Client Memos

Planning for Incapacity

Estate planning is an integral part of any financial plan and encompasses more than just the distribution of assets at death.  Advance healthcare directives and financial powers of attorney are crucial components of any estate plan as they permit trusted individuals to manage your medical, financial, or legal affairs in the event of your incapacitation. As a sudden illness or an accident may make these documents immediately necessary, now is the time to create or review your incapacity planning documents.

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Don’t Waste A Low Tax Bracket

A low tax bracket is a terrible thing to waste!

When calculating your income tax liability, there are three core components:

  • Gross income, which includes income from all sources
  • Adjustments to income, which include items such as IRA contribution deductions and student loan interest deductions
  • Deductions, which consist of either the standard deduction or itemized deductions such as medical expenses, mortgage interest, state and local taxes, and charitable deductions.
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GJIC named to the CNBC Financial Advisor Top 100 list

It is with great pride we announce that Gamble Jones Investment Counsel has been named to the CNBC FA 100 list.  The CNBC FA 100 celebrates the financial advisory firms that top the list when it comes to offering “the best, most comprehensive planning and financial services to help clients navigate their financial lives.”

Gamble Jones ranked 15th on the list of the top 100 firms in the nation.  We want to take this opportunity to thank our clients for putting their trust in Gamble Jones for the last 64 years.  We will continue to strive to offer outstanding service to help you and your loved ones reach your financial goals.

To see the entire FA 100 list, please visit www.cnbc.com

Employer Benefits

Are you obtaining the maximum utility from your employer benefits?  Whether you are a new employee or are approaching retirement, it is important to understand and utilize the benefits provided by your employer.  

Generally, employer benefits include retirement plans, health care-related benefits, group insurance options, education assistance, and vacation benefits.

Retirement Plan Benefits: If your employer offers a pension plan, you will likely be automatically enrolled.  In some cases, you will have a choice between two different pension options that will accrue benefits using different methodologies.

In lieu of, or in addition to a pension, many employers offer salary deferral arrangements, such as 401(k) and 403(b) plans.  Is there an employer match, and are you maximizing this benefit?  Are you taking advantage of “catch-up” contributions at age 50?  Are you trying to decide between a pre-tax deferral or a post-tax (Roth) deferral? Do you understand the pros and cons of each? 

Do you have access to a deferred compensation plan or incentive stock options?  If so, what are the rules, restrictions, and tax considerations?

Health Care Benefits: While you likely have access to a group health care plan, do you have access to a flexible spending account (FSA) or health savings account (HSA)?  Are you aware of the tax benefits and accumulation restrictions?  If you have young children, do you have access to a dependent care flexible spending account?

Group Insurance Policies: Does your employer offer group life, disability, or long-term care insurance?  Before obtaining a policy in these areas, research the options through your employer as you may qualify for lower rates and less stringent underwriting requirements.

Education Assistance: Many companies provide tuition assistance or tuition reimbursement programs.  In addition, as a result of the CARES Act, in 2020 employers may pay employees up to $5,250 for student debt repayments, and the payments will not be taxable to the employee.

Vacation Benefits: Is your plan subject to a “use it or lose it” rule, or are you paid-out at the end of the year or the end of employment? Don’t forget to review your vacation benefits and use your vacation time.

As a part of our financial planning process, we will help you make the most of your employer’s benefits, so contact us today to start your financial plan.

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