Blog Posts Archives - Castle Rock Financial Planning

End of Year Tax Planning Ideas

February 14, 2025 By Lauri Salverda, CFA, CFP®, AIF®

December is not too late to do last minute tax planning. In fact, it is the perfect time to review your taxes and look for some savings. At this point you should have a good idea of your wages, Social Security and pension income, dividends, interest and capital gains in order to estimate your 2024 taxes.

Tax Loss Harvesting

The first place to look is to see if you have losses on any of your table accounts. If you take these losses, they can be used to either offset taxable gains or you can take up to $3,000 in capital losses each year. Any additional losses can be carried forward to the following year. Just remember that if you have owned the security for less than 30 days, sell it and then repurchase “a substantially similar one” within 30 days, according to the IRS the loss is considered a wash sale and is not allowed.

Maximize Health Savings Accounts

If you have a high deductible healthcare plan you are eligible for a Health Savings Account (HSA). You can always maximize your contribution to your HSA. Earned income contributed to an HSA is not considered income on your taxes, therefore, you do not pay taxes on the contribution. Additionally, the earnings on the HSA are never taxed as long as the account is used to pay for or reimburse yourself for health care expenses. If you can pay your healthcare expenses out of pocket, keep your receipt and when you need additional money you can reimburse yourself for those pervious expenses with money that has grown tax-free. The contribution limits for 2024 are $4,150 for Individuals or $8,300 for Families. These limits also include any employer contributions, so if you are a family member and your employer contributed $1,000 to your HSA, your maximum contribution would be limited to $7,300.

Qualified Charitable Distributions (QCD)

If you are 73 or older and have not taken your entire Required Minimum Distribution (RMD) and you don’t feel you need the money you can make a donation directly from your IRA or Qualified Plan to a qualified charity. It must be distributed directly to the charity and not pass through your personal accounts to be considered a QCD. The benefit is that the distribution is not considered income to you, as a normal RMD would be, although you cannot include the donation in your deductions.

Fund an IRA

If you have additional resources, you can fund an Individual Retirement Account (IRA) even if you have contributed to an employer retirement plan. There are certain income limits that apply. If you are under Modified Adjusted Gross Income (MAGI) levels, $145,000 for single filers and $230,000 for married filing joint, think about funding IRAs. The maximum contribution amounts for 2024 are the lesser of earned income or $7,000 and if you are over the age of 50, you have an additional catchup amount of $1,000 for a total of $8,000. This contributed amount is deductible from earned income.

Fund Roth IRAs

If you are under Modified Adjusted Gross Income (MAGI) levels, $145,000 for single filers and $230,000 for married couples filing jointly, think about funding Roth IRAs. The maximum contribution amounts for 2024 are the same for IRAs, the lesser of earned income or $7,000. If you are over the age of 50, you have an additional catchup amount of $1,000 for a total of $8,000. Although this does not reduce your taxable income it does help balance your before and after-tax savings for retirement. And most importantly, although the contributions are taxable the contributions grow tax-free, and the withdrawals are tax free.

Always remember to check with your accountant and/or your financial planner.

GIVE YOUR FINANCES A SPRING CLEANING

April 22, 2024 By Lauri Salverda, CFA, CFP®, AIF®

Spring cleaning is not just for homes. It is a good time to take inventory of your finances. Actions considered should include cleaning out documents you no longer need, tracking your budget, refine assumptions used in the planning process, and make sure you are still on track to retire comfortably.

Shred old documents. Keep tax records for 3 years unless there has been an issue with your taxes and an amendment was or should have been filed, then keep them for 7 years. Keep loan documents, contracts, mortgages until the loan have been paid in full. Keep titles, ownership documents and home improvements indefinitely or until the property has been sold.

Check your credit reports. This ensures that your credit report is accurate and up to date. Report any discrepancies immediately to the credit bureau as soon as anything is spotted.

Review budgets to identify duplicate expenditures, such as the number of cellular lines you need versus how many you are paying for in your monthly bill. Make sure you are not spending too much and identify areas to cut expenditures if you are.

Evaluate your investment portfolio. Rebalance your portfolio if you have not in the last 12 months. Check to see if your risk tolerance has changed in any way. Is it a good time to consolidate accounts?

Update assumptions used in your financial plan. Are you still looking to buy a car in the timeline set forth? Are proposed vacations included in expenditures? Have any added home projects arisen that were not previously contemplated? Are there ways to cover these expenditures in your plan? This is vital for keeping on track with your current life circumstances and goals. Your life changes and your financial strategy should accommodate those changes effectively.

Reviewing the tasks that you need to accomplish from your plan keeps you on track with your long -term goals. Is this the year to investigate long-term care policies? Do you need to have your estate documents reviewed or have there been any changes in beneficiaries?

All these tasks are crucial to protect your financial well-being and legacy.

What Are I Bonds And How Do They Work

July 14, 2022 By Lauri Salverda, CFA, CFP®, AIF®

There has been a lot of talk lately regarding investing in I Bonds while inflation is high. They seem to be a great investment at this time, but you should know all the facts.

The first question you may have, what is an I Bond. It is a Series I Savings Bond issues by the US Treasury, that earns interest based on combining a fixed rate and an inflation rate. How is the rate calculated? It is a combination of the fixed rate, which is currently 0% and the semiannual CPI U (the consumer price index for all urban consumers, includes gas and food) which is currently 4.81%. The actual calculation is the Composite rate = [fixed rate + (2 * the semiannual inflation rate) + (fixed rate * semiannual inflation rate)]. An example of today’s rate is:

[0.00 + (2 * 0.0481) + (0.00 * 0.0481)

[0.00 + .0962 + 0.00] = 9.62%

You might say that is too good to be true. It is true, but you need to know all aspects of the bond. The interest rate is reset every six months from the time you purchase the bond. The Treasury resets interest rates on the first business day of May and November and what the date is that your bond resets (every six months from the purchase date) it will use the rate which has been set by the Treasury. Keep in mind inflation may not be here forever, and there may even be times of deflation. The I Bond interest rate will never go below 0%.

Another item to know about is when can you redeem your I Bonds. I Bonds will pay interest for 30 years from the date of purchase. You can redeem them starting 12 months after the date of purchase, however, if you redeem them within the first five years you will be charged a fee consisting of the last 3 months of interest. This would not be much of a penalty if your bond was earning 0% interest. If you were to need the money and you were earning a higher interest rate this could be costly. You do not have to redeem the entire bond at one time, you can redeem bonds in as low as $25 increments.

Are you thinking how much and where can I purchase I Bonds? Each individual can purchase up to $10,000 annually. This is not a get rich quick scheme. You cannot purchase these from a financial advisor, bank or broker. These can only be purchased from the Treasury Department at www.treasurydirect.gov or via your federal tax refund.

I Bonds can be a great way to balance out your investment portfolio if you have some extra money floating around that you may not need for 5 years. Remember, it is always important to know the facts before being caught up in the hype.

When You or Someone You Love Receives the Diagnosis

June 21, 2022 By Lauri Salverda, CFA, CFP®, AIF®

Parkinson’s Disease is becoming more prevalent in the United States and in Minnesota. In 2020 there were just under 1 million individuals living with Parkinson’s and by 2030 it is expected to rise to $1.2 million, based on a recent study done by the Parkinson’s Foundation. Additionally, the cost of treating the disease is increasing. Medications alone cost an average $2,500 annually and therapeutic surgery can cost up to $100,000 per person. There are so many unknows as to how the disease will affect you and how long and the quality of the life that remains. It is not just Parkinson’s Disease; these steps would assist anyone receiving a life-threatening diagnosis.

What are the steps you need to take once a diagnosis is received?

Inform

Start by informing your professionals. For financial purposes this would include your attorney, insurance agent, and your financial planner. Estate planning documents need to be reviewed to make sure they are up to date, and people you have assigned in difference roles are still those you want in those roles. Talk to your insurance agent to determine what may be covered under your home owner’s policy. Financial plans need to be updated along with adding new assumptions. Beneficiaries need to be reviewed and updated.

Identify

Identify changes that need to be made to your estate planning documents and your financial plan. On the legal side, make sure your estate documents are up to date. You need a Will, Durable Power of Attorney for Finance, Health Care Directives and if necessary, Trust documents. Talk with your attorney along with the people you have selected as you attorney-in-fact, trustees, and personal representatives to make sure they are willing to take on those duties. I was working with a couple where the husband was dying. The wife, although listed as the health care representative, knew when the end came, she would not be able to make the decision to take her husband off life support. His brother was then assigned as representative, and things went much more smoothly, and the wife was not tasked with that awful decision at a very emotional time.

On the financial side, assumptions for expenses need to include increased medications expenses and medical costs, also long-term care expenses may have to be added. If special gifts are left to individuals or foundations, money will have to be identified and earmarked for those purposes.

Organize

Start making lists for others. The lists you keep will help others be organized so things are not missed, such as bills if you are incapacitated or who to call if a specific medication is not working for you. Make a list of your medical team which includes contact information, roles and medications prescribed. Keep lists of your financial service contacts and where documents are located. Maintain lists of user IDs and passwords. LinkedIn and Facebook are just two of the many sites where people can go to get photos and identify who needs to be kept informed.

Revisit

There is a very good possibility that wishes and scenarios will change as the disease progresses. Legal and financial documents will need to be updated periodically. The one thing we realize is that everything is changing and in order to have your wishes carried through, attention needs to be paid to both legal and financial aspects.

There are many sources available to you to help organize information, including our website. Visit www.Castlerockfp.com for resources including Personal and Financial Inventory, Digital Asset Management and Guide When a Loved One Dies.

Are ETFs Truly the Best Way to Invest?

September 24, 2021 By Lauri Salverda, CFA, CFP®, AIF®

There has been a lot of talk recently about how it is best for individual investors to invest in Exchange Traded Funds (ETFs) vs. Mutual Funds. Although some of the rationale is strong, you need to know in what you are actually investing. Let’s start with the basics.

What is an ETF?

Exchange Traded Funds (EFTs) is an investment that pools money from investors and uses those funds to buy a basket of stocks, bonds or other securities. You purchase a share of an ETF just as you would purchase a share of a stock. ETFs typically track a market index or commodity, although actively managed ETFs are becoming more popular. An active fund manager tries to outperform an index by being more selective in the investments it owns.

What is a Mutual Fund?

A mutual fund is an investment that pools money from investors and uses those funds to buy a basket of stocks, bonds or other securities. You purchase a mutual fund directly from the fund company. The manager of the fund and their analysts try to pick the best investments available rather that a set group of stocks or bonds.

Similarities and Differences

Pricing: The pricing difference can be significant. Mutual funds are priced once a day after the market closes and the value of the stocks at the end of the day. ETFs are traded while the market is open similar to stocks. The value of the EFT is determined by the bid and ask price, i.e., the price at which someone would pay for a share of that ETF vs. the price at which someone would sell that ETF. If the market is volatile the difference between the bid and ask price could be significant.
Expense Ratio: The internal costs or operating expenses of the fund expressed as a percentage of the funds value is the expense ratio. This includes portfolio management, trading expenses, marketing, administrative and distribution expenses among others. Although in the past it was typical for an ETF to have a lower expense ratio than a Mutual Fund, this trend, although still exists, is narrowing. Mutual Funds are reducing expense ratios to be more competitive and as actively managed ETFs are becoming more popular some ETF expense ratios are increasing.
Holdings: I believe that what is actually held by a Mutual Fund or ETF can be the most important aspect of the fund. Unfortunately, this research, although readily available, is not typically performed by purchasers. Here are a couple of examples:
1. two seemingly identical Standard & Poor’s 500 stock index (a large company index) ETFs have very dissimilar returns. That is because one purchases the same number of shares of each stock in the index, while the other purchase an equal dollar amount of each stock in the index.
2. I was just looking up a tech company in the Netherlands. It was a large company stock that had been over valued (the value of the stock vs. its price) by Morningstar (a rating company) for the last 4 years. I then looked at the funds that had the largest holdings in this stock. The top three funds were a low-priced stock Mutual Fund, a Standard & Poor’s 500 Index, and a mid-cap stock index. By looking at the titles of these funds this stock, a member of the Standard & Poor’s 500, only should have been in the Standard & Poor’s 500 Index. The stock is not a low-priced stock nor is it a mid-cap stock.

The point of this is that you are responsible to know what you are purchasing and to make sure you are investing in what you are thinking you are. Look at how much it is costing you to invest in the fund and that when you choose to buy or sell you are getting a fair price. You would not purchase a car without doing your research and looking under the hood, do the same with your investments.