Suddenly everything is a choice rather than a mandatory cost, your personal finance resolution for 2015

  1. Car: Riding a bike or bus to work. Think of saving the car insurance and cost of gas for years before buying your dream car.
  2. House: Settling for a room to rent or mobile home or community house sharing. Think Income first before Spending.  This means buying a fourplex as your first home or a house that you can rent out first and own the second or third house while maintaining the rental homes. Know capital gains and ways to control them thru sound investing and business structuring.
  3. Emergency Fund for unforeseen events like car repairs, college teens, lost job or lost opportunity. Cutting on stuff that you want to cut back on like expensive vacations to fatten your emergency funds first.
  4. Emotional about spending, mortgage worries. The reality of being debt-free is more important than joining or copying the Joneses.    Buying stuff second hand.
  5. Saving in your net worth personal banking , be it in your bank savings account, cash value life insurance, managed stock savings/account, bonds, others.
  6. Negotiate everything or trade/barter services for stuff.
  7. Challenge Are you getting value in your gym membership?
  8. Marry someone with same level of ambition, personal finance habits and enterprenueral spirit as you.
  9. Walk your talk when guiding your children about finances. Allow them to work during summer break or school break to learn the value of money. Use a revocable living trust to transfer assets to them.
  10. Take care of your health for in the end, when your health fails you might end up selling your houses to pay for nursing home. Health first and then wealth Or move to other countries or cities to downsize and afford retirement.
  11. Use a business structure and financial strategy to write off most of your expenses and save the extra when you minus your lifestyle from your gross income. For this one, contact Connie Dello Buono to help you reduce your income tax using a business structure and financial strategy at 408-854-1883 conniedbuono@gmail.com , motherhealth@gmail.com

Donate your real estate to the following charities: Motherhealth Inc for affordable senior care and Green Research Institute for sustainability at 1708 Hallmark Lane San Jose CA 95124. Contact Connie Dello Buono.

W2 and 1099 income for Stanford and Kaiser doctors to save more and min taxes

Ask your payroll if you can split your income to W2 (base) and 1099 (extra) to allow your 1099 income into a C corp for max savings and min income taxes.

Working for a hospital allowing you to do a 1099 can save you more in income taxes and increase your savings.

With VA doctors, payroll will not let you split your income but do ask them anyway.

Combination of W2 and 1099, allows you to have more healthcare deductible benefits.

Use your corporation to write off more of your expenses.

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We can work with your payroll dept and CPA to allow you to save more and min income taxes. Contact Connie Dello Buono, financial planner for doctors , 408-854-1883 motherhealth@gmail.com

Net Unrealized Appreciation and Qualified Retirement Plan Distributions

Often, individuals employed by large corporations have the option to invest some of their qualified retirement plan contributions (e.g., 401(k) contributions), as well as employer contributions, into their employer’s stock. If you believe in the long term prospects of the company, that may make sense as part of your asset allocation strategy.

But what happens to that stock when you retire or leave the company? What happens if you still believe in the future prospects of the company and still considers the company stock a sound investment? You probably already know that distributions from a qualified plan can be somewhat complicated and have income tax consequences. But, is there a distribution strategy that may be effective to help you maintain the stock and minimize income taxes when you leave the company?

A Possible Solution: Net Unrealized Appreciation (“NUA”)

NUA is a tax strategy that allows you the opportunity to convert taxable ordinary income into long-term capital gain. Ordinarily, if you took a lump sum distribution of the assets in the plan, you would pay ordinary income taxes. However, when company securities are part of the distribution from the plan, using the NUA strategy, you can pay ordinary income taxes on just the cost basis of the shares, but defer and convert to capital gain the tax on the difference between the fair market value of the shares and the average cost basis of those shares. The difference is the net unrealized appreciation. When the shares are actually sold, the NUA will be taxed at long term capital gains rates regardless of how long the plan held the shares. If there is additional appreciation of the shares after the shares are distributed from the plan, that growth is taxed as long or short-term capital gains, depending on whether the ultimate sale is more or less than one year after the distribution.

Note: you can elect to pay the taxes upon distribution instead of waiting until the shares are sold. In some situations, depending upon cash flow concerns and anticipated future tax rates, payment of the taxes at distribution may make sense. In addition, in order to qualify as a lump sum distribution, the distribution must be on account of death, separation from service or the attainment of age 59 ½ years. (The definition is slightly different for self-employed persons: “separation from service” does not qualify; disability does.)

Example:

Jim, age 60, is ready to retire and has a balance in his employer’s retirement plan of $300,000, including company stock with an average cost basis of $30,000, and a fair market value of $130,000 (the NUA is thus $100,000). Jim’s account is a result of the many years of pre-tax contributions and employer matches to the account. If Jim takes a lump sum distribution from the plan, normally, he would pay ordinary income tax on the full $300,000 in the year of distribution. Under the NUA strategy however, Jim deposits the company stock into a brokerage account but does not sell it. As a result, only the $30,000 average cost basis of the company stock, and the $170,000 value of the other assets in his account (for example, mutual funds), would be taxed at ordinary income rates. The NUA would not be taxed. Sometime later, Jim sells the company stock. At that time, the NUA will be taxed at long term capital gains rates when the employer securities are sold, regardless of the holding period. However, any additional appreciation of the securities after distribution from the plan is taxed as either a short or long term capital gain depending on Jim’s holding period after distribution.

Now, suppose that instead of taking a lump sum distribution, Jim wants to roll over his entire qualified plan account into an IRA. This may be the appropriate strategy depending upon Jim’s situation. However, by rolling over the company stock into the IRA, the NUA tax treatment would be lost. Jim should take the company stock, place it into a regular brokerage account and roll over the remaining balance to an IRA. Jim would roll over the $170,000 of his account balance (i.e., everything other than the company stock) to an IRA. He would take a direct lump sum distribution of the $130,000 in company stock and place it in a securities brokerage account. $30,000 would be ordinary income, and the $100,000 of NUA would qualify for the special tax treatment.

If Jim was under age 55 at distribution, (or even if he were under 59 ½ and not leaving the company, he would not be able to take a lump sum distribution from the plan without a 10% premature distribution penalty on the taxable portion, i.e. the $30,000 average cost basis component of the stock distribution. In that case, Jim may wish to roll the entire account into an IRA.

So far, we’ve talked about the NUA strategy using your pre-tax employee contributions and the company match, if any. Some plans also allow employees to make after-tax contributions to the plan. Suppose you also made after-tax contributions and used that money to purchase company stock?

You can roll the entire account into an IRA, but the appreciation of these shares of company stock, purchased with after-tax contributions, will be subject to ordinary income taxes when you take distributions from the IRA. Similar to the situation mentioned above, where company stock is purchased with pre-tax contributions, shares purchased with after-tax contributions should be distributed to utilize the NUA strategy. The difference is that the average cost basis is not taxed when the contributions are made with after-tax dollars. The reason: these shares were purchased with after-tax dollars so it was already taxed. The NUA and additional appreciation will be subject to capital gains tax as explained before.

Could you do a direct Roth IRA conversion of the entire plan balance and still maintain the favorable NUA tax treatment? This area is unclear, but probably not. The lack of clarity is a result of inconsistent language between certain provisions in the Internal Revenue Code, legislative history and the interpretation of these provisions by the IRS.

Conclusion

If you invested in your company’s stock in your employer sponsored qualified retirement plan, before you decide upon a lump sum distribution from the plan, or a rollover of the account balance, including the company stock, into an IRA, consider whether you may be entitled to use the NUA tax strategy to reduce your income tax liability.

The foregoing information regarding estate, charitable, retirement and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only.  You should consult with your tax and legal advisor regarding your individual situation.

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Free 30min phone chat with a sr financial advisor at Harding Financial to help you reduce income taxes using a business structure and financial strategies, connie.dellobuono@hardingfinancial.com or conniedbuono@gmail.com 408-854-1883

Make 2014 and 2015 be the year to protect your wealth and secure your retirement.

 Connie Dello Buono
Jr Financial Advisor
hardingfinancial.com

401(k) Plans Are Not Just For Big Businesses

A significant portion of the small business market consists of one person businesses. If you have a client whose business is a one person operation, s/he may be a perfect candidate for a Solo 401(k) Plan. A Solo 401(k) plan is a 401(k) plan for a one-person business and may offer your client an opportunity to increase his or her tax-deductible contributions to his/her retirement plan. Additionally, if you have a client who is thinking of establishing a SIMPLE or SEP Plan, a Solo 401(k) may be a better choice that will help enable your client to maximize his or her tax-deductible contributions, and to help meet his/her long range retirement goals.

First, it’s important to understand that Profit Sharing Plans and SEP Plans allow for flexible employer contributions up to 25% of participating payroll. SIMPLE Plans only allow for employee deferral contributions which are limited to $12,000 plus a $2,500 catch-up contribution for participants age 50 or older, as indexed for 2014, but do not allow for flexible employer contributions. Since all 401(k) plans are profit sharing plans with a cash or deferred arrangement (CODA), which allow employees to contribute or defer a portion of their salary into the plan, in addition to the employer profit sharing contribution, a business owner may make both an employer and an employee deferral contribution all in one plan for himself or herself.

This means a business owner with no employees and earning $100,000, could set up a Profit Sharing Plan or SEP Plan, and make a maximum tax-deductible contribution of $25,000. However, since a plain Profit Sharing Plan or a SEP Plan only allows for employer contributions, the business owner may be limiting the amount of money that can be put aside for retirement, as well as the tax savings, with just a plain profit sharing plan or SEP Plan. By adding a 401(k) deferral element to a Profit Sharing Plan, the business owner has just increased the amount that can be contributed on a tax-deductible basis on his or her own behalf.

Let’s look at an example: There is a limit on the overall contribution that can be allocated to any individual in a profit sharing plan or SEP Plan. For 2014, the limit is 100% of compensation up to a maximum of $52,000, as indexed for 2014. The maximum individual deferral amount, as indexed for 2014, is $17,500. In addition, a participant who is age 50 or older, is eligible to make a catch-up contribution of $5,500, as indexed for 2014, for a total salary deferral contribution of $23,000. SEPs do not allow for deferrals nor a catch-up contribution, although a Profit Sharing/401(k) Plan does. So the same business owner described above could establish a solo Profit Sharing/401(k) Plan and increase his contribution amount to $48,000 which is an increase of his or her deductible contribution by 90%. The chart below illustrates a comparison of the maximum contributions applicable to each plan for a 50 year-old business owner at different salary levels.

Business Owner’s Salary

( age 50 or older)

SIMPLE IRA

Plan Max. Deferral

(Including Catch-up Contrib..)

SEP -IRA

Plan

Maximum Contrib. of 25%

Profit Sharing/401(k)

(Including

Deferrals and

Catch-up

Contrib.)

$100,000

$14,500

$25,000

$48,000

150,000

14,500

37,500

57,500

200,000

14,500

50,000

57,500

Here’s more good news: An existing profit sharing plan may be easily amended to become a Profit Sharing/401(k) plan. In addition, contributions previously made to a SIMPLE or SEP Plan, may be rolled over, in most cases, to a Profit Sharing/401(k) plan. Furthermore, there are no reporting requirements associated with a one-participant plan or a one participant and spouse plan, until the plan assets total $250,000 or more. Even then, only a Form 5500EZ is required to be filed.

Another important benefit to establishing a Profit Sharing/401(k) Plan is that the business owner may purchase life insurance on a tax-deductible basis by purchasing it through the Profit Sharing/401(k) Plan Trust as long as the premiums are within the incidental benefit limits. This is not allowed in a SIMPLE or SEP Plan as the funding vehicle is an IRA. Profit Sharing/401(k) plans also have special rules associated with life insurance limits not available in any other type of qualified plan, such as using rollover or seasoned money to buy life insurance.

The foregoing information regarding estate, charitable and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only.  You should consult with your tax and legal advisor regarding your individual situation.

Contact Connie Dello Buono 408-854-1883 motherhealth@gmail.com to have a free 30-min chat with a financial advisor.

Info expires Dec 2014

Type of Qualified Retirement Plan for high net income pros and business owners

Owner

Goal

 

Employees

(Non-Owner)

Plan Type

Requirements

Advantages

Older Than Employees

Maximize Contributions, Deductions & Benefits

0-4

Fully Insured Defined Benefit Plan,

also known as a

412(e)(3) Plan

Steady Profits: Business generates enough income to support ongoing plan contributions,. Plan funding required each year.

Highest Possible Contribution, Deduction & Benefits. All Plan Assets Held in Guaranteed Annuity/Insurance Contracts. Recession Proof.

5+

Traditional Defined Benefit Plan

Relatively Steady Profits: Business generates enough income to support ongoing plan contributions. Plan funding required each year.

Higher Contribution and Deduction than DC Plans, Lower Deduction than Fully Insured Plan, Investment Fund for Potential Asset Growth.

Older Than Employees&

Salary Over $208,000

Flexible Contributions

0

Traditional Profit Sharing Plan

Maximum Total Plan Contribution is 25% of Participating Payroll.

Flexible Contributions, Lower Contribution than a Defined Benefit Plan, Maximum Individual Allocation is $52,000*.

1+

New Comparability Profit Sharing Plan

Maximum Total Plan Contribution is 25% of Participating Payroll.

Flexible Contributions, Lower Contribution than a Defined Benefit Plan, Age-weighted Allocations, Maximum Individual Allocation is $52,000*.

Older Than Employees &

Salary Under $208,000

Flexible Contributions

0

Traditional Profit Sharing/401(k) Plan

Maximum Total Plan Contribution is 25% of Participating Payroll Plus Deferrals.

Flexible Contributions, Lower contribution than a Defined Benefit Plan, Maximum Individual Allocation is $57,500*

1+

New Comparability Profit Sharing/ Safe Harbor 401(k) Plan

Maximum Total Plan Contribution of 25% of Participating Payroll Plus Deferrals

Flexible Contributions, Lower contribution than a Defined Benefit Plan, Maximum Individual Allocation is $57,500*,

Age-Weighted Allocations

Younger &

Salary Under $208,000

Maximize Deductions & Benefits

0

Traditional Profit Sharing / 401(k) Plan

Maximum Total Plan Contribution is 25% of Participating Payroll Plus Deferrals

Flexible Contributions, Maximum Individual Allocation is $57,500*

1+

Integrated Profit Sharing/ Safe Harbor 401(k) Plan

Flexible Contributions, Maximum Individual Allocation for is $57,500*, Allocations weighted by salary

Younger &

Salary Over $208,000

Maximize Deductions & Benefits

0

Traditional Profit Sharing Plan

Maximum Total Plan Contribution is 25% of Participating Payroll

Flexible Contributions, Maximum Individual Allocation is $52,000*

1+

Integrated Profit Sharing/Safe Harbor 401(k) Plan

Owner’s Salary Higher than Employees’ Salaries, Maximum Total Plan Contribution is 25% of Participating Payroll Plus Deferrals

Flexible Contributions, Maximum Individual Allocation is $57,500*, Allocations are weighted by salary

Any Age

Minimize Cost for Other Employees

1+

Profit Sharing/Safe Harbor 401(k) Plan with Matching Contributions Only

For businesses with employees who do not defer at all or defer very little, No required contributions except for Safe Harbor Matching Contributions which are 100% vested.

No contributions required on behalf of employees who do not defer, Maximum Possible Individual Allocation in 2014 is $33,400**

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Free 30min phone chat with a sr financial advisor at Harding Financial to help you reduce income taxes using a business structure and financial strategies, connie.dellobuono@hardingfinancial.com or conniedbuono@gmail.com 408-854-1883

Make 2014 and 2015 be the year to protect your wealth and secure your retirement.

Connie Dello Buono
Jr Financial Advisor
hardingfinancial.com
Happy Holidays! Take care of your income taxes before the year ends.

How much of your savings, investments, retirements and other funds are tax free?

The best time to pay taxes is today and not in the future when our investments or savings are bigger, which translates to bigger taxes. So your 401k savings is really not totally your own, half of it goes to IRS.

Let me show you a cash flow analysis looking at your income taxes, deferred taxes and other taxes to ensure that you can have a tax advantaged financial plan.

What are your reasons for opening a particular investments or savings account?

Are you satisfied with the amount of future income taxes incurred from your savings or investments?

Let me help you navigate your cash flow, showing your graphically using the Life Balance Sheet, protecting your from incurring more taxes and reallocating your assets, maximizing your wealth and protecting your cash accumulation.

When do you want to retire? Each age group, the younger 40s and the 40plus generation have their own path to achieve the maximum wealth accumulation in a tax advantaged way.

I will plan for your finances ensuring that any tax increases over time is accounted for in your overall financial plan. Using proper asset reallocation, I will ensure that you have the cash value and net worth taking into account lesser taxes that is eating up your savings or investments. Each year, we will proactively be on top of your financial plan to get all your money back eaten by taxes.

Together we will take action so that you did not lost any opportunity costs.

Connie Dello Buono

Financial Planner

CA Life Lic 0G60621

408-854-1883

motherhealth@gmail.com

How Roth IRA Distributions are taxed

How Roth IRA distribution are taxed

If you have 401K, stocks, mutual funds, Roth IRA, IRA, annuities or other kinds of assets, you need asset protection using your life insurance.

Use this life insurance application to complete when you decide after discussing with me about your asset protection plan with illustration detailing cash accumulation, face amount and tax strategies. Connie Dello Buono 408-854-1883 motherhealth@gmail.com CA Life Lic 0G60621 Life Insurance Broker in 50 US states

Life Insurance Application Guardian

retirment knowns and unknowns