#CFP

We are proud to support the upcoming “The Essentials of Financial Literacy” webinar series presented by FPA Orange County. In this series Certified Financial Planner™ professionals will teach the building blocks you need to create greater financial stability in your life. Michael Allbee, CFP®, will be presenting on “The Importance of Saving and Investing” on September 23^rd. For more information and to register go to: www.fpaocprobono.org.  We look forward to having you join us!

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Thanks to the Inflation Reduction Act, the Act provides near-immediate, tangible benefits American families by lowering costs for home energy, new vehicles, health coverage, and prescription drugs. We previously discussed some of the significant provisions in the Act but we wanted to elaborate on what the Inflation Reduction Act means for you as discussed below (not an all-inclusive list).

Healthcare:

• The American Rescue Plan, which Congress passed in March 2021, increased the ACA premium tax credits and expanded eligibility above 400% of the federal poverty level (FPL) for 2021 and 2022. The Inflation Reduction Act extends those expanded subsidies through 2025.

• Caps the amount that seniors will have to pay for prescription drugs they buy at the pharmacy at $2,000 a year.

• Caps the amount that seniors will have to pay for insulin at $35 for a month’s supply.

• Provides access to a number of additional free vaccines, including the shingles vaccine, for Medicare beneficiaries.

• Will further lower prescription drug costs for seniors by allowing Medicare to negotiate the price of high-cost drugs and requiring drug manufacturers to pay Medicare a rebate when they raise prices faster than inflation.

Energy-Related Tax Credits:

• The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit. The credit will be equal to 30% of the costs of all eligible home improvements made during the year. This is now an annual limit, not a lifetime limit. The maximum tax credit was substantially raised: Cap raised to $1,200 per year for qualifying property on or after January 1, 2023, compared to a lifetime $500 cap previously. Savvy households can spread qualifying home improvement spending over a 10-year period, receiving up to $12,000 back in taxes, compared to $500 previously.

The annual limits for specific types of qualifying improvements will be:

• $150 for home energy audits;
• $250 for any exterior door ($500 total for all exterior doors) that meet applicable Energy Star requirements;
• $600 for exterior windows and skylights that meet Energy Star most efficient certification requirements;
• $600 for other qualified energy property, including central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers;
• $2,000 for heat pump and heat pump water heaters; biomass stoves and boilers. This category of improvement is not limited by the $1,200 annual limit on total credits or the $600 limit on qualified energy property; and
• Roofing will no longer qualify.

• The Residential Energy Efficient Property Credit, now called the Residential Clean Energy Credit, was previously scheduled to expire at the end of 2023 but has been extended through 2034. The Inflation Reduction Act also increased the credit amount, with a phaseout of the applicable percentage (30% between 2023-2032, 26% for 2033, and 22% for 2034). Starting in 2023, the new credit will apply to battery storage technology with a capacity of at least three kilowatt hours.

• Starting in 2023, a tax credit of up to $7,500 is available for the purchase of new clean electric vehicles meeting certain requirements. The credit is not available for vehicles with a manufacturer’s suggested retail price higher than $80,000 for sports utility vehicles and pickups, $55,000 for other vehicles. The credit is not available if the modified adjusted gross income (MAGI) of the purchaser exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of household). Starting in 2024, an individual can elect to transfer the credit to the dealer as payment for the vehicle.

• Similarly, a tax credit of up to $4,000 is available for the purchase of certain previously owned clean electric vehicles from a dealer. The credit is not available for vehicles with a sales price exceeding $25,000. The credit is not available if the purchaser’s MAGI exceeds $75,000 ($150,000 for joint filers and surviving spouses, $75,000 for heads of household). An individual can elect to transfer the credit to the dealer as payment for the vehicle.

While these changes may not impact your individual tax bill, please contact us if you want to continue the conversation around tax planning and how these tax credits may save you money at tax time.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Don’t be fooled if you’re told the labels “Advisor” and “Broker” are roughly synonymous. The differences between these two terms are broad and very important. Here’s why:

1. Fiduciary Status – Brokers must act in the best interest (“best interest” standard) of the client at the time the recommendation is made (this is more of a transactional relationship), and the broker needs to take into consideration only the brokerage accounts available (not the overall relationship). Advisors are held to the higher “fiduciary” standard, meaning they must always act in their client’s best interest.
2. Conflicts of Interest – Brokers are mainly compensated by commissions paid out on investment products they recommend to their clients. They can offer proprietary products and the broker-dealer can place material limitations on the menu of products the broker can offer. If that seems like an inherent conflict of interest, that’s because it is! A fee-only advisor is agnostic to the investment products used when managing assets.
3. Compensation Structures – Since broker compensation is often tied directly to a product recommendation or sale, there can be a natural incentive to recommend products with higher commissions as long as there are other factors about the product that reasonably allow the broker to believe it is in the best interest of the client. Advisors are compensated mainly by an agreed upon fixed fee that is not tied to any investment product. A fee-only advisor does not sell products.
4. Services Provided – A broker’s scope of services is generally much narrower and limited to recommending specific investments to clients, with some offering educational services. Advisors offer holistic services extending beyond investment recommendations, including social security analysis, pension election analysis, insurance reviews, tax planning, and financial planning.
5. Disclosure vs. Transparency – Broker disclosures are often long, lengthy, hard-to-read legal documents that even a financial professional would have difficulty understanding. Brokers must identify and at a minimum disclose conflicts of interest (note this does not apply to associated persons of the broker-dealer). Advisors adhere to higher standards of transparency and are legally required to provide their clients with their Form ADV, which is a disclosure brochure explaining the structure of their firm, what services they offer, and what they charge. Advisors must eliminate and disclose conflicts of interest and fairly manage unavoidable conflicts in the client’s favor.

CFP® professionals are committed to acting in your best interest. That’s why It’s Gotta Be A CFP®. Reach out to one of our Certified Financial Planner™ professionals if you would like to discuss how BFSG can help.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By: Henry VanBuskirk, CFP®, Wealth Manager

If you are a new parent, your mind is probably swirling with a myriad of thoughts about your child’s future. Your head is likely ringing with questions that you need answers to like:

1. Do I have enough life insurance coverage?
2. What changes to my budget do I have to make to maintain our lifestyle?
3. How do I save for my child’s future education needs?

While our firm helps answer these questions and many similar financial-related questions for new parents on a regular basis, I would like to take some time to focus on question #3 – “How do I save for my child’s future education needs?”. The answer to this question is dependent on your philosophy when it comes to saving for your child’s future education needs. College education may be very important to you, you may want your child to go to a vocational school, or you may just want to make sure that your child has a nest egg to use at their discretion when they reach adulthood. If you are a California resident, the state of California has a new program called CalKids that can help answer part of this question. Before we discuss this state program, I would like to briefly go over the ways people traditionally invest and save for minors.

Investment vehicles that offer the most flexibility for the child are UTMA (Uniform Transfers to Minors Act) accounts or earmarking a taxable brokerage account owned by the parents that are for the child’s use when they become adults, but the parents maintain control of the account. UTMA accounts are considered gifts to the child and when the child reaches the age of majority (normally age 18), they become the rightful owner of the account and can use the proceeds on whatever they would like. Some people don’t like UTMA accounts since they pose a risk. Think about your mental state at 18. Would you want your child to receive that sum of money you saved for up to 18 years to go to your now 18-year-old adult child to spend it on whatever they wanted? Some people wouldn’t mind, but other people would. That’s where earmarking a taxable brokerage account owned by the parents comes in to play. The account owner would retain control of the account even after the child reaches age 18.

If you are gung-ho about making sure your child goes to college or vocational school, the 529 plan may be the best fit for you. The 529 plan allows for tax-free growth and tax-free withdrawals as long as the funds are used for qualified educational expenses such as tuition and room and board. With the new Secure Act 2.0 legislation that passed, up to $35,000 of unused funds can over time be rolled over into a Roth IRA in the 529 plan beneficiary’s name. This allows for some optionality for helping set up your child’s future success in education and/or retirement.

What do these investment vehicles have to do about the CalKids program? They all have one common thread. They are all just mechanisms to help save for your part of your child’s future goals, whatever they may be.

The CalKids program is a program that gives parents of children born on or after June 1, 2022, regardless of the parent’s income, up to $100 for that child to use for college, vocational, or professional schools. Here is the exact breakdown of how that $100 is awarded:

CalKids also offers additional funding for some students in grades 1 through 12 that are deemed in a low-income household by the state, as defined by the Local Control Funding Formula, can receive additional awards from the state:

The CalKids program works very similarly to a 529 Plan, where the funds are invested, grow tax-free and distributions are also tax-free if they are used for qualified educational expenses. Similar to a 529 plan, the investment growth on CalKids funds that aren’t used for qualified educational expenses are taxed at ordinary income with a 10% penalty. Even if you use the funds for items other than qualified educational expenses, if you have an eligible newborn signed up for the CalKids program, they still received that CalKids money for free. BFSG has helped thousands upon thousands of clients in our 30+ year history and we still have yet to find a person that objects to receiving free money. Even if you have no intent on setting up a ScholarShare 529 college savings account (California’s state 529 plan) and you have no reasonable expectation that your child would be identified as being in a low-income household, you can still get $50 from the state of California just for letting the state know you have an eligible newborn and are willing to register the account on the program’s online portal.

If you are planning on having your child go to college, private school, or vocational school and will therefore have tuition costs, utilizing the CalKids program and investing in a 529 plan could be instrumental in helping you reach the goals you have for your child’s future education needs. Educational planning is one of the main pillars of financial planning and might be your highest or lowest priority to you right now. Similar to a tax professional combing through the tax code to try to legally maximize your tax refund, our job as Certified Financial Planner™ professionals is to sift through current and pending legislation to educate you on how to legally maximize your potential for meeting your short-term and long-term financial goals through tailored investing strategies, efficiently using the tax code, and utilizing state and national programs when appropriate to help meet those future financial goals. After all, if you’re a California resident with a child born after June 1, 2022 (and you made it this far into the blog post), you just learned how you can be awarded up to $100 from the CalKids program regardless of your income level.

If you are interested in sitting down with our team of CFP® professionals to help you compartmentalize your financial goals through a comprehensive financial plan, please feel free to email us at financialplanning@bfsg.com or give us a call today at 714-282-1566.

 Sources:

1. https://calkids.org/wp-content/uploads/2023/03/CalKIDS-Program-Information-Guide-3.7.23.pdf
2. https://www.gov.ca.gov/2022/08/10/california-officially-launches-nations-largest-college-savings-program-for-millions-of-students-and-all-newborns/
3. https://calkids.org/help-resources/frequently-asked-questions/

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

BFSG’s CERTIFIED FINANCIAL PLANNER™ professionals, Michael Allbee, CFP® and Paul Horn, CFP®, CPWA®, were invited to be guest speakers for the “It’s Your Money!” workshop series. For the “Investment World” session, Mike and Paul focused on how the investment world gets compensated. Learn the differences between brokers versus advisors, what does the word “fiduciary” mean, how to find an advisor, and most importantly how certain products are sold, and the way brokers/dealers are paid. Watch the replay by clicking here.

The “It’s Your Money!” workshop series is hosted by Peter Kote for his not-for-profit Financial & Estate Literacy. These workshops educate seniors to take control of their #financial, #estate, and #charitablegiving decisions. You can check out the entire spring series here.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.