You may be considering investing in a vacation home as part
of your retirement goals or just because you feel it's a good investment. With real estate prices back to where they
were pre-2008 in most of the US, those looking to add a vacation home to their
portfolio are considering buying before prices rise. The good news is that the favorable home
prices are helping the housing market recovery. Before you invest, make sure
you know the tax advantages (or disadvantages) a vacation home investment may
bring you if you plan to sell a property to fund a vacation home.
Understanding 1031 exchanges can make the difference between paying
thousands of dollars in taxes when you sell one piece of property to buy
another one, such as a vacation home.
The property must be of ‘like-kind,' in other words a business or
investment property exchanged for another business or investment property. Because this can be complicated, you consult
a tax professional if you are considering a 1031 exchange transaction. A sale and purchase of this type is a business
transaction requiring different Tax ID numbers assigned to each property. A qualifying exchange allows you to defer
capital gains from one property if you buy a comparable property within the
federal prescribed time limit.
Additionally, the property sold and the property purchased must be in
one of the 50 US states, with territories of the US not included in this
provision.
If you are considering a 1031 exchange, be advised that if
our US law-makers approve a reduction in personal tax brackets, the additional
taxes needed to offset the change may result in the 1031 exchange provision being eliminated at some point which may impact you in the future. For now, the 1031 tax provision is in place
for those that invest in real estate and seek tax benefits on those investments.
For those that purchase a vacation home as an additional property and don't use the 1031 exchange provision, you still need to do your due diligence on understanding property tax rates for non-residents, vehicle licensing requirements, and other non-resident fees that may impact your vacation home purchase. If you add a vacation home to your portfolio keep me informed so that we can add it to your financial plan and asset information.
Many of us have been a caregiver while we were raising
children, now some of us are caring for a loved one out of necessity as the
older family member is no longer able to care for themselves. A recent 2017 Transamerica Center for Retirement Studies report indicates that 42% of Generation Xers and 42% of Baby
Boomers are caring for a parent, and 57% of Individuals born before 1946 are
currently caring for a spouse or loved one.
Care recipients suffer from a wide range of conditions, with half having
a permanent one. The five most common
conditions are arthritis, dementia/Alzheimer's disease, high blood pressure,
diabetes, and depression and or anxiety.
Caregivers help with a wide range of duties such as
household chores, social and companion needs, health-related and personal care,
and managing finances. Caregivers are
also the bridge between Medicare or Medicaid services, and many learn medical
and nursing tasks from professionals to better care for their loved one. If you are caring for an adult family member
(other than a spouse), discuss what legal documents are required to represent
that individual legally with a professional.
Where does that leave the caregiver in regards to employment
and saving for retirement? The report
indicated that half of caregivers are employed with many trying to maintain
full time employment. However, over 76%
reported they have had to adjust their hours or are planning to leave their
jobs. Many in the survey expressed that
they didn't consider the financial implications of becoming a caregiver. If you are a caregiver or think you may
become one for an adult family member, this should be a part of your financial
planning process.
In the same way that a financial plan recommends reducing
debt and saving more for retirement, a financial plan can be done to show
working year's savings and years of no savings and what that may mean for
you. When you become a caregiver, not
having to liquidate savings to provide care to someone will make a significant
impact on your retirement.
If you think you may have to care for someone and leave your
job, having no debt is essential.
Becoming a caregiver is a life-changing decision and remember to plan
for yourself. Your plan should include
considering long-term insurance so that when you need care you have the
resources to do so. If you are or may
become a caregiver, please contact our office for a meeting so that we can help
you financially plan for this phase of your life.
If you are currently receiving Social Security retirement benefits
and it is a big part of your retirement income, congratulations! You are the
second or possibly third generation that has benefited from what was initially an
excellent plan for workers in our country.
If you are part of the generation that is 45 to 55 years old today,
this benefit will be much different for you. Under current law, people in this
generation have had their retirement age estimator benefits changed to keep up
with the demand for benefits currently burdening our Social Security system. We
have fewer workers paying into the system than earlier generations due to an
aging population, lower birthrate, and other economic factors. Those that are paying into social security now
are benefitting those individuals receiving benefits currently; the money is
not kept in an account for you for when you retire. Secondly, social security tax collected now
also benefits Medicare recipients.
The Social Security website’s Retirement Estimator is for those who are applying for or receiving benefits. For those
who are not in that group, the ssa.gov website page provides the following
disclosure and direction to another estimator calculator:
We can’t provide your actual benefit amount until you apply for
benefits. And that amount may
differ from the estimates provided because:
·
Your earnings may increase or decrease
in the future.
·
After you start receiving benefits, they
will be adjusted for cost-of-living increases.
·
Your estimated benefits are based on
current law. The law governing benefit amounts may change because, by 2034, the
payroll taxes collected will be enough to pay only about 77 cents for each
dollar of scheduled benefits.
·
Your benefit amount may be affected by
military service, railroad employment or pensions earned through work on which
you did not pay Social Security tax.
So what can you do regarding your retirement benefits possibly being decreased when you retire? Do not include it as part of your retirement income. Plan to make up the difference through other investment options and account types. If you receive your anticipated Social Security Retirement benefit you will have more retirement income than you planned.
I can provide you with a plan that includes additional options to
offset the shortage, which is estimated to be 25% less in the future compared
to the generation currently receiving benefit payments. For further information
on updates to Social Security, familiarize yourself with the Board of Trustees 2017 Report and the Social Security Administration website.
Here we are in the last quarter of 2017! Reviewing your retirement accounts once a
year is essential, but do you realize the benefits of evaluating at the end of
the year? Fall tends to be a time many people start thinking about next year
and what they want to accomplish. The
benefits of a fourth-quarter review are many:
Getting on Top of Your Taxes- Along with your tax
professional, your financial advisor may suggest an extra contribution into
your pre-tax accounts by the end of this year.
As long as you didn't maximize your pre-tax contributions this year, you
still have time this quarter to make a significant difference you may pay by
lowering your taxable income. And adding
to your pre-tax retirement accounts never hurts either!
Make Your Bonus a Bonus- End of year bonuses can be
deposited into your employer retirement account at your request as a pre-tax
contribution. If you receive a bonus
with taxes already taken out, consider adding the extra money into your other
after-tax retirement accounts. The
fourth quarter is when many companies announce if there will be an end of year
bonus. If you haven't planned on
receiving extra money, use it wisely to increase your retirement savings or
reduce your debt.
Planning for Next Year- Starting the New Year strong with a
financial plan in place after our review puts you in a better position to start
your plan immediately next year. People
with a written financial plan are more likely to follow the plan and monitor
recommendations throughout the year.
Reviewing This Year's Performance- Taking a look at the fund
and stock performance throughout this year allows us to make portfolio changes
for next year. If your choices didn't perform
to our expectations, it's time to re-evaluate those account choices.
Rebalance Yearly- Over the year, your portfolio may become
unbalanced due to changes in the market value of your funds or stocks. By rebalancing in the fourth quarter of the
year, you're ready to start the New Year with your portfolio reflecting your
investment strategy and tolerance to risk.
Give our office a call to set up your end of the year financial review to prepare your portfolio for 2018.