Wealth Talk

News and Ideas

It’s Tax Time

By Joe Bonnett CFP®, ChFC® on February 16, 2012

It’s time to get your financial information in order to prepare your 2011 tax return. You and your tax advisor will be looking at your earned income, capital gains and losses (realized and unrealized), and other financial information as you begin your 2011 return.

Tax Forms May Trickle In

You should receive by mail various tax forms that you will need to prepare your return.

Many of the forms you’ll need — such as Form 1099 (which includes interest income, dividend income, miscellaneous income, among other income types) — should have been in the mail to you by January 31. But please be patient. Tax reporting requirements often allow providers extensions.

Other forms, such as Form 5498 (which reports your IRA contributions to the IRS) is filed by your IRA trustee or issuer — not you. They have until May 31 to complete and mail it to you.

So, not every form will arrive in the mail at the same time. In some cases, mailed forms will have to be revised in order to accurately reflect tax related items. If that is the case, the form will be reissued and re-mailed to you with the “corrected” box checked.

Good Time to Revisit Your Investment Plan

Something else to keep in mind while you’re gathering tax paperwork and completing your return is conducting a simultaneous review of your investment portfolio. Doing so may reveal strategies you can use to reduce your tax liability. Some strategies may have a direct impact this year, while others may be implemented over the next several years, depending on IRS rules.

We recommend a coordinated tax and investment planning process working with you and your tax advisor. Please contact us at your earliest convenience to schedule an appointment.

Posted in Taxes | Tagged |

Finding Structure Amid Chaos — Is It Possible?

By Joe Bonnett CFP®, ChFC® on February 9, 2012

I first heard the term “chaos theory” in the 1993 movie Jurassic Park. In the movie, a mathematician played by Jeff Goldblum asserts that life is chaotic, and so spawning genetically engineered dinosaurs would invariably lead to trouble. At the time, I thought chaos theory was just a scriptwriter’s device, added purely for effect. It turns out chaos theory is serous math—the attempt to identify systems that behave without predictability. Like right now.

“The future of business is pure chaos,” states the subheading to a Fast Company article entitled, “Generation Flux” (February 2012, pp. 60-71, 97). The article profiles seven “Fluxers” who profess comfort with change, see more of it coming and invoke the language of “chaos theory” to explain the unpredictability of today’s business systems.

Jurassic Park postage stamp

Today’s ‘New Normal’

“The pace of change in our economy and our culture is accelerating,” says Fast Company. The leading chaos contributors are new technologies that enable greater social interaction and more widespread mobile commerce.

The result: “Our visibility about the future is declining,” states the article. It’s difficult to weigh risk and opportunity as change comes from many directions.

Consider:

  • Smartphones. “Just five years ago, three companies controlled 64% of the smartphone market: Nokia, Research in Motion and Motorola,” says Fast Company. Today, two different companies are at the top: Samsung and Apple.
  • Advertising and publishing. We’ve seen the rise of deal-of-the-day provider Groupon, and the fall of bookseller Borders.
  • Political mapping. Participation by users on Twitter and Facebook can affect candidates’ strategies for election, kill a bill in Congress, affect a charity’s fund-raising ability and contribute to a revolution in Egypt.
  • Entertainment. Cable TV is losing ground to streaming TV, due to products from Apple, Roku, Sony, Netgear, Netflix and Microsoft. (The Wall Street Journal, “Must-Stream TV,” January 7-8, 2012, p. D2.)
  • Leadership positions. A decade ago, who could have seen the rise of Facebook (845 million regular users at the time of its IPO filing)? The fall of Blockbuster? The return of Brazil as an economic powerhouse? The downgrade of U.S. government debt?

“The pace of disruption is roaring ahead,” says Fast Company. “The next decade or two will be defined more by fluidity than by any new, settled paradigm; if there is a pattern to all this, it is that there is no pattern. The most valuable insight is that we are, in a critical sense, in a time of chaos.” Continue reading →

Posted in Investing | Tagged , , |

How Much Does Long-Term Care Cost?

By Joe Bonnett CFP®, ChFC® on December 28, 2011

Americans are living longer. The life expectancy of a newborn American male was 46.3 years in 1900, according to National Center for Health Statistics. Today, it’s 75.3 years, which is why long-term care insurance continues to grow in importance.

The American Association of Long-Term Care Insurance (AALTCI) and the U.S. Congress hope to make more people aware of the risks and costs associated with long-term care. Here are some national average cost figures:

  • $85,775/year for a private room in a nursing home,
  • $75,555/year for a semi-private room in a nursing home and
  • $39,240/year for an assisted living facility.
  • $20/hour for at-home care.
Source: 2011 Johns Hancock Financial Cost of Care Survey conducted by LifePlans

 

AALTCI urges Americans to buy LTC insurance before age 65 to avoid the high costs associated with waiting. Factors that affect the cost of LTC protection include your age and health.

  • Good health could help secure discounts that may not change even if your health does in the future.

I recommend taking some steps that can help protect you against the financial risks associated with long-term care. This involves putting together a retirement plan that includes planning ahead for long-term care expenses.  Call our office today to create or review your retirement plan and discuss the importance of planning for long-term care.

Posted in Health Care | Tagged , |

I Read an Article, and I Believe I’m Seeing the Future

By Joe Bonnett CFP®, ChFC® on December 21, 2011

The article I’m referring to appeared in Wired magazine. “Jeff Bezos Owns the Web in More Ways Than You Think” by Steven Levy was posted November 13, 2011, at Wired.com. Last check, it’s still posted online. You can also read it in the December 2011 print edition of Wired.

Of course, I read the article on my iPad2, which is ironic. This article is about Jeff Bezos, Amazon’s resilient and innovative CEO. The article says that he “Owns the Web.” So, I’m sure Bezos read the piece on a Kindle Fire, his bet on the future.

Jeff Bezos, CEO, Amazon*
You don’t hear quite as much about Bezos as you do about former Apple chairman Steve Jobs. There’s a best-selling book out on Jobs. Jobs is even profiled in the same print edition of Wired (see page 230, “The Revolution According to Steve Jobs,” for reflections on Jobs’ legacy.) But in my opinion, I think you’re going to hear more and more about Bezos and his view of the world.

Jeff Bezos, CEO, Amazon
Jeff Bezos, CEO, Amazon

 

Kindle Fire, Bezos says, “is the culmination of the many things [Amazon.com has] been doing for 15 years.” Continue reading →

Posted in Investing, Lifestyle | Tagged , , , , |

Many 401(k) Balances Coming Up Short

By Joe Bonnett CFP®, ChFC® on

Are individuals, in general, saving enough for retirement? No. In fact, the median 401(k) account balance for a baby boomer age 60 to 62 is well shy of what that boomer will need. According to The Wall Street Journal, many boomers in their early 60s find that their 401(k) plans come up short.

Only ¼ of what’s needed

According to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for the 2/19/11 Journal article, many boomers will not be able to maintain their household’s standard of living in retirement. The median 401(k) account balance is less than ¼ of what’s needed. The analysis assumed people need 85 percent of their working income after they retire to maintain their standard of living.

“The 401(k) generation is beginning to retire, and it isn’t a pretty sight,” concluded the article’s writer, E.S. Browning.

2012 contribution limits

The ultimate goal would be to contribute the maximum amount allowed by the Internal Revenue Service.

  • For 2012, contribution limits for 401(k)s will increase to $17,000, up from $16,500 in 2011, according to the IRS.
  • Catch-up contribution limits for those ages 50 and over will remain $5,500.

Click the image or this link to learn more: 2012 Retirement Plan Contribution Limits.

New: Contribute 15% of your salary

The Journal article noted that Vanguard Group, one of the biggest providers of 401(k) plans, has changed its advice on how much people should save:

  • Vanguard long advised people to put 9% to 12% of their salaries – including the employer contribution – in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.
  • Now Vanguard urges people to increase their contributions up to 15% of their salaries, including the employer contribution, because of the stock market’s weak returns and uncertainty about the future of Social Security and Medicare.

I have long stressed the importance of having a 401(k) or other defined contribution plans to an individual’s overall retirement plan. This latest analysis suggests it would be good to meet with a qualified advisor to see how your retirement plan is doing.

Posted in Personal Finance, Retirement Planning | Tagged , |

Act Quickly if You Plan to Buy Assets for Your Business

By Joe Bonnett CFP®, ChFC® on December 9, 2011

Business owners will want to take note that the increased section 179 expense deduction limit of $500,000 expires by the end of 2011. You may want to chat with your CPA and act before the year ends.

That’s because if you own a profitable business, and you plan to purchase equipment, property or vehicles for the business, you may be able to claim a Section 179 deduction and decrease your tax liability, so long as you have placed the qualifying asset in service this year.

Form 4562 from the IRS says:

  • The maximum section 179 expense deduction currently is $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2 million.
  • For tax years beginning after 2011, the increased section 179 expense deduction limit of $500,000 and threshold amount before reduction in limitation will no longer apply.
  • The 100% special depreciation allowance will not apply to most property placed in service after December 31, 2011.
  • For tax years beginning after 2011, the definition of section 179 property will no longer include certain qualified real property.

More information, including any future developments affecting Form 4562, such as possible new legislation, will be posted at irs.gov/form4562. Please contact your CPA or tax specialist for assistance, since neither Bonnett Wealth Management nor Securities America provides tax advice.

Posted in Taxes | Tagged , , |

Three Year-End Gifting Strategies

By Joe Bonnett CFP®, ChFC® on December 7, 2011

This year gifting is being aided by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Here are 3 gifting provisions that may work for you:

1. Qualified Charitable Distribution (QCD).

This year IRA owners and beneficiaries age 70½ or older can make a tax-free Qualified Charitable Distribution of otherwise taxable dollars from an IRA to a qualified charitable organization. QCDs are limited to $100,000 per year, per IRA owner or beneficiary, but they also satisfy your Required Minimum Distribution (RMD) up to $100,000.

2. Donation of appreciated stock.

The 0% capital gains rate on long-term investments has been extended for taxpayers in the 10% and 15% tax brackets. So, if you have adult children in these tax brackets you might consider gifting your appreciated stock. Your child can have taxable income up to $34,000 this year (or $68,000 if married and filing jointly) and not have to pay capital gains tax. Continue reading →

Posted in Charitable Giving, Taxes | Tagged , , |

7 Things the Bonnetts Love about Nebraska City

By Joe Bonnett CFP®, ChFC® on December 6, 2011

Let’s take a break from reporting on investment strategies, tax news and retirement planning. Instead, I’d like to share a few outtakes from my family’s recent getaway to Nebraska City, Neb.

Nebraska City is beautiful. It’s a town with a lot of history, several interesting museums, Arbor Day Farm, apple orchards, vineyards, an Arnold Palmer-designed golf course, and more. Here are the 7 things my family loves most about Nebraska City:

1. The Lied Lodge.

In mid October, we spent a weekend at the Lied Lodge & Conference Center. We try to get to Nebraska City every year, but we don’t always spend the night. So, this was a special trip.

The entrance to Lied Lodge is impressive. The lobby has huge timbers, 30-foot high ceilings and a grand two-sided fireplace flanked by leather chairs and rocking chairs. We all love to swim, and Lied Lodge has a beautiful, indoor pool.

2. Family time.

Here’s the Bonnett family. That’s Claire (age 8), Penny (11 months) Jake (age 9) and my wife, Susie. We love to visit as many parks in Nebraska City as we can. They have lots of trees and plenty of grassy areas.  Bonnett family competitions come down to two favorites: swinging contests and flag football. Continue reading →

Posted in Lifestyle | Tagged , , , |

How Investors Grew Their Accounts by 50% and 64%

By Joe Bonnett CFP®, ChFC® on October 20, 2011

The quarterback has the ball and is ready to pass. He scrambles left. The defense pursues, and he’s sacked. If only he had stayed in the pocket, behind his offensive linemen, he could have bought extra time and made a big play.

In football, it’s easy to second-guess the quarterback. But making investment decisions is not so simple. However, recent research from Fidelity Investments shows that investors who “stay in the pocket” perform well — to the tune of 50% and 64% growth in their 401(k) account balances.

I’m going to show you 2 charts.

  • The first chart shows that investors who held onto their shares of stock grew their account balances far more than those who sold their stocks. (50% growth v. 2% growth)
  • The second chart shows that investors who maintained regular 401(k) contributions grew their account balances far more than those who panicked and stopped making regular contributions. (64% growth v. 26% growth)

This information is gleaned from a Fidelity Investments study of workplace defined contribution data.* It was based on nearly 20,500 company defined-contribution plans and more than 11.6 million record-kept participants.

Just to be clear, the growth rates mentioned above and below are for the entire period of the study, October 2008 to June 2011, and are not average annual growth rates.

Here’s the first chart. Notice the difference between those investors who sold their stocks and those who didn’t …

Maintain equity positions chartSource: Fidelity Investments.*

Posted in Investing | Tagged , , |

5 Reasons to Continue Investing in Stocks

By Joe Bonnett CFP®, ChFC® on September 26, 2011

The Nebraska Cornhuskers are now members of the Big Ten Conference.

Storyline: For many, the move to the Big Ten is intimidating.

  • Big Ten schools boast student bodies as large as 62,000 and football stadiums seating 100,000+. Michigan’s “Big House” holds 114,800+.
  • The total National Championships (for all sports combined) at Big Ten schools numbers into the hundreds.
  • In football, the Big Ten is known for its gritty, physical style of play. Each Big Ten team has the potential to be a handful.

The Huskers’ October 1 trip to Madison, Wis., led to a 48-17 loss to the Wisconsin Badgers. On October 8, Husker Nation welcomed Ohio State to Lincoln with a 34-27 win. The schedule continued with Minnesota (41-14 win away), Michigan State (24-3 win at home), Northwestern (28-25 loss at home) and Penn State (17-14 win away), Michigan (45-17 loss away) and finally a November 25 win against Iowa at home (20-7).

Nebraska Cornhusker football

Bottom Line: It’s hard to predict how well the Huskers will do. Long-term, however, I think the Huskers will do great because they have a great program. Continue reading →

Posted in Investing, Retirement Planning | Tagged , , |