Client Memos

Annuities: Know What You Own

After periods of heightened market volatility, conservative investors and those approaching retirement may be attracted to certain attributes of annuity contracts.  There are several types of annuities in the marketplace, including variable, indexed, fixed, deferred income, and immediate income annuities.

Generally, these types of annuity contracts are risk management tools rather than investments for maximizing returns.  As such, before purchasing any annuity, it is important to understand the guaranteed benefits, liquidity restrictions, investment options, and expenses in context of the contract’s purpose.

Assumed Benefits (Non-Guaranteed) and Guaranteed Benefits: Variable and indexed annuity illustrations use historical market performance data to project future benefits. But what if market returns are lower in the future?  To this end, it is important to compare the “guaranteed” benefits to the “non-guaranteed” benefits.  Are the “guaranteed” benefits acceptable?  Best Practices:  Compare the “guaranteed” and ”non-guaranteed” benefits to understand what the contract would provide in an unfavorable investment performance scenario. If the “guaranteed” figures are understood and satisfactory given your situation, the contract may be appropriate. 

Liquidity: Deferred and immediate income annuities are illiquid other than the periodic payments provided.  Fixed, indexed, and variable annuities will provide partial liquidity and are subject to surrender fees for a period that can range from four to ten years. Excess withdrawals from contracts with living benefit riders can erode the lifetime benefits and diminish the purpose of purchasing the contract in the first place.  Best Practices: Before purchasing a contract, be sure to understand the liquidity limitations and your own income needs.

Investment Options and Restrictions: While the investment responsibility of income annuities falls on the insurance company, indexed and variable annuities provide the investor a few options. In the case of the indexed annuity, the investor can choose one or more index benchmarks. The performance is usually based on the “point to point” appreciation of the chosen benchmark with a performance floor and cap.  With variable annuities, there can be a wide range of fixed income and equity mutual fund options. However, it is possible for the insurance company to limit your equity exposure if you purchased a living or death benefit rider. Best Practices: Understand the investment options allowed and investment limitations imposed by the contract.

Expenses: With income, fixed, and indexed annuities, the primary “expense” is the opportunity cost of an alternative investment as the returns of these contracts are either level or capped.  With variable annuities, there are multiple components to the cost, which include the mortality and expense risk charge, administration charge, investment (sub-account) charge, and rider charges (living and/or death benefit). These combined costs can be relatively high and create a high hurdle rate for account growth.  Best Practices: Understand the opportunity costs and expenses of the contract to ensure the benefits are worth the direct and indirect expenses.

Purpose: In the context of your financial and personal situation, what need is the contract designed to fulfill? Considering the expenses, investment options, liquidity rules, and guarantees, how likely is it that the contract meets your objectives?  Best Practices: Weigh the benefits and costs of the contract and how it fits with your financial plan.  

If you or a loved one needs objective guidance in weighing the costs and benefits of an existing contract or an annuity contract you are considering, please call at your earliest convenience.  This is where a trusted financial adviser can guide you to the decision that most fits your personal and financial situation.

Gamble Jones Investment Counsel Named to 2020 Financial Times 300 Top Registered Investment Advisers

Gamble Jones Investment Counsel is pleased to announce that it has been named to the Financial Times 300 Top Registered Investment Advisers, as of July 29, 2020. The list recognizes top independent RIA firms from across the U.S. 

This is the seventh annual FT 300 list, produced independently by the FT in collaboration with Ignites Research, a subsidiary of the FT that provides business intelligence on the investment management industry. More than 2,000 elite RIA firms were invited to apply for consideration, based on their assets under management (AUM). The 760 RIA firms that applied were then graded on six criteria: AUM; asset growth; years in existence; advanced industry credentials; online accessibility; and compliance records. 

To see the article in its entirety click here

CARES Act: Part II

The CARES Act enacted earlier this year waived required minimum distributions (RMDs) from most retirement accounts for 2020 and created the Coronavirus-Related Distribution rules for retirement account owners distinctly impacted by the pandemic. 

The act also included provisions affecting charitable contributions, student loan repayment, and qualified medical expenses.

Qualified Charitable Contributions

The act created a new and temporary “above-the-line” income adjustment for cash donations made during 2020. The adjustment is limited to $300 per taxpayer, and because the deduction is “above-the-line,” taxpayers who do not itemize their tax deductions can reduce their taxable income by donating cash to a qualified organization. Those who itemize are prohibited from using this deduction.

As charitable contribution deductions are typically limited to taxpayers who itemize, this temporary rule will allow those using the standard deduction to receive a benefit for their donations. Please note that contributions to donor-advised funds or 509(a)(3) “supporting organizations” do not qualify for this specific deduction.  

In addition, the current year deductibility of charitable cash contributions is temporarily raised to 100% of adjusted gross income (AGI). In other words, in 2020 an individual may eliminate their taxable income by donating cash to qualifying charities.  This contrasts with previous years where taxpayers would only have been able to offset a maximum of 60% of their AGI.  Generally, excess charitable contributions may be carried forward for up to five years.

Relief for Student Loan Borrowers

Employers can exclude student loan repayments from compensation.  Until the end of this year, employers may pay employees up to $5,250 for student debt repayments, and the payments will not be taxable to the employee.

Qualified Medical Expenses

The act expanded the number of products that are considered “qualified medical expenses” for Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Flexible Spending Accounts (FSAs). The list of items considered qualified medical expenses is extensive and now includes over-the-counter medications and menstrual care products. 

Please call with any questions and stay well!

All the best,

Your Team at Gamble Jones

Pension Decisions: Lump-sum or Lifetime Annuity?

Preparing to retire or changing careers can be stressful; sometimes you don’t have a choice in the timing! During these transitions, you are required to make decisions that will impact the rest of your life.  One key decision you might face is deciding between a lump-sum, lifetime annuity, or a combination.

With the passage of the SECURE Act, employees will eventually have more lifetime income options within employer sponsored plans.  As such, before deciding, there are several factors to consider, which include:

Your spending habits, other assets, and income sources

  • Do you spend everything you receive?
  • Do you have other sources of income?

The proposed investment strategy for the lump-sum payout

  • Can you stick with the proposed investment strategy during a market downturn?
  • In which direction are interest rates moving?

Your future expenses and inflation assumptions

  • Is there a cost of living adjustment (COLA)?
  • Will the COLA keep up with inflation?

Your and your spouse’s expected longevity

  • Whose life expectancy is longer?
  • Is spousal continuance an option?

Legacy Planning

  • The lifetime payouts end upon your or your spouse’s death. What do you want your beneficiaries to receive?

“Running the Numbers”: Present Value Calculation

  • What is the expected payout?
  • How does it compare to expected returns for other assets?

If you or a loved one needs guidance in weighing the pension or annuity options, please call at your earliest convenience.  This is where a trusted financial adviser can guide you to the decision that most fits your personal and financial situation.

All the best,

Your Team at Gamble Jones

Best Practices to Protect our Cyber Health

Since the onset of the Covid-19 pandemic, we have all been very mindful to protect our health.  It is also important to protect our cyber health, and here are a few guidelines that will help you stay safe, healthy, and protected while online:

  • Keep your computer virus definition files current with the latest updates from your provider and run virus scans on your computer daily.
  • Apply all critical updates for your operating system on your home computers, smartphones, and tablets.
  • Make sure your home WiFi router is password protected.  This will help ensure that no outside users can be on your home network, potentially stealing your information on your computers.
  • Change all important passwords a minimum of every 6 months; they should contain at least 12 characters, if not more, and incorporate capital and lowercase letters, numbers, and symbols.  Do not use the same password for different sites. 
  • Use an online password manager to store your passwords for extra protection.
  • If applicable, turn on dual factor authentication for any online service you use.  Dual factor authentication can consist of security questions or even the site sending a text to your cell phone.
  • Do not click on any internet pop-ups or ads, or on any email links.  Go directly to the website to view the information you want.  Fake links like these are hard to spot and are a great way for hackers to install nefarious applications to steal your personal information.
  • Make sure your financial institutions (broker, attorney, accountant, etc.) send confidential information via a secure client portal or through encrypted email.
  • Verify any money movement transactions with your financial institutions and double-check any money movement instructions by phone, not email.

Gamble Jones takes your personal and confidential information very seriously. Here are some of the procedures we take to protect you:

  • We voice verify all requests for money movement.  If you send us an email to move money, expect a phone call from our client service team to verify your request.  We will only contact you using the phone number we have for you in our system.  If an email has a different contact number, we will not use it.  If you have changed your phone number or address, please let us know.
  • We will only send personal and confidential information via the secure online portal or our encrypted email system.
  • We provide a secure document vault to our clients to store personal electronic copies of their trust, will, or any other document deemed necessary to protect.  This vault protects our clients from disasters that could destroy the paper version and makes it easily accessible at any point in time.
  • Even in this time as we all work from home, we monitor all office computers for intrusions, viruses, and spyware to make sure your personal information stays safe.

Cyber security is extremely important, especially in times like these, and Gamble Jones can only do so much to help protect you, our client.  Implementing the procedures above is a great start to protecting your online profile.  If you feel you would like to take that protection to the next level, LifeLock and other identity protection services like it are great resources for monitoring and protecting your online profile.  Through a partnership with our primary software firm, our clients may receive a 20% discount for life on LifeLock. If you decide their service is what you need, please call your relationship manager to receive the discount code before calling LifeLock.

All of these items above can help you become more secure and allow you to have greater peace of mind in knowing that your finances are protected.  If you have any questions, please reach out to your relationship manager.  We are here to help.

Sincerely,

The Gamble Jones Team

CARES Act and Retirement Account Distributions

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27th.  The sharp market declines during March prompted a provision that waived required minimum distributions (RMDs) from most retirement accounts for 2020 and created the Coronavirus-Related Distribution rules for retirement account owners distinctly impacted by the pandemic.

Required Minimum Distributions (RMDs) from most retirement accounts have been waived for 2020. The waiver applies to IRAs including SEP IRAs and SIMPLE IRAs and extends to defined contribution plans (403(a), 403(b), 401(a), and 401(k)) and Governmental 457(b) plans. Please consult your plan administrator if you have a defined benefit or pension plan.

A few of the most frequently asked questions regarding the 2020 RMD rules follow.

Q: Will I need to take an extra distribution next year as a result of the 2020 RMD wavier?

A: No. You will not.

Q: May I return the distributions I’ve taken this year?

A: Yes, but with restrictions. Under the IRS’ rollover rules, you may roll over (re-deposit) distributions within 60 days following the distribution date.  If you’d like to roll over the IRA or retirement plan distributions you’ve received within the last 60 days, please contact us at your earliest convenience.  The IRS limits the number of rollovers per 12-month period between certain accounts, so we will need to review your specific situation.

Q: If I turned 70.5 last year, am I required to take the 2019 RMD which had the distribution deadline of April 1, 2020?

A: No. Taxpayers who waited until 2020 to take their very first RMD by the April 1, 2020 deadline will be able to roll over the distribution if in compliance with the 60-day rollover rules. 

Q: If I had taxes withheld on distributions taken earlier this year and I wish to roll over some or all the funds distributed, how should I proceed?

A: For example, if you distributed $10K (gross) and withheld $1,000 for federal taxes, you may roll over $10K to offset the distribution. Any funds withheld are typically sent to the Treasury or state agency immediately, so these funds can only be recovered when you file your 2020 income tax return(s). 

The CARES Act created a 2020-specifc distribution called the Coronavirus-Related Distribution to allow those impacted by the pandemic to access their retirement savings in a tax-friendly manner.  To qualify for preferential treatment, the distribution must take place in 2020 and be limited to $100,000, and the individual must meet the act’s definition of a person impacted by the virus.  Such persons include someone…

“(I) who is diagnosed with the virus SARS– CoV–2 or with coronavirus disease 2019 (COVID– 19) by a test approved by the Centers for Disease Control and Prevention,

(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or

(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).” – CARES Act. SEC. 2202 

The potential preferential distribution treatment for those who qualify may include:

  • An exemption from the 10% early distribution penalty.
  • Avoidance of the mandatory withholding retirements of some employer sponsored plan distributions.
  • Extension of the rollover window to up to three years.
  • The option to spread the tax burden of the distribution over three years.

Please contact us if you have any questions about the CARES Act and how it may apply to you.  We would be happy to review your retirement account distributions and the merits of rolling over recent retirement account withdrawals.

Retirement Account Catch-Up Contributions

It is commonly believed that retirees spend less during retirement. If this is true, is the reduced spending a result of fewer expenses? Or, is it a result of having less money to spend? Our experience informs that the latter is more often the case.

Over the years, several account types were created to incentivize and encourage retirement planning. The IRS went a step further to provide higher contribution limits to those over 50 years of age. The extra contribution for this age group is known as the “catch-up” contribution.

Taking advantage of the catch-up contribution helps you save more for retirement and encourages you to be more mindful of your current spending.  Since your spending habits will likely carry into retirement, it is ideal to save and invest as much as you comfortably can before retirement.

Below are the 2019 and 2020 tax year contribution/deferral limits. Please contact your tax advisor before significantly altering your retirement savings tax strategy. Contact us with any retirement planning questions.

Traditional IRA or Roth IRA

  • Contribution Limit: $6,000 (2019), $6,000 (2020)
  • Over 50 Catch-up: $1,000 (2019 & 2020)

SEP IRA

  • Contribution Limit: Capped at the lower of $56k in 2019 ($57k, 2020) or 25% of your self-employment net income. Consult your tax advisor before contributing to a SEP IRA.
  • The SEP IRA does not permit a catch-up contribution

SIMPLE IRA

  • Employee Deferral Limit: $13,000 (2019), $13,500 (2020)
  • Over 50 Catch-up: $3,000 (2019 & 2020)
  • Employer Contribution Limit: Depends on the plan document

Defined Contribution Plans: 401(k), 403(b), 457(b), Roth 401(k)

  • Employee Deferral Limit: $19,000 (2019), $19,500 (2020)
  • Over 50 Catch-up: $6,000 (2019), $6,500 (2020)
  • Employer Contribution Limit: Depends on the plan document

Special Cases

  • Some 403(b) plans allow employees with at least 15 years of service to make an extra deferral that is separate from the standard $6,000 catch-up previously discussed. Click here for the IRS’s rules, and contact your employer to verify your options.

Please visit the IRS website for more details, and please stay healthy and safe during this stressing time.  We are here to assist you so please do not hesitate to call.

All the best,

The Gamble Jones Team

P.S. While Gamble Jones is still working remotely, we have now set up our phone system so that Rebecca can answer your calls as they come in as she usually does.  She will be monitoring the phones on weekdays between 8:00 AM PST and 4:00 PM PST.