Medicare: The Basics

Medicare is a complex topic but also an important tool for financial planning during your retirement. You will no doubt be inundated with flyers, pamphlets, and marketing materials from multiple companies and organizations—as you approach your 65th birthday. It can become very overwhelming, so here are five quick things that will help you get a basic understanding of Medicare and what you need to do now to prepare for the big 6-5!

1.) Medicare is health insurance for people 65 or older and people under 65 with certain disabilities. Original Medicare (Parts A & B) pays for about 80% of your health care costs. There are (4) main ‘Parts’ you will hear when talking about Medicare.

Part A– Hospital Coverage- part of Original Medicare
Free to most people

Part B– Doctor Coverage- part of Original Medicare
Has a monthly premium (based on income*) and a yearly deductible (the 2017 deductible amount is $183

Part C– Medicare Advantage- offered by private insurance companies
Takes the place of Original Medicare and usually combines Rx coverage

Part D– Rx Drug Coverage- offered by private insurance companies
Separate monthly premium

Original Medicare pays approximately 80% of qualified expenses, which leaves a gap of 20% that would be out-of-pocket for you.

There is currently no cap on the amount that the 20% could reach.

2.) It is important to know what qualified expenses are. Your ‘Medicare & You’ guide will have detailed information on this but here are a few examples of things Medicare does not cover: long-term care, eye exams for glasses, most dental care, dentures, hearing aids or exams, prescription glasses or exams, cosmetic surgery, routine foot care and acupuncture.

3.) You have options! You can choose Original Medicare (Parts A & B) or you can choose a Medicare Advantage Plan instead.You can also choose to add Supplemental coverage (for an additional monthly premium) to Original Medicare that would cover the approximate 20% gap in out-of-pocket expenses.

4.) There are penalties and fees for failing to enroll into Parts A, B, and D within a specified time frame. There is a 7-month window around your 65th birthday in which you can sign-up for Medicare and have guaranteed approval for any Rx drug, Advantage, or Supplement Plan you choose. You need to enroll in Medicare during this 7-month window to avoid late enrollment penalties/fees.

The 7 months covers 3 months prior to, the month of, and 3 months after your 65th birthday month.

You can enroll in Medicare online (www.medicare.gov) or at your local Social Security office.

5.) Use your resources! Medicare’s website (www.medicare.gov) is a wonderful tool to research, compare and shop for plans, companies, etc.If you are currently employed or covered by an employer health plan, talk to someone in your HR or benefits department as soon as you turn 64; the timing for signing up and your coverages may vary from the normal Medicare process.

As the time approaches, make sure that you complete the necessary steps to take advantage of the Medicare benefits which you have earned. For more detailed information, click here for our upcoming Parsec Newsletter  for an article called “Medicare: What you need to know before you turn 65.”

 

Lori King, RP®, Client Service Specialist

 

Share this:

Mid-Year Market Update

Now that we’re half-way through 2017, it’s time to take a look at market and economic trends year-to-date. The big picture view is that asset classes across the board have delivered strong returns through June. This is despite interest rate hikes by the Federal Reserve’s Federal Open Market Committee (FOMC). In fact, Treasury yields have actually fallen in the face of two interest rate increases this year, pushing bond prices higher. International stocks and bonds have also risen in 2017, boosted by stabilizing global growth rates, depressed yields world-wide, and improving corporate earnings.

Looking a little more closely at the U.S., stocks continued their upward trajectory early in the year following the post-Presidential election results in November. While the new administration has not made much traction in passing new legislation, relatively healthy economic data – including good jobs growth, higher wages, and a strong housing market – have supported stocks. At the time of this writing (June 15, 2017), the S&P 500 Index is up 8.5% on a price-basis and up 9.7% on a total return basis (which includes dividends).

Technology stocks have led U.S. equity markets this year. Within the S&P 500 Index, the sector is up over 17% year-to-date given healthy earnings growth expectations for the group. The more tech-heavy NASDAQ Index is up a whopping 14% this year, almost 6% ahead of the S&P 500 Index. However, we’ve started to see some signs of weakness among tech stalwarts recently and are watching the group closely. On the flip side, energy and telecom stocks have lagged the index, with price declines of 13% and 9%, respectively. Of note, energy and telecom stocks were two of the three best-performing sectors in the S&P 500 Index last year, with prices returns of +24% and +18%, respectively. This marked turnaround in performance provides a cautionary tale on the pitfalls of market timing: last year’s leaders may well become this year’s laggards. In general we’ve found that it’s difficult, if not impossible to predict which sectors or industries will outperform in any given year. As a result, we recommend maintaining a diversified portfolio through all market cycles and rebalancing regularly.

Another wide disparity arose among growth and value stocks. Year-to-date, growth stocks (as measured by the Russell 3000 Growth Index) are up almost 14% on a price return basis versus a 3% return for value stocks (as measured by the Russell 3000 Value Index). Much of the outperformance by growth stocks stems from strong returns among technology stocks – many of which are growth-oriented and trade at higher valuation levels.

After years of underperforming U.S. stocks, international equities have outperformed year-to-date. In aggregate, developed stocks from Japan, Europe, and Australia are up 14% on a price return basis through June. While this group has lagged U.S. stocks over the past four consecutive years, improving economies in most of these regions, positive consumer sentiment, and accommodative central banks are starting to turn the tide. Likewise, Emerging Markets stocks are up over 17% on a price return basis so far this year. The marked turnaround comes as corporate earnings growth for many of these countries is starting to improve and global growth is stabilizing.

Other interesting observations for 2017 include record-low stock volatility levels, lower yields despite higher interest rates by the FOMC, and an eventful (if unproductive) six-months in Washington.

Looking forward, we see risks and opportunities. The Federal Reserve is set to reduce its bloated balance sheet later this year which could pose a risk to above-average stock valuation levels. Despite the potential for unintended consequences, we view the move as a vote of confidence in the U.S. economy and as a much needed step towards more normalized monetary policy. While a more restrictive Federal Reserve is a headwind to asset prices, interest rates remain very low (with no signs of rising) and the U.S. economy remains on stable footing. These factors, along with improving U.S. corporate earnings growth, bode well for continued stock gains over the long-term.

Share this:

Congratulations Parsec Prize Recipients!

One of the fundamental values at Parsec Financial is giving back to our community. We founded the Parsec Prize in 2005. Since that time, we have given over $1,000,000 in prizes to 66 local non-profit organizations serving Western North Carolina and Charlotte. The Parsec Prize represents approximately one-half of our annual charitable giving.

For the first time, we are expanding the Parsec Prize to a multi-year donation to one of the recipients. OnTrack Financial Education & Counseling will be the inaugural organization to receive this multiyear donation of $100,000 in total over the next four years. This is the largest commitment that Parsec Financial has ever made to one organization. We are giving an additional four Parsec Prizes of $25,000 each to four other worthy organizations. 

The 2017 Parsec Prize recipients are:

  • Guardian ad Litem of Buncombe County – $25,000
  • OnTrack Financial Education & Counseling – $100,000 (4-year commitment)
  • Our VOICE – $25,000
  • United Way of Asheville and Buncombe County, Middle School Success Program – $25,000
  • Western Carolina Rescue Ministries – $25,000

We thank these organizations for the value they provide to our community.

We encourage non-profit organizations to visit our website for information on applying for a Parsec Prize in 2018. The Prize will be considered for non-profits in any region where Parsec has a physical office.

Thank you,

The Parsec Team

Share this:

The Fiduciary Rule and You

If you keep up with current events and what is happening in Washington, it is likely that you have heard about the Department of Labor’s Fiduciary Rule. Some of you may be curious about what exactly it is and how it could possibly affect you. Before we talk about that, let’s take a quick look at the spectrum of financial advice, and where Parsec lands on that spectrum.

RIAs and B/Ds

These two acronyms stand for Registered Investment Advisors and Broker Dealers. These are two different types of providers of financial advice. In 1940, Registered Investment Advisors were separated from Broker Dealers under the Investment Advisors Act of 1940. Consider that the United States had just emerged from one of the biggest stock market crashes on record a year or two prior. The goal of this new legislation was to eliminate potential conflicts of interest, when a financial professional might consciously or unconsciously provide advice not in the best interest of the client. However, these new rules did not apply to everyone! They only applied to a group of advisors that were Registered Investment Advisors or RIAs. To make things even more complicated, someone could be a Registered Investment Advisor at the same time they were associated with a B/D! Now, if an advisor is associated with a B/D, they are essentially an agent for that company. Very simply, think about your local home or auto insurance agent. They work for the insurance company, and you know their job is to sell you an insurance product. This is the relationship that all advisors who work for large banks and brokerage firms maintain. Their first priority is to sell the products of their employer.

Cue the Independent Broker Dealer

As mentioned previously, there are some advisors who are associated with both an RIA and a B/D. These advisory firms typically associate with an Independent Broker Dealer, which means that they are still able to sell products and receive a commission, or they can provide advice through the RIA and receive a fee. At the end of the day, these advisors are stuck with a decision, whether to sell the client a product, or to provide objective advice. Doesn’t it seem like it would be very difficult for an advisor to provide advice, then sell them a product based on that advice? It is like asking your barber whether or not you need a haircut. This is why it is extremely difficult, if not impossible, for an advisor to be a fiduciary if they maintain an association with a B/D.

So what is Parsec?

Since our founding in 1980, Parsec has only been a Registered Investment Advisor. We have never been associated with a B/D, nor have we ever received any commissions or revenue sharing from our recommendations to our clients. One of our core beliefs is that our clients should have complete transparency on our fees, and that there is never any question of what the total cost to work with us is. This means that we are a fee-only fiduciary that always seeks to serve our clients’ best interests as well as eliminate any conflicts of interest that could arise.

How does the DOL’s Fiduciary Rule affect RIAs and B/Ds?

The current fiduciary rule proposal affects retirement accounts, including 401(k)s and IRAs. If the rule is adopted, it will require anyone working with these types of accounts to show that their advice is in the best interest of the client, not just a “suitable” recommendation, which is the current requirement for B/Ds. We believe this is a step in the right direction for consumers, but must point out that if an advisor is a representative of a B/D they still are still considered an “agent” of their firm, and this rule only requires they act in the clients’ best interest with IRAs and 401(k)s. We believe the best outcomes occur when an advisor is able to guide a client in a fee-only advisory relationship. The proposed regulation (if it eventually goes through) will require very small changes to some of our processes for documentation purposes, but no changes to how we work with our clients. We hope this post leaves you more informed about why being a fiduciary is so important to us.

Thank you,

The Parsec Team

Share this:

March Update – Trading

Trading is an important, albeit often underappreciated part of investment management.  In this email, we’ll share with you our investment philosophy and how it drives our trading approach.  While Parsec uses both funds and individual securities across client accounts, this blog applies more to those portfolios with individual stock holdings.  In general, we use funds for smaller-sized accounts because of the immediate diversity it provides, at a relatively low cost.  We generally use individual securities for larger client portfolios as these portfolios offer economies of scale that can overcome trading costs.  Over the years, we have fine-tuned our trading approach with an eye towards minimizing costs and maximizing efficiency.

As you’ve heard us say time-and-again, Parsec does not engage in market timing.  Instead of trying to determine when one asset class will underperform and another outperform, we select our securities using a bottom-up fundamental research approach.   Using individual equities as an example, this means that we first screen any new stock ideas for attractive financial characteristics and then perform additional due diligence to determine its total return potential over the next several years.  Once a stock is added to a Parsec portfolio, we monitor the company regularly for changes in its competitive environment, its growth drivers, and valuation levels.  However, we do all of this in light of our long-term thesis on the stock, as opposed to the market’s near-term noise.

Taking a long-term investment approach in which we focus on a security’s total return potential often allows us to buy and hold securities for many years.  This keeps our portfolio turnover – a measure of how frequently assets are bought and sold – low, and in turn keeps our trading costs low.  When we do trade we use block trades whenever possible.  By aggregating all of our trades into one large transaction we can better assure that clients receive the same price when a given security is bought or sold.

In addition, our focus on a security’s long-term potential largely circumvents the need for specialized trade orders.  Typically short-term traders, and not long-term investors, utilize limit orders, stop orders, or other types of non-market orders.  These specialized trades often come with additional costs, including higher transaction fees for retail investors and various opportunity costs.

One such opportunity cost can arise when setting short-term price targets.  For example, using a limit order to purchase a security requires an investor to set a price target.  However, without thoroughly researching a security using fundamental analysis, price targets are often based on “a gut feel” or are knee-jerk reactions to an investor’s past experience with an asset.  In effect, unconscious emotions can drive the trading decision and lead to even higher costs.  These can come in the form of missed opportunities, as when a stock declines but doesn’t quite reach an investor’s price target to buy.  In this case if the stock then continues higher an investor may have missed-out on significant upside potential.

Another opportunity cost is possible when a security pays a dividend, but because an investor was waiting for a slightly lower price before buying, he or she inadvertently forfeited the added income.  In some cases the dividend payout might have amounted to more than the savings associated with buying at a lower price.

While there are many types of trades, and some that do add value, in general we’ve found that specialized trade orders often come with more costs than benefits.  This is why Parsec identifies assets using fundamental research and takes the long-term view on a security’s total return potential.  Doing so inherently reduces security turnover in a portfolio and thus trading costs.  It also avoids incurring hidden opportunity costs and, we believe, increases the likelihood of reaching your longer-term financial goals.

Thank you,

The Parsec Team

Share this:

Time to Update your Estate Plan?

Now that we have started a new year, it’s a good time for many of us to stop putting off getting an estate plan created or updated.

Under current tax law, most people do not have a concern with estate tax.  The current Federal estate tax exemption is $5.49 million per person. If properly elected, any unused exemption is portable between spouses.  Therefore, a married couple with an estate of $10.98 million or below could pass their entire estate to heirs without any Federal estate tax liability.

While much attention is focused on the tax aspects, estate planning is more a matter of organizing and simplifying your affairs so that your heirs are not burdened with additional stress at the same time they are grieving for the loss of a loved one. We recommend that you engage the services of a qualified attorney to guide you and create the appropriate documents.

Your estate plan should include a will and possibly living or revocable trusts. Advanced directives and incapacity planning are other items that are typically addressed as part of your estate plan. This includes having documents prepared such as a durable power of attorney, health care power of attorney and living will.

As part of your estate plan, you should review your beneficiary designations. By filling out a beneficiary designation form, individuals can bypass the probate process and pass specific assets upon their death directly to their heirs. Many types of assets such as IRAs, qualified retirement plans, life insurance policies and commercial annuities pass via beneficiary designation rather than through your will. In addition, beneficiary designations can be added to taxable investment accounts (known as Transfer on Death or “TOD”) and bank accounts (known as Payable on Death or “POD”). Note that while the assets passing by beneficiary designation bypass the probate process, they are still included as part of the decedent’s estate for calculating any potential estate tax liability.

There is talk that the estate tax may be changed or even eliminated this year. For most people that shouldn’t be a deterrent to getting their estate plan done, since few are affected by the estate tax in the first place. Having an updated estate plan gives you peace of mind and helps prevent additional stress on your heirs. Once you have a plan in place, it can always be modified as tax laws and your personal circumstances change.

William S. Hansen, CFA
President
Chief Investment Officer

bill

Share this:

What’s Ahead for Fixed Income?

After more than thirty years of falling interest rates and thus rising bond prices, yields may be moving higher.  While trends are often short-lived, this new trajectory could persist into 2017 and beyond given recent changes in the political landscape as well as a less accommodative Federal Reserve (Fed).  We’ll take a look at what this new monetary and political environment may mean for bonds and how to best-position your fixed income portfolio for the long-term.

A proxy for the bond market, the 10-year Treasury note yield hit an historical low of 1.36% in July 2016 only to jump 100 basis points (or 1%) by the end of November.  The move came as investors responded favorably to the surprise U.S. Presidential and Congressional election results, in anticipation of higher growth levels in the years to come.

Part of the optimism stemmed from the new administration’s promise to cut consumer and corporate taxes and spend on infrastructure projects.  This picture presents a mixed bag for bonds, however.  Increased fiscal spending and lower taxes are positive for economic growth and a healthy economy is generally good for lending and credit activity.  But stronger economic growth would push yields higher and thus bond prices lower.  On the other hand, higher yields would provide investors with higher current income, acting as a partial offset to lower bond prices.  Rising interest rates or yields would also allow investors to reinvest into higher-yielding bonds.

Duration is an important characteristic to consider when reinvesting at higher yields.  A bond’s duration is the length of time it takes an investor to recoup his or her investment.  It also determines how much a bond’s price will fall when yields rise.  Longer duration bonds such as Treasury or corporate bonds with long maturities experience sharper price declines when yields rise.  Likewise, shorter duration bonds are less volatile and will exhibit smaller price declines, all else being equal.  Because we can’t predict the exact direction or speed of interest rate changes, it’s important to have exposure to bonds with a mix of durations.  In this way an investor is able to respond to any given environment.  For example, when yields are rising, an investor can sell her shorter-duration bonds, which are less susceptible to prices changes, and reinvest into longer-duration bonds with higher rates.

Another factor that affects bond prices is inflation.  Inflation expectations have started to heat up in light of low unemployment, wage growth, and expectations for increased government stimulus.  Higher inflation could also put upward pressure on interest rates and thus downward pressure on bond prices.  While inflation can erode the real returns of many bonds, some bonds, such as Treasury Inflation-Protected Securities (TIPS), stand to benefit.  TIPS are indexed to inflation and backed by the U.S. government.  Whenever inflation rises, the principal amount of TIPS gets adjusted higher.  This in turn leads to a higher interest payment because a TIPS coupon is calculated based on the principal amount.

Finally, the Federal Reserve’s shift away from accommodative monetary policy will have an impact on bond prices.  Although higher interest rates from the Fed will likely pressure fixed income prices, overall we view this change favorably.  This is because a return to more normal interest rate levels is critical to the functioning of large institutions like insurance companies and banks, which play a key role in our society.  Likewise, higher interest rates will provide more income to the millions of Baby Boomers starting to retire and would help stabilize struggling pension plans at many companies.

Taken altogether and in light of an uncertain environment, we believe a diversified bond portfolio targeted to meet your specific fixed income needs is the best way to weather this changing yield environment.  In addition to considering your specific income objectives, our Investment Policy Committee meets regularly to assess the current economic, fiscal, and monetary environment.  We adjust our asset allocation targets in order to take advantage of attractive opportunities or reduce exposure to higher-risk (over-valued) areas.  While we may over-weight some areas or under-weight others, in the long-run we continue to believe that a well-diversified portfolio is the best way to weather any market environment.

Thank you,

The Parsec Team

Share this:

2016 IRA Contribution Rules

The deadline to make IRA contributions for tax year 2016 is April, 18 2017. The maximum contribution is $5,500 per individual ($6,500 if age 50 or over) or 100 percent of earned income, whichever is less.

There are income limits which determine whether you can deduct your Traditional IRA contribution or if you qualify to make a Roth contribution. The following table gives the phase-out range for the most common circumstances.

Do you qualify to deduct your Traditional IRA contribution?
If your income is less than the beginning of the phase-out range, you qualify. If your income is over the phase-out range, you do not. If your income falls inside the range, you partially qualify.

Modified Adjusted Gross Income Phase-Out Range
Tax Filing Status For 2016 Contributions For 2017 Contributions
Single, participates in an employer-sponsored retirement plan: $61,000 – $71,000 $62,000 – $72,000
Married filing jointly, participates in an employer-sponsored retirement plan: $98,000 – $118,000 $99,000 – $119,000
Married filing jointly, your spouse participates in an employer-sponsored retirement plan, but you do not: $184,000 – $194,000 $186,000 – $196,000

Do you qualify to contribute to a Roth IRA?

Modified Adjusted Gross Income Phase-Out Range – Roth
Tax Filing Status For 2016 Contributions For 2017 Contributions
Single: $117,000-$132,000 $118,000-$132,999
Married, filing jointly: $184,000-$194,000 $186,000-$195,999

If your filing status differs from those listed above, please contact your advisor and he or she can help you determine whether you qualify.

Harli Palme, CFA, CFP®
Partner

Harli Palme

Share this:

2016: Year in Review

While the year hasn’t officially wrapped up as of this writing, we’re close enough to be able to form some opinions and offer some perspective on 2016.  If nothing else, this year could be characterized as unexpected.  Despite a steep stock sell-off in January, which weighed on investors’ outlooks early in 2016, U.S. stock returns are poised to close up over 10 percent through December.  On the other hand, bond returns, while on target to gain about 2 percent for the year, are finally starting to come under pressure after a bull market of over 30 years.

Looking back, the S&P 500 Index fell over 6 percent in January after U.S. GDP growth came in below expectations, corporate earnings continued to fall, and recession fears spiked.  Despite investor concerns, most economic data at home were relatively healthy, driven primarily by steady gains in employment and disposable personal income.  Additionally, many investors were concerned that slowing global growth would ultimately weigh on a resilient U.S. economy.  Specifically, the International Monetary Fund (IMF) lowered its global growth rate predictions several times, China delivered GDP growth below expectations, and commodity prices remained depressed.

Stocks turned a corner in March, however, surging almost 7 percent at home and over 13 percent in developing countries.  The state-side rally came amid falling U.S. corporate earnings that were driven by lower energy prices, depressed commodity prices, and a strong dollar.  Although declining earnings growth usually leads to lower stock prices, the Federal Open Market Committee’s (FOMC) announcement that it would reduce the number of interest rate hikes for the year buoyed stock valuations.  As a result, stock price-to-earnings multiples (a common valuation metric) expanded while underlying fundamentals remained weak.

After several years of underperformance, emerging markets stocks and bonds reversed course in 2016 as depressed commodity prices started to recover.  The FOMC’s plan for fewer interest rate hikes was also a boost for emerging markets countries, many of which owe significant amounts of U.S. dollar-denominated debt.  Likewise, economic data out of China were better than expected, although growing debt levels and excessive government stimulus there could prove to be longer-term risks.

In another unexpected development, low-growth telecom and utilities sectors led U.S. stocks in the first half of the year.  Utilities and telecom stocks typically carry higher debt levels and the FOMC’s move to keep interest rates lower for longer was viewed favorably by the markets.  Both sectors were up over 20 percent through June, although they have since given back almost half of those gains.

In between tragic terrorist attacks, the U.K. shocked the world in June when it voted to exit the European Union, a development known as “BREXIT.”  Markets tumbled on the news but quickly bounced back and reached new highs.  While shocking headlines dominated the popular press, global economic growth was quietly stabilizing around the globe and accelerating at home.

The summer brought a much-needed reprieve from the barrage of grim headlines earlier in the year.  It also ushered in new confidence in the U.S. expansion as jobs growth continued, wage growth perked up, and housing data improved.  As the Presidential election drew near, corporate spending started to pick up, oil prices rallied, and company earnings improved.

Following a relatively calm summer, the U.S. surprised the world in November with the election of Donald Trump to the presidency, while Republicans maintained their majorities in the House and Senate.  Despite concerns of a global shift towards populism, markets soared on hopes of tax cuts and better growth at home.  After the election and following months of healthy economic data – – including a meaningful pick-up in 3rd quarter U.S. GDP growth and signs that inflation was heating up – – the FOMC raised rates in December, as expected.

Clearly, 2016 was an eventful year for markets, governments, and citizens alike.  While several unknowns have become known, many of this year’s developments have sowed the seeds for more uncertainty ahead.  In terms of markets, although a divide still exists between stock valuation levels and underlying fundamentals, we’re encouraged by improving corporate earnings growth.  On the other hand, bonds have benefited from over thirty years of falling yields (and thus rising prices).  A steeper FOMC rate hike trajectory is clearly a headwind for fixed income, but the central bank’s stance is supported by strong economic growth and signs of inflation.  The end result may mean stagnant fixed income returns, but a healthy economy – a trade-off we’re willing to take.

Overall, we view stocks as most likely to outpace growing inflation expectations over the long term.  While equity prices may be due for a pullback in the near term, evidence suggests that the longer-term secular bull market remains intact.

Thank you,

The Parsec Team

Share this:

The Perfect Gift? Ideas…From a Planning Perspective

December is here and 2016 is drawing to a close.  As we enter the holiday season, we scramble to pick the perfect gift for our family members, our friends, teachers… the list goes on.

At Parsec, we work with clients to create gifting strategies that fit into their overall financial plan.

This December we encourage you to think about giving and its potential longer term impact on both your family (children and grandchildren) and your taxes.  Let’s first review a powerful gifting strategy to younger family members: the custodial Roth IRA.

As long as there is earned income, which can come from mowing lawns, housework, babysitting etc., contributions to a custodial Roth IRA can be made up to the amount of the earned income but not over $5,500*.  For example, your 9 year old grandchild earned $1,000 over the summer through his lawn mowing business.  You can open a custodial Roth IRA for him and deposit a matching gift of $1,000. Let’s say he continues to mow lawns each summer for the next 10 years and you continue to match his earnings with a $1,000 holiday gift.  Assuming a 7% return each year, your gifts will grow to over $15,000 at the end of 10 years.  Remember this is only the beginning, the approximate $5,000 earnings in this example will continue to compound over time and ALL earnings are tax free upon withdrawal later in life.  Rewarding your grandchild’s hard work through Roth contributions is a holiday gift that offers valuable lessons on many levels.

Let’s switch gears to philanthropy.  Each year Parsec’s client service team processes hundreds of charitable gift requests from our clients.  These gifts of course offer tax advantages in various forms.  For many of our clients, the qualified charitable distribution or QCD brings the most formidable tax savings.  How does it work?  If you are over 70 1/2, up to $100,000 of your required minimum distribution (RMD) can be given directly to charity through a QCD.  The result: your AGI will be reduced dollar for dollar by the amount of the QCD.  A simple, yet impactful strategy:  on not only your charity of choice but also on your tax dollar.

As we enter this holiday season we hope that you reach out to your financial advisor to talk about gifting strategies that may be appropriate for you and your family.  Happy Holidays!

Betsy Cunagin, CFP®

Senior Financial Advisor

*$5,500 is the IRA contribution limit for 2016 and 2017.  

Share this: