Tax and Financial Organization

Authored by Robert Blakely, CFP®, AIF®, ChFC®

It is that time of year again. A time of year when you would rather be doing something, anything other than filing your taxes. This is a great time, however, as you are gathering and organizing your tax documents to also set up a financial organization system. Here are some things that may be helpful when organizing not only your tax documents but your financial planning documents.

Have a Proper Filing System

One of the most overwhelming things about filing taxes is dealing with the huge amounts of paperwork. Though emails and online documents are making it easier, you still need to ensure that you have all the important documents organized and easily accessible. Keep your files close to where you do all your work to ensure easy access and avoid the possibility of misplaced files and documents.

Creating Your Files

The simpler you keep your documents, the easier they will be to file and retrieve at any time. Write down each category and label documents accordingly. Color coordinate to make it easier to find the category you are looking for.

Organizational Checklist

Now that you have your filing system in place, you can easily categorize your papers.

  1. Income and Investment Information
      • W-2 – showing your earnings and what was withheld for taxes
      • Taxable alimony, jury duty records, hobby income and expenses
      • Bank or financial institution statements
        • Did you make contributions to an IRA? (Form 5498)
        • Are you paying down student load debt? (Form 1098-E)
        • Did you take out a home mortgage? (Form 1098 Mortgage Interest Statement)
      • Last year’s state refund amount – If you itemize your deductions, then your state refund is considered income for tax purposes.
      • Other miscellaneous income – This could include award money, gambling winnings, lottery payouts, etc.
      • Any and all Form 1099s
  1. Insurance
    • This file will include all types of insurance: car, life, health, home and other insurance policies.
  2. Paid taxes and tax returns
    • When you properly document all the taxes you have paid, it can prevent overpaying. Include all real estate taxes, state and local income taxes and personal property taxes.
  3. Vehicles
    • Keep a copy of state taxes for your vehicles.
    • Claim the actual expenses of your vehicles if allowed. You should keep all gas receipts, maintenance and washing. Tolls and parking receipts are needed as well.
    • You must provide the record for mileage when using your vehicle for business purposes. Record the beginning mileage on January 1st and store it in the file so you know where to go at the end of the year with your ending mileage.
  4. Children
    • Keep your childcare expenses in this file. If you utilize a childcare provider, keep their tax ID number or SS number.
  5. Charities
    • Keep receipts for any physical or monetary donations you have made. In the case of itemizing, you need to document what you have given with the date of donation and the name and address of the organization.
  6. Health, Dental and Other Medical Expenses
    • Keep all health insurance costs and receipts for all unreimbursed medical expenses. These could include exams, surgeries and preventative care. It could also include braces, glasses, hearing aids, prescriptions and transportation to and from treatment.
    • Form 1095 – Health Insurance Coverage Forms
  7. Personal Information
    • Store your social security cards, birth, death, marriage, divorce certificates, prenuptial agreements, etc. for all family members.
  8. Social Security Information
    • If you receive Social Security, you will receive an SSA-1099 in January showing the total amount of benefits you received for the year.
  9. Self-Employment and Business Records (where applicable)
    • Business Expense Records
    • Quarterly Estimated Tax Payment Receipts
    • Mileage Records
  10. Estate Documents
    • Wills, Power of Attorneys, Health Care Power of Attorneys, Living Wills, Trusts
    • Keep all these for all family members in one place for easy access
  11. Logins & Passwords
    • Best practice is to write down your passwords and keep them in a safe place
    • Using a password manager to keep track of your logins and passwords can be helpful
    • Avoid using obvious personal information as a password

By following these tips, becoming well organized and keeping everything in one place you won’t dread tax time as much.

Check with your tax professional for guidance on your specific tax situation and for policies and regulations that may pertain to you.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Coronavirus: Investors Should Hold Their Nerve

Presented by Robert Blakely, CFP®, AIF®, ChFC
Authored by James Gard, Morningstar Investment Editor

Public health outbreaks and epidemics like the recent coronavirus can quickly scare investors and, eventually, affect economies and businesses. World stock markets have tumbled since the first death was announced on January 11, with Chinese equities more than 10% lower since then.

The recent coronavirus outbreak has shut down airports, halted trade, and led to the rapid construction of new hospitals in China. The effects of the outbreak may push China’s economy into a period of slower growth, with stocks trading lower as investors seek protection.

So, what does that mean for investors?

Key takeaways 

  • Looking at nine major outbreaks since 1998, there is little evidence linking global epidemics with long-term investment fundamentals.
  • The Chinese economy may slow, perhaps even meaningfully, but that is not a reason to invest or divest. Long-term investing is often best disconnected from short-term economic reactions, so investors should maintain their focus on what matters.
  • Across the portfolios run by Morningstar Investment Management, we do have a relatively small exposure to Chinese assets (both directly and indirectly) but remain confident these holdings will deliver positive outcomes for long-term investors.

Epidemics and investing

To understand the potential impacts of an outbreak, we must make a forecast. But it’s important to acknowledge that we’re trying to peer into the future, which is wrought with intellectual danger. No one can predict the future, but plenty of research suggest ways that forecasts can be improved.

One way to improve the accuracy of a forecast is to start with base rates. How often do outbreaks become epidemics? What effect do epidemics have on economies or markets? For this latter question, we look to Exhibit 1 to provide a sense of base rates—market returns following major epidemics in recent history.

As depicted, market participants tend to react to such unforeseen outbreaks, but markets tend to recover by the six-month mark. This suggests that sentiment drives early losses, but sustained economic impacts are less than perhaps investors feared at the onset.

Another way to improve forecasts is by admitting what you don’t and can’t know. Medical experts might be able to predict mortality rates etc, but no one can predict how unknowable factors might affect the spread of this or any outbreak. That’s not to mention knowing how fear might affect markets.

So how can we make a reasonable assessment of the potential impact of the coronavirus? As long-term, valuation-driven investors, our concern is any potential impact to businesses’ cash flows. For example, will the collective impact of the outbreak (fewer flights, less trade, loss of productivity, etc.) affect a few businesses, a few industries, or entire markets? That’s the question we’re asking.

Our answer is that, at this stage, we have to assume the outbreak will take a similar path to other recent epidemics, and thus we feel there’s no reason for investors to be alarmed. Note that there’s no “safe” approach for investors — for example, exiting stocks in favor of cash has its own risk, namely crystallizing any losses suffered to sentiment while almost surely missing out on a rebound if the virus were to be contained quickly. So, we want to proceed by assuming what we consider to be the most likely scenario, while taking other possible outcomes into account.

Ultimately, we are very watchful but aren’t taking any action. Across our portfolio range, we may hold exposure to Chinese stocks, emerging markets stocks, emerging markets debt, and companies that sell into China to varying degrees depending on the portfolio mandate. Even so, we are still expecting that these holdings will deliver positive outcomes over the long term, and it would require a clear impact to fundamentals for our view to change.

However, once the facts change, we would expect to change our minds. If we were to see a clear and significant potential impact to investment fundamentals, we would carefully study the situation, conduct rigorous scenario analysis, and try to incorporate the new information into our portfolios. Until then, we remain vigilant.

Don’t Panic Yet

With lives at stake, it would be uncaring to call the coronavirus “noise”. Yet, if we focus on the investor’s perspective, we believe it is not time to act. Moreover, we remain confident in our portfolio holdings because they reflect a solid base of research and resemble a well-reasoned way to invest. We certainly won’t be hitting the panic button and we hope you won’t either.

© Copyright 2020 Morningstar. All rights reserved.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

What is Financial Wellness?

Authored by Robert Blakely, CFP®, ChFC, AIF®

Have you made your New Year’s resolutions yet? Chances are, your resolutions revolve around getting more sleep, spending more time with loved ones, eating better and going to the gym every day. But have you resolved to get your finances in check? In a recent survey, 87 percent of Americans said nothing makes them happier or more confident than healthy finances. Can you say that you are content with your financial health and well-being?

Achieving money–related balance and financial wellness isn’t necessarily about investing a set dollar amount or your ability to pay for something expensive without flinching. It’s much broader. It is about getting your entire house in order. It can be as simple as chatting about starting your travel fund, saving $20 a month or whether or not your company offers a 401(k) match. Financial independence affords us the opportunity to live the life that we want. It is about developing a healthy relationship with money and feeling a sense of control over short-term obligations while working toward those long-term goals.

One essential first step towards financial wellness is actively talking about your finances. That is not to say you have to divulge personal details about your savings and debt to your whole group of friends, but choosing a mentor or meeting with a financial advisor to put together an action plan can help.

Planning for financial wellness includes the following steps:

Develop goals and set priorities.

What do you want to accomplish? Where do you want to be? When do you want to be there?

Assess current assets and resources.

Document your financial snapshot currently.  Know where you are starting from.

Identify barriers to reaching your goals.

If you are confused about a particular topic, like the different types of retirement funds offered, ask questions. There are plenty of free resources online to help learn the basics of financial literacy. And that financial advisor you contact will be your best resource to guide you down the path of financial wellness.

Incorporate strategies into your plan.

Commit to small steps to improve your current financial situation. Bring your lunch to work a few days a week; set up an automatic transfer each month to your savings account; forego that expensive cup of coffee each day –small changes each day can make a big difference and build confidence and discipline over time.

Put the plan into action.

Be sure to celebrate the milestones along the way. Those small accomplishments will continue to push you towards success as you gain that financial well-being you so deserve.

Monitor your progress, evaluate where you are and adjust the plan as necessary.

Be flexible and respond to change. When necessary, reset the course which will bring you back to Step 1, and the process continues.  Financial planning is not a one-time event. It is an ever-changing, ongoing journey, providing the framework for achieving short and long-term goals on your quest for financial wellness.

 

Engage with the entire Blakely Financial team at www.blakelyfinancial.com to see what other expert advice we can provide towards your financial well-being.

Robert Blakely, CFP® is a financial advisor with Blakely Financial, Inc. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Start Saving for College Today

Presented by Emily Promise, AIF®, APMA®, CRPC®

There’s no denying the benefits of a college education: the ability to compete in today’s job market, increased earning power, and expanded horizons. But these advantages come at a price. And yet, year after year, thousands of students graduate from college. So, how do they do it?

Many families finance a college education with help from student loans and other types of financial aid such as grants and work-study, private loans, current income, gifts from grandparents, and other creative cost-cutting measures. But savings are the cornerstone of any successful college financing plan.

College costs keep climbing

It’s important to start a college fund as soon as possible, because next to buying a home, a college education might be the biggest purchase you ever make. According to the College Board, for the 2019-2020 school year, the average cost of one year at a four-year public college for in-state students is $26,590, while the average cost for one year at a four-year private college is $53,980. Many private colleges cost substantially more.

Though no one can predict exactly what college might cost in 5, 10, or 15 years, annual price increases in the range of 3% to 5% would certainly be in keeping with historical trends.

This chart can give you an idea of what future costs might be, based on the most recent cost data and an average annual college inflation rate of 5%. (Source: College Board, Trends in College Pricing 2019)

Year                   4-yr public         4-yr private

2019-2020        $26,590            $53,980

2020-2021        $27,920            $56,679

2020-2022        $29,315            $59,513

2022-2023        $30,781            $62,489

2023-2024        $32,320            $65,613

2024-2025        $33,936            $68,894

2025-2026        $35,633            $72,338

2026-2027        $37,414            $75,955

2027-2028        $39,286            $79,753

2028-2029        $41,250            $83,740

Tip:  Even though college costs are high, don’t worry about saving 100% of the total. Many families save only a portion of the projected costs — a good rule of thumb is 50% — and then use this as a “down payment” on the college tab, similar to the down payment on a home.

Focus on your savings

The more you save now, the better off you’ll likely be later. Start with whatever amount you can afford, and add to it over the years with raises, tax refunds, unexpected windfalls, and the like. If you invest regularly over time, you may be surprised at how much you can accumulate in your child’s college fund.

Monthly Investment  5 years       10 years          15 years

$100                            $6,977         $16,388            $29,082

$300                            $20,931       $49,164            $87,246

$500                           $34,885        $81,940            $145,409

Note:  Table assumes an average after-tax return of 6%. This is a hypothetical example of mathematical principals, is used for illustrative purposes only, and does not reflect the actual performance of any investment. Fees, expenses, and taxes are not considered and would reduce the performance shown if they were included. Actual results will vary. All investing involves risk, including the possible loss of principal, and there can be no guarantee that any investing strategy will be successful.

College savings options

You’re ready to start saving, but where should you put your money? It’s smart to consider tax-advantaged strategies whenever possible. Here are some options.

529 plans

529 plans are one of the most popular tax-advantaged college savings options. Contributions accumulate tax deferred and withdrawals are tax free at the federal level if the money is used for qualified education expenses. States may also offer their own tax advantages. (For withdrawals not used for qualified expenses, earnings are subject to income tax and a 10% federal penalty.) 529 plans are open to anyone and lifetime contribution limits are high, typically $350,000 and up (limits vary by state). In 2020, lump sum gifting up to $75,000 is allowed ($150,000 for joint gifts) with no gift tax implications if certain requirements are met.

There are two types of 529 plans: savings plans and prepaid tuition plans. A 529 savings plan is an individual investment account similar to a 401(k) plan where you direct your contributions to one or more of the plan’s investment portfolios. Funds in the account can be used to pay tuition, fees, room and board, books, and supplies at any accredited college in the United States or abroad. Funds can also be used to pay K-12 tuition expenses, up to $10,000 per year. By contrast, the less common 529 prepaid tuition plan allows you to purchase college tuition credits at today’s prices for use in the future at a limited group of colleges that participate in the plan, typically in-state public colleges.

Coverdell ESA

A Coverdell education savings account (ESA) is a tax-advantaged education savings vehicle that lets you contribute up to $2,000 per year for a beneficiary’s K-12 or college expenses. Your contributions grow tax deferred and earnings are tax free at the federal level if the money is used for qualified education expenses. You have complete control over the investments you hold in the account, but there are income restrictions on who can participate, and the $2,000 annual contribution limit isn’t likely to put much of a dent in college expenses.

Custodial account (UTMA/UGMA)

A custodial account allows a minor to hold investment assets in his or her own name with an adult as custodian. All contributions to the account are irrevocable gifts to your child, and assets in the account can be used to pay for college. When your child turns 18 or 21 (depending on state law), he or she will gain control of the account. Earnings and capital gains generated by the account are taxed to your child each year under the “kiddie tax” rules. Under the kiddie tax rules, a child’s unearned income over a certain threshold ($2,200 in 2020) is taxed using the trust and estate tax rates.

Roth IRA

Though technically not a college savings option, some parents use Roth IRAs to save and pay for college. Contributions to a Roth IRA can be withdrawn at any time and are always tax free. For parents age 59½ and older, a withdrawal of earnings is also tax free if the account has been open for at least five years. For parents younger than 59½, a withdrawal of earnings — typically subject to income tax and a 10% premature distribution penalty — is spared the 10% penalty if the withdrawal is used to pay for a child’s college expenses.

A final word on financial aid

Many families rely on some form of financial aid to pay for college, which may include loans, grants, scholarships, and work-study. Financial aid can be based on financial need or on merit. To determine financial need, the federal government and colleges look primarily at your family’s income, but other factors come into play, including your assets and how many children you’ll have in college at the same time.

To get an idea of how much aid your child might be eligible for at a particular college, you can use a net price calculator, which is available on every college website. The bottom line, though, is to beware of too much borrowing. Excessive student loan debt — and parent debt — can negatively affect borrowers for years. The lesson? The more you save now, the less you and your child will need to fund later.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.

Emily Promise is a financial advisor located at Blakely Financial, Inc., 1022 Hutton Ln., Suite 109, High Point, NC 27262. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at (336) 885-2530 or at emily@blakelyfinancial.com.

Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.

This communication is strictly intended for individuals residing in the state(s) of AK, AZ, AR, CA, CO, FL, GA, IL, IA, MD, MI, MS, NJ, NY, NC, OK, PA, SC, SD, TX, VA, WV and WI. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2019

Life Insurance

Why Life Insurance is Critical to a Sound Financial Plan

Presented by Will Armfield AAMS®, AIF®, CRPC®

Life Insurance as part of a financial plan

When implementing a financial plan, it can be tempting to only focus on the most likely outcomes, such as retirement or saving for children’s education.  Saving towards long-term goals for you and your family are certainly a priority, but not at the expense of protecting your family should something happen to you.

Life insurance can be an important part of protecting the goals you have for your family.  If something were to happen to you, would your family be able to live at the same living standard without your income?  Would they be able to meet the goals you wanted to achieve for them?

Often times life insurance is thought of as only needed to cover debt and burial expenses.  While those are certainly reasons to have life insurance, those are typically smaller sources of need.  The major need is often income replacement should something happen to you during your earning years.  Life insurance coverage needs are typically highest in a family’s early years when children are young, debt is at its highest, and the income of the earner(s) in the family is rising.

Review the plan

While protecting your family’s financial plan is important, reviewing it regularly is of equal importance.  One constant throughout our lives is…change.  When creating a financial plan, we often discuss the importance of reviewing it, and keeping your advisor up to date about changes in your life and changes to your goals.  This also applies to life insurance.

Your coverage needs may change as you continue to pay down debt, save towards your goals, and get closer to retirement.  However, some needs may rise as a family’s standard of living typically increases with time, while many of the previously mentioned needs decrease.

Beneficiaries

If you currently have life insurance, or are reviewing your current plan, the easiest most productive step you can take is reviewing your current beneficiaries on policies, accounts, etc.  They are sometimes overlooked or misunderstood.  Sometimes clients change their wills and assume that those documents will serve as the definitive answer as to who your beneficiaries are.

However, an account with a named beneficiary, supersedes a will and ultimately determines where the asset goes regardless of what the will states.  Life insurance policies, IRA’s, T.O.D. (Transfer on death), and P.O.D. (Payable on death) accounts are some examples of where you will see named beneficiaries.  Also, be sure to check qualified plans like employer retirement plans and life insurance through your employer.

The stories of ex-spouses receiving inheritance instead of the current spouse are the examples most used to motivate clients to check their beneficiaries often.  Other examples include clients getting married and forgetting to change the beneficiary from their siblings or parents to their spouse or forgetting to add children that weren’t born when the policy was taken out.

Summary

Whether you currently have a financial plan or not, life insurance is something you should discuss with your financial advisor to see if it should be included in a plan to help you protect your family.  Reviewing that plan regularly is recommended as life events changes your circumstances, and at the very least checking beneficiaries is an easy step you can take today to be sure your wishes would be implemented.

Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Will Armfield is a financial advisor located at Blakely Financial, Inc., 1022 Hutton Ln., Suite 109, High Point, NC 27262. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (336) 885-2530 or at will@blakelyfinancial.com

© 2019 Commonwealth Financial Network®

Back to School

Back-to-School: Saving for College

Presented by Emily Promise, AIF®, APMA®, CRPC®

It’s no secret that the cost of higher education has been steadily hiking higher and higher. Calculating the sum of money, it will take to send a child to school in today’s environment could be an eye watering exercise. The cost of sending two, three, or four, crippling.

Of course, we are not left defenseless against the financial wave that many parents can see and feel coming in the distance, we have two weapons in our arsenal for combating the incredibly high cost of sending a child to college, loans, and savings. Used in conjunction, these tools can be the difference between giving your child the start you envisioned, or having no choice but to saddle themselves with payments that stretch into their 40’s.

The cost of sending a child to school has been skyrocketing in the last few decades. A recent article by Forbes magazine cites the fact that increases in college expenses have outpaced increases in earnings per household by a factor of 8. This creates a perfect storm for families when combined with the fact that the pool of work for people without college educations seems to shrink each year. More and more students feel as if they have no choice but to attend school at all costs. You can prepare yourself for this storm by saving appropriately and understanding the tools that you must accomplish your goals; we’ll seek to understand some of these strategies and tools over the next few paragraphs.

When it comes to actually saving for college there is an important conversation that parents should have with their children about setting expectations for college. Some families decide that they want to fully cover the costs of college for their children, and for others they want to keep their child engaged by having them assume a portion of the payment. Whatever you decide, this is a family matter that doesn’t have a definitive right answer. The only mistake you can make here is failing to have the conversation at all, or deciding to have it too late, where your decision has ultimately been made for you.

It is important to involve your child in this process as they may have certain goals or desires that require special planning. Do they want to pursue a degree in medicine or law? Do they want to go to a prestigious school with a name? Or will a state school serve them just fine?

Once parents and students have determined what feel comfortable as far as a share of the cost, the next step is to begin saving and planning for any loans that may be necessary. It’s a good idea to start saving right away. Often when a child is born family and friends offer gifts and donations, this is a perfect time to set aside some money for a child to use later in life. When it comes to deciding how much to save, the old saying the more the merrier may apply. You can’t necessarily overshoot college savings, any money that the child doesn’t spend on college can easily be repurposed for a down payment on a house, or a few months of income while searching for the perfect job.

The point there being that it is never too early to start saving for college, there are even some nice tax breaks available to people who do so. One of the most important concepts to use to your advantage when planning for college is compound interest. Everyone is familiar with the idea, but many fail to leverage it effectively in college savings. One of the only predictable things about college expenses will be incurred, you can’t really say that college savings sneaks up on you, can you?

Given a definite timeframe, you can let the market, and compounding returns take your hard work and multiply it over time. The sooner you set money aside, the more work the market does, and the less you and your spouse have to do. When it comes to college savings, we need all the help we can get, take advantage of investing when saving for college and you’ll have at least one ally in the fight.

This brings up an interesting question. For forward thinking parents who can set something aside, where is the best place to do so? Your local bank? A brokerage account? While individuals should explore all options to find what fits for you, for many people this is where the 529 comes in. Most have at least heard of this savings vehicle, but few understand how it works. It goes something like this, parents, relatives, and even friends can contribute to your child’s 529 account.

The 529 is like an investment account that is specifically geared towards funding college expenses. Once money is inside the account, it grows tax deferred according to whatever investments the account owner has selected. The 529 is a government run program, and because of that, they offer only a few different portfolio options for parents to invest in. Because children are not capable of making these types of complicated investment decisions, a custodian (usually mom or dad) holds and manages the account until the child is old enough to use it. Depending on your state of residence (34 states do allow this) you may even be able to write off up to $15,000, per individual donor, that you contribute to a 529 plan on your taxes.

Once funds are inside the account they must remain there unless used for a qualified educational expense. In past years this meant expenses incurred at an accredited college, however with the most recent tax changes, it became legal for parents to remove funds for private school tuition, even in elementary school. If the funds being taken from the account are used for a qualified expense, they are taken from the account tax free. Any money taken out for a non-qualified purpose will be taxed as income AND be assessed a 10% penalty to whomever receives the funds.

There are many rules and regulations regarding distributions taken from a 529 plan, so be sure you’ve covered your bases before withdrawing any funds or you too may pay this 10% penalty. Be careful not to take more out of your account in any given year than the amount of qualified educational expenses that you occur. Some avoid this entirely by taking money from the account on a re-imbursement basis. If the distribution from your account took place in the same year that you incurred the expense, there will be no adverse tax consequences.

Other rules for 529’s concern contributions to the account. While there technically is no annual limit for contributions, unfortunately for grandma and grandpa, individuals who contribute more than $15,000 will have that money count against their lifetime gift tax exclusion. This limits the amount of money that anyone can write off in one year from contributing to one of these plans. As for aggregate limits, a group of people could contribute any amount that they see fit to a 529 in any given year.

Think of the 529 like your child’s college 401k. A special savings account designed for empowering your child to take their next step. The 529 can be used for computers, room and board, tuition, and many other expenses. You can easily determine if you have encountered a qualified educational expense on the IRS’ website!

Aside from the 529 plan there does exist a more obscure account known as the ESA, or Coverdell Education Savings Account. These accounts custodial education savings vehicles like the 529, but different in a few key ways. Namely, the investment options available to you in an ESA are much broader than those available in a 529 account. Because these accounts are run by private institutions, a range of investment options are available within them.

Like 529 accounts, Coverdell ESA’s also come with income limits, and put a limit on what you can use the money for. Unlike a 529, ESA’s allow parents to take withdrawals from the account for any expense related to schooling at any age. This means expenses related to all grade levels qualify as opposed to the 529 where only college and some tuition for lower levels of education are covered. As mentioned above however, single parents who earn between $110,000 will be locked out of contributing, married couples at $220,000. The other major difference in funding is the low cap. Only $2,000 per child can be added to a Coverdell ESA in any year.

After working through some of the data, most families should be able to find a plan that works for them. While many things can change between your child’s birth and sending them off to their first day on a college campus, it seems a few things never change. Costs are increasing! Parents who start early can combat this, however, use the power of compounding and take some of the stress off your plate by letting the S&P 500 do some of the heavy lifting. You and your spouse will be thankful for it when you see the size of the first semesters bill!

College is an exciting time in a family’s life. For your child this is the beginning of their journey. From here they will shape who they are and create friendships that will last them a lifetime. Don’t let this exciting adventure be marred by disagreements around money! Get a head start and you’ll be looking forward to graduation day rather than dreading it!

 

Emily Promise, AIF®, APMA®, CRPC® is a Financial Advisor with Blakely Financial where she focuses on comprehensive wealth management. emily@blakelyfinancial.com

Blakely Financial, Inc. is an independent financial planning firm located in High Point, North Carolina specializing in Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Charitable Giving Strategies. Blakely Financial is affiliated with Commonwealth Financial Network.

Blakely Financial, Inc. 1022 Hutton Lane, Suite 109, High Point, NC 27262 (336) 885-2530

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. By investing in a plan outside your state of residence, you may lose any state tax benefits.

 

Budget

Establishing a Budget

Presented by: Emily Promise, AIF®, APMA®, CRPC®

Do you ever wonder where your money goes each month? Does it seem like you’re never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals.

Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose. Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you’re not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

Evaluate your budget

Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don’t worry! All it will take is some determination and a little self-discipline, and you’ll eventually get it right.

Monitor your budget

You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep Page 2 of 4, see disclaimer on final page November 08, 2019 track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

Tips to help you stay on track

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress
  • Stay disciplined: Try to make budgeting a part of your daily routine
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
  • Find a budgeting system that fits your needs (e.g., budgeting software)
  • Distinguish between expenses that are “wants” (e.g., designer shoes) and expenses that are “needs” (e.g., groceries) • Build rewards into your budget (e.g., eat out every other week)
  • Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will continue to increase

 

Emily Promise is a financial advisor located at Blakely Financial, Inc., 1022 Hutton Ln., Suite 109, High Point, NC 27262. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at (336) 885-2530 or at emily@blakelyfinancial.com.

Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.

This communication is strictly intended for individuals residing in the state(s) of AK, AZ, AR, CA, CO, FL, GA, IL, IA, MD, MI, MS, NJ, NY, NC, OK, PA, SC, SD, TX, VA, WV and WI. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2019.

 

 

Do I need estate planning?

Do I Need Estate Planning?

Presented by Robert Blakely, CFP®, AIF®, ChFC®

Everyone needs an estate plan, no matter the size of the estate. Not only does this plan help carry out your wishes after your passing, but it benefits you while you’re living. A good estate plan includes a strategy to manage your financial affairs and health care decisions in the event that you cannot. It can prove invaluable in easing the administrative burden for your family and friends during a time of emotional distress.

With no formal estate plan, your survivors may not be able to access your assets until a personal administrator or guardian is appointed and the distribution plan is approved by the probate court. This process can last more than a year in some states.

Conversely, an estate plan benefits you, your family, and friends by allowing you to:

  • Quickly settle issues related to your estate, therefore minimizing expenses
  • Provide financial support for your friends or family members, such as a relative with special needs
  • Avoid possible disruption of your business during the time of transition
  • Direct money to your favorite charity or religious organization
  • Reduce taxes owed after your death

It is advisable to consult with a qualified attorney about your specific situation and unique goals. Estate planning, however, does not have to be complicated or expensive.

Estate planning for parents
Estate planning is essential for parents. This is especially true if you are not currently married to your children’s mother or father. Your children’s surviving parent will generally be appointed guardian. Estate planning will provide the flexibility to name someone else to oversee the money that you leave to your children. If you have remarried, an estate plan can provide support for your surviving spouse, as well as protect your children’s potential inheritance should your surviving spouse remarry.

Your children’s inherited assets must be managed for them until they reach their legal age. In some states, the court may authorize a minor’s guardian to open a “blocked account” or guardian account at a bank or a financial institution. These types of accounts are very restrictive, and withdrawals are not allowed during the child’s minority, except by court order. Alternatively, a custodial account may be established under a state’s Uniform Transfers to Minors Act (UTMA). In most states, a UTMA account will terminate when the child reaches 18 or 21. If you believe your children would not be ready to handle large sums of money at young ages, talk to your attorney about other alternatives, such as creating a trust. You can instruct your trustee to consider your children’s financial maturity or special needs when making distribution decisions.

Elements of an estate plan
A plan generally comprises three elements:

  1. The last will and testament is a blueprint that directs who will receive your property upon your death and the specific circumstances in which they will receive it. Your will governs only property that flows through probate. For example, financial assets with beneficiaries other than your estate, jointly owned property with rights of survivorship, and assets in a trust funded during life are not distributed under the terms of your will.
  2. The durable power of attorney (POA) authorizes someone, often called an agent, to handle your financial affairs if you were to become incapacitated. Without a durable POA, your family members would have to institute legal proceedings and request a probate court to appoint a guardian to carry out these responsibilities.
  3. trust is a formal arrangement allowing the trustee to hold assets. The trustee distributes assets to your beneficiaries at the time that you direct in the trust document. There are two basic types of trusts: a living trust and a testamentary trust. A living trust is funded during your lifetime and may receive your estate assets after probate is complete. It is often called a revocable trust because you retain the right to make changes or remove property during your lifetime. A testamentary trust is created after your passing and your will is approved by the probate courts.

Key terms
An understanding of key terms commonly used in estate planning will help as you create your plan. Key terms include:

Probate. This term refers to the legal process of administering a will or distributing property. Depending on the size of your estate and your state’s laws, the probate process can be either simple or complex. You may be able to avoid some legal complexities by minimizing how much of your assets flow through the probate process. By funding trusts during your life, naming beneficiaries on insurance or financial accounts, and registering jointly owned property to include rights of survivorship, you may be able to avoid probate, if doing so meets your estate planning goals.

Executor. Also known as the administrator, your executor follows the instructions you outlined in your will, ensuring that your wishes are carried out. If you do not leave a will, the courts will appoint an executor or administrator over your estate.

Intestate. If a person dies without a will, the probate property will be distributed in accordance with state law. This is called an intestate. This could mean that the people most important to you, or those most in need, will not receive what you would have wished.

Simplified probate procedure. Almost every state offers small estates an alternative to the formal probate process. The requirements and rules differ from state to state, but if the estate qualifies, simplified probate procedures allow a speedy distribution of assets to the heirs without waiting for court approval.

Letter of instruction. This document provides informal guidance to your executor and can add important clarification about your wishes. It may include information about your funeral arrangements, wishes for your pets’ care, or descriptions of specific assets’ sentimental value. Your executor may find that your letter of instruction is the most important document of your estate plan.

Health care proxy. Also known as a health care POA, this document authorizes someone to make health care decisions if you are not able to. It can also allow your wishes to be known about end-of-life decisions in the event that you are unable to communicate. The latter may be part of your health care POA document or an advanced medical directive, also referred to as a “living will.”

Beneficiary designations. Retirement plans, life insurance, and annuity policies allow you to name who will receive your account without waiting for probate to conclude. Some brokerage and bank accounts, known as “transfer on death” or “paid on death” accounts, also allow you to name beneficiaries. If all your primary beneficiaries predecease you, your named contingent beneficiaries will inherit the accounts. If you fail to name contingent beneficiaries, your estate is usually the default beneficiary.

Per stirpes. This Latin term can be used in conjunction with a beneficiary designation as a substitute for a lengthy list of contingent beneficiaries. If part of the estate would have gone to one of your previously deceased children, the inherited share is divided among the offspring of this person. The laws governing how the inheritance is divided differ from state to state. It is important to understand how financial institutions where your accounts are held will administer per stirpes inheritances.

Joint ownership. There are several ways to own property with another person, but not all registrations avoid probate. In most states, joint ownership, tenancy by the entirety, and community property with right of survivorship can act as effective substitutes for a will. Adding a joint owner to your property merely to avoid probate is not always a good idea because it may cause a taxable gift, subject the property to your joint owner’s creditors, or raise disputes after your death.

Important considerations
Estate planning can be complex. It is important to keep the following in mind:

  • Be sure that your beneficiary designations reflect your wishes. Contact your current and former employers, your investment advisor, and your life insurance agent for the required paperwork to make any changes, if necessary.
  • Don’t make the mistake of assuming a change in your circumstances, like a remarriage, will make a prior designation null and void. Always make beneficiary changes on the correct paperwork specific to the financial institution.
  • Include both primary and contingent beneficiaries for your accounts. If your primary beneficiaries die before you, without a backup beneficiary, the death benefit would be paid to your estate. This can result in unnecessary fees and delays associated with probate, as well as accelerated taxes.
  • Relatives with special needs or disabilities rarely inherit directly. Receiving an inheritance outside of a special needs trust could mean the loss of valuable government benefits.
  • A spouse who inherits a retirement account has several options for deferring income taxes until the money is needed. When your children inherit retirement accounts, they cannot defer taking distributions from the account until their own retirement. They will be required to withdraw at least a minimum distribution from the inherited IRA each year. This is often called “stretching” the distributions or setting up a “stretch IRA” because the taxes due are stretched over their lifetime.
  • You can name a beneficiary of your retirement accounts, but be aware of the tax impact. In the end, the advantages of having the retirement accounts managed by a trustee may outweigh the tax disadvantages.

How much will estate planning cost?
It depends. Costs will vary from state to state and by the size of your potential estate. There are many steps you can take yourself, without an attorney, such as adding beneficiaries to financial accounts. Many people, however, need several legal documents, such as a will, a durable POA, and a health care proxy for their estate plan. Although free and online resources for these documents are available, they may not be right for your specific needs.

It’s always in your best interest to discuss your situation and goals with a knowledgeable attorney. Ask about fees and the cost of an estate plan in your first meeting. Many attorneys charge a flat fee for simple estate plans. When the estate is significant and tax planning is required, it is common for an attorney to charge hourly. If this is the case, remember that you can save a significant amount by organizing your documents, creating a net worth statement, and thinking ahead of time about your goals and potential heirs.

If you decide to use “fill in the blank” legal documents, be aware of what is required in your state for validation. Many attorneys will answer questions about the legal documents you intend to use for a reasonable consultation fee.

 

Blakely Financial, Inc. is an independent financial planning firm from High Point, North Carolina specializing in Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Charitable Giving Strategies.

Robert Blakely CFP® is a recognized Chairman Level Advisor, a distinction based on annual production of the advisors affiliated with Commonwealth Financial Network, and founder of Blakely Financial, Inc,. who focuses on comprehensive wealth management. rob@blakelyfinancial.com

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 

Family Finance Meetings: When To Have Them & Why

By Robert Blakely, CFP®, AIF®, ChFC®

Summer vacations are an opportunity for families to grow closer to each other and to build life long memories.  It’s also a great excuse to schedule and discuss financial well-being and preparedness since important topics like this are often overlooked. As a financial planning firm, we often schedule periodic reviews with our clients throughout the year to plan, reassess strategies, and refine direction based on changes to our client’s needs. So, wouldn’t it make sense for families to have the same conversations among each other?

You work hard to teach your kids what they need to become well rounded and successful adults. You teach them which foods are good for them, how to play fairly with friends, and encourage them to build a strong work ethic and moral compass. You do these things because you recognize that the lessons, they learn today will ripple outwards through their lives as they move on to their own careers, their own families, and their own challenges.

Why not work just as hard to teach your family to build strong financial habits?

Letting these difficult conversations slide may be easier, but when you rob your children of their ability to learn from your mistakes, you doom them to learn from experience. The cost of poor money decisions your child makes in their twenties could permanently dampen their lifetime earning potential set them back decades. Families who make a concerted effort to have financial discussions and pass on healthy habits have a better opportunity to grow financially stronger than those who avoid the talk.

Family finance meetings aren’t just for those of us with kids, however. Statistics tell us that one in five couples who filed for divorce last year cited finances as the reason that they split. Whether we like to admit it or not, money plays a role in just about every aspect of our lives. Your financial resources will directly impact the vacations you take, the insurances and protection you can afford, the opportunities you can provide to your spouse, and everything in between. You and your significant other can stay in sync on spending and other related finances by having regular healthy planning discussions.

How do we broach what sometimes can be difficult financial subjects with loved ones? The simple answer, like most things in finance, is that there is no one size fits all solution. Not only do people, and their family relationships differ greatly between individuals, but value itself is subjective. What’s important to one family may be far down on the list for another. What one couple might find to be a perfect solution could create additional stress for another. The answer starts with open and honest communication.  That’s how we approach it with our clients at Blakely Financial.

Create an environment where each member of the family can discuss where the finances are today, and where they would like them to be in the future. With a goal clearly stated, the task and the conversation become simpler. The question to ask yourself is this. “How do I create a forum in which each member of the family has the opportunity to clearly offer their input on the family’s financial picture?”

For couples try sitting down once a month, opening a bottle of wine, and reviewing the credit card statement. Create a judgement free zone, where line by line you review spending habits and come to agreement on things you’d like to do more or less of. Keep in mind that the objective here is not necessarily creating a budget or identifying wasteful spending, its simply to recognize, and reconcile each person’s view of the family’s finances.

Some families may choose action steps and start setting goals and outlining responsibilities of each party. Most will find that simply having an opportunity to look at the big picture, together, strengthens bonds and gives everyone more insight into why the other is doing what they’re doing. Open and honest dialogue creates certainty of where the family’s finances stand, that alone reduces the chances of becoming overwhelmed and disorganized which is typical when discussing finances.

Financial teamwork strengthens bonds by cultivating a sense of camaraderie and a mutual appreciation for each other’s work. If you and your spouse can calmly and openly discuss spending and savings habits, you will be well on your way to not only financial balance but a healthy happy relationship. Seeking advice and guidance from a financial professional is also a great addition to conversation. This will quickly set yourself apart from the average American household.

Those with children, discussing dollars and cents may seem a little more difficult if the people at the table are more worried about superheroes and sleepovers than they are with financial responsibility. Once again this will need to be a discussion that couples have together on how best to involve children in the family finances. Keeping everyone at the table after dinner to discuss a savings goal may be a good place to start. Beginning with something tangible, a reward even, may also lead to some interesting discussion.

Bring the family together to decide on where next year’s vacation might be, discuss the costs associated and in simple terms draw up a savings goal for your trip. Each month discuss how much you were able to save, how much you have set aside, and how close you are to achieving your goal. Encourage your children to contribute small allowances and thank them for doing so. When trip time comes around, recognize that you are only able to enjoy this experience because of the hard work and patience you showed in saving up.

Something as simple as creating a basic family budget, where monthly amounts are discussed amongst everyone at the table can begin to introduce your children to the concept of planning out income and expenses ahead of time rather than taking them on as they come. In an era where most families are living paycheck to paycheck, you will be giving your children a head start to communicating about finances. As many people learn the hard way, we inherit many of our habits and behaviors from our parents, good and bad. Even if your children are only loosely connected to the discussion, they will be internalizing some very important skills. You will be giving them exposure to prudence, cooperation, and communication, valuable traits that will serve them well for the rest of their lives, and their children’s lives. And building “Legacy” lessons is crucial.

Regardless of how you decide to broach the subject, or who is sitting at your table, the important thing is that you have the conversation. Whether it’s an in-depth budgeting discussion, or a brief few minutes after dinner to talk through the bills this month, you really can’t go wrong by discussing your family’s finances in a calm and constructive way. You and your partner will be stronger and happier for it, and your children will be internalizing critical life lessons about how to handle money, how to treat a spouse, and how to discuss difficult subjects with loved ones.

The importance of having the family finance conversation cannot be understated. Money is threaded through everything that you and your family hope to do in in your lives, and it can make or break you. Don’t procrastinate or let tensions boil over concerning finances.  Be a family that cooperates and plans together. This Summer schedule in a “Family Financial Meeting”. You will be able to experience more, together, for generations to come.

Blakely Financial, Inc. is an independent financial planning firm from High Point, North Carolina specializing in Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Charitable Giving Strategies.

Robert Blakely CFP® is a recognized Chairman Level Advisor, affiliated with Commonwealth Financial Network, and founder of Blakely Financial, Inc,. who focuses on comprehensive wealth management. rob@blakelyfinancial.com