, but only for two months. Congress will need to come up with a new plan for the deficit before March or the US will face another cliff scenario.

Two of the biggest spending cuts on the table were unemployment benefits and Medicare. The bill includes an extension of unemployment benefits for one year. Without this clause, more than 2 million people would have lost their unemployment benefits.

Regarding Medicare, doctors were facing a large pay cut in 2013 as Medicare reimbursement rates were set to be adjusted automatically to stay in line with GDP growth. This would have caused a 27% pay cut for physicians. While you may not be overly concerned with high income doctors taking a pay cut, you should be. Doctors fed up with looming pay cuts have been turning Medicare patients away, making it hard for consumers to get the care they need. The bill prevents this pay cut from happening, but just for one year. This issue will need to be addressed soon as it adds $31 billion to the deficit.

What’s Next

The bill will go to the White House next to be signed by President Obama. It is expected to be signed into law by Thursday.

Unfortunately, this is not the end of the fiscal cliff. According to CNNMoney, we have three more cliff-like deadlines in the next few months including the debt ceiling (not addressed in the current bill), the sequester (a series of automatic cuts in federal spending that will take place if Congress doesn’t act), and the continuing budget deficit. These must all be addressed by the end of March, so keep your seat belts on, the ride isn’t over yet.


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Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.