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Treats, not Tricks
The leaves are near peak and they are starting to fall. Hopefully you will be able to take a few walks, bike ride or a drive to enjoy them before they all come down.

The pandemic (which seems like the worst trick ever) has required us to make sacrifices and children have not been excluded. Many communities are permitting Beggars Night festivities to occur and you may have to get a bit creative to treat your little beggars from a distance. The parade of ghouls and their cuteness may be good for your morale, just don’t get scared!
• HAPPENING AT AFP •

Join us in welcoming Krista Winograd, CFP ®, CSRIC™ to the AFP team. Krista resides in Minnesota and joins us virtually to assist with financial planning. She has 19 years of experience working with several fee-only financial planners around the country and she possesses strong skills in our financial planning program. Krista will be behind the scenes helping to update financial plans and provide support where needed. Her wealth of knowledge in financial planning is a great asset to our firm and we are thrilled to have her! Krista and her husband have two school aged children. Working virtually in this capacity is very beneficial to her and her family during these times. She enjoys the change in the seasons and in her free time she likes to read, cook and spend time with family.
  • Webinars from AFP coming soon We are kicking around the idea of hosting monthly webinars beginning in 2021.These will be about 20 to 30 minutes in length, centered around a topic of interest. Do you have any ideas or concepts you would like us to address? Any thoughts on a clever name for these? Brainstorming has begun! Send us an e-mail or give us a call. We’d love to hear your ideas.

  • The new normal equals status quo at the office while we continue to social distance from each other within our individual offices. Should a change to working conditions be necessary, we will let you know.

  • We continue to host Virtual Meetings using Zoom for your safety. Due to the size of our office conference room, proper social distancing is a challenge. We hope to return to face to face meetings soon.

  • For those that must visit our office, please check in with us prior to visiting. Once you are in the parking lot, please give us call so we know you are here. There may be periodic road closures due to construction projects currently underway in the immediate vicinity of the office.
FYI

  • Don't fall for this Trick - Please refrain from sending sensitive information to us via email. It is not secure! Wealth Management clients should upload to the Wealth Management Navigator Vault. For non- wealth management clients, we offer a ShareFile folder. Please contact Tracey to request access to ShareFile, as necessary.

  • Avoid this Trick too - Have you named a Trust as beneficiary for your investment account(s)? Your Trust may need to be amended due to recent changes in the tax law. We will be contacting affected clients. If you would like to be proactive, contact your attorney and ask if your trust is a "see through" or "accumulation" Trust. Amend your trust, if warranted. Otherwise, ask your attorney to sign off in writing that an amendment is not warranted as a result of tax law changes.

  • Schwab's acquisition of TD Ameritrade made headlines again earlier this month. The deal has been approved. TD Ameritrade continues to operate independently for the time being although changes are eminent. The process is expected to take 18-36 months to complete. Schwab's Impact conference will take place soon virtually and Teri will be in attendance. We will notify you of changes that impact us as information becomes available.

  • Orion Portal Reminder - The 2020 3rd Quarterly Investment Reports have been uploaded to the Orion Portal for most Wealth Management Clients. If you received an email notification but cannot access your Orion Portal, contact Tracey to request a password reset. The Orion Portal requires a password reset every 4 months (120 days) and becomes Inactive after 8 months (240 days).
• ON A PERSONAL NOTE •
+ Teri's World
October always brings a pick-up in activities on all fronts – office, seasonal projects, and family. We will be celebrating my niece’s wedding this coming weekend and this month we’ve had a few small get-togethers to get ready for her big day (in a small way). Wrapping up house and garden projects have been underway for the last few weeks. My garage was approved by Grandview Hts’ BZA so I am moving into the next phase of this 6 month project. It feels weird to not be training to run a ½ marathon in October this year since this had become a part of my routine over the last 15 years. However, I have been running around the neighborhood! My grandsons have enjoyed dressing up in their Halloween costumes and singing Halloween songs. There are some I’ve never heard before!  

+ What about Bob
We have had a good October! However, neither of us are quite ready for the weather change and the shortening daylight! 

We spent a weekend camping at Alum Creek for the annual Halloween Festival. We went on a scary hike, the kids dressed up in their costumes, painted pumpkins and had a Halloween piñata. We were in charge of breakfast that Sunday morning and there is nothing like the smell of bacon cooking on an open fire!

I am taking the last week in October off for a much needed Staycation!! The list of To Do’s isn’t too long, yet!

+ Tracey's Time
We can't think of anything better than exploring the great outdoors in the Midwest during fall. We were a week or two ahead of the foliage peak, and the weather was perfect. We experienced sunny days in the 70's and cool nights in the 40's. The vistas in Smoky Mountain National Park were striking. Thank goodness Mother Nature is immune to Covid. Coco enjoyed accompanying us on hikes and frolicking in the river beds. We encountered Elk in their Rut and black bears foraging to prepare for hibernation. Although we might like to hibernate too, we have work to do to prepare for winter's arrival.
• POINTS OF REFERENCE •
Current Economic and Investment Information
BELOW ONE - The last time the yield on the 10-year Treasury note was above 1% was on 3/19/20 or 7 months ago today. The 10-year note yield closed at 0.74% last Friday 10/16/20 (source: Treasury Department).

FUTURE TAXPAYERS - The nation’s “general fertility rate,” defined as the number of births per 1,000 women between the ages of 15-44, was just 58.3 births in 2019, a record low rate for birth data that has been tracked nationally since 1909 or for the last 111 years (source: National Center for Health Statistics).

PRINT AND PURCHASE - The Fed’s balance sheet reached $6.5 trillion as of 10/14/20, up from $3.9 trillion as of 3/11/20, largely the result of purchases of Treasuries and corporate bonds (source: Federal Reserve).

AT THE MARGIN - The top marginal tax rate used in the payment of federal income taxes in 2020 is 37%. The top marginal tax rate was 70% in 1979, 77% in 1969 and 91% in 1963 (source: Internal Revenue Service).

LITTLE SHORT OF CASH - 17.1 million US households were behind on their monthly rental payment or their monthly mortgage payment as of 9/28/20. That’s 13.5% of the 126.8 million households in the country (source: Census Bureau).

IT’S ABOUT TIME - Americans have reduced their outstanding balances on their revolving debt, e.g., credit card debt and home equity loans, for 6 months in a row, i.e., March 2020 through and including August 2020 (source: Federal Reserve).

WE NEED ONE OF EACH - There are 213 vaccines and 319 treatments for the COVID-19 pandemic in the development stage as of Friday 10/16/20. None of the test vaccines or treatments has yet to receive FDA approval (source: Milken Institute).

BAYOU MISERY - 4 of the 10 tropical storms or hurricanes that made landfall in the United States in 2020 – Cristobal, Laura, Marco and Delta – made landfall in Louisiana. The 10 tropical storms or hurricanes to make US landfall broke the record of 9 set in 1916 or 104 years earlier (source: Insurance Information Institute).
• TIMELY TOPICS •
There's Still Time to Make These Tax Moves

by Tom Herman
The Wall Street Journal

Before saying goodbye and good riddance to 2020, many of us may benefit from a few tax-smart moves that are easy to overlook.

Among these are several changes enacted earlier this year as part of a record economic relief package in reaction to the coronavirus pandemic. Others are long-cherished techniques, such as donating to charity directly from your individual retirement account.

“There’s still a lot of tax planning that can be done in the last few months of the year,” says Mark Luscombe, principal federal tax analyst at Wolters Kluwer  Tax & Accounting.

Depending on the presidential and congressional election results, there may be other maneuvers to consider, but that’s a story for another day when a clearer political picture emerges. Meanwhile, here are a few ideas that tax pros say are worth considering before 2021 arrives:

Charitable-giving deduction: Part of the Coronavirus Aid, Relief, and Economic Security Act carved out a new deduction of as much as $300 for donors who choose the standard deduction for the 2020 tax year. This is available only if you take the standard deduction, instead of itemizing. “Many taxpayers can potentially benefit from the new provision,” says Jackie Perlman, principal tax research analyst for the Tax Institute at H&R Block Inc.

Moreover, this deduction will appear on tax returns for 2020 above the line for calculating adjusted gross income, or AGI. That’s important since your adjusted gross income can affect many other tax items, such as how much of your Social Security benefits may be subject to tax.

Watch out for important exceptions. This new break applies to “cash” donations (such as cash, check and credit cards). Gifts of “noncash” items, such as securities or clothing, don’t qualify for this provision, says Ms. Perlman. Also, donations must be made to “qualified” charities. Gifts to donor-advised funds don’t count for this break. (These funds have surged in popularity as a way to make donations and nail down deductions for the current tax year even though you can wait until future years to dole out the gifts.) Carry-over contributions from prior years don’t count either.

Because of vague statutory wording, there has been confusion about whether the $300 limit applies to each return or each person. However, according to a footnote in a publication (JCX-12R-20) by the staff of Congress’s Joint Committee on Taxation, that limit “applies to the tax-filing unit,” not to each person. “Thus, for example, married taxpayers who file a joint return and do not elect to itemize deductions are allowed to deduct up to a total of $300 in qualified charitable contributions on the joint return.” The publication says this “above-the-line” deduction is scheduled to expire at the end of this year.

Charitable groups have urged lawmakers to do more, and legislation has been proposed to increase the amount. The $300 is “a critically important first step in recognition of the need but insufficient for the size of the financial crisis nonprofits face,” says Jeff Moore, chief strategy officer at Independent Sector, a national organization representing nonprofits, foundations and corporate-giving programs. “More clearly needs to be done.”

Be sure to get proper receipts for donations. For more details, see IRS Publication 526.

Suspension of charitable-deduction limits: This temporary suspension could affect donors who itemize deductions and want to contribute a larger share of their income this year than was allowed previously. As the IRS website explains, the total amount you could deduct for 2019 generally was limited to “no more than 60%” of adjusted gross income, although that percentage could be further limited to 50%, 30% or 20%, depending on “the type of property you give and the type of organization you give it to.” For 2020, the adjusted-gross-income limit generally “has been eliminated for cash donations” by individuals, says Mr. Luscombe.

RMD changes: The Cares Act waived required minimum distributions during 2020 for IRAs and most other retirement plans. That includes for beneficiaries with inherited accounts, the IRS says. More details on this and other changes can be found in publication JCX-12R-20 on the Joint Committee on Taxation website.

IRA charitable transfers: Here is an old technique that many older investors have used. Once you are 70½ or older, you typically are eligible to transfer as much as $100,000 a year from an IRA directly to qualified charities and have this “qualified charitable distribution” be considered nontaxable. This also counts toward your required minimum distribution for the year (although it isn’t tax-deductible as a charitable contribution). Just be sure to make the transfer directly to the charity, says Mr. Luscombe of Wolters Kluwer.

Educator expenses: Many teachers and certain other educators shouldn’t overlook a longstanding deduction of as much as $250 a year for “unreimbursed trade or business expenses,” as the IRS puts it. For a married couple filing jointly, the maximum is $500 if both spouses are eligible educators, “but not more than $250 each,” the IRS says. This deduction applies to amounts paid or incurred for “participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom.” You’re eligible “if, for the tax year you’re a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.” This is another “above-the-line” deduction that affects the AGI calculation. Nearly 3.5 million returns took this deduction for 2018.
stock-investment-pennies.jpg
That Extra Penny in Retirement Income
Can Really Cost You

By Neal Templin
The Wall Street Journal
Here’s something most people nearing the age of 65 don’t know: Extra income in
retirement—even as little as one penny—can mean much higher Medicare premiums.

Medicare has six income brackets that determine premiums, and going just a penny over an annual income threshold can cost you hundreds of dollars in additional premium expenses for a year.

“It’s a big surprise to a lot of people,” says financial adviser Megan Miller of Boulder, Colo., who adds that many clients assume Medicare will be free.

Fortunately, there are steps you can take to lower your income for Medicare purposes and thus avoid paying higher-than-necessary premiums. These include converting money from tax-deferred accounts to Roth IRAs, using qualified charitable donations that don’t show up on your income-tax statement, and asking the government for special consideration when your income drops from one year to the next.

Here’s how the Medicare math works. If you’re a single person with modified adjusted gross income up to $87,000, or a married couple with income up to $174,000, you will pay the basic Medicare premium this year of $144.60 monthly. (Part B premiums for 2021 haven’t been released yet.) But the premiums rise quickly. For a single person earning more than $163,000 and less than $500,000, or a couple filing jointly who earn above $326,000 and less than $750,000, the premium is $462.70 a month per individual.

Modified adjusted gross income is calculated by taking your adjusted gross income from your tax return and adding tax-exempt interest. Interest from municipal bonds, even though it’s not taxed by the federal government, can still push you into a higher Medicare premium bracket.

The premiums are higher for singles. Even if your income is in the lowest premium
bracket as a married couple, it may be in a much higher one after your spouse dies and you are taxed as single.
Suppose a couple had modified adjusted gross income of $170,000 from Social Security, pensions and required minimum distributions from their tax-deferred accounts. That’s under the limit for the standard Medicare premium, and the couple will each pay $144.60, or a total of $289.20, a month.

The picture changes dramatically when the husband dies. The smaller of their two Social Security checks stops, but the pensions and RMDs continue, and the wife now has income of $155,000 a year. That puts her into the third-highest Medicare bracket as a single taxpayer, where she must pay $376 a month for Medicare. She is paying 30% more to cover herself as a single person than she and her husband were paying to cover both of them. And she will have to pay a $50.70 surcharge for her Medicare Part D drug coverage on top of that because of her income.

So, what can you do? Here are some maneuvers that accountants and financial advisers use to avoid or cushion the financial blow of higher Medicare premiums.

Reduce distributions from tax-deferred accounts

The government now requires that you begin making distributions from taxed-deferred accounts at age 72. While RMDs have been halted this year because of the pandemic induced recession, they will return next year.

Many upper-income retirees have bulging individual retirement accounts, and RMDs are a big reason they end up paying higher Medicare premiums.

The best way to avoid high RMDs is to begin reducing tax-deferred accounts well before age 72. Often, people who have just retired and haven’t yet begun taking Social Security are in a low tax bracket for several years. That makes it an ideal time for Roth conversions, in which money in tax-deferred accounts is converted into after-tax Roth account money. People doing Roth conversions must pay income taxes on each dollar they convert so it makes sense to do conversions when they’re in a lower tax bracket.

Roth conversions will reduce the balance in your tax-deferred accounts, thus lowering your RMDs. And you’ll end up with a stash of financial assets in the Roth, which can be spent without pushing you into a higher Medicare bracket.

Roth conversions likely don’t make sense for those who have already begun drawing down tax-deferred accounts. But everyone should keep their Medicare brackets in mind nonetheless.

Marianela Collado, a certified public accountant in Plantation, Fla., says she works with a California couple who pull $10,000 out of their tax-deferred accounts each month, an amount in excess of their RMDs. In some years, she says, the couple is able to lower their tax withholding for the last month or two without running afoul of IRS rules. That allows them to take out less than $10,000, which keeps them out of a higher Medicare bracket.

People on the brink of being pushed into a higher Medicare bracket can frequently dodge the bullet by pulling money out of an after-tax account or Roth IRA for a month or two instead of a tax-deferred account. Or they can defer an expense like a car purchase until the next year.

“You don’t want the tax tail to wag the dog,” Ms. Collado says. “But you may hold off on an IRA distribution that could adversely affect your tax situation.”

Make a qualified charitable deduction

People with charitable intentions can score a double-win by donating straight from their tax-deferred account. A qualified charitable deduction can replace up to $100,000 of their RMD, reducing the income that determines their Medicare bracket.

You must be at least 70½ to use this tax break.

Don’t forget that the donation must come straight from your tax-deferred account to pass muster with the Internal Revenue Service.

“You don’t want to take the money out of your 401(k), put it in the bank, and write a check,” says William Reichenstein, head of research for Social Security Solutions Inc. and finance professor emeritus at Baylor University.

Instead, ask the manager of your account to draft a check straight to the charity. Some account custodians will issue checkbooks linked to your IRA so that you can write the check to the charity yourself and still qualify.

Ask the government for relief

The Social Security Administration, which administers Medicare, realizes that there are life events that lower seniors’ incomes. Suppose an executive retires midway through 2018 but still has high income that year from salary, bonuses and exercising stock options. She goes on Medicare in 2020.

Medicare looks at income from two years earlier to determine a person’s premiums. So her 2020 premiums would normally be based on her 2018 income. However, she can file a form and ask for the government to base her premium on her much lower expected 2020 income.

The government is pretty good about granting relief for qualifying life events such as deaths, divorces, retirements, loss of work and even loss of income from income producing properties.

Some things don’t count. For example, if a retiree has a big capital gain one year from an asset sale, that could push him into a higher Medicare bracket two years later. The good news is that it’s a one-time event, and when his income drops back, so will his Medicare premium.
• QUOTE •

"There is no season when such pleasant and sunny spots may be lighted on, and produce so pleasant an effect on the feelings, as now in October. "

- Nathaniel Hawthorne
Alexander Financial Planning
1621 W. First Avenue
Grandview Heights, OH 43212
614-538-1600

Registered Investment Advisor
This material is distributed by Alexander Financial Planning, Inc., (AFPI) and is for information purposes only. Although information has been obtained from sources to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of AFPI and are subject to change without notice. AFPI assumes no liability for the interpretation or use of this report. Financial planning, investment conclusions and strategies suggested in this report may not be suitable for all investors and consultation with a qualified advisor is recommended prior to executing any investment strategy. All rights reserved.