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A New Year and New CA Laws

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner

As we start 2022 it is important to be aware of new law changes. In California this year there is no shortage of laws with Governor Newsom signing 770 bills last year advancing the Governor’s California Comeback Plan. Below is a summary of the ones that you should be aware of:

Higher Minimum Wage

Starting January 1st, the minimum wage is $15 per hour for businesses with 26 or more employees. The minimum wage is $14 per hour for businesses with less than 26 employees.

Fewer Shenanigans from Food Delivery Companies

There are a couple of meaningful changes that come out of AB 286. Food delivery companies will no longer be allowed to steal tips from drivers to cover their expenses. In the past companies like DoorDash have paid settlements for this practice. Food delivery companies will also be required to itemize and disclose fees to customers. This will also limit them from marking up food prices as well (another practice most people are not aware of).

Where Was This Law When I Was a Kid?

Starting this fall Middle Schools cannot start before 8 am and High Schools cannot start before 8:30 am. The rationale is that teenagers require extra sleep.

Hope You Know How to Compost

As part of Senate Bill 1383, all individuals and businesses must now compost. This will require individuals to sort organic waste from the rest of their trash. Each municipality will determine how this will be done. As an example, a pilot program in the LA area is having residents mix the organic waste with their plants and grass clippings.

I Would Like a Fork, please?

Restaurants are now prohibited from passing out single-use utensils or condiments unless a customer asks. This means you will have to ask for a fork, chopsticks, or spoon so you can eat your food.  This law is an expansion of the straw rule change we saw a few years ago.

Bringing Home the Bacon is Expensive

California has passed the strictest laws in the nation regarding bacon production. The new law increases the confinement area for pigs, chickens, and veal and bans the sale of products from farms that do not comply with the new rules. Critics including lawmakers from both parties have called to stop enforcing this until 2024 and grocers and restaurants are suing as well.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Monthly Market Update (December): 3 Things You Need to Know

Global equities ended the year near record highs even as the current surge in COVID-19 cases surpassed peak levels last seen since the start of the pandemic. Here are 3 things you need to know:

  1. The S&P 500 finished up +27% for 2021 hitting 70 all-time highs and completing its best three-year stretch since 1999 – “Let’s Go Crazy”!
  2. Not everyone was “Partying Like It’s 1999”. The areas of weakness in 2021 were bonds across the board (both in nominal and especially in real terms), precious metals, and emerging market stocks.
  3. Investors were “Still Waiting” for market volatility with only one 5% market decline in 2021 and no corrections. Will 2022 be the year “When Doves Cry”?

Sources:

  1. Sources: J.P. Morgan Asset Management – Economic Update; Bureau of Economic Analysis (www.bea.gov); Bureau of Labor Statistics (www.bls.gov); Federal Open Market Committee (www.federalreserve.gov)
  2. Indices:
    • The Barclays Aggregate Bond Index is a broad-based index used as a proxy for the U.S. bond market. Total return quoted.
    • The S&P 500 is designed to be a leading indicator of U.S. equities and is commonly used as a proxy for the U.S. stock market. Price return quoted.
    • The MSCI ACWI ex-US Index captures large and mid-cap representation across 22 of 23 developed market countries (excluding the U.S.) and 27 emerging market countries.  The index covers approximately 85% of the global equity opportunity set outside the U.S. Price return quoted.
    • The MSCI Emerging Markets Index captures large and mid-cap segments in 26 emerging markets. Price return quoted (USD).

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

New FAFSA Rules: Build an Educational Legacy for your Grandchildren

Withdrawals from 529 educational accounts owned by grandparents and others outside the nuclear family will soon have no impact whatsoever on federal financial aid eligibility due to new changes to the forthcoming simplified Free Application for Federal Student Aid (FAFSA). Previously, those withdrawals had to be reported two years later on the FAFSA as student income. Read here for more information on how 529 educational accounts impact financial aid.

This means funds in grandparent 529 plans won’t be counted at all — not when the FAFSA is filled out and not later when distributions are made to cover eligible college expenses.  Keep in mind, however, that grandparent 529 plans are still considered on the CSS Profile (an additional financial aid form used by about 200 private colleges to award their institutional aid).

The new FAFSA form will not be released until October 1, 2022, therefore, until income reporting changes take effect, grandparent 529 plan distributions may count as untaxed income on a student’s FAFSA. We will keep an eye out for when this new rule will apply to your situation and plan. 

With a 529 plan, you can build an educational legacy for your grandchild while taking advantage of tax and estate planning benefits.  If you want to find out more about 529s or how these new rules may apply to your situation, give us a call.

Sources: JP Morgan, Forbes, and Savingforcollege.com

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

What are Collective Investment Trusts (CITs)

Many retirement plans are adding collective investment trusts, or CITs, as a way to lower investment costs to participants. While these are not new investment vehicles, they are becoming more prominent in retirement plans. Check out our Frequently Asked Questions (FAQ) to learn more about these investments that may start showing up in your retirement plan.

What are collective investment trusts, or CITs?

Collective investment trusts (“CITs”), also known as collective trusts, commingled funds, or common trust funds, are institutional investment vehicles that can be offered in retirement plans – 401(k), 401(a), “Taft-Hartley”, and government 457(b) plans only.

CITs are sponsored by a bank or trust company, unlike mutual funds, they are not registered with the Securities and Exchange Commission (SEC) and may not have a ticker symbol.

How are CITs similar to mutual funds?

CITs are daily valued pooled accounts that have a stated investment objective and investment strategy, including active and passive strategies ranging from fixed income to equities. 

How are CITs different from mutual funds?

Typically, a CIT is created to mirror the investment strategy of a publicly traded mutual fund but because they are only available to institutional investors, they have some advantages.

CITs generally keep lower cash balances than mutual funds because they are only available to institutional investors with longer investment horizons than retail clients, and cash flows in and out of the trust are more predictable.  These factors can help reduce cash flow volatility and allow the portfolio to be managed more efficiently and be more fully invested than a mutual fund by not having to hold large cash positions to meet redemptions.

Are there cost advantages to CITs?

Fees and expenses of CITs are generally lower than their mutual fund counterpart because they are exempt from registration and filing requirements of the SEC, therefore, CITs can have lower oversight and administrative costs.

Additionally, larger retirement plans are often able to negotiate favorable fee structures based on their plan assets, unlike in a mutual fund which has a set expense ratio.

Where can I get information about a CIT in my retirement plan?

In general, your retirement plan provider will provide a fact sheet with pertinent information about the CIT strategy on the retirement plan website, as well as the daily price and value of your account.

Can I invest in a CIT in my personal accounts?

No. CITs are only available to institutional investors, like a retirement plan. 

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Spark Joy by Tidying Up Financial Clutter

“Life truly begins only after you have put your house in order.” – Marie Kondo

Marie Kondo, the tidying expert and bestselling author, encourages tidying by category (not by location) and keeping only those things that speak to the heart, and discard items that no longer spark joy. The end of the year is the perfect time to say goodbye and discard your financial clutter. The problem is many of us don’t equate holding onto financial paperwork with untidiness. We think it’s important stuff we’ll need at some point. But truthfully, most of it’s really not worth keeping.

Here’s what you need to hang onto and for how long:

Items to KeepWhen to Toss
Medical billsOnce the claim has been paid, you don’t need these any longer, unless you’re deducting the medical expense on your annual tax return or for documentation of your qualified HSA-reimbursable medical expenses. Then follow IRS guidelines for keeping these bills if you itemize your deductions or for your Health Savings Account (HSA).
Utility billsTypically, you could dispose of these after your bill has been paid. If you anticipate selling your home, hang onto the last years’ worth to help potential homeowners.
Documentation of major loans and insurance policiesKeep these along with all of your important identification papers (birth certificates, marriage license, Social Security cards, passports, etc.) in a secure spot, such as a safe deposit box at your local bank or a firebox at home. Keep payoff statements forever.
Annual tax returns and supporting documentsKeep the most recent three years. You can be audited for up to seven by the IRS (see irs.gov for additional information).
PaystubsKeep these until you’ve received your annual W-2 form
Property records that show improvements to your homeThese can be used when selling a home to offset capital gains when the property is eventually sold. Keep until the house is put up for sale.
Bank statementsKeep these for one year
Investment documentsKeep all capital gains tax reports for three years

Source: Hartford Funds, “Tidying Up Financial Clutter”, 2021

For the important stuff that remains, develop an easy-to-follow filing system that you’ll use. Categorize, label, and keep them in a drawer or filing cabinet. Or better yet, switch to digital. Although opting into e-delivery helps prevent additional physical clutter, you may still have a big mess on your hands in time. So, make sure you employ the same thinking there as with your desk. Keep it clean and organized.

Get started now and spark joy by leaving room for the important financial documents and create space in your day by tidying up your financial clutter.

Source: https://www.hartfordfunds.com/practice-management/client-conversations/tidying-up-financial-clutter.html

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.