The most important financial news of 2018 was that Modern Portfolio Theory (MPT), the strategic underpinning of prudent investing, worked. Yet you just don't see front-page headlines saying conventional wisdom worked. Why? Because when what's expected to happen actually occurs, it's not news. Nonetheless, the fact that modern portfolio theory worked, just as academia has expected it would, was the most important financial news of 2018.
As financial professionals, we believe understanding the dynamics of retirement income portfolio risk can be crucial to investment success. The survivability of five hypothetical retirement portfolios over the 20-year period ended December 31st, 2018 shown in the accompanying table is not intended as investment advice but is intended to help clients better understand retirement portfolio risk and conquer perhaps the worst of all financial fears: running out of money in retirement. The data is based on a continuing professional education session by Professor Dr. Craig Israelsen, an independent economist whose research we license.
The Tax Cuts And Jobs Act (TCJA) changed funding a child's education significantly. Here are five factors to consider.
Tariffs, interest rates, and recession struck fear deep in the heart of investors as 2019 was beginning. A market crash, a world financial crisis, or something worse. Here are some facts to help you keep perspective in these fearful times.
Roth IRAs are tax-free, making them popular, but a married couple is ineligible to contribute to a Roth if they earned more than $199,000 of modified adjusted gross income in 2018 ($135,000, if single). A "backdoor" around this limit enables you to convert traditional IRA assets into tax-free Roth IRA accounts, even if you're over the income limit. Here's a strategic approach for maximizing the backdoor route to get tax-free Roth treatment with the least amount of conversion-tax.
You can't have your cake and eat it, too, but this tax planning strategy lets you have a tax break and repeat it, too.
Pre-retired dentists, doctors and lawyers as well as other independent professionals may be able save tens of thousands of dollars in income taxes annually during their peak income years under the new federal tax regulations. The new rules are complex. Here are 10 things pre-retired business owners need to know about qualifying for a 20% reduction in qualified business income under Section 199(A) of the new Internal Revenue Code:
Second-quarter economic growth surged 4.1%, the best it's been since the third quarter of 2014.
If you think you're no longer allowed to deduct items like charitable donations on your income tax return, think again.
Legendary singer, Aretha Franklin succumbed to pancreatic cancer at the age of 76 on August 16, 2018, and she was accorded funeral rites reserved for music royalty. At once humble and a diva, the Queen of Soul, who famously demanded respect, sadly died without a will.
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Foreign Intrigue In Estate Planning
Are you married to someone who isn't a U.S. citizen? If you are, special estate planning considerations may come into play.
Whether your spouse is a citizen or not, you can use the same basic estate planning documents without any reservations. You can create a will bequeathing assets to your spouse, name him or her as a beneficiary of retirement accounts, and designate your spouse as the agent under a power of attorney. No problems there.
But things get trickier when your spouse inherits assets. Normally, property transferred from one spouse to another, during your lifetimes or when one of you dies, is completely exempt from gift or estate tax thanks to an unlimited marital deduction. But that doesn't apply to non-citizen spouses.
Instead, you can make use of a $5.49 million unified gift and estate tax exemption that covers transfers to any beneficiaries, including a non-citizen spouse.
In addition, you can give a non-citizen spouse as much as $149,000 (in 2017; the amount is indexed for inflation) in gifts during your lifetimes.
Other ways to avoid being subject to the rules for non-citizen spouses may include:
1. Have your spouse become a U.S. citizen. This can be an obvious solution. It allows your spouse to qualify for the unlimited marital deduction by the time your federal estate tax return is due. That's generally nine months after death, but the IRS may grant a six-month extension.
Because it takes time to obtain citizenship—there is a waiting period before you can even apply—it's important to start sooner than later.
2. Rely on a QDOT trust. With a qualified domestic trust (QDOT), you can leave property to the trust, rather than directly to your spouse. Then your spouse can receive income from the QDOT that is exempt from estate tax.
But there are a couple of extra wrinkles. If your non-citizen spouse withdraws principal from the QDOT, it will be taxed like a distribution from your taxable estate, which can increase estate tax liability. There are also limitations on investments made by QDOTs. In some cases, it could make sense to complement a QDOT with other kinds of transfers to your spouse. Finally, a QDOT can be structured to end if your spouse becomes a U.S. citizen.
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