If you are considering purchasing a property as an investment and want to utilize the 1031 exchange provision, consult a tax professional.

Planning to Invest in a Vacation Home Using the IRS 1031 Exchange Rule?

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.

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Caregiving: A Decision That May Impact Your Retirement

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.

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A recent 2017 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.  

For information on updates to Social Security, familiarize yourself with the Board of Trustees 2017 Report and the Social Security Administration website.

Social Security: Will You Get Your Money?

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.

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Fourth Quarter Financial Reviews

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.

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Here we are in the last quarter of 2017!  Reviewing your retirement accounts once a year is essential and there are benefits to meeting at the end of the year.

SAI November 2017 Newsletter Approval 1933170.1

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