Ask Bedel

Jun 17, 2024


Welcome to #AskBedel, a weekly personal-wealth Q&A where you can ask financial planning and investment experts for advice. Each week we’ll be answering your personal finance questions, so be sure to submit your questions to, or click on Submit a Question below.

1. I planned to purchase medical insurance off the Marketplace, but I have been hearing about insurance options from religious groups. Which is better? Will I still get the same amount of coverage?


Some organizations have formed non-profit groups for the sole purpose of sharing medical expenses. Member’s healthcare expenses are pooled and shared among everyone. If the group has relatively low health expenses, everyone benefits. Premiums are generally lower than typical healthcare insurance premiums. However, they function very differently than a traditional insurance company. One of the biggest differences is that they may not pay all of your claims. Factors such as lifestyle or preexisting conditions determine if costs are eligible to be covered. In many states, they are not held to the same regulations that insurance companies must abide by which means if you aren’t happy, there isn’t much the state can do to help you. Many hospitals and healthcare agencies don’t recognize medical cost sharing as insurance. This could impact your ability to be treated. Purchasing insurance is about transferring risk from yourself to the insurance company. You want to ensure that your insurance coverage will be there to support you when you need it.

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2. My family member recently passed away and I inherited their estate. Will I owe taxes on my inheritance?

It’s very unlikely, but it depends. There are three possible taxes involved. The first is estate tax, which is levied at the federal level. If the value of your family member’s estate is under the lifetime exclusion ($11.4M in 2019) then you’re in the clear. If their estate is above the exclusion amount, your inheritance may be reduced by the amount of estate tax owed; however, the tax won’t be paid out of your pocket.

The second possible tax is charged at the state-level. There are six states that still charge inheritance taxes on the person receiving the inheritance. Check the rules for the state in which your family member lived and owned property.

Lastly, some assets have capital gain tax or ordinary income tax implications. For example, if you inherit shares of a stock you will owe capital gain tax if you sell the stocks at a gain. If you inherit an IRA you will owe ordinary income tax on the Required Minimum Distributions and other withdrawals.

Taxes can get confusing. Consult with a tax professional if you’re still not sure whether you will owe Uncle Sam.

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3. I recently inherited a large sum of money and I have been thinking about buying a rental property. What are some of the things I need to consider?

The amount of the inheritance can, and should, impact your decision when considering the acquisition of a rental property. However, before making any purchase, make sure you consider your entire financial picture. Revolving debts or liabilities that carry high-interest rates should be paid off prior to any purchase/investment. From there, make sure your emergency fund is sufficiently funded to cover 3-6 months’ worth of expenses. Once those items are taken care of, you can then begin to evaluate the possibility of purchasing a rental property.

As with any investment, you need to exercise due diligence when acquiring property. Rental properties can provide a steady stream of passive income and a slew of deductible expenses. They can complement and provide your existing portfolio with a level of diversification. Upon the sale of the property, it stands to reason you will benefit from the property’s growth in value over the duration in which you own the property. Also, if you find another property with potentially stronger growth prospects, the IRS allows a 1031 exchange, which enables you to sell a property and invest in another like property without paying capital gains taxes.

Conversely, there are also drawbacks to contemplate. If liquidity is a concern, a rental may not be a wise decision as it can take time to sell a property. Opportunity costs should also be considered. Do you feel the return on the property can sufficiently outperform other investment options? What is your desire to be a landlord? Rental homes often have maintenance issues that can occur at any moment. Are you handy enough to handle repairs yourself, or will you need to bring in your local handyman for upkeep? Lastly, pay attention to local taxes and insurance premiums. While you may initially establish what you feel is a desirable rent structure based on the mortgage of the property (if you don’t pay for it in cash), rising taxes and insurance can erode your profit margin faster than you can increase rent.

When making a decision such as this, it’s best to work with your financial advisor and a local real estate agent. Your financial advisor can help you understand the impacts of such a purchase and offer possible alternatives while your agent can help you navigate the area in which you intend to buy. Though rental properties can be a lot of work, they can also provide for a nice return on your investment, so do your homework before jumping in!

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4. Many of my friends have cancelled their cable or satellite television subscriptions. Does it make sense financially to “cut the cord?”

Cancelling cable or satellite TV subscriptions and transitioning to streaming services has gained popularity within the last decade. According to the Leichtman Research Group, the largest pay-TV providers in the U.S. lost 1,740,000 subscribers in Q3 2019 alone! 74% of U.S. households now pay for a subscription video on-Demand service, such as Netflix, Amazon Prime, Hulu, etc.

The average American pays $102 per month or $1,224 per year for cable television subscriptions (the cost of internet service is not included in this average). Does it make financial sense to “cut the cord” and substitute cable or satellite in favor of streaming services only?

The short answer – it depends. There are more streaming services popping up due to the popularity of services like Netflix and the cost of streaming services has risen in the last few years. If your TV entertainment needs can be fulfilled by a limited number of streaming services, you would likely benefit from cutting the cord. If you have a difficult time limiting your streaming service choices, you may not see as much as a cost difference. Let’s look at an example:

Average Monthly Cost of Cable Television: $102/month

Consumer #1 (3 Streaming Services)
Netflix (Basic): $9
Hulu: $6
HBO Now: $15
Total: $30/month

Consumer #2 (6 Streaming Services)
Netflix (Premium): $16
Hulu: $6
HBO Now: $15
YouTube TV: $50
Amazon Prime Video: $9
Disney +: $7
Total: $103/month

If you are thinking about cutting the cord, do your research! Determine what you currently pay for cable or satellite services and compare to the cost of the streaming services you are interested in. If you do not require a ton of different streaming service memberships, you will likely see a decrease in your overall monthly TV expenses! If the opposite is true, cutting the cord may prove to be a “wash” and not worth the time and effort of making the switch.

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5. I have heard about peer-to-peer lending. Is that a smart way to invest money?

Peer-to-peer lending is the process of investing your money with a firm that then loans that money out to approved borrowers. In essence, you act as the bank in the transaction and collect any principle and interest payments from the borrower. Numerous companies online offer these services. Some have been around for more than a decade while others are relatively new. A company may specialize in certain lending areas such as small business loans, student debt refinancing, or personal loans, while others may offer a wide assortment of lending. As an investor, these loans may be appealing if you like the idea of investing in people and small businesses. If you are looking to make an investment here are a few things to consider:

  • What is the track record of the firm loaning the money? They should have substantial information on their website regarding their past loans. They should also state what their expected default rate would be on loans.

  • How risky do you want to be? Many firms will allow you to choose which type of borrower you want to loan your money. The riskier the loan the more return potential.

  • Can you spread out your investment over many loans? You need to diversify your investment so that one borrow doesn’t wipe out your investment if they default. Some programs may allow you to invest as little as $25 in a single loan, which allows you to spread out the risk.

  • What are the total fees charged to participate in their lending program? The higher the fees charged, the lower your potential return.

  • Does this line up with your overall investment strategy?

As with any investment, there are risks in peer-to-peer lending. The biggest risk when loaning money is not getting your money back. Understanding how the company evaluates and approves it loans is an important step before you make a decision.

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6. Which takes the priority on savings, my IRA or my HSA?

Individual Retirement Accounts (IRA) and Health Savings Accounts (HSA) are both great tax-efficient accounts to take advantage of if you qualify to contribute. With a Traditional IRA you can make pre-tax contributions, specifically earmarked for retirement, of up to $6,000 if you are under age 50 and $7,000 over age 50 in 2020. Over time, the investments inside of the account grow tax-free. Once you reach age 59 ½, you can take distributions from the account penalty-free, but they are subject to the income tax.

HSA’s are designed to help pay for medical expenses but are more tax-advantageous because of their triple tax benefits.

  • First, contributions can be made pre-tax, meaning the income you contribute does not count towards your taxable income. In 2020, the maximum contribution is $3,550 for individuals and $7,100 for a family. Those over age 55 can contribute an additional $1,000.

  • Second, many HSAs permit contributions to be invested. Just like an IRA, these investments grow tax-free, allowing for compounding growth.

  • Third, for qualified medical expenses, distributions from the account are entirely tax-free. In addition, when you reach age 65, your HSA acts like an IRA. This means you can take distributions from the account for non-medical expenses without penalty—you will only have to pay taxes on the distribution.

Since both accounts offer different tax benefits, you should work with a financial advisor to determine the way to utilize each.

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7. When should I use my debit card and when should I use my credit card?

When it’s time to checkout you may be faced with the decision: debit or credit? Credit and debit cards each have their place and there are certainly situations when one is better than the other.

Opt for your credit card when making online purchase because they typically offer greater protection against fraudulent activities. Credit is also preferable when traveling abroad because credit cards typically often have fewer foreign transaction fees. Reach for your debit card if you’re operating on a tight budget. The spending limit is your checking account balance, unlike the credit limit on a credit card. If you’re in need of cash, your best bet is using your debit card at a free ATM since nearly all credit cards charge a much higher rate for cash withdrawals, even up to 24%!

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8. We saved to a 529 plan for our child, but they just earned a scholarship. What can we do with the 529 funds now?

Scholarships typically only cover tuition, so there may still be qualified expenses for which you can use the 529 funds, such as room and board or books. If there will still be 529 funds remaining after those expenses, you have three choices:

  1. Leave the money in place in the event your child decides to continue his/her education beyond undergraduate studies.

  2. Change the account beneficiary to another child, grandchild, or even yourself for future qualifying educational expenses.

  3. Pull money from the 529 account. An amount equal to the scholarship award may be withdrawn without penalty. However, the earnings portion of that amount will be taxed as ordinary income.

If you wish to withdraw money over and above the amount of the scholarship, the earnings portion of the non-qualified excess amount will be subject to taxes, including the 10% penalty tax.

Read More: When College Planning Goes Awry

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9. During the divorce, can my husband take a portion, or all, of my IRA?

If you had a prenup in place protecting the IRA, then the account is protected assuming the legal documents were drafted correctly. If not, then things can get a bit trickier.

Depending on the state in which you reside and when the assets were earned will dictate how the assets are treated. For example, in community property states, each spouse is entitled to one-half of the assets earned during the marriage. If the account existed prior to marriage, though contributions were subsequently made through out, the courts will calculate the marital portion and divide that figure in half. In the case of common-law states, the IRA owner is the sole owner of the account and the account does not have to be divided equally. Though the splitting of the assets does not have to be equal, it does have to be ‘fair’.

Pay attention to the wording and the type of accounts listed in the divorce order. If your soon-to-be ex-spouse is receiving your Roth IRA versus a traditional IRA, then they likely have a greater benefit (assuming equal account values) due to tax rules governing these account types. Also, if the order states your spouse is entitled to, say, $50,000 (instead of half) of your IRA and the value of the account declines to $75,000, they are now receiving 2/3 of the account as opposed to half as was originally intended.

It’s always best to consult with an experienced attorney in the case of a divorce where investable assets are involved. You want to ensure that you receiving what you are entitled to as well as not foregoing any more than you should.

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10. Can my child open or fund his or her own HSA?

Health Savings Accounts (HSAs) are growing in popularity for people with a high-deductible health insurance plan because of their tax efficiency. Contributions into an HSA are deductible and reduce taxable income and also have the option to be invested. Upon distribution, any growth the account earned is completely tax free, so long as the distribution is used to pay for a qualified medical expense.

However, the IRS has strict guidelines regarding who is eligible for an HSA, preclude minor children from opening an account of their own. To open an HSA, an individual must:

  • Be covered by a qualified high-deductible health plan (HDHP)

  • Not be covered by any other type of health insurance

  • Not enrolled in Medicare

  • Not be claimed as a dependent on another individual’s tax return

However, the 2010 Affordable Care Act allows for adult children to remain on their parents’ health insurance up to the age of 26 years old. This means that even if your adult child is filing their own tax return, so long as they are covered by the parent’s health insurance, he or she is eligible to open an HSA and contribute the maximum allowed under a family plan ($7,100 in 2020) into their own account. If your adult child is financially unable to contribute the maximum amount, you are able to make the HSA contributions on their behalf. It is important to be aware, though, that even if your child is on your insurance plan, you are not able to use your own HSA funds to pay for their qualified medical expenses if they cannot be claimed as a dependent for tax purposes.

HSAs offer many important benefits when it comes to an individual’s health care expenses. However, every situation is different and it is best to speak with a tax professional first before making any decisions.

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11. What are some things I need to keep in mind when considering socially responsible investing?

Socially Responsible Investing (SRI) has gained a lot of traction over the years for those who want to invest with the purpose of social and/or environmental betterment. SRI investing is done by actively eliminating investments based on specific ethical guidelines. Just like with any investment, there is research and due diligence that needs to be done before investing. Here are three things to keep in mind when considering SRI.

  • What classifies as investment to be socially responsible can be vague because there is no universal guideline. For example, a mutual fund or ETF can consider themselves SRI by actively avoiding oil stocks alone. However, they could still be invested in other areas you may not find ethical—tobacco, gambling, weapons, etc. It is important to understand your reasoning behind choosing socially responsible investments and then doing your research.

  • There is a perception that socially responsible investing will underperform the broader market. This is certainly not a universal truth. Some SRI investments will underperform, while others will outperform. It is important to research any investment before acting.

  • SRI investing is very similar to ESG (Environmental, Social, and Governance) investing and Impact Investing. In fact, sometimes you may even see the terms used interchangeably. While there are subtle differences, all three focus their investment selection process on including companies that will more closely align with an investors ethical or social values. An important distinction between these types of investments is how the portfolio is constructed. Some funds may begin with a particular universe of companies (like the S&P 500, for example) and then screen-out or eliminate companies that are involved in areas that some may find objectionable, such as tobacco, weapons manufacturing, or gambling. Other funds may be much more selective when deciding which companies to include in their portfolios and invest only in companies whose operations and business models fit within the fund’s strict ethical, social, or moral guidelines.

Socially Responsible Investing can help you invest in line with your ethical values. However, you need to first ask yourself what the purpose of your investment is and then complete your research.

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12. How do I know when it makes sense to refinance my mortgage?

Refinancing can be a great idea if the interest rate on your refinanced loan is at least one percent less than your current interest rate. All other things equal, the lower the interest rate means a lower monthly payment.

Another way to justify a mortgage refi is by looking at the break-even point. Similar to when you first took out a mortgage, there are closing costs associated with refinancing. To calculate your break-even point, divide your closing costs by the difference in your monthly mortgage payments under the refi. For example, if the closing costs are $2,000 and the monthly payment decreases by $100 per month, the break-even point is 20 months. If you plan on selling the home before the break-even point, then refinancing doesn’t make sense.

You should also consider the timing of the refi. You build equity in your home when you pay down the principal. However, during the first years of your mortgage, most of the monthly payment goes toward interest. Let’s say you’re 12 years into a 30 year loan when you decide to refinance into another 30 year loan. This means you’re going back to paying mostly interest, and once it’s all said and done you’ll have made 42 years worth of mortgage payments!

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13. My wife is a teacher and has a 403b annuity. Should we pay the surrender charges and move her money into an IRA?

Before deciding to surrender an annuity and incurring a surrender charge, you will want to look at the total expenses of the annuity versus the expenses of the IRA. If the surrender charges can be made up within a 1-2 year period because of lower ongoing expenses in the IRA, then you might want to surrender. Also, while annuities will typically have lower quality investment options than an IRA, sometimes annuities will have investments with attractive guaranteed returns. As a result, the investment options available can have an impact on your decision to surrender.

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14. My adult son has a disability and I care for him full time. Since I claim him on my taxes, and he receives SSI, will he get the $1200 stimulus payment?

In order to qualify for a stimulus check you must meet the following criteria: you cannot be a nonresident alien individual, you must have a Social Security number, and you cannot be claimed as a dependent by someone else. If you pass the three criteria, you are then subject to income phase outs based on your tax filing status. Therefore, as the law currently stands, adult children who are claimed as dependents will not receive a $1,200 check.

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15. I earn too much to qualify for the $1,200 stimulus payment, but will I still get a $500 payment for my dependents?

It depends. The stimulus payments, or Recovery Rebates, are calculated on a household basis using phase outs based on your tax filing status. Benefits are reduced by $5 for every $100 above the adjusted gross income (AGI) thresholds listed below.

Covid Stimulus Dependant Graph

For example, a married couple with no dependents and an AGI of $200,000 would be entirely phased out of their expected $2,400 rebate. On the flip side, a married couple with one qualifying dependent and the same AGI would end up with $400 out of their $2,900 expected rebate.

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16. Our son’s college is refunding partial room and board payments due to closure. Since we paid for this out of our 529, are we allowed to keep the money, or does it need to go back into his 529 account?

You need to return the money to the 529 account. The IRS requires re-contribution of tuition or other qualified education expense refunds to the 529 account within 60 days. If not returned, refunds from colleges are non-qualified distributions. Taxes and a 10% penalty would be owed on the earnings portion of the reimbursed amount.

For example, let’s say you withdrew $10,000 from your child’s 529 account to cover tuition, room and board expenses for the spring 2020 semester ($8,000 of $10,000 is a principal withdrawal and $2,000 is an earnings withdrawal). $5,000 went towards tuition and $5,000 went towards room and board. Due to the coronavirus pandemic and campus dormitories closure, the university partially refunds room and board expenses for $4,000. You have 60 days to return the $4,000 refund to your child’s 529 account. If not recontributed, income taxes and a penalty would be owed on the $800 earnings portion of the $4,000 refunded amount.

If you need instructions for returning tuition or room and board refunds to your 529 account, contact your plan administrator directly for more details. There is likely some paperwork involved. Don’t forget to also keep good documentation of the refund in case of an IRS audit!

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17. My child’s daycare has been closed for the coronavirus pandemic. How does this effect my contributions to my dependent care FSA? Can I withdraw from it for something else?

You may have the ability to reduce future contributions of your Dependent Care FSA if you meet your plan's definition of a qualifying life event. Typically, a change in provider is an acceptable qualifying event but be sure to clear this with your plan administrator.

Dependent Care FSAs cover a variety of eligible expenses determined by the IRS. For example, your day care may be closed but you can use the funds to pay a qualified babysitter during work hours using your Dependent Care FSA. You'll need to record the sitter's name, address, and Social Security Number for your tax records and your sitter will need to record the income on their tax return.

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18. My parents are in their 80s and I worry about them falling victim to a scam or fraud. Is there anything I can do to prevent this from happening?

Unfortunately, your parents belong to a vulnerable group whose age and money are constantly being exploited. While there isn’t much you can do to prevent the fraudsters from pursuing them, you can help your parents prepare their defense. Consider employing some of the strategies below:

  • Educate your parents on examples of common fraud techniques including email scams, phone messages, and mailings.

  • Teach them quick responses to unwanted solicitors such as “I never buy from someone who shows up unannounced. Send me something in writing.”

  • Encourage your parents to let unknown calls go to voicemail. If the call is important, the caller will leave a message.

  • Replace their landline with a cell phone, unlist their numbers from public directories, and/or sign up for opt-out and Do Not Call lists.

  • Shred all unnecessary documents that contain account numbers, Social Security numbers, or Medicare numbers. This also includes empty medication containers, such as pill bottles from the pharmacy.

  • Americans are entitled to one free credit report every twelve months from each of the three credit reporting agencies. Tell your parents to pull a report every four months to make sure nothing looks awry.

19. My 401(k) offers a Roth option. Should I contribute to it?

Deciding whether to contribute to a Roth 401(k) or Traditional 401(k) is always a tax question. First you must understand the difference: Traditional 401(k) money goes in tax-deferred and is taxed when withdrawn whereas Roth 401(k) money goes in after-tax and comes out tax-free in retirement. Consider going the traditional route if deferring your income drops you into a lower tax bracket or makes you eligible for certain tax benefits such as the Child Tax Credit. Otherwise, the Roth 401(k) is a great place to park your money. If you’re phased out of making Roth IRA contributions, consider directing money to your Roth 401(k) since there is no phase-out. Another reason to contribute to your Roth 401(k) is that once you leave the job you can roll the Roth money into a Roth IRA. Doing so will avoid required minimum distributions levied on 401(k)s and Traditional IRAs.

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20. Aside from lower gas prices, what is the best way I can take advantage of lower oil prices as an investor?

Oil has been in the headlines recently, especially when prices collapsed and even went negative in late April. According to AAA, the average gasoline price has fallen from $2.85 to $1.89 over the past year. However, because of the widespread lockdowns due to the coronavirus most Americans have been unable to take advantage of these lower prices. This has caused many investors to ask themselves if there are other ways to benefit in the oil’s price decline.

One of the most popular ways to invest in oil is to purchase shares of the United States Oil Fund (USO), an ETF that tracks the price of West Texas Intermediate Sweet Crude Oil, the index that famously dropped to -$40 in April. Before jumping in and buying anything, however, it is important to understand the risks that are involved. The reasons for the large drop in oil prices are related to myriad factors, including an oil war between oil-producing countries Russia and Saudi Arabia, a sharp decline in global demand due to the economic shutdowns, as well as the complexities of how oil futures contracts work. All of these factors still persist, meaning the risks they posed last month still exist at least to some degree.

Trading in commodities can be a very volatile endeavor, and challenging even for experienced investors. An alternative to buying commodities is to invest in companies involved in the production and distribution of oil that have strong balance sheets and are less exposed to the day-to-day fluctuations of commodity futures contracts. As always, though, before making any investment it is best to speak with your financial advisor to determine if the investment is appropriate for your portfolio and fits with your long-term goals and investment strategy.

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21. My son’s college is offering an Income Share Agreement (ISA) to help pay for a portion of his tuition. Should we take advantage of this type of loan?

Income Share Agreements are available for obtaining assistance for payment of college tuition. In essence, they’re not considered a loan, they are contractual agreements between the student and school (or other ISA provider) where the student receives funding for a portion of his/her education with the promise to repay the ISA provider through a fixed percentage of earned income after graduation.

The amount of funds received for tuition, the repayment percentage and the term of repayment are all outlined in the contract. The terms of the contract are based on the student’s major and projected compensation after graduation. Unlike student loans, ISAs are not credit-based.

The terms of an ISA contract should be reviewed carefully. ISAs can be a good alternative to student loans, however, it’s best to understand how they differ. When utilizing a student loan, you’ll repay the lending institution more than the amount borrowed through interest; however, you do have the option to pay the loan off early if you’re able and it makes sense. This is not the case with ISAs. Your repayment to the ISA provider will continue until the end of the contract term (varying from months to years, depending on your situation). It’s important to know that in the end, you could have paid quite a bit more through the Income Share Agreement than the amount you received for tuition assistance, and you can’t pay it off early. If your compensation after graduation is fairly low, however, you could end up paying less than the amount borrowed. (Note: The total amount a student repays the ISA provider is capped at 2.5 times the total loan amount.)

The required repayment will not commence until the student’s earnings exceed a threshold amount (minimum wage and sometimes higher). And, if the student isn’t employed for a period of time, the payments are paused.

Income Share Agreements can work well for some students given their personal situation and the terms set forth by the provider. I recommend that you thoroughly review the contract at hand to understand what the potential payment would look like for your son after he graduates.  

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22. Should I list my children [ages 8 & 6] as beneficiaries to my retirement accounts?

If your intent is for your retirement accounts to pass to your children…then absolutely! However, there are considerations to be given prior to completing your beneficiary forms.

If your children are listed as stand-alone beneficiaries and you were to pass, you want to ensure that you have named a custodian to oversee the account; otherwise, the courts will assign one for you which can be time-consuming and costly. The drawback is that, upon the attainment of age of majority [18 or 21 depending on the state], the custodian is dropped and the child now has full access to the account. They could liquidate the account in full and buy their dream sports car…and likely incur a large tax bill!

A way to control the flow of inherited assets would be through the establishment of a trust. The trust would then be named as the beneficiary to the IRA, and your children the beneficiary of the trust. The trust allows you to control when and how much can be distributed to your children as well as what the assets can be distributed for. If your intent is for a portion of their inheritance to pay for college expenses or a wedding, those provisions can be set forth in the trust document and carried out by the trustee.

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23. We just adopted a dog. Do we need pet insurance?

Not particularly. Pet insurance is not a requirement for pet owners; however, it can be worthwhile under certain circumstances.

Pet insurance is similar to human health insurance plans. You pay premiums to maintain coverage. There are deductibles, co-pays, and policy limits on the amount an insurance company will pay on an annual basis. There are some limitations with pet insurance. Pure breeds or animals prone to hereditary health issues might be uninsurable; and pets with pre-existing conditions will have a difficult time qualifying for coverage.

If your new dog is not a pure breed or prone to hereditary health issues, and doesn’t have any pre-existing health conditions. Is pet insurance worthwhile?

Similar to other insurance coverage types, premiums paid can outweigh the actual benefits received. If you have a moderately healthy dog who doesn’t need much veterinary care, you’ll likely pay more in premiums than reimbursements received. However, pet insurance helps significantly with expensive treatment costs if your dog needs higher levels of veterinary care. Professional care for serious illnesses (think cancer) or injuries (ACL tears) can cost thousands of dollars. Pet insurance would certainly prove beneficial under these awful circumstances.

If you decide the risk of expensive vet bills is not one you are willing to take, consider the following when shopping for coverage:

  1. There are many different types of pet insurance coverage. Pet insurance will rarely cover every health issue your pet might encounter. Have a good understanding of what your policy covers and what it doesn’t before purchasing.

  2. There are many different pet insurance coverage providers. Make sure to shop coverage with multiple providers and compare premium costs.

  3. To avoid exclusions for pre-existing conditions, purchase coverage when your pet is young. Enrollment can begin at 6 to 8 weeks of age.

  4. Many pet insurance policy premiums increase each year your dog gets older. A policy that might look affordable now might not be so affordable a few years from now. Try to understand how much policy premiums might increase on an annual basis before purchasing.

24. We just learned that my mother might need to be placed in a nursing home. What do I need to do to prepare for this? Am I financially responsible for her care?

The decision to place a loved one in a nursing home can take an emotional toll on all parties involved. To adequately prepare for this transition, you’ll need to understand what level of care your mother will need to ensure she goes to a facility that can accommodate all of her future needs (medically and personally). Does your mother need independent or assisted living, a skilled nursing care facility, or would a continuous care retirement community (CCRC) be more appropriate? Then there is the cost component. This will come as no surprise, but nursing home stays can be quite costly. According to a 2019 study by Genworth, the average cost of a nursing home stay in the US is $275/day (for a semi-private room). With so much to consider, look at enlisting the services of an elderly law attorney.

Elderly law attorneys will be able to confirm all of your estate planning is in order as well as assist in the locating of the appropriate facility while helping manage expenses. You’ll want to tour each facility up for consideration and ensure you meet with the admissions director to address any specific questions and concerns you may have. You’ll also need to garner a comprehensive understanding of your mother’s financial picture (including income sources, assets, and any long-term care policies she may hold) to determine available resources for payment. If a stay in a hospital doesn’t precipitate the admittance into the nursing home, Medicare will not cover the cost of her stay. If assets are available, then your mother will be required to pay the daily costs of care. If resources are scarce, then Medicaid may pick up the costs. An elderly law attorney can assist in all of these capacities.

When considering the financial responsibility for your mother’s care, it’s extremely rare for children to be held liable or responsible for a parent’s nursing home bills. However, pay close attention to the language in admission agreements and, if you are required to co-sign, ensure that only your mother’s funds will be used to cover costs. Furthermore, filial laws (laws that impose financial responsibility on others) are still present in many states (including Indiana) though they aren’t enforced as frequently as they once were as Medicaid has taken the lead on providing reprieve to those without financial means.

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25. What is a Roth Conversion?

A Roth conversion describes the shifting of assets from a traditional IRA into a Roth IRA. Any money held in a traditional IRA is eligible to be converted into a Roth. People generally do this to get money into a completely tax-free investment vehicle. Reducing the amount of money in your traditional IRA will also lower future required minimum distributions.

The catch is that any money converted to a Roth must be reported as taxable income on your tax return. The one exception is if you have any basis in your traditional IRA, i.e. any money that was added to the IRA on a non tax deductible basis. Any such basis is excluded from taxable income. If you convert part of an IRA, the basis is excluded on a pro-rata basis (no picking and choosing which dollars you convert!).

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26. What is a wash sale?

A wash sale refers to an IRS regulation that can disallow the realization of tax losses when selling a security. Specifically, a loss may be disallowed if an investor sells a security at a loss and buys back a “substantially identical” security within 30 days of the sale (either before or after). The repurchase of a substantially identical security includes any purchases made by a spouse or purchases made in a retirement account like an IRA or Roth IRA.

If a wash sale occurs, the disallowed loss is added to the cost basis of the newly purchased security. You therefore do not lose the benefit forever, it is merely postponed.

Note that the wash sale rule only applies to losses. If you sell a security at a gain and buy it back the next day, you still have to report the gain on your tax return.

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27. What is the difference between term life and whole life insurance?

Both term and whole life coverages share commonalities such as static premiums and guaranteed death payouts. However, each offers distinct differences that make them unique.

Term life insurance, as the name implies, offers coverage for a specified period such as 10, 20, or even 30 years and will pay out the stated proceeds (the face value) if the insured passes before the end of the term. If the covered party survives the policy duration, the policy will lapse, and coverage will cease. By comparison, term insurance is usually cheaper than that of a comparable whole life policy.

On the other hand, whole life policies are dually focused, offering insurance coverage for the life of the insured while providing a conservative savings component known as the policy's cash value. Over the policy's life, as premium payments persist, the cash value will continue to grow tax-deferred, enabling your beneficiaries to inherit additional benefits. Furthermore, the cash value can be borrowed against allowing the policy owner to access the funds. The unlimited duration of coverage coupled with the investment element comes at a cost, however, as these policies tend to be much higher in price than term coverage.

Life insurance can be complicated as there are many other options. It's always a best practice to work with a licensed insurance agent and your financial advisor to determine which product provides the best solution for you and your family's needs.

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28. As I approach my 40th birthday, what’s the most important thing I need to consider when it comes to retirement planning?

As investors approach age 40, they have a tendency to become too conservative too soon with their retirement investments. When they still have 25 years before needing the money for living expenses, growth should often remain the primary focus for the investment portfolio. If they plan to live until age 90, they have 50 more years of needing this money to work for them, which is plenty of time to get more conservative.

As they approach their highest income earning years, tax efficiency becomes key. We recommend maximizing every possible retirement account to receive income tax deductions and tax-deferred investment growth.

More Resources:

29. My son is 18 and starting college in the fall. Is it smart to add him to my credit card as an authorized user to improve his credit?

Adding your son as an authorized user on your credit card is one way to give his credit score a boost and can help cultivate responsible money management behaviors. Of course, there are some important caveats to weigh before moving ahead with this approach.

First, consider your past credit history. If you have a good credit history, it will reflect positively on your son’s credit score. If you do not, this strategy will negatively influence his credit, having the opposite effect of what you are trying to accomplish.

The logistics of adding your son to your credit card are important to understand as well. An authorized user is not legally responsible for charges or balances; the primary account holder is. The user can make purchases and view transactions, but he/she will not be able to add other authorized users, close the account, or perform a balance transfer. Not all credit card companies report account history to credit bureaus on behalf of authorized users, so you will want to ensure yours does before adding your son as an authorized user.

If you move forward with this strategy, establish some ground rules! Is the card for emergencies only, and if so, what constitutes an emergency? If the card is for general spending, how much can he spend on a weekly or monthly basis? What are the consequences of misusing the card? How long will this arrangement be in place? Managing expectations upfront is key.

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30. Life Insurance: Should I buy life insurance for my child?

It depends. Because you are not dependent on your child financially, it’s not necessary. However, some people prefer to buy a small policy to make sure they have funds for an adequate funeral and burial should their child pass prematurely and cash flow is tight. If you have concern that your child may be uninsurable as he/she gets older, buying a policy when your child is young may make sense. In this case, a permanent policy would be ideal, but premiums could get expensive as your child gets older. You should also ask your insurance agent about including a rider on the policy that would allow your child to purchase additional insurance without medical underwriting (guaranteed insurability). Using life insurance as a savings tool for college, wedding, or otherwise is not recommended as there are other savings vehicles that are less costly and more tax efficient for these needs. If you’re considering buying a policy on your child, talk with your financial advisor first to ensure that it’s the best resource for your personal situation.

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31. Can I use my Roth contributions for a down payment on a house?

31. Can I use my Roth contributions for a down payment on a house?

The short answer is yes because you can always withdraw the contributions you made to a Roth IRA at any time—penalty-free and tax-free—for any reason. You can also use earnings in the account if you meet the following criteria:

  • You have to be a first-time homebuyer. If you’re buying a home with your spouse, they must also be a first time buyer.
  • Your Roth IRA has been open for at least five years counting from January 1st of the year you made your first Roth IRA contribution.
  • You must to use the funds within 120 days of receiving the distribution.
  • You cannot use more than $10,000 worth of investment earnings.

Whether or not it is a good idea to use your Roth IRA to purchase a home is something you should discuss with your financial advisor. After all, this money is being saved for retirement.

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32. I am in the middle of refinancing my home. Should I roll the closing costs into the loan balance?

With mortgage rates where they are right now, lots of people are refinancing their current mortgages to get a lower rate. But don’t move too quickly! The rate isn’t the only factor you want to consider when you refinance. Chances are that closing costs will apply to your loan so you’ll need to determine how you want to pay them. You can choose to roll them into the amount you are financing, but try to avoid that at all costs! Not only does it increase the amount you are financing, but some lenders may charge you additional fees for going that route. Ideally you would bring the necessary funds to closing so the amount you are financing only represents the loan on your home. If you don’t have enough cash to cover the closing costs, shop around. Closing costs can vary from lender to lender.

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33. Are the municipal bonds in my portfolio still considered a safe investment?

In general, municipal bonds are considered to be one of the safer investments in a portfolio. However, they still carry risk and their level of safety is dependent upon different factors.

Duration Risk: Duration measures the price sensitivity to bond prices when market interest rates change. The longer, the bond, the greater the sensitivity to interest rates. If interest rates move up significantly, longer-term municipal bonds will lose value. This loss in value is recouped, assuming the bond is paid back in full upon maturity.

Credit Risk: The ability of the municipality to pay back its obligations determines the credit quality of the municipal bond. High quality municipal bonds have a strong ability to pay in full the interest payments and the principal upon maturity. Typically, municipal bonds are either backed by the general obligation of the issuer, such as the State of Indiana, or Marion County. Revenue bonds are backed by specific revenue streams, such as sewage facility backed bonds or toll road bonds. Because default rates are very low for municipal bonds, credit risk is not generally a big fear in the municipal bond market. However, as municipalities can face lower tax revenues and or higher obligations (such as pension liabilities), credit risk is still important.

Call Risk: Many municipal bonds have call features that allow the issuers to pay the bond in full or at a pre-determined price before the maturity date. This can cause a 20-year bond to behave like a 2-year bond, if the bond is callable in two years. Callable bonds will often pay a higher interest rate, known as a call premium.

Tax Risk: Municipal bond interest is exempt from federal income tax and can also be exempt from state income tax. Changes in tax laws can affect the attractiveness of municipal bonds.

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34. Is there any downside to buying physical stock of precious metals?

There are several downsides to buying precious metals directly. The first is that you need a secure place to store the bars, coins, or other items. This could be a safe deposit box at a bank or a safe in your own home. A bank is generally the more secure option, but there is an ongoing cost, and your valuables are not insured like your bank accounts are. A safe in your own home has a one-time cost – the purchase and possibly installation of the safe itself. It is as secure as your home is, so it is potentially exposed to fire and other natural disasters or theft.

There are also costs associated with buying and selling precious metals. You will often pay commissions, both buying and selling your metals. These commissions are not always clearly stated, so be careful. Furthermore, some precious metals dealers may charge large mark-ups, especially on coins advertised as 'collectible' or 'numismatic' coins. This contrasts with buying 'bullion', which will typically be priced at a much smaller premium over the metal's current spot price.

While precious metals have historically been good stores of value, they are not terribly liquid investments. If you need to convert them to cash in a hurry, it could be problematic (and/or costly).

Finally, be aware that precious metals are considered collectibles for tax purposes, meaning they are taxed at a 28% rate (when held for over a year). Also, losses on collectibles first reduce capital gains, rather than counting against ordinary income, which is less efficient from a tax perspective.

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35. Instead of working with an investment advisor, my son wants to do day trading on apps like Robinhood. What are the downsides to using these kinds of platforms?

Robinhood is designed with beginner stock traders in mind and doesn’t operate like traditional brokerage firms such as Charles Schwab, Fidelity, etc. who provide customer support, services for advisors and more robust research capabilities. In our view, Robinhood is a good place for individuals who want to dip a toe into stock trading as a hobby. If you want to save for an emergency fund, for example, Robinhood may not be your best option because you don’t want to trade stocks with money that you might need quickly. Your emergency fund is better suited for a bank savings account with a competitive interest rate. If you are saving for retirement, we recommend seeking the advice of a financial professional instead of doing it yourself via an online brokerage like Robinhood. If you start pouring significant money into stocks without a financial plan or understanding of risk, you can jeopardize your financial future. If you have a financial plan in place with a diversified investment strategy for the bulk of your portfolio and still have the itch to trade stocks with a small chunk of ‘fun money’ then by all means, go for it!

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36. What’s the difference between an ETF and an Index Fund?

An Index Fund is an investment strategy in which the goal is to mirror the performance of a particular index. For example, the S&P 500 is an index that tracks the 500 largest traded companies in the U.S. There are a number of index funds that attempt to mirror this index, and their goal is to give you as close of a return to that index as possible.

The most popular ways to invest in an index fund is either using a mutual fund or an ETF. An ETF is an investment vehicle that packages together a basket of various stocks or bonds and can be bought or sold throughout the day on the market, and each ETF will have a particular investment strategy as its goal. For example, an ETF’s investment strategy could be to mimic the performance of the S&P 500 Index, or it could have a completely different investment strategy such as investing in bonds or other stock strategies, such as investing exclusively in a number of companies within the same sector (like healthcare or technology). Another way to think about this is to compare it to traveling. An index fund is your destination or where you want to end up. On the other hand, an ETF is a type of vehicle that can transport you to that destination. But before you board that ETF, make sure its destination is where you are wanting your portfolio to go.

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37. Are microlending websites like Kiva safe? Is it a good addition to my investment portfolio?

Microlending consists of small loans, often to poor or impoverished groups, that are issued by individuals rather than banks. Kiva ( is a 501(c)3 U.S. non-profit that helps facilitate the issuance of these loans to those in need across the world. The site seeks out a wide array of global causes aimed at helping people in need. Examples range from assisting refugees, to providing funds for healthcare procedures, and beyond. The purpose of Kiva is to find these causes in need of monetary support and aggregate them on a platform where people from all over the world can lend money to the cause. If the money you loaned out is repaid (like with all loans there is always a chance that the borrower defaults and is unable to repay the loan), you can either transfer the money back to your bank account or recycle the money and loan it out again to a new project on the site.

Here’s the catch, while those receiving the loan are often charged interest, you as a supporter do not earn any of that interest yourself. Instead, the interest payments go to organizations that Kiva partners with that distribute the loans to cover their expenses. Therefore, Kiva and this type of microlending should not be viewed as part of your investment portfolio. While you may find personal satisfaction in helping these causes and people in need, these types of loans should be viewed as charity rather than an investment.

That being said, there are options for alternative lending investments that could be considered as part of your diversified portfolio. Investments that lend money to small businesses or individuals are often a neglected part of someone’s fixed income portfolio. If you are interested in learning more about these types of investments contact your financial advisor.

Note: This answer should not be viewed as an endorsement of References to Kiva are for illustrative purposes only to help describe how micolending may work.

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38. My bank just sold my mortgage. How does this affect my home and me?

The lending company selling your mortgage is common practice in the mortgage industry. Lenders tend to sell mortgages soon after a loan is originated to free up additional capital in which to loan to another buyer. This is done in a stand-alone manner or grouped with other mortgages that are purchased on a secondary market typically by firms such as Fannie Mae and Freddie Mac.

Even though your mortgage has been sold, the lender cannot legally change the terms of your loan so the type of mortgage, balance owed or interest rate agreed upon will remain un-impacted. However, it is possible that the new servicer will reevaluate the loan to determine if an adequate amount is being collected to cover mortgage insurance and property taxes if you have an escrow account. If the amount is considered insufficient, you may see an increase in your monthly payment to account for the estimated shortfall.

When a mortgage is sold, more often than not the servicer (the company to which you make monthly payments to) will remain the same. If the servicer will be changing, you should receive a notice from both your current and new servicer. Read these notices carefully. They will point out when your current servicer will no longer accept payments and when payments to your new servicer should begin.

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39. Are microlending websites like Kiva safe? Is it a good addition to my investment portfolio?

Microlending consists of small loans, often to poor or impoverished groups, that are issued by individuals rather than banks. Kiva ( is a 501(c)3 U.S. non-profit that helps facilitate the issuance of these loans to those in need across the world. The site seeks out a wide array of global causes aimed at helping people in need. Examples range from assisting refugees, to providing funds for healthcare procedures, and beyond. The purpose of Kiva is to find these causes in need of monetary support and aggregate them on a platform where people from all over the world can lend money to the cause. If the money you loaned out is repaid (like with all loans there is always a chance that the borrower defaults and is unable to repay the loan), you can either transfer the money back to your bank account or recycle the money and loan it out again to a new project on the site.

Here’s the catch, while those receiving the loan are often charged interest, you as a supporter do not earn any of that interest yourself. Instead, the interest payments go to organizations that Kiva partners with that distribute the loans to cover their expenses. Therefore, Kiva and this type of microlending should not be viewed as part of your investment portfolio. While you may find personal satisfaction in helping these causes and people in need, these types of loans should be viewed as charity rather than an investment.

That being said, there are options for alternative lending investments that could be considered as part of your diversified portfolio. Investments that lend money to small businesses or individuals are often a neglected part of someone’s fixed income portfolio. If you are interested in learning more about these types of investments contact your financial advisor.

Note: This answer should not be viewed as an endorsement of References to Kiva are for illustrative purposes only to help describe how micolending may work.

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40. Now that I’m working from home, can I deduct my home office expenses on my 2020 tax return?

40. Now that I’m working from home, can I deduct my home office expenses on my 2020 tax return?

This is a great question, as many Americans found themselves working remotely due to the COVID-19 pandemic. The answer depends on your employment. This deduction is only available to self-employed individuals, independent contractors, and freelancers. So, if you received a W-2 for your 2020 income, you aren’t eligible for this deduction.

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41. What are the HSA contribution limits for 2021?

In 2021, the Health Savings Account (HSAS) contribution limit for an individual is $3,600 (an increase of $50 from the 2020 limit) and $7,200 for a family (an increase of $100 from the 2020 limit). This limit is inclusive of any and all contributions made by your employer as well. Individuals aged 55 or older are also able to contribute an additional $1,000 into their account.

Any individual with a high deductible health insurance plan is eligible to contribute to an HSA, regardless of their income level, and can be used to pay for qualified medical expenses completely tax-free. Contributions into an HSA are tax-deferred and can also be invested and grow tax-free until withdrawn. After age 65, if proceeds from an HSA are withdrawn for non-qualified medical expenses there is no penalty, although the amount withdrawn is treated as income for tax purposes. This makes HSAs a potentially effective savings vehicle for both medical expenses and retirement planning.

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42. Are website like legitimate? How do I know if I have unclaimed money in my state?

In today’s world, it’s not impossible to think we might lose track of something, even money. When financial institutions lose track of the account holders, they are required by law to turn the funds over to the state. Each state has different laws regarding the time an account can remain dormant before it is considered unclaimed. However, this money isn’t gone forever! You can start by looking at your state’s unclaimed funds website. A quick search should identify if there are any forgotten accounts. If you may have property in other states,, is a portal that searches over 40 state’s and providence’s databases to identify missing funds. is also endorsed by the National Association of Unclaimed Property Administrators (NAUPA).

Keep your guard up! Any websites that ask you to pay an upfront fee are likely a scam. There are some legitimate “finders” out there, but they will generally charge you a fee after you receive your funds.

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43. My grandson is moving into his first apartment. Does he need renters insurance?

Landlords often require their tenants to carry renters insurance, so you'll want to check into that first. That aside, even if not needed, I would strongly recommend your grandson look into a renters policy.

Currently, only 40% of renters in the US have renters insurance. The driving force behind such a paltry figure is the misconceptions surrounding such policies. Most renters assume their landlord's or property owner's policy will cover any potential losses they may incur; it will not. Many also assume the value of their belongings do not rise to a level necessary for insurance. A recent Allstate survey contradicts that sentiment by determining that the average value of a renter's contents is approximately $30,000, a substantial amount for most if forced to replace the majority of your belongings at a moment's notice. Another misunderstanding is the comprehensive nature of a renters insurance policy. While renters insurance protects your belongings in case of a catastrophic event, it also offers many other benefits.

A standard component of renters insurance is liability coverage, typically providing coverage around $100,000. Thus, if someone were to be injured on his property, he would be covered up to the policy limits. Without a renter’s policy, he would be on the hook for these expenses out of pocket. Also, protection isn't confined to just the home. His personal belongings would also covered from theft while he travelled or if taken from his vehicle. A policy may also cover the cost of another dwelling if his current residence became inhabitable due to a covered peril. There are many additional benefits that, if so desired, could be incorporated into a renter’s policy.

So, how much coverage would your grandson actually need? From a personal property standpoint, the best route is to have him list out all of his personal belongings and determine how much they would cost if he needed to purchase them brand new. This should provide him with a rough estimate on the amount of insurance coverage he should purchase. On the liability coverage side, as stated above, a typical renter’s policy offers $100,000 in coverage but can go up to $300,000 or even $500,000 if so desired. He will want to consider what feels sufficient (and his agent can help assess this with him) in the case he is ever sued and deemed liable to an injured party.

Rental policies are also adjustable, providing flexibility if additional coverage is needed. If he were to acquire additional personal property, he could simply contact his agent and request that his personal property coverage be raised to a more suitable amount. Furthermore, they are also transferrable, so if he were to ever move, he could transfer the coverage to his new dwelling.

Lastly, policy premiums are inexpensive. According to the Insurance Information Institute, the average annual premium for an Indiana resident (in 2018) is around $172, or $14/month. So, for the coverage afforded by a renters policy, it would make sense for your grandson to contact his insurance agent and discuss the potential of obtaining a renters insurance policy.

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44. My wife a is teacher and currently contributes to a 403b. However, the plan has high fees. Is it possible to roll this over or convert it to a Roth IRA?

Maybe. It all depends on whether or not her plan allows in-service distributions. Plans are not required to do so, but some do. Even for those that do, there are often requirement that must be met before an employee is eligible (e.g. when the employee reaches a certain age, when a “triggering” event occurs, or after a set number of years in the plan). The plan document should let you know if in-service distributions are allowed and any potential requirements.

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45. How does a 529a account work?

A 529a, or ABLE (Achieving a Better Life Experience) account, is a tax-advantaged savings program for eligible people with disabilities. Individuals or their families save to these accounts, the accounts grow on a tax-deferred basis, and withdrawals for qualified expenses are tax-free.


  1. Individuals must have been diagnosed with a significant disability before they turned 26.

  2. The condition must be expected to last at least 12 consecutive months.

  3. The individual must be receiving benefits under SSI or SSDI or obtain a disability certificate.

Administration: Plans are administered by states, similar to traditional 529 plans.

Contribution limit: $15,000 per year.

Maximum size: Varies by state. For Indiana, once an account hits $450,000, no further contributions are allowed.

Tax deduction: None at the federal level. Some state tax deductions exist, but not for the Indiana plan.

Important Note: Once a 529a account exceeds $100,000, the beneficiary is no longer eligible for SSI benefits.

Qualified expenses: These are broadly defined as any expenditure related to the beneficiary’s disability and made for their benefit. They include education, job training and support, healthcare, and financial management.

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46. I already filed my 2020 taxes but the extended deadline hasn’t passed. Can I still make a Traditional or Roth IRA contribution.

46. I already filed my 2020 taxes but the extended deadline hasn’t passed. Can I still make a Traditional or Roth IRA contribution.

You have until May 17, 2021 to make 2020 IRA contributions. The type of contribution you make will dictate what actions you must take.

Let’s start with the easiest option: if you’re eligible to contribute to a Roth IRA, you can do so without amending your 2020 tax returns. If you’re making a deductible IRA contribution, you have to amend your return so that you get the deduction. Finally, if you make a non-deductible IRA contribution (this typically happens when your income is phased out of Roth and deductible IRA eligibility), you have to file Form 8606 to track the after-tax amount in the IRA.

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47. My mom saw a commercial and is considering reverse mortgage. Are these a good idea? What are the downsides?

As with most financial products, much of whether a strategy is a good idea or not will boil down to your mother’s overall financial situation and should be part of a comprehensive discussion with her financial advisor. Assuming it would make sense, let’s first ensure she qualifies. The following parameters must be met:

  • She must be 62 years of age or older.
  • The home in question must be her primary residence.
  • She must have the financial resources to cover taxes, insurance, and maintenance for the house.
  • She must also participate in a consumer information session given by a Department of Housing and Urban Development (HUD)-approved Home Equity Conversion Mortgage (HECM) counselor.

If those requirements are met, she would be eligible for a reverse mortgage…but does it make sense to apply for one?

On the upside, a reverse mortgage loan can provide financial flexibility if her home equity is her largest asset. Does she have a goal in mind as she considers this strategy? Common uses include eliminating an existing mortgage or using the proceeds for the purchase of a retirement home. Other strategies involve using the line-of-credit option to draw off in down markets as to not deplete retirement accounts or using the income for living expenses to delay drawing on social security. One important note is the cash received through a reverse mortgage is tax-free. When your mother passes, the loan becomes due and is typically paid off with proceeds from the sale of the home.

Conversely, the cost of a reverse mortgage can be quite exorbitant. Origination fees amount to the greater of $2,500 OR 2% of the first $200K PLUS 1% of the amount over $200K. These fees are capped, however, at $6,000. You will also be on the hook for closing costs (appraisal, title searches, inspections, etc.) that can run anywhere from $1,000-$2,000. Furthermore, you also incur mortgage insurance premiums. There is an initial premium of 2% of the appraised value (up to FHA loan limits) and an annual premium of 0.5% of the loan balance. (Note: these costs can be paid in cash or by your loan proceeds). While the costs may seem steep and if often viewed as the biggest deterrent, it does not mean it’s not a practical usage of the equity in your home.

I would be remiss if I did not touch on some common misconceptions. One is that ownership is lost to the lending bank. This is not the case. You mother, in this case, would still own the home and could sell at any point. Another misnomer is that heirs will be responsible for paying off the loan. Lenders will structure the transaction in a manner where the home’s value will exceed the loan amount. Proceeds from the sale of the home are used to pay off the loan. If proceeds remain, her heirs keep them. If the home sells for less than what is owed, FHA covers the difference. It is a non-recourse loan. Lastly, parents have mixed feelings thinking their children will want the property when they pass. Recent studies show that 1 in 200 children end up moving into their parents’ home upon their passing.

As stated above, this is a complex strategy that requires an in-depth conversation with her financial advisor. There is quite a bit to consider and ensuring she understands all of the pros and cons is vital in making a decision of this magnitude.

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48. What’s the difference between a home equity line of credit (HELOC) and a home equity loan?

A home equity line of credit is a lot like a credit card:

  • If you have equity in your home (value of home, less mortgage balance), you can borrow against it at a variable interest rate determined by the bank.

  • Let’s say you have $50,000 of home equity from which you can borrow, you can use these funds as needed (via check or debit card), just like a credit card.

  • You’re required to make monthly payments of interest only on the amount you’ve borrowed/withdrawn from the line. (Maybe you drew $5,000 of the $50,000 available and the interest rate is 3%, your monthly interest payment would be $12.50.)

  • At the end of the HELOC term, all principal and interest must be paid. (However, if approved, these lines can be carried forward as you prefer.)

  • You can use this “line of credit” for any expense, however, interest expense on the loan is only tax deductible if the funds are used for home improvement.

A home equity loan is a second mortgage on your home:

  • Like the HELOC, you can borrow an amount using the home equity as collateral.

  • This loan, however, pays out the full amount borrowed and starts accruing interest immediately. (You get $50,000 “cash in hand” using the above example.)

  • The interest rate may be fixed or variable, as you prefer.

  • You’re required to make monthly payments of principal and interest over the term of the loan (just like a first mortgage).

  • The interest expense is income tax deductible.

49. Can my daughter use her 529 to pay rent while at school?

49. Can my daughter use her 529 to pay rent while at school?

The short answer is yes, but there are some caveats. In order to use a 529 for off-campus housing, your daughter must be enrolled at least half-time at an eligible institution. Once those requirements are satisfied, she can use the 529 to reimburse for rent, utilities, and groceries, up to the cost-of-attendance allowance for off-campus housing set by the university. Each university is different, so be sure to contact the financial aid office. If you pursue this strategy, be sure to keep your receipts!\

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50. How is inflation measured?

The most commonly used measurement is the Consumer Price Index (CPI).

There has been some controversy over the current CPI calculation methodology as it has changed over time. Originally, the CPI was used as a cost of goods index, measuring the price of a fixed basket of goods and services. However, it has evolved into a cost of living index, reflecting changes in the cost to maintain a constant standard of living. The new methodology incorporates changes in the quality of goods as well as substitution. Substitution, which is the change in purchases by consumers in response to shifting price, affects the basket's relative weighting. The overall result tends to be lower CPI with the new methodology.

Why has inflation been in the news recently?

The CPI reading for April 2021 was higher than expected, fueling concerns of an overheating economy. April's CPI showed a 0.8% month-to-month gain and 4.2% one-year gain from the April 2020 reading, which was the highest year-over-year gain since September 2008.

However, a key factor to consider with these high readings is the base effects of the pandemic. Inflation was very low at this same point in 2020 as there was a widespread shutdown in the U.S. economy. The month-to-month CPI readings will be a more accurate indicator for a few more months.

Why are Treasury Inflation Protected Securities (TIPS) doing well?

The Federal Reserve has recently ramped up its purchasing of TIPS, thus lowering the supply of TIPS available for the public and driving up demand in the wake of recent data that points to inflationary pressures. When looking at bonds such as TIPS, a spike in demand leads to increased prices, pushing yields lower.

Why do lower TIPS yields matter?

Market inflation expectations are calculated as the yield difference between regular Treasuries and TIPS. If TIPS yields are being pushed downward because of elevated TIPS purchases by the FED, a possible result is overstated inflation expectations. This presents a potential risk to inflation-protection buyers who may be overpaying for that protection.

51. If I am not a resident of Canada, can I open a savings account with a Canadian bank that has a higher interest savings rate?

The short answer is yes. The long answer is you should not bother.

According to the Royal Bank of Canada’s website, if you are not a resident of Canada, you can begin to open an account online, but must visit a branch in person to complete the process.

The following are reasons why opening a Canadian account might not be worth the trouble:

  1. Interest rates are very low. Royal Bank of Canada’s recent high yield savings account was only yielding 0.05%. Probably not worth a drive to Canada.

  2. Owning a foreign currency means that the change in the Canadian dollar versus the US dollar could offset any yield advantage the Canadian account offers.

  3. If you are wanting exposure to the Canadian dollar, ETFs provide this opportunity without a trip to Canada.

  4. Earning interest in a foreign country introduces you to their tax laws. Would you owe taxes to that country and would you owe taxes in the U.S.? You should consult your tax advisor prior to opening an account in a foreign country.

52. Is it wise to invest in and take physical possession of gold or silver?

Owning gold and/or silver has long been a strategy for hedging against inflation/currency devaluation. However, taking physical possession of these precious metals comes with some caveats. First, you need a place to store them. If you do so in your home, it is a good idea to invest in a high-quality safe. Alternately, you could use a bank safe deposit box or a non-bank vault service. These are less convenient but generally safer. Wherever you choose to store, make sure that you get adequate insurance for your holdings. Standard homeowners insurance will not cover your precious metal holdings.

If all that sounds like too much of a headache, you could always invest via a fund – a closed-end fund, ETF, or ETN. Make sure you do some research before buying, though. Just because a fund has “gold” or “silver” in its name does not mean that it invests in physical metal. Some funds invest in miners and producers while others buy futures contracts rather than the metals themselves.

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53. What are this year's tax deadlines?

Q: Do I need to take a required minimum distribution (RMD) from my retirement accounts before 12/31/21?

The SECURE Act became law on 1/1/2020 and made significant changes to RMD rules. A few months later, the CARES Act became law on 3/27/2020 and waived all RMDs for 2020. Let’s review a few age-based situations to help determine what you need to do in 2021.

  • If you reached age 70.5 on or before 12/31/2018, you should have taken your first RMD in 2019 and will resume your RMD schedule with a 2021 distribution.

  • If you reached age 70.5 during 2019, you would typically take your first RMD by April 1 of the following year (4/1/2020). However, since the CARES act waived RMDs for 2020, your first RMD should have been taken before 4/1/2021 and your second RMD is due before 12/31/2021.

  • If you didn’t reach age 70.5 before 12/31/2019, you are on the new schedule, and your RMDs begin the year you turn 72.

  • If you reach age 72 during 2021, your first RMD is due by 4/1/2022 and your second by 12/31/2022.

Q: What are the other year-end deadlines?

The following may not apply to everyone, but here are some deadlines to help keep your year-end checklist in order:

  • November-December

    • Capital gain distributions: These vary by fund, and there may not be any action to take as a shareholder, but you need to account for taxable capital gains distributions when projecting your tax liability for the year.

  • Mid-December

    • Charitable donations are technically due by 12/31, but best practice is to avoid waiting until the last minute. Processing times can vary by method and organization.

  • December 31, 2021

    • Employee retirement plan contributions for the current year

    • Conversions from IRA to Roth IRA

    • Tax-loss harvesting in taxable investment accounts

    • 529 Plan contributions (to receive the Indiana state tax credit on your 2021 tax return)

  • April 15, 2022

    • IRA/Roth IRA contributions (to be counted for 2021)

    • Health Savings Account (HSA) contributions (to be counted for 2021)

Another noteworthy change from the SECURE Act is the Solo 401(k) establishment deadline. Before the SECURE Act, a Solo 401(k) plan had to be adopted by December 31 of the tax year to accept contributions for the year. You can now establish a Solo 401(k) plan up until the tax filing date of the business, including extensions, and will be able to make employer contributions for the prior tax year. Note that this only applies to employer contributions. Employee contributions must be made before December 31 of the tax year.

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54. How does a target date fund work?

Target-date funds are popular investment options, especially in employer retirement accounts, because they offer an easy one-stop shop for the investment needs. In fact, as of the end of 2020, assets in target-date funds reach $1.58 trillion. Using a target-date fund is simple, and it takes the decision-making out of an investor’s hands and puts it in the hands of professionals. There are a few important things to keep in mind when investing in a target-date fund:

What is a Target-Date Fund?

  • Target-date funds are a single investment option that offers instant diversification to a portfolio of stock and bonds. The funds themselves hold underlying assets, typically other mutual funds, that provide exposure to a diversified basket of investments that then periodically adjusts overtime to become more conservative as the investor gets closer to retirement.

Selecting the Appropriate Target-Date Fund

  • Typically a target-date fund’s name includes the year that the investor is anticipating retiring. The further away the target retirement date is into the future, the more aggressive its allocation. For example, a 2055 Target Date fund will have a much higher allocation to stocks than a 2025 Target Date fund, since it is expected that someone retiring in 2025 should not be taking on as much risk.

  • Target-date funds can also differ in what happens when the target date year is reached. Some funds will stop changing the allocation once the target date year is reached, while other funds will continue to reduce risk even after the date is passed. While neither option is better or worse, it is important to know the structure prior to investing.

Properly Assessing the Fees

  • Like all investments, the fees associated with target-date funds can vary considerably. While some funds offer exposure to cheap, index-investments to the market, other funds may invest in a basket of actively managed mutual funds that each carry their own expenses. This creates a double-layer of fees where the target-date fund itself charges one level of fees and the underlying investments also charge another level of fees. It is important to carefully evaluate the total impact of fees when investing in a target-date fund.

55. No More Backdoor Roth?

I make non-deductible contributions to my IRA and convert those assets to my Roth IRA each year. Recently, I’ve read that strategy may no longer be allowed? Will all Roth conversions be restricted going forward?

What you describe is better known as a ‘backdoor’ Roth contribution or conversion. Named so because the IRS has provisions in place, ultimately disallowing those whose modified adjusted gross incomes (MAGI) exceed certain thresholds from contributing directly to a Roth IRA. However, there are no income limitations for those wanting to make non-deductible IRA contributions, nor for those wishing to convert to a Roth IRA. Hence, the incorporation of the backdoor Roth IRA strategy evolved.

As of this writing, nothing has been finalized, though one component of the Build Back Better bill (approved by the House on November 19) calls for the elimination of the allowance for backdoor Roth conversions. While Senate revisions could strip this restriction from the bill, it may behoove you to act expeditiously in making your non-deductible contributions and subsequent conversions before year-end as, upon passage of the bill, this strategy could be eliminated effective at the start of 2022.

Additionally, for the time being, not all Roth conversions are restricted. As touched on above, only non-deductible or after-tax assets would be restricted. Conversely, any pre-tax qualified assets could be converted. One caveat proposed to take effect on January 1, 2022, is the Build Back Better Act would prohibit Roth conversions for certain high-income filers (with MAGI of $400,000 and $450,000 for single and joint filers, respectively).

All that in mind, nothing is set in stone, and it’s likely the Senate will have revisions of their own that could warrant the points above moot. More should be known in the coming weeks, so be sure to stay abreast of potential modifications and subsequent bill finalization and work closely with your financial advisors to incorporate the appropriate strategies.

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56. What Does it Mean When the Fed Raises Rates?

What does it mean when the Fed raises rates?

When you hear the Federal Reserve (Fed) is raising interest rates, they are increasing the Federal Funds Rate (FFR). The FFR is the rate at which commercial banks borrow and lend their excess cash reserves to each other overnight to satisfy liquidity requirements set by regulators. Since they can’t set an exact rate, they set an interest rate target range, which is currently set at 0.25%-0.50%. The Fed increased the FFR to its current rate in March 2022—the first increase since 2018. Currently they are projecting to raise interest rates six more times in 2022.

What loans does this affect?

The FFR affects the cost of most credit throughout the economy, albeit indirectly, such as credit cards, auto loans, bank loans, and Treasury bond yields.

Because the rate is related to overnight loans, the Fed has the greatest impact on short-term loans when it changes interest rates, although longer-term rates may also be influenced to a lesser extent. The prime rate (the current interest rate that banks charge their customers with higher credit ratings) is one of the most important rates influenced by the Fed because it is typically set approximately 3% higher than the FFR. The FFR also influences the interest that you are earning on cash in checking and savings accounts.

Why would the Fed increase rates?

Raising and lowering the FFR is a powerful way for the Fed to influence the economy. In theory, the Fed lowers interest rates to help encourage spending when the economy is slow. If financing is cheap, more people will borrow money to buy goods. For example, the Fed lowered the FFR to essentially 0% in March 2020 when the COVID-19 pandemic began.

On the other hand, the Fed will raise interest rates when an economy is doing very well to help keep it in check. The Fed will also use interest rates to help combat inflation. When inflation is getting out of hand, the Fed will raise the FFR to slow spending, encourage savings, and bring inflation down.

Does this affect the stock and bond markets?

In the short term, rising interest rates will usually have a negative impact on the stock market because it will be more expensive for businesses to borrow money, therefore, decreasing profits. However, there seems to be little impact over longer time horizons.

The price of bonds is inversely related to interest rates. Therefore, if interest rates rise, you should expect to see the prices of currently issued bonds fall. However, as new bonds are being issued, they will be paying a higher interest rate, which is good for the purchaser.

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57. How Do We Preserve Wealth Through Generations?

Question: Over the years, my wife and I have worked hard and have seen our net worth grow exponentially. Now, our focus has shifted to the legacy we want to leave and to ensure our family (both children and grandchildren) are in a position to adequately manage and preserve the wealth. Do you have any thoughts or recommendations?

Answer: Your concerns are warranted. Through research conducted by The Williams Group, a US wealth consultancy firm, 70% of families have depleted accumulated wealth by the 2nd generation. This figure jumps to 90% in the 3rd generation.

These statistics, by all accounts, are staggering. However, digging deeper into the root cause of these failure rates, they determined that 60% were due to trust and communication breakdowns, while another 25% were tied to heirs that were simply ill prepared for the accountability and responsibility that came along with asset management or business continuity.

Developing an estate plan that addresses your transfer wishes is critical. It is equally important for those parties who will be inheriting your wealth to fully understand your intentions and desires and their role in future decisions.

Consider having regular family meetings with your financial advisors (or an objective third-party consultant) that include all impacted parties. This will enable the family to:

  • Come together and devise a system for problem-solving,
  • Open up lines of communication, which cultivates trust amongst family members, and
  • Provide education to ensure each family member has an appreciation for their new situation and understands the role each may play in future oversight.

Having family meetings can also remove any ambiguity after you and your wife have passed. Whatever your intentions with a family business or any charitable inclinations, open dialogue and proper governance can help ensure your family is included in the 30% that sees their wealth continue to grow for generations.

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58. What is an ARM?

58. What is an ARM?

ARM stands for adjustable rate mortgage. An ARM has an initial period in which the interest rate is fixed. After that timeframe, the interest rate with adjust based on a benchmark. These loans are often quoted using two numbers. For example, a 7/1 ARM is fixed for the first seven years and adjusts annually going forward. These products are gaining popularity because the initial interest rate is often lower than that of a traditional 30 year loan. Happy house hunting!

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59. I sold an investment for a substantial gain. When do I pay the taxes?

59. I sold an investment for a substantial gain. When do I pay the taxes?

You have a few options to consider. You can pay now by submitting payment at the IRS website’s Direct Payment option, or you can mail a one-time check to the IRS. The other option is to pay when the bill comes due at tax time next spring. If you decide to wait until tax time, consider setting aside some cash from the proceeds so you have money to pay the bill. In addition, beware that you may be hit with an underpayment penalty if the sum of your withholdings and estimated tax payments do not satisfy the safe harbor amounts. As you can tell, taxes can get tricky fast, which is why we recommend you work with an accountant.

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60. Can I contribute to an HSA and an FSA?

60. Can I contribute to an HSA and an FSA?

Yes, but only under certain circumstances. You must be covered by a high deductible health insurance plan. Assuming that’s correct, there are only two circumstances in which you can contribute to an FSA. The first is with a Dependent Care FSA. You’d use this to reimburse for preschool, daycare, or other care expenses for qualifying dependents. The second situation is through a Limited Purpose FSA. That’s a special FSA that can only be used to reimburse certain dental and vision expenses.

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61. My property taxes keep increasing. Is there anything I can do about it?

61. My property taxes keep increasing. Is there anything I can do about it?

Yes, you can appeal your property taxes. While it’s not guaranteed that you’ll win your appeal, it’s certainly worth a shot.

In Marion County, there are two types of appeals. You can file an objective appeal if your assessment includes a statistical or processing error. For example, if your property card says that you have three bathrooms when, in reality, your home only has two, you’d file an objective appeal. You have three years from the date of the assessment to file this type of appeal. The other type is a subjective appeal. For opinion-based errors, such as above-market value assessments, you have until June 15th of the payable year to file. This process can vary, so check your municipality’s website to find out about more.

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62. When does it make sense to dispute a credit card charge?

62. When does it make sense to dispute a credit card charge?

There are only three circumstances in which you can do so. The first is for fraudulent activity. Any unauthorized purchases can and should be disputed. The second is for billing errors. This usually takes shape as an incorrect amount or billing date. Lastly, you can file a dispute for bad service or quality of goods. An example of this would if you purchased a TV that arrived with a crack and the vendor refused to provide a replacement or refund. Always review your statements!

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63. The dentist I’ve been seeing for years is now out of my network. Can I continue to see them?

63. The dentist I’ve been seeing for years is now out of my network. Can I continue to see them?

Yes. You’re allowed to see out-of-network providers, it will just cost more through a practice called balanced billing. Insurance companies negotiate discounted rates they are willing to pay for in-network services. Out-of-network providers are allowed to bill patients for the full cost; therefore, you’d owe the difference. For example, let’s say your insurance company pays $80 for in-network dental cleanings but your out-of-network dentist charges $100. You would pay the $20 difference.

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64. My car was damaged in a hail storm. Will my auto insurance cover the repairs?

64. My car was damaged in a hail storm. Will my auto insurance cover the repairs?

Your auto insurance policy will cover hail damage only if you purchased comprehensive coverage. In that instance, you would file a claim with your insurance provider and pay the deductible. Before you take that step, it’s important to compare the cost of repair against the deductible and potentially increased premiums that you’d have from filing a claim. What you may find that it’s less expensive to pay for the repairs yourself rather than go through insurance.

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65. I’m house hunting and want to lock in a low mortgage rate. How can I find the best deal?

65. I’m house hunting and want to lock in a low mortgage rate. How can I find the best deal?

I often recommend my clients apply for a mortgage with multiple lenders. It’s wise to shop between a bank, a credit union, and a broker to get a sense of the different products. The caveat here is that each application counts as a hard pull on your credit, if not done between a 14-45 day window so timing is everything. The last bit of advice I have is to negotiate the offers against one another to get a better rate or closing costs.

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67. Can my minor child with a part-time job fund a Roth IRA if they didn’t file a tax return?

67. Can my minor child with a part-time job fund a Roth IRA if they didn’t file a tax return?

The simple answer is yes. Even though no tax filing is necessary, it’s best practice to keep record of their income, in case the IRS has any questions. For most jobs, that means a W2, but any earned income is eligible, so be sure to write down those babysitting or lawn mowing gigs!

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68. I’ve noticed an error on my tax return. How can I fix it?

68. I’ve noticed an error on my tax return. How can I fix it?

You can make corrections to your tax return by filing an amended return. You have three years from the date you filed the original return to submit the amended copy. Tax software like TurboTax has an amended return option, but depending on how big the error is, it may make sense to hire a tax preparer to review, correct, and submit the amended return.

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69. I have an old employer-sponsored retirement plan that I would like to move. How can I do that?

If you have an old employer-sponsored plan that you would like to transfer, there are a few factors to consider. First, you should check with your advisor and the sponsor of the old plan to confirm how much of the account has been vested. If the account has not fully vested, you may have to leave some of the balance with the employer when you roll it over.

The next thing to consider is pre- vs. post-tax money. Post-tax or Roth money can only be rolled over to a Roth account. You will want to confirm whether you have a Roth balance in your plan so that you can open a Roth IRA account for the funds. Your new employer plan may also offer a Roth component. Check with your new plan’s sponsor to determine if the Roth option is available and can receive a rollover.

The last thing to consider is the destination of the funds. You may be able to roll your old plan balance into the plan offered through your new employer. If they do not allow you to do so or if you are not employed with a company offering such a plan, you can always roll the funds into an IRA.

If you are rolling the funds into a new plan, check with your new employer to see their requirements for accepting rollovers. If you are rolling the funds into an IRA, you will need to request a check from the plan sponsor made payable to the new custodian with your IRA account number in the memo.

Rollovers can be a little intimidating to take on. If you are concerned about doing it yourself, please know that Bedel Financial is always here to help facilitate the rollover process for our clients.

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70. I have investments at Charles Schwab. I am constantly worried about identity theft and fraudulent activities. Is there something I can do to safeguard my accounts?

Fraud and cybercrime are serious threats, but together, we can take steps that will protect your identity and your assets.

One way is by working with Bedel to protect your information. Consider establishing a verbal password with us to confirm your identity. Always keep us updated on any changes to your personal information. Also, if you suspect any suspicious activities, please alert us immediately.

Charles Schwab offers many proactive ways to protect your identity and assets. For example, they offer two-factor authentication and Voice ID service if you have to call in directly. Schwab also has a Security Guarantee that covers any losses in any of your Schwab accounts due to unauthorized activity.

By working together, we can ensure your identity and assets remain secure.

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71. I have a checkbook that is linked to my IRA account, can these checks be used for charitable gifting to count towards my requirement minimum distribution?

If you have the IRA check-writing feature enabled on your IRA account, you can use this checkbook to make charitable gifts directly to the charity. These gifts would count towards your required minimum distribution for that year. Another benefit of using this account feature is these distributions are processed from your IRA account with 0% Federal and 0% State tax withholding, and your current tax withholding election would remain intact.

The only caveat to issuing checks from your IRA checkbook would be to consider the date you are mailing your charitable gift to the charitable organization. You’ll want to plan to use these checks far in advance of the December 31st deadline to ensure the charity has enough time to process your gift before the end of the year.

If your check isn’t cashed before 12/31 and is cashed in January the following year, this charitable gift would be counted for your required minimum distribution for that calendar year.

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72. I forgot to pay the premium on my term life insurance. Is my policy over?

72. I forgot to pay the premium on my term life insurance. Is my policy over?

The answer is to be determined, but you must act quickly if you want a chance at saving the policy. Often times, you have a 30-day grace period in which you can make the payment and bring your policy back to good standing. If you are beyond the grace period, contact the insurance company right away to see if the policy can be reinstated. If allowed, you’ll have to make up for lost premiums. Next time, put your premiums on auto-pay!

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73. Why is my bonus taxed at a higher rate?

73. Why is my bonus taxed at a higher rate?

This is a great question and common misconception. Bonuses are often withheld at higher rates than a typical paycheck, but they will never be taxed at a higher rate. When you go to file your taxes, your earned income, or wages, and other ordinary income sources are totaled and that number is pushed through the ordinary income brackets, so no dollar in that bucket is treated differently.

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74. What documents do I need for tax prep?

Tax time is when all aspects of your financial life come together: income, investments, expenses, charitable gifts, and so much more! You'll likely need documents from each area to file your tax return. We cover some of the basics below:

If employed, you'll need a W-2 provided by your employer, which can often be downloaded from your payroll website. The IRS requires employers to send these no later than January 31st.

Self-employed individuals will need to report all earned income for the year on one of several tax returns, depending on their business arrangement. From the earned income, all appropriate business expenses can be deducted – now’s your chance to use all the expense receipts you have been keeping!

Individuals who receive Social Security benefits will receive an SSA-1099, which details the total benefits received during the calendar year. The Social Security Administration will mail these out in January, but they can also be found online on the "my Social Security" website.

Investors with brokerage accounts will receive a consolidated 1099 from the custodian. Likewise, investors who withdrew money from a qualified retirement account (including rollovers and Roth conversions) can expect to receive a 1099-R. Custodians will either mail the tax documents or upload them to their website, depending on your selected delivery method when opening the account. These documents are usually ready by mid-February but are sometimes updated in March, so pay attention to such notifications.

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75. I contributed the maximum to my Roth IRA in 2022, but was over the income threshold to contribute. What do I do?

You are not alone – this happens more often than you’d think! Fortunately, there are a few ways to undo this contribution. The most common strategies include “removing the excess” or “re-characterizing the contribution.”

Before we look at these strategies, it is important to note that you must undo the contribution plus any earnings, otherwise known as the “net income attributable”. For example, you contributed $6,000 in 2022, and the earnings are $1,000. You will have to remove or re-characterize a total of $7,000. There is a formula for calculating the earnings, but the custodian will typically offer to do this for you.

When going with the “removing the excess” route, your custodian will have you or your advisor fill out a form that will ask the following:

  • The amount of excess that needs to be removed
  • The date of the contribution
  • Who will calculate the earnings – yourself or the custodian
  • Which assets (cash, securities) you’d like to remove, in order of priority
  • Where you’d like the excess to go – commonly a taxable investment account (the funds can transfer in-kind) or to a bank account (transfer as cash and you can allocate the funds wherever you wish)

A re-characterization form is very similar, except you don’t have the choice of where the funds go. Re-characterizing says the original contribution should have gone into a Traditional IRA rather than a Roth IRA. If you don’t already have a Traditional IRA open, you must open one before completing the form. When filing your taxes for 2022, you would input that you made a non-deductible Traditional IRA contribution. If you convert that amount back into your Roth IRA, the conversion should be reflected on your 2023 tax return.

If you realized you were over the threshold after the tax filing deadline in April, you have until October 15th to make the fix. In most cases, you must file an amended tax return. If you neglect to remove the excess by October 15th, you will face a 6% penalty for each year remaining in the account.

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76. What is a structured note and why would a bank sell an investment that is so beneficial to investors?

Structured notes are an increasingly popular investment vehicle, and we have been using them in client portfolios at Bedel since the aftermath of the Global Financial Crisis in 2009.

Predominantly, we have used structured notes to replace a portion of a client's equity allocation with an investment whose performance derives from a specific index (such as the S&P 500) with the potential to have amplified upside returns in positive markets and protection against sustained market declines in negative markets over time.

Due to their structure with certain maturity dates, notes may not be ideal for taxable accounts. When they mature, it creates a taxable event that gives us less control over deferring capital gains and managing a client's tax situation.

The beneficial return profile of a structured note is created by combining a zero-coupon bond that a bank issues and an option contract (or multiple options contracts). Together the bond and option contract(s) provide the desired exposure to an underlying index.

It is important to understand that when a bank issues a structured note, it is not "taking the other side of the trade" or "betting on what the market will do." Instead, the bank acts as a counterparty and facilitates creating whatever customized note we want. The bank then earns a fee for these services by profiting from the spread on the note (which refers to the difference between the costs of constructing the note and the price at which it is sold). Typically, the bank will immediately hedge any new market exposure through various risk management techniques.

The structured notes that we incorporate into portfolios are different from the notes sold to many investors by brokers. Our notes tend to be longer-term in duration and tied to the performance of a diversified index. This contrasts with other notes whose performance may be based on a small collection of individual stocks, which can be much more volatile and risky. Additionally, for each note we purchase, we leverage Bedel’s size to negotiate the best terms when soliciting bids from several of the largest, most credit-worthy banks in the U.S. and abroad. This ensures our proprietary notes strip out needless fees in order to have the most competitive and cost-effective terms possible.

Overall, structured notes are a great tool to provide exposure to the stock market but with embedded downside protection against long-term losses. However, they are complex financial instruments and can be challenging to understand. Don't hesitate to ask your team if you have any questions regarding their role in your portfolio.

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77. What is a private equity tender offer fund, and how does it compare with other types of investments?

A private equity tender offer fund is an innovative investment vehicle growing in popularity. It allows investors to access private equity investments while removing some of the barriers that have prevented these investments from being practical for many.

Here's a breakdown of how private equity tender offer funds compare with other types of investments:

Tender Offer Funds vs. Traditional Private Equity

Liquidity: Traditional private equity funds are highly illiquid. Investors cannot easily sell until the end of the investment term, often ten years or longer. Tender offer funds provide the potential for periodic quarterly liquidity events, which allow investors to sell their shares.

Investment Minimums: Traditional private equity funds often have high minimum investment requirements, sometimes reaching millions of dollars, making them inaccessible to most individuals. Tender-offer funds have lower minimums and permit investors to purchase them in retirement accounts.

Tender Offer Funds vs. Interval Funds

Investor Qualification: Interval funds can offer exposure to unique asset classes beyond public stocks and bonds for investors at essentially no investment minimums. Tender offer funds typically carry some investor qualification (e.g., Qualified Purchaser, Accredited Investor) that require certain income or net worth levels.

Liquidity: Tender offer funds employ a discretionary repurchase model where the quarterly redemptions are made only at the fund manager's discretion. Interval funds are required to allow a minimum of 5% of the fund's value to be redeemed each quarter.

Tender Offer Funds vs. Public Equities

Investment Universe: Public equities are traded on exchanges and offer daily liquidity. Tender offer funds invest in private companies that are less liquid. Private companies have increased in number and size over the past decade, making them an important asset class for a diversified portfolio.

Potential Returns: Public equities offer a range of potential returns, depending on company-specific factors. Private equity has historically provided the potential for higher returns and lower volatility than public equities.

While private equity tender offer funds provide several advantages and can be a valuable addition to a diversified investment portfolio, there are risks to consider. Be sure to talk with your Bedel Financial team to determine the most appropriate investments for your situation.

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78. Why are Car Insurance Premiums Increasing?

The US has seen back-to-back years of substantial premium increases in both the homeowner and auto insurance industries. According to S&P Global Market Intelligence, homeowner premiums have increased by an average of 18.2% over the past two years, while auto premiums saw increases of 26.9%.

How does Indiana compare to these national averages?

Over the past two years, Indiana has responded in a similar vein, with homeowner premiums increasing by 18.3% and auto premiums by 29.2%.

What’s the cause of these increased premiums?

There are a few reasons which come with quite the ripple effect.

Perhaps the most obvious is the influx of natural disasters over the past few years. This includes the Florida hurricanes and California wildfires that make national news. According to the NCEI, almost twenty severe storms across the US in 2023 cost billions of dollars.

Climate change and extreme weather make it more difficult for insurers to predict and measure risks, causing them to fall short on these significant payout claims. To make matters worse, insurance companies face premium increases from their reinsurance providers.

The inflating costs of repairing and replacing cars and homes only skyrocketed these already-high payout claims.

In response, home and auto insurance companies demand higher premiums to protect themselves.

Are there any signs of premium increases slowing?

State regulators find themselves in a pickle when it comes to working with these home and auto insurance companies. While states have some say over the price hikes, being too aggressive could force insurance companies to pull out of a state completely.

Insurance companies are still scrambling to deal with their past losses and mitigate against future losses, making it seem likely that premiums will only continue to increase.

Are there ways to save?

The first step is to shop around and see if you can find the same level of coverage for a lower premium. In addition, look for home and auto bundling discounts or safe driving programs. If these options prove futile, see what your premium would be if you raised your deductible. However, be careful. Consider your financial situation and capacity for risk before making any changes to your coverage.

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79. What data points do economists use to measure inflation?

Several different data points measure inflation, including the Headline Consumer Price Index (CPI), Core CPI, Supercore CPI, and Personal Consumption Expenditures (PCE) price index. Each examines different aspects of inflation.

Which of these metrics do you hear about most in the news?

Headline CPI is usually the most common measure of inflation and is reported monthly by the Bureau of Labor Statistics (BLS). It reports the price change in a basket of goods compared to the same basket one month ago and twelve months ago. This gives us the inflation rate month over month and year over year. The CPI reading for March 2024 showed inflation increasing 0.4% month over month and 3.5% year over year.

What is Core CPI?

The BLS also reports core CPI monthly. It attempts to remove the volatile components of headline CPI that can distort the numbers. Core CPI measures the same basket of goods as the headline but excludes food and energy, which tend to be more volatile. The Core CPI reading for March 2024 showed inflation increasing 0.4% month over month and 3.8% year over year.

Why is there a Supercore CPI?

As the Federal Reserve has been trying to navigate inflation's trajectory, they have turned more attention to the concentrated Supercore CPI. This measures the change in a basket of goods and services minus food, energy, and housing. By stripping these out, it gives the Fed a better idea of what inflation in the services sector looks like. Focusing on services inflation can give the Fed an idea of the change in the cost of labor. The Supercore CPI reading for March 2024 showed inflation increasing 0.7% month-over-month and 4.8% year-over-year.

What is the Fed's favorite inflation metric?

That could change from time to time, but typically, they focus on the PCE price index. This data point is released monthly by the Bureau of Economic Analysis. The index measures the change in prices of goods and services consumed by all households and nonprofit institutions serving households. PCE has broader coverage than CPI. The PCE reading for March 2024 showed inflation increasing 0.3% month-over-month and 2.7% year-over-year.

So, what is the inflation rate if all these numbers are different?

The answer to this question is what makes the Fed's job so tough. Inflation can be interpreted differently depending on which metric you choose to use. It can also be interpreted differently depending on everyone's experience in the economy. The economy is a complex organism with several different segments each experiencing their own level of inflation.

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Stay tuned for next week's question & don't forget to submit your question!

The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.

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