Client Memos

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.

Gamble Jones response to “Stay at Home” order

Dear Valued Gamble Jones Client,

Last night California Governor Gavin Newsom issued a statewide “Stay at Home” order that limits non-essential movement for residents.  We will be closing our physical office today at 1:00 PM PST, and it will remain closed until the order is lifted.  While the physical office will be closed, every Gamble Jones employee will be working remotely, and we remain well situated to facilitate all our client needs.

The fastest way to communicate with us will be via email.  However, if you call into our office (626-795-7583), you will get our answering machine and can enter the extension of the person you are trying to reach (see extensions below).  Please leave a message, and the recipient will automatically receive a notification email and return your call asap.

For those clients who have been receiving portfolio statements from us via the mail, we ask you to use your custodian statement while our physical office is closed.  We will send hard copies of our statement once we are able to return to our office.  Please log on to our website at GambleJones.com (under Client Memos) for future notifications and information.

During this extraordinary time, we remain your trusted partner.  We take our role as a fiduciary for our clients very seriously and will always act in your best interest.  We hope you and your family stay safe and healthy. 

 

Blessings,

Alison Gamble, President

 

Gamble Jones Employee Phone Extensions:

 

Ashley Guerra           126                                         

Michael Erskine        119

Alison Gamble          111                                          

Natalie Perez             139

Aram Schotts            146                                        

Peter Viehl                136

Bridget Goodbody   145                                         

Rebecca Occhiline 110

Colby Hackerman   135                                         

Rob Souza                 125

Dennis Slattery         131                                         

Scott Phillips             143

Justine Fonseca       132                                         

Tap Le                        121     

Katie Roth                 127                                         

TJ Jones                    134

Kristen Mitchel         141                                         

Tom Jones                122

529 Savings Plans

Student loan debt just passed the $1.6 trillion mark earlier this year, and education costs are expected to continue to increase much more quickly than general inflation and wage growth.

Of the tools available to help families save for education expenses, the 529 plan is one of the best.

What is a 529 plan?

Formally known as a qualified tuition program (QTP), a 529 savings plan is a financial account designed to help save and grow assets in order to pay for “qualified” education expenses.

Which costs are considered “qualified” higher education expenses?

  • Tuition and related fees
  • Books, supplies, and equipment necessary for class
  • Computers and peripheral equipment (e.g., monitor, keyboard, mouse), educational software, and internet access
  • Eligible room and board expenses

What are the primary benefits of the plan?

  • Plan assets may be allocated to mutual funds and ETFs.
  • The investment earnings within the plan are tax-deferred and tax-free when used to pay for “qualified” education-related expenses.
  • The owner maintains control over the assets and can change the beneficiary.
  • The plan gives the owner the ability to remove assets from his/her taxable estate as contributions to the plan are considered a completed gift.
  • Some states provide a tax credit or deduction for contributing to a state-sponsored 529 plan. You may be required to use the state-sponsored 529 plan to qualify for these tax incentives
  • Investment gains within a 529 plan and plan distributions are not subject to the 3.8% Net Investment Income Tax (NIIT).

Can 529 plan assets affect Federal Student Aid eligibility?

Yes. Both the 529 plan’s account balance and the distributions can affect the student’s ability to obtain federal student aid. The extent of the affect depends on the owner’s relation to the student and the student’s dependency status. There are many moving parts to 529 plans and financial aid planning, so please call us with your questions.

Can I use 529 plan assets for K-12 education expenses?

Prior to the 2017 Tax Cut and Job Act, the IRS’ definition of qualified education expenses included only those expenses related to postsecondary school (i.e., college), and excluded those for elementary or secondary school (K-12).

Under current federal law, 529 plan assets may be used, without tax or penalty, for certain pre-college (K-12) expenses—up to $10K per student per year.

However, many states have not yet conformed to the federal law, so please review your state’s laws before using 529 plan assets for K-12 expenses.

Current Developments

Under the current law, student debt is not considered a “qualified” education expense, so any investment gains used to pay student debt will be subject to taxes and penalties, but help may be on the way!

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, if passed, may increase the utility of the 529 plan by allowing families to take tax-free 529 plan distributions for student loan repayment, homeschool expenses, and apprenticeship programs.

Please call us with any questions regarding 529 plans or if you’d like an objective review of your existing plan.

All the best,

Your Team at Gamble Jones