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Market Returns During U.S. Election Years

In this video I walk through the historical stock market returns during US election years, subsequent years and during Presidential terms.

A few things to keep in mind

  • Bonds can help to reduce volatility during election years
  • Every time is different and this is not the only year with a health crisis
  • Stimulus deal – although unlikely to be completed before the election, the prices we see right now are pricing a stimulus package

To discuss how the upcoming election may effect your financial plan we can schedule a call or zoom meeting to discuss Click Here

Triple Tax Advantage – Health Savings Accounts

Triple Tax Advantage – Health Savings Accounts

Triple Tax Advantage – Health Savings Accounts


Health Savings Accounts (HSA) are a great benefit offered by most larger employers to their employees and they are the only account that offers a triple tax advantage.  The term triple tax advantage is used for Health Savings Accounts because they have tax advantages in three different forms: 1. Deductions are tax deductible 2. The money grows tax deferred 3. Money can be used tax free for medical expenses.


Eligibility and Contribution Limits – Any taxpayer who participates in a High Deductible Health Plan (HDHP) can contribute to an HSA plan.  The limits for 2020 contributions are $3,550 for individuals and $7,100 for families. Contributions can be made for 2020 up until April 15th of 2021.  Health Savings Accounts are not eligible for individuals who are currently enrolled in Medicare or those who have any other health coverage.


Benefits of a Health Savings Account

As mentioned before a Health Savings Account has many benefits for individuals and families. Contributions made into an HSA receive a tax deduction in the year they are made even if someone does not itemize deductions on their tax return.  This will lower your gross income in the year the contribution is made and the money in the Health Savings Account is pretax.  Also, if your employer makes a matching contribution or an involuntary contribution into your HSA account these contributions are not included in taxable income for the year they are contributed.  The contributions made to an HSA can be invested and accumulate tax deferred (not taxed in current year) while the money remains in your account.  The investment choices in a Health Savings Account are similar to those in a company 401(k) plan.  Distributions from the HSA may then be tax free as long as they are used towards qualified medical expenses. These three characteristics are why Health Savings Accounts are referred to as having a triple tax advantage. 


Keep in mind that any distribution not used towards qualifying medical expenses will receive a 20% penalty and additional taxes unless the taxpayer has reached age 65.  Two other distinct advantages of the HSA are that the HSA is portable, meaning if you change employers you can move the HSA account to a new employer that offers an HSA. Lastly, the contributions and investment earnings may stay in the HSA year after year and are not required to be distributed. This can be used as another form of a retirement savings because the money does not have to be distributed in a certain year if you do not have qualifying medical expenses.

To discuss how health savings accounts can factor into your financial plan we can schedule a call or zoom meeting to discuss Click Here


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Depreciation: A Tax Benefit to Real Estate Investing

Depreciation: A Tax Benefit to Real Estate Investing

Real estate has long been know as an investment vehicle that can produce income for its owners in a more tax efficient way than other investment options.  There are several different tax strategies that are involved with real estate investing and today we will examine the topic of depreciation. Through the proper use of depreciation the taxpayer can eliminate or reduce the income they are receiving from the property they own.  Here is an overview of depreciation and how it works.


What can be depreciated?

Property may be depreciated if is meets the following criteria:

  1. The tax payer owns the property
  2. The taxpayer uses the property in business or income-producing activity(e.g., rental property)
  3. The property has a determinable useful life
  4. The taxpayer expects the property to last more than one year

A taxpayer cannot depreciate personal-use property. The depreciation deduction is allowed only on the part of the property that is used for a burins or income producing activity.  In particular in this article I will focus on the depreciation of residential rental property.  In this case a taxpayer must use a straight-line depreciation method meaning they must deduct an equal amount each year throughout the property’s recovery period.  In the case of residential rental property the recovery period is 27.5 years.


How Depreciation Works

As we determined above, straight-line depreciation must be used for residential rental property and used over a 27.5 years.

Here is a quick example from The Balance Small Business:

Using an investment fourplex as an example, begin with a purchase price of $325,000. Assume the property will generate $15,192 a year in positive cash flow if all four units are rented out full time.

Now you can offset some of that income for tax purposes. You can depreciate the building by deducting out the value of the land and dividing the remainder, the building value, by 27.5 years to reach a figure for annual depreciation.

The depreciation calculation would look like this:

  1. Purchase price less land value equals building value
  2. Building value divided by 27.5 equals your annual allowable depreciation deduction

Assume that the value of the half-acre of land on which the fourplex sits is $80,000. The calculation would look like this:

  1. $325,000 less $80,000 equals $245,000 building value
  2. $245,000 divided by 27.5 years equals $8,909 a year in depreciation

Without taking any other property tax or mortgage interest deductions into account, you’ve already reduced your taxable rental income by $8,909 annually. And you didn’t have to spend any additional money to realize this deduction.


The benefit is that the depreciation amount is used to directly offset any income that you have from the property. If this amount results in a loss this loss can be used to offset other passive income gains.  Keep in mind that when/if you sell the investment property there may be a depreciation recapture that would get added to your gain amount and may be taxable to you.  Depreciation does not lower the income that you physically can receive, however, in the eyes of the IRS it does reduce your taxable gain on investments.  This is a great benefit for real estate investors.  

To discuss how real estate investing can factor into your financial plan we can schedule a call or zoom meeting to discuss Click Here


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3 Savings Buckets & Why You Need Them

3 Savings Buckets & Why You Need Them

The tax treatment of investment accounts can oftentimes be overlooked by most investors. This plays a big role when it comes time to start living off of the nest egg you have built up when you enter retirement.  While we are working and saving throughout our career there are three different options for the ways we can save and invest our money. The three account types are: Pretax, Roth and Taxable accounts.  Due to the fact that the tax laws are constantly changing it is important to have these three buckets as you are preparing to live off your savings. Below I will describe each of these account options and why they are important.

Bucket #1 Pretax Savings

     Your pretax accounts would typically be any workplace retirement plans, these can include 401k’s, 403b’s, 457’s, Defined Benefit plans etc. These accounts are most often rolled over into a Rollover IRA and maintain that pretax status.  These accounts receive contributions directly from your paycheck without getting taxes deducted. If your employer offers a company match, those contributions are also pretax.

     The benefit of these types of accounts is that they lower your income taxes in the year you make the contributions. They also reduce the income tax for your employer’s who make the contributions for that year. This is beneficial for those working that may be in a high tax bracket right now. That is because the money they contribute now is not taxed and instead the money is taxed as you withdrawal the funds from your account.  By holding these accounts over the long term you are allowing your money to stay invested and compound throughout your career.  If you were to look at historical averages of the stock market, the longer this money is invested the higher likelihood that it will grow. The expectation is that when those individuals retire they will be in a lower tax bracket when they take the money out, therefore, creating a clear tax incentive to make contributions towards your retirement.

     What are some negatives:  If an investor only has pretax savings in retirement this could lead to significant taxes in retirement.  That is because every dollar that is taken out of these accounts is added to income and taxed in the year they are withdrawn.  If you include these withdraws with any other income in retirement this can place retirees in a high tax bracket for the entirety of their retirement.  We do not know what the tax brackets will be in the future and who is to say that they will not increase.  The way to reduce your risk of high taxes is to have other types of accounts to withdraw from that are taxed differently.

Bucket #2 Roth Savings

     Roth savings is money that is contributed into a Roth IRA or Roth 401k and is taxed upfront.  Theses contributions can then be invested in different stocks, bonds or mutual funds.  The key advantage of a Roth is that as long as this account has been opened for 5 years and you are over the age 59.5 all withdrawals are tax free.  The way to take full advantage of your Roth is to have this money invested over the long term to grow as much as possible. All of your investment gains can then be withdrawn from your account tax free.  This gives investors a different option in retirement and the ability to access savings tax free. This can ensure that you stay in a certain tax bracket in retirement and not continue to climb into higher rates by only taking taxable withdrawals.  This is also beneficial for those looking to pass on money to their beneficiaries.  For a complete resource for the benefits of Roth savings check out my prior blog post here.

     What are some negatives: The downside to Roth savings is the chance that you may be in a significantly higher tax bracket now than you will be in retirement. Therefore, you are paying the taxes early at a much higher rate then you would have to in retirement.

Bucket #3 Taxable(Non Retirement) Accounts

     Taxable/non retirement accounts is money that is placed into an investment or brokerage account. There are no contribution limits on the amounts that can be contributed. These accounts are typically free to invest in a variety of different investment vehicles. Taxable accounts qualify for capital gains treatment for tax purposes. That means that the money that you contribute has already been taxed, therefore, the only additional tax you would pay would be from gains on your investments.  The advantage of having these types of accounts in retirement is that the principal balance has already been taxed, therefore, if you only withdrawal that portion of the account you will not pay taxes again.  Also, any capital gains that you withdrawal experience different tax treatment and are not taxed at ordinary income tax rates.  This can then keep investors in a lower tax bracket by using this money to live off of in retirement.

     What are some negatives: This money is the least advantageous from a tax perspective because the money is already taxed when you received it from earnings or wages. The money is then invested and any of the gains you must pay a percentage of capital gains tax on. If you were to lose some of the money you invested you would be able to offset gains and use a portion to offset ordinary income.

Why do you need all three?

The chart above shows the current tax brackets for 2020.  The second chart shows what they were prior to the TCJA.   Tax brackets are a constant topic of conversation for our elected officials and are changed often throughout history.  It is important to have all three buckets for your retirement savings so that you can take as tax efficient withdrawals as possible.  With the differing tax treatment of each of these buckets you can decide which lever to pull that will benefit you the most in retirement. This is all determined by what other income you have and what the current tax brackets are while you are in retirement. Although no one knows exactly what their income will be in the future we do know that the tax code is constantly changing.  Here is a look at what the tax brackets were before the TCJA. Democratic candidate Joe Biden has proposed raises to the tax brackets and these are likely to change again if the Democrats take control of the White House and Senate.

It is important to ensure you are saving in a tax efficient manner for your retirement next egg.  If you would like to schedule a call or zoom meeting to discuss how to implement a plan for your savings Click Here

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Webinar: Investing in Gold & Real Assets

Webinar: Investing in Gold & Real Assets

Register Here

With the Federal Reserve printing trillions of dollars many investors are asking, Is now the right time to be invested in gold? What are the differences between gold stocks, gold coins and gold mining companies? Will gold protect their money against inflation?

These are all great questions and I have gathered some experts from Invesco Ltd. David Wertheim, James Holman, CFA® & Stephen Degnan, CIMA to help discuss those topics and more. Please join us for a webinar on Investing in gold, real estate and other real assets.

When: Tuesday September 8th @ 12pm

Register Here



















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