Make Your IRA Contribution or Get Forcibly Dragged Out of Our Office!

Pretty outrageous right?

By just about any measure, the United handling of their displaced crew and a seated passenger was an unmitigated disaster. I was torqued off enough about the situation to write letters to my senators asking for a better airline passenger bill of rights. What's in place now barely qualifies as “rights” in any respect, but I'll leave it to the airline travel warriors to blog about those changes. I have three observations that we can all learn from.

It’s true that businesses generally run well with predictable, structured routines with clear rules for every employee to follow. But every business should occasionally take a big step back and look at the path that they are on and what they are doing and how they are operating.

Businesses should ask, “Why are we operating this way” and “does it really makes sense for us to continue to operate this way”? Just because you have been displacing passengers for decades to accommodate your operations and just because you have a very clear corporate policy on how to do it and just because there are federal rules that support what you are doing, doesn't mean that you should. It's amazing how far away from normal, reasonable even humane treatment businesses can stray. Business can avoid that problem by periodically doing a strategic review and having more junior associates, or even better, customers, give the feedback and assessment.

Many companies in the financial services industry are adopting the fiduciary standard for their business even though they might not be required to do so. I suspect many of those companies that are did just what I described above. They took a big step back and said something like – you know what, people are trusting us with their hard earned money and we have a genuine interest to help them – why wouldn't we want to embrace a standard that says we need to put our clients' best interest above ours? It is so clear and so simple, yet the current routines and enabling regulations can obscure even the most common sense approaches.

Next, a truly customer centric company would never have a problem even remotely close to the United disaster. If you truly have your customers at the center of all that you do, they will guide you to successful business strategies.

A genuine engagement with your customers will help prevent a company from going so far off the rails, as happened here. An activity as simple as listening more can be very enlightening. Have you ever read an airline contract of carriage? Imagine a focus group of customers gathering to discuss your equivalent of a contract of carriage?  Are they going to be delighted and amazed at how fairly and reasonably they are being treated? Customer centric organizations would embrace that feedback and make substantive change.

And you know what else they would do? Rather than give passengers some standard peace offering of a free flight or refund, they would ask each passenger individually what they could do to regain their trust and compensate them for their inconvenience. And then do it.

Lastly, organizations that don’t empower their lowest level employees to stop a disaster like this should expect more disasters. What is your equivalent of the red cord on the assembly line that any employee can pull and stop the whole assembly line process?

Constantly managing with top down directives and fostering a culture of “shut up and row” is great for the military, and terrible for just about every customer facing business. 

I’m not sure what’s worse -- that poor doctor getting pulled off that flight in such a disturbing manner OR that no one involved in the incident said to themselves, wait a minute, this is crazy, let’s pause for a second and work this out. It appears that they did a phenomenal job at following orders from above and following established procedures. Which of those two axes does your organization excel at?

In addition to being great business lessons, these are great personal lessons too. We should all take a big step back from what we are doing and ask ourselves in our personal or family life, if what we are doing feels right and makes sense. We should all listen more and we should all give up just a bit of the command and control life we’ve built and see what happens when we empower those around us.

At J. Bradford Investment Management we take investments and financial planning very seriously, but we also strive to learn about our customers as people. We want to know what drives you. We want to understand your values. We want to help you get your money working as hard for you as you work to earn it. Let’s collaborate and I promise I won’t have you dragged out of our office if you don't make your IRA contribution this year.

PLEASE REMEMBER:

- INVESTING AND INVESTMENT MANAGEMENT INVOLVES RISK, INCLUDING THE LOSS OF YOUR INITIAL INVESTMENT OR ANY INVESTMENT GAINS.

- PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

- THIS GENERIC INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION FOR ANY INDIVIDUAL TO TAKE A SPECIFIC ACTION.

- PLEASE INVEST PRUDENTLY AND SEEK PROFESSIONAL HELP FROM A FINANCIAL ADVISOR, INVESTMENT MANAGER, ACCOUNTANT, LAWYER OR OTHER PROFESSIONAL ON MATTERS THAT YOU ARE UNSURE OF OR THAT ARE UNIQUE TO YOUR PERSONAL CIRCUMSTANCES.

- FINANCIAL PLANNING AND INVESTMENT MANAGEMENT SERVICES PROVIDED BY J. BRADFORD INVESTMENT MANAGEMENT, NASHUA NH.

Really?!? TurboTax Says I can’t take my IRA deduction because...

Here we are folks! It’s tax season and tax preparers, financial professionals and individual tax warriors across the country are furiously gathering and entering data into their computers and answering questions in TurboTax to get everything wrapped up by the tax deadline.

Thanks to the usual tax day falling on a weekend and Emancipation Day in Washington DC, this year’s deadline is Tuesday April 18th 2017. If you enter your data correctly, TurboTax is generally pretty good about making the correct tax calculations and explaining the various options and implications of your tax situation.

One area where TurboTax can come back with answers that taxpayers aren’t expecting is in regard to IRAs, and it is often to tell you that your IRA deduction isn’t allowed or isn’t deductible. That's typically bad news! There are many rules to keep track of for IRAs but two of the most basic rules can trip you up at tax time.

First, to take a deduction, you must have earned income (at least the amount of the deduction). That means that if your income comes from savings, dividends and investments, your income doesn’t qualify. This can happen to individuals who may have retired on the early side and no longer have wage income, but aren’t 70 1/2 yet and would still like to make contributions to take advantage of the favorable tax treatment.

If you find yourself in this “ineligible to contribute” situation, your tax software should trigger a warning and you’ll have to take action. You’ll have to take the money that you contributed out of the IRA by the tax deadline and you’ll owe a small penalty on the earnings. And if you don’t get it out by the deadline the penalty rises pretty quickly, so best to just try and avoid the situation altogether. So if you don’t have earned income, or a very unique situation where there is an exception, you’ll have to forgo the contribution.

A second surprise that some taxpayers encounter is that there is an income limit to be eligible to make a contribution to a ROTH IRA and an income limit to be eligible to take a tax deduction for a Traditional IRA. The charts here show the income thresholds and phase outs for the different account types and filing status for 2017.

With income limits, it can be difficult to predict if your income will be over or under the cap until the year is over. Which is why it’s a nice benefit to be able make a contribution for the prior year (e.g. 2016) up and until the tax deadline of the current year (e.g. 2017). That way you can evaluate the options, see where your income ends up, and make the choice that best suits your situation and goals.

That still leaves you with the age-old question, which is better, a ROTH IRA or a Traditional IRA and should you consider a strategy such as making a non-deductible traditional IRA contribution?

The general rule of thumb is that if you have a longer time horizon for the investment and you expect to be in a lower tax bracket when you retire, ROTH is better. But time horizons and tax brackets over long periods of time can be very hard to predict, so going with a hybrid strategy – some invested in each type of account – is also a viable strategy.

If you have investment or tax investment related questions or would like to discuss your specific situation and get some help determining what is the best option for you, we’d be happy to help. Give us a call or use the big blue button at the top of the page to schedule an appointment.

PLEASE REMEMBER:

- INVESTING AND INVESTMENT MANAGEMENT INVOLVES RISK, INCLUDING THE LOSS OF YOUR INITIAL INVESTMENT OR ANY INVESTMENT GAINS.

- PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

- THIS GENERIC INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION FOR ANY INDIVIDUAL TO TAKE A SPECIFIC ACTION.

- PLEASE INVEST PRUDENTLY AND SEEK PROFESSIONAL HELP FROM A FINANCIAL ADVISOR, INVESTMENT MANAGER, ACCOUNTANT, LAWYER OR OTHER PROFESSIONAL ON MATTERS THAT YOU ARE UNSURE OF OR THAT ARE UNIQUE TO YOUR PERSONAL CIRCUMSTANCES.

- FINANCIAL PLANNING AND INVESTMENT MANAGEMENT SERVICES PROVIDED BY J. BRADFORD INVESTMENT MANAGEMENT, NASHUA NH.

One Big 2016 Tax Strategy That's Still Available

Happy New Year.

After eating, drinking and relaxing your way through the holiday, it's time to put all that procrastination aside and take action! Let's start with taxes.

Exceeeeeeeeeeept – all that tax advice that you ignored in November and December is no longer valid and you are no longer able to take advantage of most of the tax minimization and tax loss harvesting strategies that expired on December 31st. OK, so remember that for next year.

What you certainly can do at this point in the year is some planning. Make sure your tax records are all in order, ensure you've made any estimated tax payments, review any tax law changes and ensure you've got the right software and tax forms – all those steps make good sense.

However, there is one tax move that is still available if you didn't get around to it by December 31st – you can still make an IRA contribution for 2016 all the way through the April 17th tax filing deadline, and potentially later if you are a small business and file for an extension.

IRAs can be complicated, but they generally do offer investors a very advantageous way to save for retirement. There are many different types of IRAs with many rules and qualifiers, so you have to be careful on which account you open, how much you invest into the account and then what you invest in once you've deposited the money.

Here are some of the basics:

Traditional IRA – accounts generally for individuals without access to a 401(k) or other retirement plan at work. Money goes in pre-tax (unless you meet an income threshold), grows tax-deferred and is taxed when you withdrawal it. The big advantage here is the tax deferred growth.

Roth IRA – accounts generally for those with longer time horizons. There is no tax deduction for ROTH contributions. So, the money goes in after tax, but it too grows tax deferred and the big advantage of a ROTH is that it comes out tax-free. The ROTH also has income limits, which impact who can contribute.

SEP IRA and SIMPLE IRA – accounts generally for small business owners. These two structures allow for contributions higher than the $5,500 and $1,000 catch up individual limits, but they do have threshold and restrictive provisions that small business owners should be aware of and understand.

If you'd like to learn more or discuss your specific situation, we are available for free consultations. We also have a handy PDF guide that discusses some of the limits and restrictions of each type of IRA.

Once your money has been deposited into your IRA account, it is important to ensure that your investments align with the level of risk that you're willing and able to take. You can also read more about diversification, asset allocation and getting advice from a fiduciary on our Education page.

 

PLEASE REMEMBER:

- INVESTING AND INVESTMENT MANAGEMENT INVOLVES RISK, INCLUDING THE LOSS OF YOUR INITIAL INVESTMENT OR ANY INVESTMENT GAINS.

- PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

- THIS GENERIC INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION FOR ANY INDIVIDUAL TO TAKE A SPECIFIC ACTION.

- PLEASE INVEST PRUDENTLY AND SEEK PROFESSIONAL HELP FROM A FINANCIAL ADVISOR, INVESTMENT MANAGER, ACCOUNTANT, LAWYER OR OTHER PROFESSIONAL ON MATTERS THAT YOU ARE UNSURE OF OR THAT ARE UNIQUE TO YOUR PERSONAL CIRCUMSTANCES.

- FINANCIAL PLANNING AND INVESTMENT MANAGEMENT SERVICES PROVIDED BY J. BRADFORD INVESTMENT MANAGEMENT, NASHUA NH.

5 Fidelity Products My Clients Rave About

First, full disclosure. I did work for Fidelity Investments for 21 years, but I am not being paid any commission or fee or receiving consideration of any kind to discuss or write about their products.

I am writing about five of their products because my clients often come to me with established relationships with various financial institutions, including Fidelity, and they like to share what's working for them and to get my opinion. So here are the five Fidelity products I hear most about and some of my insight on them.

1) The Fidelity Rewards 2% Cash Back Rewards Card. Clients love that there is no annual fee with this card and that they can get 2% of their purchases directed into either their IRA or 529 College Saving Plan to boost savings. As long as you are paying off the balance every month this is a great way accumulate a little extra every month. The new Visa is also now linked with Apple Pay, Samsung Pay and Android Pay. I like this product a great deal. The Citi Double Cash Card is a similar alternative.

2) The Fidelity IRA match. I think clients love this one because of the very clever marketing and because of the parallels to the 401(k) match. Few will be able to max out the $1,950 over three years, but like the credit card, getting a boost, even a small one, can be worth it. There are other one-time bonuses that are currently available at Fidelity through a different promotion that may also be appealing to individuals. You have to be careful not to give those savings right back in high fee mutual fund products, but all things being equal, the boost is worth it and it helps reinforce good saving behavior.

3) The Fidelity ATM rebate feature. Clients love no stress ATM transactions and I do too. For Fidelity customers with a Cash Management account and a Cash Management Debit card, one of the most compelling features is the ability to have ATM fees reimbursed. All of a sudden your network of ATMs is every single ATM and you don't have to worry about getting dinged for those fees, as they are generally reimbursed. Not only are ATM fees annoying, but they really do add up over time. There are other benefits to the card as well, but the ATM reimbursements is the big one. E-trade, Schwab and USAA have similar products.

4) The Fidelity Charitable Gift Fund. With this product you can make a single tax deductible "donation/contribution" into your giving account, taking a tax deduction in the current year and then disburse the money over time to charities of your choice, potentially even growing the account through investment appreciation. This is a great option for the charitably inclined who may have received a lump sum or significant payout that is going to create a tax burden. Vanguard has a similar giving product.

5) Commission free ETFs. Clients love free. As of early 2016, Fidelity offers 85 commission free ETFs. That's a very good value considering ETF trades at most brokerage firms range from $8 - $12. There is also a fairly diversified mix of choices in that bunch that would aid in constructing a diversified portfolio. But even free isn't a no-brianer, you also have to take into account other factors such as the management fee, the early redemption fee, the tracking error and the index weighting strategy of the ETF. Still, having a base of 85 commission free ETFs to choose from is a great starting point for many. Schwab has a similar offering with over 200 ETF choices.

If you have any questions about these products or would like a second opinion on the products and services you are using, please use the link to schedule a free consultation.

PLEASE REMEMBER:

- Investing and investment management involves risk, including the loss of your initial investment or any investment gains.

- Past performance is no guarantee of future results.

- This generic information is provided for educational purposes only and should not be construed as a recommendation for any individual to take a specific action.

- Please invest prudently and seek professional help from a financial advisor, investment manager, accountant, lawyer or other professional on matters that you are unsure of or that are unique to your personal circumstances.

- Financial Advisor and Investment Management Services provided by J. Bradford Investment Management, Nashua NH.