News & Insights

The Trouble with Trusting Your Stock Options

by Chris Jaccard, CFP®, CFA on 11/27/2018

Here's the trouble with trusting your stock options.

Stock options are great for established companies who want to reduce their tax bill, startups who don’t have a revenue stream, and many others in between. But do they always make sense for the employee? Here are some scenarios when you should push back on a stock option offer, and the questions to ask to avoid locking yourself into an unfavorable one.

FINISH READING HERE

posted in BlogInvestmentsPersonal Finance

How Smart a Charitable Giver Are You? Take this Quiz!

by Ellen Li, MSBA, CFP® on 11/27/2018

What kind of a charitable giver are you? Take this quiz.

As the holidays is when many people make charitable donations, it’s a good opportunity to brush up on your giving IQ. Are you making the right moves to maximize value for both you and the charity? How smart a charitable giver are you?

Take this 5 question quiz to find out!

True or False: You can donate and still reap tax savings additional to the write off.

True!

Many people are surprised to hear that you can donate and still get the benefit of additional tax savings in excess of the tax write-off you earned.

For example, one of our clients was donating $10k a year to charity in cash. After we discussed the benefits of other strategies, she decided to use a Donor Advised Fund (DAF) to give appreciated assets she held in her portfolio. These investments bore a low cost basis, and if she sold them she would likely have incurred substantial capital gains and a big tax bill.

By using a DAF, she earned both a tax write off and tax savings on the appreciated positions. What a pleasant surprise!

Multiple choice (select at least one option): Which of the following groups of people can engage in charitable planning?

  1. Affluent individuals with over $1MM of net worth or who are earning high income
  2. People who are beginning to save and invest
  3. People with low income and substantial assets
  4. Retirees

Answer: 1, 2, 3, and 4

There is a popular misconception that only millionaires can benefit from charitable planning. The reality is that there are a variety of different ways that strategic giving can help people who are at all different points of life.

For example, did you know:

  • That people older than 70½ can take a qualified charitable distribution from their IRA accounts?
  • That people with low/no income but a large capital gain on assets held can use donor advised funds to save themselves from having to pay a huge capital gain on selling those assets?
  • Some charitable tools (such as a charitable annuity or unitrust) can actually create income while allowing the donor to give at the same time. This may be opportune, for example, for donors who still wish to have some income protection in their retirement.

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posted in BlogPersonal Finance

Don’t Forget Your End of Year Tax Planning!

by Chris Jaccard, CFP®, CFA on 11/16/2018

Don't forget your end of year tax planning!

As open enrollment season and the calendar year comes to a close, late-stage tax planning often comes into focus.  Just sticking with your current employment elections may be mistake – there are several end of year tax planning options to consider. Here are a few items on the list for you to check as the year winds down.

Health Insurance

It would be wise to keep in mind what the final parts of the Tax Cuts and Jobs Act, signed December 2017, will eventually mean for your healthcare planning.  Although a few of the provisions of the act don’t apply until 2019, they are still important to consider.

The two most significant would include:

  • Medical expenses must exceed 10% of your adjusted gross income to be deductible starting in 2019. Previously only expenses over 7.5% were generally deductible.
  • Penalty payments will no longer be assessed for not purchasing health insurance meeting ACA guidelines.

Given this, it’s quite likely that health insurance costs will see a significant increase next year – particularly for those with individual rather than group policies.

What actions should you consider taking?

Brady Bunch It Up

Consider bringing some medical expenses into 2018 to exceed the lower threshold; afterwards, you can try grouping your medical expenses into one calendar year again in the future — but at the higher hurdle rate.  This late in the year, consider any discretionary medical expenses that you have been putting off such as dental or vision work.

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posted in BlogPersonal Finance

The #1 Thing That Most Executives Aren’t Doing With Their Stock Options and Executive Compensation Plans – and What It May Be Costing You

by Jim Freeman, CFP® on 10/23/2018

Executives are constantly overlooking the automation of their stock options - here's how to do just that.Executives who are time-constrained yet serious about reaching their financial and investing goals commonly overlook one important factor: automation. Set up your plan so that it will be automatically executed without you having to remember what decisions were made. Automate, automate, automate! Here’s why.

A Typical Executive’s Financial Snapshot

Let’s say that you are an executive for a successful company that offers the following executive compensation:

  • Salary & Bonus $350,000
  • Restricted Stock Units (RSUs) of $150,000 annually
  • Stock option grants annually
  • A deferred compensation plan
  • An employee stock purchase plan (ESPP)
  • A matching 401k plan

We also assume your portfolio is overweighted to your company’s stock and you’d like to gradually reduce this overweight. In addition, let’s suppose you are in a high tax bracket and you’d like to reduce your taxes if possible during your peak earning years. You also want to begin saving money for your kid’s college costs, have your mortgage paid off in 10 years, keep your spending to $200,000 per year and aggressively reduce your stock option holdings if your company stock hits certain price targets.

If you’re doing this all manually, as most executives are, you may not realize how much time you are spending on tasks that could easily be achieved in a fraction of the time. In addition, automation reduces the risk of error.

The Automation Advantage

So how could an executive go about reducing the amount of manual work that is done in their financial and investment planning? Here is how this might look.

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posted in BlogInvestmentsPersonal Finance

Financial Survival Tips for the Sandwich Generation

by Ellen Li, MSBA, CFP® on 9/20/2018

Here are some Financial Survival Tips for the Sandwich Generation

Planning a financial life for yourself is complicated enough with competing goals such as pursuing a career, raising a family, saving for college and saving for retirement. But what about when an aging parent needs help or when an adult child moves home? If you’re a member of the sandwich generation, the people in their 30s or 40s who bear the responsibility for financially taking care of both their parents and/or children at the same time as themselves, here are some financial survival tips.

Meet Sandy of the Sandwich Generation

Being sandwiched in between several conflicting and serious responsibilities isn’t something anyone necessarily plans for, but as the following example illustrates, it’s easy enough for almost anyone to end up there.

Let’s take Sandy, a married 47 year old radiologist from La Jolla, California.  As a physician specialist, she makes a decent living, but the income didn’t come without a cost. She’s battling her student loans, even at this stage in the game. She’s earning a high salary, but at the same time much of it is consumed by taxes and professional expenses such as insurance and continuing educational requirements.  Moreover, because of the demands of her work, Sandy is often forced to hire support staff to assist with her home and domestic responsibilities.

Sound familiar?

Read more

posted in BlogGeneralPersonal Finance

Questions to Ask If You’re Considering Working During Retirement

by Chris Jaccard, CFP®, CFA on 9/10/2018

Ask yourself several important questions about the benefit and tax implications of taking Social Security benefits while working.

One of the best ways that modern retirement has changed for the better is the high amount of retirees embracing the decision to stay active. Whether you’re working full time, part time, or pursuing your own dream business or an “encore career”, it should be factored in to your Social Security strategy. Read this article to learn about the benefit and tax implications of taking Social Security benefits while working.

Reduction in Cash Benefits

If you have claimed Social Security and reached your full retirement age (between 65 and 67 years of age depending on your year of birth) you can earn as much as you want and keep all your Social Security benefits.

However, if you claimed benefits before your full retirement age, your benefit could possibly be reduced.  For example, if you claimed early and earned income in 2018, the Social Security benefit paid to you is reduced $1 for every $2 you earn over $17,040.  If you realize you made a mistake in claiming early, you have a once in a lifetime opportunity to pay back what you took and reset the clock – but it must be made within one year of claiming benefits.

Read: A deeper look at Social Security Claiming Strategies

This reduction due to early claiming is not a permanent loss, as the Social Security Administration (SSA) will make a recalculation and add back the withheld benefits when you reach full retirement age.  Still, it may have a large impact on your cash flow and hence spending ability.

Questions to ask yourself:

  • What, if any, is the reduction on every dollar earned now that I am combining SS and income from my work?
  • How much can I work and still get benefits? (only relevant if claimed SS prior to full retirement age)
  • Am I within the one year window period of redacting my SS claim?

Read more

posted in BlogPersonal Finance

Is your CPA a Tax Preparer or a Tax Planner?

by Jim Freeman, CFP® on 8/14/2018

Tax planning ranks low on the list of activities people enjoy. Yet despite how astronomically large the tax bill can be in April, after tax season many people do not sit back down with their tax professionals to do in-depth planning. As a result, simple things getting overlooked on a regular basis that needlessly cost taxpayers thousands of dollars.

The goal of today’s blog is to give you a partial checklist and, most importantly, to inspire you to bring this topic up with your tax advisor and to initiate an annual tax planning protocol.

Below I’ve highlighted a few of the more commonly neglected categories:

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posted in BlogGeneralPersonal Finance

Introducing eMoney, a Financial Planning Beneficence for our clients!

by Ellen Li, MSBA, CFP® on 8/1/2018

As of this month, Financial Alternatives is rolling out a Personal Financial Management platform called eMoney for our clients. This portal will provide clients with secure access to real time values of all of their accounts across various custodians including held-away 401K accounts and liabilities such as student loans, mortgages, and credit cards.

What benefits does eMoney provide for our clients?

You can see the whole picture by logging on to just one platform

Gone is the day when you have to wait for Fidelity or Schwab’s month end statements or Financial Alternative’s quarterly reports to get an integrated look at your financial situation, from all angles and leaving no stone unturned.

You’ll no longer need to provide your bank account or liability statements for your annual review if you link the accounts in eMoney. Also, you won’t have to worry about keeping track of multiple account log ins anymore as your information will all be held in one place.

You can reduce time spent on creating a budget

eMoney isn’t just about investments.  Clients can add their bank accounts to this platform as well. Just as Mint does, you can see your checking balances and bills.

Procrastination is a huge problem when it comes to budgeting. Who wants to repeatedly track down every last bill or savings account statement? Reduce time spent on the administrative aspects and you’ll find time spent on creating your budget to be more productive.

Read more

posted in BlogGeneralPersonal Finance

Avoiding the Web Can Be Bad For Your Financial Health!

by Chris Jaccard, CFP®, CFA on 7/23/2018

With cybercrime constantly making headlines, it’s no wonder that some people have resorted to avoiding the web altogether as a way to prevent exposure to this risk.

Think again.

Unfortunately, the premise that you can’t be hacked because you haven’t set up online accounts with your bank, utility company, brokerage firm, etc., isn’t a sound one anymore. Many years ago this may have been true, but the unfortunate reality is that nowadays there is nowhere to hide from cybercrime.

The Allure of Anonymity

Despite the advantages that our cyberconnected world has delivered to our doorstep, it seems like this change isn’t one that people welcome with complete open arms.

According to a study by Pew Research Center, 86% of adult internet users have resorted to tactics to enable them to travel the web incognito. Examples include clearing or disabling cookies, trying to mask your identity, using a fake name, or using an anonymous browsing service (as per Rainie et al, 2013). It’s clear that most people have a desire for more online privacy.

Technology can empower our lives and strengthen our ability to connect with the people and things that we want in our lives. Yet there is a price for this progress. In today’s world it seems as if everything is connected to the internet somehow. As far as we’ve come, however, we’re still in the dark about controlling the flow of information so that it doesn’t get into the wrong hands in the midst of all of this.

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posted in BlogGeneralPersonal Finance

Loopholes for Substantial and Perpetual Property Tax

by Jim Freeman, CFP® on 7/9/2018

This blog was written in conjunction with guest author Matt Brand.

Homeownership is quickly becoming a luxury that fewer can afford in California these days. But it doesn’t have to be – if you know the tax code.  In this column we highlight some lesser known property tax loopholes that can help ease the financial burden for those who qualify.

Tax Loophole That May Apply to You

Most people know about Proposition 13, which applies to all California homeowners. It caps property tax at 1% of home value as determined by purchase price and then it limits annual increases to no more than 2% annually thereafter.

There are a handful of loopholes that apply to people in specific circumstances and these are not well known.

Proposition 60 lets homeowners who are 55 or older sell their home, buy a new one, and transfer their “old” home’s tax assessment basis to the new home (“property tax portability”). Such fortuitous transfers are permitted only once in a lifetime. And this law only applies to moves into a home of equal or lesser value and to moves within the 11 participating counties (including San Diego). But these rules may soon become more flexible.

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posted in BlogInvestmentsPersonal Finance

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Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.