Client Memos

What is a “Roth conversion”?

What is a “Roth conversion”?

A “Roth conversion” is the action of converting pre-tax retirement assets (401(k), IRA, etc…) into Roth IRA assets. The converted assets are typically considered taxable income for the year of the conversion.

Why consider a conversion?

Your taxable income (and marginal tax bracket) is temporarily depressed, and you’d like to take advantage of the lower effective tax rate.

Tax rates may be higher in the future. 

  • Under the 2017 Tax Cuts and Jobs Act (TCJA), the highest Federal income tax rate is currently 37%. This is set to revert back to 39.6% January 1, 2026.
  • For high earners, the net investment income tax (NIIT), also known as the Medicare surtax, is currently 3.8%, and the income thresholds for this tax are not indexed for inflation.
  • Your Medicare insurance premium is based on your taxable income (including tax-free interest), which includes taxable distributions from your retirement accounts. Qualified Roth IRA distributions are not taxable and have no bearing on your Medicare premium costs.

You don’t want your beneficiaries to pay income taxes on the required minimum distributions (RMDs).

  • The SECURE Act, if passed, may require certain non-spouse beneficiaries to distribute 100% of an inherited IRA within a shorter time period (5-10 years) instead of over their lifetime.

What are other methods for funding a Roth IRA?

Like a Traditional IRA, you may make annual contributions as long as you have sufficient earned income (and don’t earn too much!). The maximum contribution for the 2019 tax year is $6,000 ($7,000 if you are turning 50 or older during the year).

If your adjusted gross income is too high, you won’t be able to fund a Roth IRA directly. The 2019 income phase-out levels follow:

  • Single Filer: $122,000 – $137,000
  • Married Filing Jointly: $193,000 – $203,000

The “Back Door” IRA conversion is an indirect method for funding a Roth IRA. This method requires funding a non-deductible IRA and converting these assets to a Roth IRA. The “pro-rata” rule may apply if you have other IRA assets so please review this method thoroughly with a tax professional before proceeding.

Please call us if you’re considering a Roth conversion or would like to discuss the merits of a conversion given your unique circumstances.

All the best,

Your Team at Gamble Jones

Gamble Jones Investment Counsel named to the CNBC Financial Advisor 100 list

It is with great pride that 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 a comprehensive planning and financial service that helps clients navigate through their complex financial life. 

Gamble Jones ranked 12th 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 63 years.  We at Gamble Jones will continue to strive to offer outstanding service to help our clients reach all of their financial goals.

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

Tax Efficient Gifting

Charitable donations aren’t made for the tax write-off, but if you’re going to donate, you might as well do it tax efficiently!  Gifting appreciated stocks and making qualified charitable distributions are two strategies to consider.

Gifting Appreciated Stocks

Instead of donating cash, consider gifting long-held appreciated stock. This will allow you to avoid the capital gains tax while still receiving the charitable deduction for the full value of the stock at the time of the gift.  

Rules to remember!

  • The stock position must have been held for a minimum of one year for you to receive the greatest benefit.   
  • In contrast, if the stock has been held for less than one year, the value of the gift will be equal to the cost basis instead of the value.
  • High-income donors may be subject to a partial phase-out of itemized deductions, but any excess can generally be carried forward and deducted over as many as five subsequent years.
  • Your custodian will require a detailed letter of instruction in order to transfer the shares, so give yourself ample time before year-end to execute the gift.

Qualified Charitable Distributions

For those over age 70 ½ with IRA assets, the IRS allows you to send funds directly from your IRA to a qualified charity. This action is called a Qualified Charitable Distribution (QCD) and…  

  • QCDs are not reported as taxable income on your tax return, so you don’t need to itemize your deductions to realize the benefits of the donation.
  • Even though the QCD would lower your itemized deductions, it could be more efficient to minimize your taxable income than maximize your itemized deductions.
  • QCDs lower your Modified Adjustable Gross Income (MAGI), which is used to determine your Medicare Part B premium. You may be able to save hundreds of dollars a year in Medicare premiums by lowering your Modified AGI.
  • QCDs count towards satisfying your required IRA distributions.

Rules to Remember!

  • QCDs may be made from Traditional, Inherited, and Rollover IRAs. SIMPLE and SEP IRAs are also eligible if the plans are inactive.
  • You must be 70½ or older to make a QCD.
  • QCDs only apply to IRA distributions that would be taxed as ordinary income (QCDs from non-deductible IRAs are not allowed).
  • The maximum annual QCD per tax payer is $100,000 (2019).
  • Funds that are distributed to you first from the IRA and then donated do not qualify as a QCD.
  • The receiving charity must be a 501(c)(3) and be eligible to accept tax-deductible contributions
  • Private foundations, supporting organizations, and Donor-Advised Funds are not eligible to accept QCDs.

As your tax situation is unique, please consult your tax adviser before gifting appreciated stock or performing a Qualified Charitable Distribution. As your financial adviser, we’re here to help guide you through this process.

All the best,

Your Team at Gamble Jones

Cyber Security Best Practices

It seems almost every other week we hear of a cyber security breach at a major corporation. With all the news surrounding these breaches, it is easy to become desensitized to the severity of what a cyber security breach might mean to you. Do not let your guard down; these crooks look for any opportunity that can benefit them at the expense of others. We at Gamble Jones feel that cyber security is so important to everyone that we wanted to arm you, our clients, with some easy do-it-yourself procedures that can help protect you from a cyber-crime.

By incorporating the following procedures, you will decrease the potential of a nefarious act against you: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 computer.
  • 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.
  • If applicable, turn on dual factor authentication for any online service you use. Dual factor authentication can be security questions or even the site sending a text to your cell phone.
  • 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.

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 third-party money movement. If you send us an email to move money to a third-party, 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.

Cyber security can be a scary topic, 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 would like to take that protection to the next level, Lifelock and other identity theft protection services 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 to add their service, please call your Gamble Jones relationship manager to receive the discount code before calling LifeLock.

All of these items above can help you become more secure, and you will 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.

All the best,
Your Team at Gamble Jones

Is Your Current Asset Allocation Still Appropriate?

As the stock market continues to reach all-time highs, we want to encourage you to review your investable assets to make sure your asset allocation is still appropriate based on your goals and risk tolerance.

You may be asking yourself what you can do in today’s environment. We have outlined a handful of important steps:

  1. Review your investment goals and objectives, time horizon, and tolerance for market volatility. One’s financial picture and priorities can change over the years. It is best to optimize your asset allocation accordingly.
  2. Stay diversified across multiple asset classes and securities. Diversification amongst uncorrelated asset classes can provide downside protection during market corrections.
  3. Own quality assets. For example, we seek companies that have strong competitive advantages, strong balance sheets, and generate a lot of cash.
  4. Allocate to riskier assets only when you are being properly compensated to take on the additional risk.
  5. Temper return expectations going forward. Over the last decade, the US stock market’s average annual percentage return has been in the double-digits, significantly above its historical high-single-digit average annual return. This recent trend is not likely to continue forever, and returns over the next decade are likely to be more modest. In fact, some large institutional investors are forecasting mid-single-digit returns over the next ten years.

If you have questions on any of these above-mentioned steps and how they can be incorporated into your financial plan, please feel free to give us a call.

In the meantime, if you haven’t already done so, a great first step is to complete and return our *Risk Assessment document. We can then schedule a meeting to have an in-depth conversation about your asset allocation and address any financial planning questions you may have.

We take pride in working with our clients to help them achieve their financial goals, regardless of the macroeconomic environment.

All the best,

Your Team at Gamble Jones

*If you need the Risk Assessment Document please call 626-795-7583 or email us.

What is “Estate Planning”?

What is “Estate Planning”?  Estate planning is the process of understanding the ownership structure and the beneficiary structure of your assets to ensure your property is transferred to the desired parties upon your death in a headache-free and tax efficient manner.

In other words, how are your assets owned, who should inherit the assets, and are things structured to accomplish your wishes?  Furthermore, what are the tax implications of such transfers and how can Federal and State estate or inheritance taxes be mitigated?

What are some of the common estate planning tools?

  • Last Will and Testament
  • Beneficiary Designations and Transfer on Death (TOD) and Payable on Death designations
  • Trusts—both revocable and irrevocable—are customizable, and there are several types of trusts structures to accomplish your goals.
  • Healthcare Power of Attorney
  • Financial Power of Attorney
  • Business Succession Plans and Buy/Sell Life Insurance Plans

What are the most common pitfalls of failing to develop and periodically review your estate plan?

Probate: Probate can be a lengthy, expensive (fees are generally set by statute), and public process where the local court determines who shall receive your assets when a joint owner or beneficiary is not designated. This can be especially true in California; however, some States’ probate processes are more streamlined and efficient, particularly for small estates.

Incomplete or inaccurate beneficiaries: Your IRAs, 401(k)s, 403(b)s, Deferred Compensation, and Pension plans should have both a Primary and Contingent beneficiary. Even your home and individually owned assets may have a beneficiary using the “transfer on death” (TOD) or “payable on death” (POD) designations.

Variable Annuities: Non-IRA variable annuities can be poor estate planning tools as the cost basis does not “step-up” upon the death of the owner(s). Understanding the pros and cons of such vehicles before purchasing them is important.  With few exceptions, variable annuities have relatively high expenses and restricted liquidity.

Common Estate Planning “Myths”

Myth: A Will avoids probate.

Truth: Your Will does not avoid probate—the court uses your Will to give legal authority to your designated Representative (Executor) so that he/she may collect (marshal) your assets, pay all debts, taxes, and creditors’ claims, and distribute the remaining assets.

Myth: I won’t owe estate taxes because my estate is below the Federal exclusion amount.

Truth: Some States have inheritance taxes, estate taxes, or both. Understanding your State’s tax law is important. For more information, click here.

Myth: My Federal estate tax exclusion is automatically “portable” to my spouse. 

Truth: Federal law imposes an estate tax on the transfer of assets owned at death. Currently, the estate tax begins on estates valued at more than $11.4 million (as of 2019).  Since assets pass between spouses tax free, the tax exemption for a married couple is doubled (total of $22.8 million).  In order to take advantage of your spouse’s Federal estate tax exemption, you must file the 706 tax return. For more information, click here.

If your estate planning documents are complete, we recommend backing them up within the Vault within the Gamble Jones Client Portal.

If you don’t have an estate plan or haven’t reviewed it in several years, please contact us to review your unique situation. 

All the best,

Your Team at Gamble Jones

What is a “Fiduciary”?

“A fiduciary is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.”

– Justice Cardozo, Meinhard v. Salmon

In an age of information overload and more investing options than ever before, investors must be able to rely on thorough, unbiased advice from their financial professionals, especially in regard to investment advice.

While there are many financial services professionals and titles, only Investment Advisers are legally held to the fiduciary standard. Gamble Jones has been a fiduciary and Registered Investment Adviser (RIA) since our doors opened nearly 65 years ago.

So, before someone with whom you work hires an investment professional, please strive to understand their standard of care and incentives by asking two questions: “Are they a fiduciary?” and “How are they compensated?” 

Their answers may be enlightening.

Please give us a call if you have any questions

Sincerely,

Your Team at Gamble Jones