Mitigating Risks for Small Business Owners

Creating a Risk Management Plan

Small business owners make up most of the U.S. economy. While the statistics are not often reported by the media, according to the U.S. Small Business Administration (SBA), almost 50 percent of Americans either own or work for a small business.1

Further, the SBA states that small businesses account for:

That’s the good news. The not-so-good news of small businesses is as sobering as the good news is exciting. According to data from the Bureau of Labor Statistics2 about:

It’s important to note that these statistics reflect all small businesses, but the reality is that the facts are different when you look at business success and failure by industry. And while there might not be statistics to support this next statement, creating a risk plan that touches on four major categories should improve the chances that a small business will survive. Let’s examine the four major risk categories.

Market Risk

Market risk is a broad topic that can cover just about any aspect of your business. But it makes sense to focus your market research on two key groups: your consumers and your competitors. Marketing 101 suggests that you need to understand your consumer base and your competitors well before you launch a small business—and you probably do. But have you gathered empirical data to support your business ideas? Start by answering these basic questions:

  • First, is there a demand for your product or service?
  • If there is a demand, how many people would be interested in your offering?
  • Are there competitive options that are already available to your customers? And if so, what do people pay for these alternatives?
  • How is your offering different? The answers to these questions will lead you to additional questions and information. By taking time to answer them, you will better understand your opportunities and limitations for gaining customers.

Credit Risk

There are many reasons why 50 percent of small businesses fail by their fifth year, but there are a few reasons that seem to recur more often than others. At the top of the list is a lack of funding. In fact, according to an analysis by CB Insights, 29 percent of small businesses failed because they ran out of cash (interestingly, 42 percent failed because there was no market demand for their products or services).3 But cash flow is not just tied to start-up capital, it is also very much tied to accounts receivable— when your customers pay you. And since many business transactions are conducted on credit, it’s important for small businesses to understand their clients and their clients’ ability to pay. If you open a coffee shop and your clients pay with cash or a credit card, then your credit risk is not very high. But when you open a business where you don’t ask for payment before (or when) you deliver your product, then your credit risk increases. It sounds simple, but make sure that you check the credit of any customer that you’re extending credit to.

Operational Risk

Investopedia defines operational risk as “the risk not inherent in financial, systematic or market-wide risk” [and] “includes risks resulting from breakdowns in internal procedures, people and systems.”4 That’s a big one. Small business would do well to summarize operational risk as “human risk” and recognize that:

  • It changes from business to business and industry to industry; and
  • A business with less human interaction will by definition have lower operational risk.

Do you know the operational risks in your business? You might have the best product, but are there weak links in your supply chain or internet security or with your aging (or young) sales force?

Reputational Risk

Reputational risk is the one that probably keeps most small business owners up the at night. It’s also the one that can be very challenging to manage. Reputational problems often begin inside the organization. But third-party relationships also heighten reputational risk as more companies are being held accountable for the actions of their vendors or other business partners. In addition, perceptions will often vary from location to location, so an issue that threatens a location in Connecticut, for example, might not matter in Arizona. But as Warren Buffet said, “it takes 20 years to build a reputation, and five minutes to ruin it.”

Create a Risk Management Plan

Owning and operating a business—no matter its size—will bring you a number of risks that can dramatically alter your business and potentially cause you financial hardship. But you can protect against those risks by creating a risk management plan in a few very simple steps:

  • Identify the risk.
  • Assess the likelihood of the risk.
  • Attack the risk.
  • Periodically monitor and review the risk.

Ways of Dealing with Risk

There really are just four ways of dealing with risk. You can:

  • accept it;
  • transfer it;
  • reduce it; or
  • eliminate it.

And good risk management will improve the likelihood of your business succeeding.

Let me know how I can help you build a customized risk management plan for your business.

Secure your future wisely.

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10 Smart Ways to Use Your Tax Refund

It’s that time of the year when tax preparers and CPAs are busy preparing tax returns and their families are left to fend for themselves. In past years, about three-quarters of tax filers got an average refund of $3,000. This year will be interesting because of the Tax Cuts and Jobs Act that was signed in December 2017. Tax Policy Center estimates four out of five will see a tax decrease this year. However, some will have higher tax bills. Others may have smaller refunds because less tax was withheld from their paychecks.

Most Americans love their tax refunds. Some hate surprises including having to write another check to the government. Others consider it part of their annual savings plan or spend it as an annual treat, even though it’s an interest-free loan to the government.

Here are some smart ways to use your tax refund. I’ve put them in the order of smart money decisions to life-changing and refund

Payoff debt

The average American owes $38,000 in personal debt (excluding mortgages) and two out of 10 allocate 50% or more of their income to debt repayment per a 2018 study by Northwestern Mutual. Paying off an 18% credit card is better than having a bank balance earning 2%. List your debts and pay off the smallest balances first (it could be a quicker “victory” for you than attacking the highest interest rates).

Top off rainy day fund

Escape living paycheck to paycheck and have three to six months’ living expenses in cash reserves. This protects you in emergencies and gives you flexibility such as switching jobs. Discipline and a budget are key.

Save and invest

Fund your goals such as retirement, college or trade school, home purchase and others. Participate in your employer’s retirement plan at a minimum to get the “free money” match. Invest savings to match the time horizon – if money is needed in two years for a house, then it may be better to avoid stock funds (volatility) or investments with surrender charges.

Close gaps

Are you properly insured (life, disability, umbrella, long-term care, etc.) and is it time to update your will and estate plan? Meet with your general insurance agent and attorney as needed.

Finish chores

The refund might not cover a home remodel, but what other repairs or improvements can be done for your car and home? Paint? Smart technology including thermostat, lighting and security?

Treat yourself

Prepay a family vacation, upgrade the flight for more leg room or take to the skies with a drone.

Get the kids started

If they’re working, then consider helping them fund an IRA or Roth (maximum limits are $5,500 and $6,000 for 2018 and 2019, respectively). Show them online applications to help them organize and track their finances, and blogs such as

Invest in yourself

Consider programs and classes that help advance you personally or professionally. Maybe a quilting conference at Asilomar, SXSW 2020, advanced welding course or hiring a personal trainer.

Pure endorphins

What’s on your bucket list? Adventure travel, photo safari or snowmobile trip to see the Aurora Borealis? This is like shifting funds to the memory bank. Remember that time when…

Good Karma

What can you do to help make this a better place, or make a difference for others? Mother Teresa said, “If you can’t feed a hundred people, then just feed one.”

These are some thoughts not only for your 2018 tax refund but also for planning ahead.

Secure your future wisely.

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Spring Clean Your Finances

Every time a season changes, there are thoughts and plans to change things in your life. Clean the house, the yard, or start something new. Perhaps a new start you can consider this season is spring cleaning your finances. Here are some steps:

Get organized

Finances can attract clutter with statements, contracts, notices and more. Having a filing system – paper, electronic or combination – simplifies your life and will help if others take over your financial tracking. Store them in secure places – safe deposit boxes, fireproof safes and digitally encrypted files.

Go digital

Getting rid of paper is low-hanging fruit as you move to be more efficient. Main advantages include ease of storing and retrieving and security. Make a list of your accounts and passwords, store the physical and digital copies in safe places, and inform your wingman of their locations.

Re-tune the budget

If you are among the 59 percent of Americans who enjoy saving money more than spending it, this section is for you. Continue to switch to better deals from online FDIC insured money markets, consider cutting the cable (maybe even Amazon Prime and Netflix) and reviewing home and car insurance payments. Also, business owners can reduce financing charges by moving from monthly to annual payment for insurance, software and more. Finally, review and adjust tax withholdings and payments.

Fix your debt

We’ve previously talked about the importance of eliminating credit card and student loan debt, and while important, today we’re discussing house “debt.” Dave Ramsey refers to being mortgage free as the new status symbol. It may make sense to own one of our largest assets (house) free of debt. Those driven to pay off the house can synthetically create a 15-year mortgage out of a 30-year mortgage by making extra payments and reduce the total interest paid by half – while still having the flexibility to fall back to the lower 30-year payment if you hit a rough spot financially.

Anticipate life changes

Best ways to reduce stress include exercise, plenty of sleep and having a written financial plan. Prepare for the major expenses and shifts that lie ahead including: replacing a vehicle, changing homes, having a kid, funding education and retirement. Then consider the risks that can set you back – long-term sickness or disability, death of a breadwinner or assisted living. Can you self-insure (have plenty of assets) or should you consider expanding your insurance?

Mind your retirement accounts

Make sure you’re saving enough to maintain your desired lifestyle in retirement. IRS limits on IRAs, 401(k)s and others increased a little – and there’s no limit on what you save after-taxes. If you don’t already, enroll to qualify for the free employer match. Say the company will match your contributions up to five percent, contribute five percent and their match has automatically doubled your savings. Then gradually increase your contribution rate annually until you hit the maximum. Check your investments. If you didn’t like what happened during the final quarter of 2018, then adjust before it gets worse, or better yet, get a good dose of confidence from your financial advisor.

Secure your future wisely.

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Build Your Wealth with Real Estate

Is it buy low and sell high? Or buy high and sell low?

Steel industry pioneer Andrew Carnegie said, “Ninety percent of all millionaires became so through owning real estate. More money has been made in real estate than in all industrial investments combined.” Carnegie amassed a fortune of $350 million by 1890, equivalent to about $5 billion today. So, what are some lessons we can glean from his success?

First is generosity – he gave away most of his wealth. Second is change – his wealth today would rank about #400 on Forbes list of billionaires illustrating the shift from the Industrial to the Information Age. Nevertheless, real estate plays an important role in your financial planning puzzle.

I recall a story about a successful real estate investor, Coni. Coni went to her credit union 20 years ago for a line of credit and was told to come back in six months with what she had saved. She ate tuna fish, saved $500 a month, qualified for a $9,500 loan, and used that money to purchase a piece of property adjacent to an airport. She kept eating tuna, paid off the loan and she sold the property to the airport for double what she had paid for it.

Coni then bought a duplex that generated monthly income. Her goal was to buy more properties capable of making her as much money as her current salary. She accomplished that in five years and learned much about property management.

Coni’s story is like other successful investors – have a plan, take action and work the plan. The difference is she chose real estate as her primary investment.

Real estate’s role in your wealth

Real estate represents a significant component of household wealth. Different types of property include residential, commercial, industrial and land. According to a recent report from the Federal Reserve, real estate comprises about 25 percent of overall U.S. household wealth. Real estate is important because it’s one of the essential human needs (food, shelter and clothing) and tangible (you can “see” it). Investment-wise it plays two key roles. (Note: Home doesn’t normally count as an investment – it’s a “use” asset). First, it’s a major asset class in portfolios (stocks, bonds, cash, commodities and real estate) – they complement one another. Secondly, investments generally pay one of two types of returns – income and capital appreciation – real estate can provide both.

Active owner or investor?

There are two ways to own real estate – direct or indirect. The main difference is about control. Direct investment means outright ownership or partnership, and you’re responsible financially and to manage. Indirect investment is through a limited partnership, a corporation or real estate investment trust – you do not have control, others manage the property. Each form of ownership has unique advantages. For example, Coni wanted to be hands on; however, down the road, she may gladly pass on the management blisters and headaches to someone else.

Is now the time to invest in real estate?

It depends. What are you trying to accomplish? How large is the investment?

Huddle with your trusted advisors – Is it purely for investment or part of a strategic business expansion or relocation? One involves your personal wealth and life plan, and the other may be more urgent and complex with banking, tax, regulatory and other issues. Also, “real estate” is not homogeneous – every property, type and region are unique.

Real estate can be capital intensive. Also, prudent investors diversify and use leverage sparingly. Consider the example of buying a long-term rental. A median priced home in Reno is $360,000. Renting for $1,900 a month will yield about 5.4 percent in cash flow (before income taxes). That assumes a 15 percent expense factor (property taxes and insurance; no expenses for utilities, repairs or turnover). The total return (income plus appreciation) averaged about 8.1 percent for the past 15 years. Not bad! However, what if you had $60,000 for a down payment and borrowed the rest? Mortgage payments would leave only $95 in monthly net cash (for repairs, etc.). You’re praying for no repairs, no recession or bad tenants, and counting on appreciation. Or you look at alternative ways to invest in real estate such as liquid real estate investment trusts. The FTSE NAREIT All REITs Index returned 8.4 percent for the past 15 years. This is just an example to consider for diversification, liquidity and convenience.

Real estate is an important part of a three-legged stool investment approach. And hopefully, when you hear Mark Twain’s quote, “Buy land, they’re not making it anymore,” you have additional insights on how you can diversify your portfolio.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal

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If you track your heart health — why not track your financial health? Here are five tips.

Health professionals say we’re going to die of one of two reasons – accident or chronic illness. Our job is to move those markers out as far as possible by making positive lifestyle changes – buckle up, eat right and in moderation, exercise, get plenty of sleep, and more. Why aren’t we doing similar things with our financial health – moving the markers out so we don’t run out of money, avoid the “big investor mistakes,” and leave plenty for our loved ones and beneficiaries? And if money is a leading cause of stress, and stress is a leading cause of disease, how can we better take control of our own health and financial well-being? Here are five tips to help tame your finances:

Change Your Habits

Achieving your health or financial goals require making adjustments. For example, no one gets rich by spending more than they make. What is important about your goal whether it’s building an emergency fund, paying off debt, saving for retirement, and why is it important to take action now? Creating new habits and dropping old ones can be difficult.

Track It

Our health professionals drill us on healthy numbers – keep cholesterol under 200 mg, blood pressure under 120/80 and BMI in the range of 18.5 – 24.9. Similarly, in personal finance, the successful investors set budgets and their wealth targets for financial freedom. They periodically track their progress and make adjustments as needed. Goals that are measured are more likely to be achieved.

financial healthGet Aligned

Annually, the Prudential Wellness Census summarizes the top financial priorities and concerns of Americans. By objective measures – income, assets and debt – America is split between those who are financially healthy and those who are struggling. However, more than a quarter have perceptions that are at odds with reality. For example, 12 percent possess a high level of financial health by objective measures yet are pessimistic about their finances. Another 17 percent fall on the opposite side with their objective financial health low, but they perceive themselves in good financial shape. Such misalignment has implications. Those who are relatively affluent can suffer higher stress, be too cautious in investing or deprive themselves or family of quality of life. And those who are at the lower rungs of financial health but optimistic about the future can overlook changes they need to make now.

Deal with Debt

Consumer debt – credit cards, personal loans and lines of credit – are wealth detractors. They’re easy to get, easy to over-extend and are expensive. Design an aggressive debt repayment plan such as the debt snowball method. Write down each of your debts (and their terms) line by line excluding your mortgage, budget a monthly repayment amount (greater than the total minimum payments), prioritize your debts (either smallest balance first down to the largest, or highest interest rate first to the lowest – I recommend the smallest balance first for the earlier emotional win), pay the minimums on all the other debts and throw the balance at the debt on the top of the list. Once the top debt is fully paid, repeat the process with the same total monthly payment and target the next debt. The payments on the priority debt and payoffs escalate as you work down your list – hence the term “snowball” – and you become debt free!

Save Money

A brilliant investment strategy seldom helps if you haven’t saved enough. The financially fit work savings into their budget – emergency reserves (safety net or rainy day funds), major expenditures, retirement or a college fund. And don’t pass up “free money” – at a minimum, fund your 401(k) plan to earn matching company contributions.

In closing, a healthy lifestyle is critical for a long, prosperous life. Start your journey to take control of your health and financial well-being, and stick to it.

Secure your future wisely.

This article can also be viewed on the Reno Gazette Journal

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Pink Hearts, Red Roses and…Financial Security. Love Is In the Air This Valentine’s Day.

Pink hearts, red roses and chocolates – love is in the air. The National Retail Federation is projecting that consumers will spend a record $20 billion on gifts this year. On average, $162 is spent per person, and the shopping list includes jewelry, an evening out, clothing, flowers, candy and gift cards.

Special gifts to those we love are an important part of Valentine’s Day. We want to celebrate by showing our loved ones how much we care for them. But financial freedom, confidence and security can show your love better than any gift!

Here are three things a prudent investor does to show their true love:

Current Self and Future Self

Planning for the future is challenging because it is abstract. We know we’re going to grow old, but it’s hard to visualize what that will look like. In addition, the temptation of instant gratification is strong. Behaviorists demonstrate this cognitive shortsightedness with Walter Mischel’s famous “marshmallow studies” where children are offered a choice: one marshmallow now or two if they wait an hour. Most chose option one. And the decision between today versus tomorrow manifests itself in everyday life choices from spending versus investing to dancing in the rain versus building a shelter. Consider looking at yourself as two people – current self and future self. Invest more time imagining your future self.

Build an Emergency Fund

There are plenty of reasons why people have inadequate savings for retirement. Some feel Social Security will be enough. Others hope something “good” is going to happen. But for many, life can get in the way – the fridge goes on the fritz, a car conks out or a kid breaks an arm on the soccer field. The budget sways and your savings goes to the back burner. According to a recent Financial Security survey by Bankrate, only four out of 10 Americans can cover a $1,000 unexpected expense with savings.  Furthermore, six out of 10 people in a separate survey felt they had adequate emergency reserves while only one in three had enough to cover six months of living expenses (three to six months’ expenses is a guideline for cash reserves for workers, one to two years’ worth is good for retirees). Build an adequate reserve to cover life’s periodic surprises and consider parking the funds in an online Federal Deposit Insurance Corporation (FDIC) insured money market.

Here’s an example of why an emergency fund is advantageous. Assume you’re saving $500 a month to your 401(k,) you suffer a $6,000 blow, and you don’t have an emergency reserve. You suspend your 401(k) participation for a year to cover the expense. No big deal, right? Say you’re in your 40s – 25 years from retirement – and your 401(k) is averaging a six percent return. First, you might be locked out from contributing to your 401(k) for a year even if you got a bonus that’d cover the expense. Second, you lose the tax deductions for a year’s worth of contributions and the contributions would have grown to about $25,000 in 25 years (excluding the tax savings). And third, if your company had a 50 percent matching contribution, you would have had about $37,500.

Plan and Practice Retirement

Retirement is more than seeing that your finances are in order. Prepare for the increased time you and your significant other will be together in retirement and practice it before you cash your final paycheck. Baby boomers divorce at “unusually high rates” as they approach their 60s and 70s. The divorce rate for people age 55 to 64 doubled in the 25 years preceding 2015 according to the National Center for Family and Marriage Resource. It tripled for Americans 65 and older. Three tips have been offered:

  1. Discuss and align expectations. Is Georgia expecting me to do more chores while I’m planning to fish more? Or am I expected to be the center of her attention?
  2. Stay busy and stay connected.
  3. Communicate, compromise and give one another space.

Charles M. Schulz once said, “All you need is love. But a little chocolate now and then doesn’t hurt.” In addition to chocolate, why not try financial confidence and security?

Secure your future wisely and Happy Valentine’s Day from Sage Financial Advisors.

This article can also be viewed on the Reno Gazette Journal.

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Passport? Social Security Cards? Jewelry? The Do’s and Don’ts of Safe Deposit Boxes

Where do I store my gold and silver coins for safekeeping? It often depends on how many coins you have. Imagine you have a stack of 1-ounce American Eagle Coins standing as tall as a sleeve of Ritz Crackers. That 30-cracker stack is equivalent to about 70 silver coins or 87 gold coins – about a grand in silver or $111,000 in gold. You can always bury them in a tomato can in the yard but I highly suggest securing them in a safe deposit box at your bank.

There are plenty of items that deserve secure storage – documents, mementos and coins. In this article, I’ll be covering items that belong in a safe deposit box, things that don’t, and some alternatives for storage.

What is safe deposit box? It’s a locked box usually held in a larger bank vault. They vary in size and rent for about $50 to a couple hundred bucks a year. While banks offer significant security, you should consider keeping your items in waterproof containers and insure your items in case they get stolen because neither the bank nor the Federal Deposit Insurance Corporation (FDIC) insure the box contents.

What should be stored in a safe deposit box

safe deposit boxes

Sometimes you need to produce original documents. And other valuables can’t be digitized.

  • Birth, marriage, divorce and death certificates
  • Social Security cards
  • Personal papers and family photos – including archives stored on thumb drives
  • Stock and bond certificates – Including Series E Bonds. However, here’s an example where you can simplify your life and consolidate your assets – convert your individual, joint or trust accounts to electronic format
  • Property records and vehicle titles
  • Insurance home inventory
  • Jewelry and collectibles – Make sure they’re insured

What you shouldn’t store in a safe deposit box

Some important documents and items are best secured somewhere else rather than in a safe deposit box. These include things you may need frequently, either when the bank is closed, or when there’s an emergency.

  • Cash – The emergency stash should be close at hand, and some banks may prohibit storing cash
  • Passport – It’s tempting to place such an important document in safekeeping especially if international travels are infrequent. However, emergency trips are unplanned.
  • Estate documents – You’d think the originals of your wills, trust and powers of attorney should be locked up in the box. However, consider having your attorney, executor or other key persons keep the original copies. The bank may seal the safe deposit box when they get word of your death and might only release it when the executor provides legal authorization of access. Minimizing downtime and legal hassles can be advantageous.
  • Medical directives – These documents involve your end of life wishes including living will and healthcare proxy. These too should be accessible to your healthcare professionals and family in the event of an emergency.

Other options besides safe deposit boxes

There are several alternatives to use with (and not in lieu of) safe deposit boxes.

  • Home safes or strong boxes – Make sure they’d survive a robber (including taking the safe off and opening it later), fire or flood
  • Virtual safes – Digital copies of important documents can be conveniently stored online. Consider the convenience of having these documents including medical records, credit cards, bank and investment accounts, and others just a click away. However, technology can be hacked. Therefore, you’ll want to make sure your records are safe, private and secure. Comprehensive security measures should include password protection, highest encryption, firewalls, inspections and more. Explore resources available online and through your trusted advisors.

Remember, there’s a big difference between bear markets and someone digging up your stash of silver coins in your backyard. One is when your wealth goes missing temporarily and the other can be a permanent loss.

Secure your future wisely.

You can also view this article on the Reno Gazette Journal

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Get an Early Jump on Charitable Giving

Were Americans as generous with their charitable giving in 2018? A record $410 billion dollars was given by individuals in 2017, according to Giving USA. Two factors may reduce giving: the recent income tax cuts and a rough-and-tumble December for investors.

However, it’s the start of a new year. Meet with your advisers and get a jump on giving strategies for 2019 for three reasons:

  • Be more impactful in your giving: Roughly one-third of the year’s online giving is done in December, according to statistics at What if you took the time to define your charitable mission and did your homework in selecting charities?
  • Consider the “wealth effect”: Investment gains were strong in 2017 and donors felt “wealthier.” The S&P 500 gained 21 percent. It dropped four percent in 2018. Donors tend to sit on their wallets when their portfolios are down. But isn’t that the time when charities need more help?
  • Tax savings: What if giving is the cheaper route?

This article focuses on tax planning opportunities for charitable giving, specifically about the impacts of the Tax Cuts and Jobs Act and Qualified Charitable Distributions (QCD). But first, a review of why people give (note: tax benefits are not the primary reason).

What do you get out of donating? The top five include:

  • Personal experience
  • Making a difference
  • Being proactive in solving a problem or taking a stand on an issue
  • Being motivated by personal recognition and benefits
  • The belief that giving is a good thing to do

Challenges from the Tax Cuts and Jobs Act

The true impact won’t be available until after returns are filed in April. Some – such as Giving USA – feel that charitable giving will decrease. Others say high-income taxpayers will be motivated to donate more.

It’s now harder for individuals to reach the threshold required to qualify for the deduction. Taxpayers have a choice: Take the standard deduction, or itemize their deductions. The standard deduction doubled; state and local taxes are capped at $10,000; and mortgage interest may be limited. Council on Foundations estimates 5 to 12 percent fewer Americans will itemize.

Planning solution: If you can only take the standard deduction, then consider “lumping” contributions into every two or three years in an effort to itemize deductions for that year.

4 questions regarding qualified charity distributions

The impact has changed because more taxpayers are taking the standard deduction. QCDs are direct transfers from IRAs to eligible charities. The IRA account holder must be 70-1/2 years or older, and the beauty of the QCD includes:

  • The distribution goes directly to a charity from IRA
  • It’s not includible in your income
  • It counts toward satisfying your required minimum distribution (RMD)

1. Can you make a QCD from a 401(k)?

No. QCDs come only from IRAs and not from employer-sponsored plans (SEP, SIMPLE and 401(k)). You possibly could roll those employer plans to IRAs to be eligible for QCDs.

2. What if you took the RMD earlier in the year — can you take a QCD later to offset the RMD income?

No. This is a key reason to jump-start your charitable giving strategy now rather than waiting until year-end. Say your RMD for 2019 will be $20,000 and you will give $10,000 to qualified charities. If you made $10,000 QCDs early in the year, then you’d only report $10,000 in taxable RMD. But if you already took your RMD and waited until year-end to donate, then it gets more expensive. You could take an additional $10,000 as QCD — but you’ll report $20,000 in taxable RMD and your IRA is $10,000 lighter.

3. If you qualify for itemized deductions, is the QCD still better to do?

Yes. It reduces your AGI, which is more favorable than a charitable deduction which reduces taxable income. Reduced AGI might lower the threshold for deductibility of medical expenses.

4. Can you use a donor-advised fund for QCD?

No. Both donor-advised funds and private family foundations are excluded.

There are many ways to be impactful with your generosity. You can give your time or talent, adopt an annual giving campaign, and be part of your estate plan utilizing beneficiary designations and specifying bequests. And you have many resources for due diligence and thinking things through including your trusted advisers, and Community Foundation, to name a few.

Finally, in the words of Andrew Carnegie, “It is more difficult to give money away intelligently that to earn it in the first place.” Good luck.

You can also view this article on the Reno Gazette Journal

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A Guiding Angel’s New Year’s Resolutions

The finer things in life tend to take time. Frank Capra’s film “It’s a Wonderful Life” was released in the winter of 1946. It would take almost three decades before it became a classic.

Senior angel: “A man down on earth needs our help.”
Clarence: “Is he sick?”
Senior angel: “No, worse. He’s discouraged.”

happy new year

The story’s about a desperately frustrated banker, father and husband who contemplated tossing away God’s greatest gift – his life. Clarence, who hadn’t yet earned his wings in 200 years, was sent to be George Bailey’s guiding angel. Through Clarence, George got to see what the world looked like from a different perspective.

The year ends with bumpy conditions: an aging bull market, slowing economies, political dysfunction, trade uncertainty and tightening financial conditions, to name a few. These can be distracting or give you reason to pause. However, the New Year offers new beginnings and promise. Sometimes we need a nudge to stay on track or reset our financial plans. I’ll share some New Year’s resolutions to improve financial health.

Stick to your plan

Warren Buffett famously said, “It takes only two things to succeed: first, having a reasonable plan; and second, sticking to it. It’s the ‘sticking to it part’ that most investors struggle with.” Your financial success takes effort and mindfulness.

Have a budget for life

Know where your money goes, and where it’ll likely go as you shift through life’s transitions. Think about budgeting like dieting, where we’re coached to eat less and eat smart. And take a financial snapshot (a balance sheet and cash flow) at least annually to see where you stand and your progress.

Manage debt

Some abhor debt (“We haven’t paid interest in 32 years!”) Others use it as a tool. Understand what you can borrow versus what you should. The average American now has about $38,000 in personal debt excluding mortgage, and that balance is up a grand this year, according to Northwest Mutual. Consolidate debt where possible and have an aggressive repayment plan.

Beat inflation

It’s tempting to hide in cash (Note: It’s prudent to have three to six months’ living expenses in cash reserves, or one to two years’ worth for retirees). But most investors need to earn a higher return. Social Security retirees get a 2.8 percent pay raise for 2019, and that’s about $39 a month for the average retiree receiving $1,405 (Note: The maximum benefit is about $2,861 a month). It’s the biggest increase in seven years. Would that be sufficient for you? If inflation averages 3 percent a year, a $100 bill is worth about $74 in 10 years and $40 in 30.

Think long-term and rebalance portfolios

Treasury bills are one of the few major asset classes that are positive this year to date, up 1.8 percent. Bonds are down about 3 percent, U.S. stocks are down 10 percent and international stocks are down 20 percent. Over the last 20 years, Treasury bills have gained about 47 percent, bonds 164 percent, U.S. stocks 286 percent and international stocks 178 percent.

The future is likely to be different; however, the stock market over the long term shows a permanent upward trend interrupted periodically by temporary declines. And stay diversified – you’ll trade “never making a killing” for the blessing of “never getting killed.”

Establish contingency plans

Life can be curly. Manage your risks.

Some may take New Year’s resolutions as folly. However, planning for a lifetime of financial success has big payoffs. May your list of troubles be shorter than your list of resolutions.

You can also view this article on the Reno Gazette Journal.

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He Tried Christmas – Don’t Let the Grinch Steal Retirement

He was a mean one, that Mr. Grinch. He hated Christmas. The happier the Whos, the angrier he became until he couldn’t take it anymore. He hatched a plan to steal Christmas. Disguised as Santa and his dog Max as a reindeer, they sleighed into Whoville. House by house, they stole all their presents, trees and decorations, and left only crumbs too small for a mouse.


But he didn’t stop there! He also dished out bad retirement advice. He didn’t think of anyone but himself, he lived alone in his cave, and gave no thought to his future.

“He was a selfish and bitter grouch, and a tax cheating slouch.

And if you asked him for financial advice, why would he care? He’d steal Cindy Lou Who’s last candy cane. You better beware.”

He’d pooh-pooh the Whos. Let’s warn them about three Grinch retirement recommendations that can be rotten or should be forgotten so they are not later crying boohoo.

“Billie Who is 66 and wants his investments to grow and last the ages.

But his golf buddy Henry Who says look at this retirement book. It says people with graying hair should play it safe. Here read the pages.”

Don’t get pigeonholed or typecast with investment strategies. People have unique situations, needs and goals. Two households may require different investment approaches despite being similar in age. Yes, there are general rules but focus on what is best for you. For example, a common starting point in allocating between stocks and bonds is subtracting your age from 100 and that’s the percentage you hold in stocks. A 30-year-old would have 70 percent in stocks and 30 percent in bonds. A 70-year-old would have the opposite. In general, the portfolio would become more conservative with age.

But take Billie Who and Henry Who – their age is the only similarity. The bulk of Henry’s living costs are covered by pension and Social Security, and he has a modest amount saved. Billie has Social Security, no pension and a substantial 401(k) balance to fund the bulk of his lifestyle. Henry has the option of going “safe” with his investments or can be more growth-oriented. His savings can either supplement income or pass to heirs. Billie needs his investments to work hard to beat inflation and pay income taxes.

Another example, is how two elderly women might answer “What’s important to you about money?”

One says, “I don’t have time to earn it again, so I want it safely invested.” The other says, “We worked hard for this money and we want it working relatively hard for us and our heirs.”

Drop the stereotypes of age, and instead, focus on purpose.

“Donna Who says we’re staying put. The home is old and big. But it’s paid for.

Her girlfriend Susie Who says our home situation is similar. But we’re looking for something simpler. While we are able, we’re ready to explore.”

It may be hard to pry the Grinch from his dark cave. However, Baby Boomers and the Silent Generation are active residential buyers per a National Association of Realtors survey on home buyer and seller generational trends. Those generations comprise about 38 percent of homes purchased and the top three reasons for buying include the desire to be closer to family and friends, smaller home and retirement. Some found themselves house rich and cash poor. A house is one of, if not, the largest asset people own, and equity is idle unless sold or borrowed (including reverse mortgages). Others resize their home – downsize or upsize – for quality of life issues.

“An estate plan? I say every Grinch for himself. Why worry?

But Whoville is a community of families. The Guy Whos think what if something happens to me? Will the She Whos stay single or will they remarry?”

Thinking about end of life and preparing for it can be two different things. A survey referenced in an article in It found that only four in 10 Americans had an estate plan. Estate planning becomes a higher priority with age with 58 percent of Boomers and 81 percent of those age 72 and above. However, estate planning is not one and done. It needs to be updated to reflect changing situations and life dynamics.

There are at least four reasons the Whos should visit with their estate planners and refresh. They include understanding the estate plan, updating beneficiaries, funding the trusts and titling newly acquired assets properly, and reviewing the designated players – including agents, executors and trustees. They are aging and changing like us.

The Grinch story ends well. It’s about his redemption.

“He brought back the toys! And the food and the feast!

And he… he himself…

The Grinch carved the roast beast!”

Merry Christmas and Happy Holidays to you and your family.

You can also view this article on the Reno Gazette Journal.

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