In the Vice-Presidential debate of 2008, Sarah Palin uttered the famous line, “Say it ain’t so, Joe.” That was said to Joe Biden, but this week I was reminded of Sen. Joe Manchin, who previously would not support the latest Democrat spending bill until he saw July’s inflation numbers. Sen. Manchin suddenly couldn’t wait, so he agreed to the spending this past week. His prior words were meaningless.
The working name for the Senate Bill is “Inflation Reduction Act of 2022.” However, many economists believe that the Bill is likely to fuel increased inflation. In fact, according to the Senate Byrd Rule, the name will likely have to be changed, as there is virtually no chance that the result will be less inflation. Quite the opposite, in fact.
Congress has a long and sordid history of misnaming Bills and subsequently enacting them into laws. In the naming process, words are often meaningless and frequently turn out completely contrary. Some notable examples include:
- Patient Protection and Affordable Care Act (a/k/a/ ObamaCare), which made health insurance and health care more expensive
- Patriot Act, which resulted in less freedom from scrutiny by the government, antithetical to our founding fathers’ intent
- American Recovery and Reinvestment Act (a/k/a “Stimulus”), which stimulated sign companies to announce projects, but somehow “shovel-ready jobs” were found lacking
Getting back to the Inflation Reduction Act of 2022., even the Administration admits that this Bill has a high cost for the first 3 years, with theoretical savings in years 4 through 10. Worse yet, another result would be increased taxes on all income levels, breaking another of candidate Biden’s 2020 campaign promises. Proposing tax increases when we are burdened with high inflation and a recession is socialistic thinking.
Economist Friedrich von Hayek said it best when he quipped, “If socialists understood economics, they wouldn’t be socialists.” This is reflected in the new “Inflation Reduction Act,” which was seemingly authored by socialist-leaning elected officials.
Conveniently, carefully chosen words obscure the truth. The Administration denies our current recession and continually prevaricates as to the cost of their proposed boondoggle. Changing the definitions of words and phrases does not alter simple economics. Words mean things. Or, used to, anyway. Hold on to your wallets (even tighter) if this Trojan Horse passes into law.
Van Wie Financial is fee-only. For a reason.
Assuming you don’t have some unusual, complicated tax situation, we assume that your 2021 Income Tax Return has already been filed. For most people, income taxes are now “out of sight, out of mind” until next spring. However, some small businesses and self-employed people may still have a chance to improve their situations retroactively, simultaneously improving their own personal financial futures.
Certain Small Business Retirement Plans can be opened until the extended filing date requirement, assuming an Automatic Extension was filed. This means October 17, 2022, is the date (October 15 falls on a Saturday, so the Extension Due Date moves to Monday, Oct. 17). Some small business owners may have been unpleasantly surprised at the size of their 2021 tax bills in April this year. For some of these people, some relief could be realized by opening a Qualified Retirement Plan (QRP) retroactively to 2021, with a corresponding deduction for 2021 contributions made in 2022.
For self-employed people (including Sub-S Corps, LLCs, etc.) with no W-2 employees except perhaps a spouse, an Individual 401(k) Plan offers the greatest flexibility in terms of administration and large contributions. Individual contributions are made through salary deferral, and the Company can contribute from annual profits. Plans can be opened until the Extended Tax Due Date, and Company contributions can be made retroactively for 2021. While some Plans allow Roth-style accounts, most Indy(k) Plans are used in part for tax deductions, and are therefore non-Roth style.
Small employers, if ineligible for the Indy(k) Plan, may open a Simplified Employee Pension Plan (SEP), also up to the Extended Tax Due Date. The SEP has less flexibility than the Indy(k), but works similarly, reducing taxable income and accumulating retirement funds for eligible employees.
Also available for small employers is the SIMPLE IRA, which has relatively easy rules, lower contribution limits, and comes with a few catches. First, it must be opened by September 30 of the year of the Plan is opened. It is not too late for 2022, but the SIMPLE Plan cannot be used to improve 2021 results. Other rules are straight-forward, and administration is (excuse me, please) simple. Once contributed, no funds can be withdrawn until a 2-year waiting period has been satisfied.
Tax years 2021 and 2022 allowed above-the-line deductions for some charitable contributions. Should Congress renew this deduction for 2022, this Blog will notify the readers in time to act on that valuable tax-saving provision.
Van Wie Financial is fee-only. For a reason.
Believe it or not, more than half of 2022 is in the rear-view mirror, and it is time to start planning year-end financial concerns. For many of us that includes tax considerations, including charitable contributions. Simply sending money to favorite qualified charities does not assure receiving the most favorable tax outcome. It is not much more difficult to treat yourself well, and your charities will be totally unaffected. A win/win, to be sure.
Since passage of the Tax Cuts and Jobs Act of 2017 (TCJA), a large group of American taxpayers no longer receive any benefit for itemizing deductions on Form 1040 Income Tax Returns, as they claim the larger Standard Deduction. Coupled with inflation and a down economy in 2022, charities are concerned that donations will not meet their operational needs for the year. Through years of income tax rules and the spirit of the Holiday Season, most donations are made and received late in the year.
Making tax-efficient donations requires advance planning in a tax environment that is constantly changing. At this time, some opportunities have expired for 2022. We have no crystal ball to forecast behavior in a Congress that is constantly at odds with each other and reality, so we inform readers while we await legislation. For tax years 2020 and 2021, taxpayers received “above-the-line” deductions for limited cash contributions. This provision expired, but Congress may reinstate it, along with several other expired provisions. This could happen as late as mid-December.
Qualified Charitable Distributions (QCDs) are available to IRA investors who have reached age 70-1/2, whether or not they are required to withdraw monies from their retirement accounts for Required Minimum Distributions (RMD)s. QCD donations are made directly from an IRA to a charity, and do not count as income to the taxpayer. This renders the QCD amount tax-free, and does not affect the charity. While RMD age has moved from 70-1/2 to 72 (with a likely change to 73 if Congress passes SECURE 2.0), QCDs remain available to IRA owners aged 70-1/2 or more.
For taxpayers subject to RMD requirements, all QCDs are limited to the lesser of the RMD total or $100,000 annually. This tax-efficient methodology requires advance planning to assure timely completion, and is tax-free. While the QCD is the most advantageous method for making charitable contributions, not everyone is qualified to use the technique. Taxpayers under 70-1/2 at year-end should watch carefully to see if the $600 cash donation income exclusion gets restored for 2022. This Blog will update readers when any changes are made.
In years past, many taxpayers used itemized deductions, which effectively reduced Taxable Income by the amount of qualified charitable gifts. Today, however, most of those deductions have been lost in favor of higher Standard Deductions. Using a QCD, your charitable gift is sent directly from your custodian to the qualified charity. It is not reportable income to you, and no tax is due. Note that the taxpayer is responsible for informing a tax preparer that a QCD was used.
Among tax considerations making their way through Congress is a change to the limits on “SALT” deductions, meaning State and Local Taxes. Should an increase in SALT deductions be implemented for 2022, some taxpayers may reap a benefit for larger charitable contributions by itemizing. In an ideal world, we would know the tax rules when the year begins. In today’s America, we hope that we will get the rules in time to perform some simple calculations and estimates before year-end.
Van Wie Financial is fee-only. For a reason.
When was the last time you looked at your paystub? Yes, I realize that there is no paper stub attached to your nonexistent paper paycheck, but that doesn’t mean it went away. It is probably available online, or you can ask your employer for a copy. Due to the absence of physical paystubs, most people fail to examine details of their hidden expenses or paycheck withholding.
Realizing exactly what is being paid out prior to “take-home pay” can be enlightening. Withheld earnings paid out to taxing authorities, insurance carriers, and company-sponsored retirement plans, all add to what we call the Invisible Cost of Living. “Off the grid” workers (those who work for cash only) have no paystub, real or electronic. In all cases, “out of sight, out of mind” applies to the true cost of living our daily financial lives.
Far too many Americans have no idea exactly how much they actually earn in a pay period, or over a year. When asked, a common response is, “I take home X dollars a year.” That does not answer the actual question. Similarly, many people do not know their gross monthly Social Security benefit, as they look simply at the deposited amount. Establishing an online account at socialsecurity.gov allows a recipient to see how much is being withheld for Medicaid B and Federal Income Taxes, if any.
For the dwindling group of Americans accruing Traditional Pension benefits, they should all comprehend the personal economic value of their employer’s pension contributions. Understanding the total cost of living, including the invisible portion, is vital for everyone, including job changes, as well as anyone considering gig work for a period of time.
Preparing for retirement and beyond is a years-long process, and therefore cannot be hurried. Like all insurance plans, Social Security and Medicare require payments (essentially insurance premiums) to be made into these Plans for a minimum of 40 calendar quarters. Lifetime credited earnings by each individual are available on the Social Security website, and should be checked occasionally.
Failure to understand the true cost of living, including the invisible portion, can result in disastrously underestimating retirement needs. Today, visible components of inflation are “in your face” at the gas pump, grocery store, and in the stack of unpaid bills on your desk at home. Invisible components are inflating as well, and changes in your Total Cost of Living must be understood in order to plan for eventual Financial Independence.
Like it or not, many people will be working longer than anticipated.
Van Wie Financial is fee-only. For a reason.
As financial planners, our goal is to assess current economic and market conditions and then design portfolios and select assets that have a good chance of being successful in whatever environment we encounter. Today we have very challenging financial markets, and we recently finished the worst half-year start in market history.
Hardest to understand is the “nowhere to run, nowhere to hide” mentality of this market. Historically, inflation is countered in portfolios by overweighting assets that have generally responded positively to overall rising prices. Among these are precious metals, inflation-linked bonds, real estate, commodities, and general equities. Recently, however, these assets have been falling in lockstep with the general market.
Asset classes that are traditionally friendly to inflation can easily be represented in portfolios. Many Exchange-Traded Funds (ETFs) are available to today’s investors at (lower) market prices, and with minimal expenses. History doesn’t provide us with any guarantees, but patterns of success and failure have always tended to be repetitive. Since inflation-friendly asset classes are on sale right now, adding small percentages to your portfolio may give your personal recovery a boost when the market changes focus.
Planning portfolio allocations and positions must be supplemented by common sense. History is on the side of those who avoid past errors. Patience is required, along with faith in the American economy. Right now, holding an above-average amount of cash in money market funds will allow investors to take advantage of opportunities that will inevitably arise. One helpful method of generating cash is to seek tax losses that can be harvested before year-end. This applies to non-tax-qualified funds held in brokerage accounts.
For qualified funds (IRAs, 401(k) Plans, etc.), today’s low asset prices present opportunities to perform Roth Conversions at very low prices, lessening the tax burden, while setting up tax-free growth as the market recovers. Since Roth accounts are never taxed, once established, and do not have mandatory Required Minimum Distributions (RMDs), savings can accrue over the rest of an investor’s life. Roth Conversions can no longer be reversed, so be cautious.
Meanwhile, every day brings us closer to a bottom, and history teaches us that a turnaround will occur when we least expect it. Losing out on the first few days of a recovering market is a formula for failure. As difficult as it has become tolerating the 2022 market slide, our best expectations are for long-term success through well-planned investing.
Van Wie Financial is fee-only. For a reason.
Life expectancy has been rising since the earliest humans walked the Earth. Only in the last 30,000 years or so did the concept of a living grandparent become a reality. People just didn’t live long enough to see their own children give birth. Overall, Americans are enjoying lengthier life spans and improved quality of life. This is largely due to advances in medicine, vaccinations, and nutrition. Your own life expectancy was determined at birth, measured across the population of births in that time period.
Clouding this picture is the increased flow of Fentanyl across our unprotected borders and onto American streets everywhere. This scourge is so powerful, especially coupled with the COVID-19 pandemic, that it is statistically altering American data. Life expectancy is still rising (for all the right reasons), but many individual life spans are falling, due to avoidable deaths at all ages. This alters the average life span in specific age groups. Life expectancy and life span should not be confused. One is collective and the other personal. If you avoid COVID and Fentanyl, your prospect for outliving prior generations is fantastic.
Recognizing the challenges of increased life expectancy, Congress passed the S.E.C.U.R.E. Act (now dubbed “SECURE 1.0”) in 2020. Among other provisions, the Act increased the age for Retirement Account Required Minimum Distributions (RMDs), from the (arcane) 70-1/2 to a more reasonable 72. Increasing the RMD age helped align the law to reality, but recognized only part of actual longevity gains.
Recognizing that SECURE 1.0 was insufficient to reflect reality, several members of Congress are now supporting SECURE 2.0, which would further raise the RMD age. Immediately, the RMD age would go to 73, and every 5 years thereafter, for a decade, the age would be bumped up another year, until attaining age 75 in 2033. Absent any unseen future detrimental effects to our longevity, this protects younger generations from excessive erosion of their retirement savings.
There are many more provisions in SECURE 2.0, including many unknown and some unwelcome, but overall, it appears to be reasonable. Further, various proposals being integrated into a final SECURE 2.0 Bill have been receiving overwhelming majority support in both Houses of Congress.
Passage of SECURE 2.0 is required before the end of the year, or the entire package will need to be renegotiated. No one seems to have any tolerance for delay, and it appears that the final Bill will sail through Congress in 2022. President Biden would not hesitate to sign on to a Bill with nearly unanimous support of Democrats. Look forward to some (mostly) good news in a few weeks.
Van Wie Financial is fee-only. For a reason.
America’s much-maligned Millennial Generation (born between 1981 and 1996) have taken a lot of guff from media, parents, and comedians. Frankly, much of it was earned, as they attended expensive colleges, received some essentially worthless degrees, went heavily into debt, and moved back into their parents’ homes.
Somehow, time heals most wounds, people grow up, and priorities change. So, it seems with Millennials, who have quietly been acting more like their ancestral generations. We welcome the evolution.
When COVID-19 altered the lifestyles of people worldwide, Americans rekindled an interest in agriculture, but on a personal level. Personal food production caught fire and provided some relief for all uncertainties of where our purchased food had been, how it had been grown, and what may have touched the surfaces. Back yard gardens provided not only safe but high-quality food and people everywhere established their own producing plots. Online gardening purchases saw an increase of 100% during the pandemic. COVID-19 alone created almost 18.3 million new gardeners, most of whom were millennials.
At-home gardening has also played a role in mental health. While being cooped up for almost two years, people had to find new ways to fight feelings of isolation, anxiety, and depression. With online therapy helping in a professional sense, gardening gave people a reason to go outside more and socialize at a safe distance.
Inflation’s onset added a new dimension to personal food production, as seeds cost a fraction of store-bought food. Millennials apparently recognized all the benefits, including getting out of their parent’s basements, and into the outdoors. Demand has not slowed with the lessening prominence of COVID. In fact, America’s seed producers are having trouble with their own supply chains. With April 2022 having the largest price increase in Food at Home purchases since April 1979, people are looking for any way to save money on their food.
Today, personal food production has many reasonable and productive options, both for outdoor and indoor (hydroponic and other) production. There are many choices for the start-up gardener, ranging from various levels of involvement in at-home gardening, as well as the ability to rent plots or participate in a community garden in the area. An average home garden costs around $70 dollars and can produce on average $600 worth of food. Indoor systems are a great option for those living in apartments or homes that have very little outdoor space. Gardening supply companies can be relied on for both simple and sophisticated gardens, offering a variety of in-ground or above-ground gardening beds. One of the items perfect for use in Florida is the bug and critter barrier for your produce, as the staple for most gardens, the tomato, is often preyed upon by such creatures.
Welcoming the Millennial Generation to the world of personal agriculture by no means excludes Gen-X or Baby Boomer participants. From a Personal Financial Planning viewpoint, nothing makes more sense than lowering food costs while controlling your own freshness and quality.
Special thanks to our own Megan Todd, a Millennial herself, for her insight and assistance in constructing this week’s Blog.
Van Wie Financial is fee-only. For a reason.
Options for claiming Social Security benefits are as numerous as individual personal financial situations. Explaining all the options is not possible in a single Blog. Today, we look at people who are still earning income, but contemplating filing for Social Security benefits as well.
Simple rules of thumb can assist people in making “now or later” Social Security benefits filing decisions. Certain obscure exceptions exist, but you will not be likely to encounter any that apply to you. Most importantly, filing early results in a permanent reduction of monthly benefits. Filing decisions should be predicated on a participant’s age and financial situation, and with a serious eye to the future.
Full Retirement Age (FRA), also called Normal Retirement Age (NRA), is a moving target, based on year of birth, but every individual only has one. Delayed filing can take place any time after reaching FRA, up to age 70, whereafter no further benefit increase can be realized by further postponements. Early filing is available beginning on an individual’s 62nd birthday, and then may be executed any time up to FRA.
FRA filing means you will receive your original targeted monthly benefit payment for life, along with accumulated Cost-of-Living Adjustments (COLAs). Delayed filing produces a larger monthly benefit for life, up to age 70, at which time the individual’s maximum monthly payment is reached.
Most people have heard that Social Security will reduce monthly payments for people who are working while collecting. This is true, but must be clearly understood. Prior to FRA, Social Security benefits will be reduced by $1 for every $2 or $3 earned over certain thresholds, depending on proximity to FRA. These reduced benefits are not lost, as they are actuarily applied to future benefits. Beginning at FRA, no earnings-based reductions apply.
Annual benefits reductions are applied to payments “up front.” No monthly payment will be received until the entire annual reduction is covered, at which time regular monthly payments complete the year.
As with any complex financial decision, advance planning is critical to an optimal outcome. Unlike most decisions, however, there is one chance to execute a do-over. At any time during the first year of receiving benefits, a participant is allowed to pay back 100% of the money received, cancel the filing completely, and start over with a clean slate. All future benefits will be increased as if a later filing had been chosen.
Van Wie Financial routinely assists clients with Social Security filing decisions as part of their overall financial plan.
Van Wie Financial is fee-only. For a reason.
Adam was recently featured on Stan The Annuity Man’s podcast!
Click the link above to check it out!
For the past several months, we have watched gasoline prices rise by a few cents each week, with each recent new price eclipsing all-time records. Most of us are downright angry, but Washington, D.C. policymakers don’t seem to hear us, or don’t care. Instead, the Administration repeatedly tells us how good we are feeling, how economically sound we are, and that it is really just Putin causing rampant inflation in our food and energy costs. This reeks of a classic gaslighting scheme.
Lies and excuses are thrown at us daily, presented in a tone that seems intended to make us sympathetic to our hapless “leaders.” We’re not buying it. This week, in a blue-checked Tweet, President Biden claimed, “At the time I took office about 16 months ago, the economy had stalled and COVID was out of control. Today, thanks to the economic plan and the vaccination plan that my Administration put into action, America has achieved the most robust recovery in modern history.” Consider the change in your own financial situations since 2021. Although 2022 is not even half over, public sentiment is crashing on a daily basis, directly opposite of the rise in gas and food prices.
Positive outlooks are not all we are asked to believe. Among other concepts we are supposed to accept are certain untenable premises, including:
- Banning assault weapons is necessary to stopping school shootings,
- Illegal border crossing should not be a criminal offense,
- Masks should continue to be worn on public transportation and elsewhere,
- Job creation is the most robust in history,
- Spending capacious amounts of fiat money will reduce inflation, and
- Men can get pregnant and have babies.
While never a huge fan of TV’s Judge Judy, I do think she has a way of being direct with people who often don’t understand anything else. Her 1997 book was called, “Don’t Pee on My Leg and Tell Me It’s Raining.” That sure sounds and feels like a gaslighting situation.
As to the future of inflation and gasoline prices, who would you believe; an inept and out of touch President, Vice President, and Cabinet, or such experienced and proven leaders in the fields of economics, energy, and manufacturing, like Larry Kudlow, Stephen Moore, Rick Perry, Elon Musk, and countless others? These people understand that our current crisis is one of our own making and that we could fix it quickly. Unfortunately, it will require sweeping political change.
Since the November election is still 5 months off, and apparently no policy change is expected before that, I am offering all challengers a quick and easy campaign platform. Two mantras for November, assuming Republicans are smart enough to adopt them (a somewhat dubious proposition), should be, “Drill, Baby, Drill” and “Build That Wall.” Both were proven successful a mere few months ago, when Americans actually were feeling financially comfortable and optimistic. Politicians ignore us at their own political peril. That low rumble we hear the awakening of the Sleeping Giant.
Van Wie Financial is fee-only. For a reason.