Welcome to our monthly Jump-Start Your Financial Plan live chat! This afternoon, we have four financial planners from the National Association of Personal Financial Advisors joining us: Deborah Frazier of Frazier Financial Consultants, George Middleton of Limoges Investment Management, Andy Tilp of Trillium Valley Financial Planning and Lea Ann Knight of Garrison Knight Financial Planning. They are ready to answer your financial-planning questions! To get the conversation started, planners, do you have any advice for last-minute tax filers who have yet to send off their tax returns?
Good morning, or afternoon everyone. This is Andy Tilp from Trillium Valley Financial Planning. I'm located in Sherwood Oregon (thus my good morning).
For last minute filers, look for opportunities to take education credits. Do you have anyone in the family taking college courses, or are pursuing a degree?
If you haven't filed yet, you probably owe as most people that are getting refunds file early. If this is the case, look at last minute things you can still do for 2012. Contribute to an IRA, ROT H or a SEP if you own your own business. Make sure you have all Charitable contributions, medical expenses, CPA fee, advisor fee ready for your schedule A
Good advice, Deb and Andy!
Let's get started with a question from a reader...first up is a question from Steve.
HI Steve. A SEP IRA is a great way to save for retirement and will allow you to put away more each year than you could in a Traditional IRA. You will have to calculate the amount you can put in for 2012 (it's roughly 20% of your consulting net income) up to a maximum amount ( I believe that is $51k right now). SEP IRA contributions are due when you file your return, so if you get an extension it does give you more time to make that 2012 contribution. Doesn't change the amount you can contribute, however -since it is based on your 2012 net income.
Let's take another question...this one's from arthur.
Steve, may be a good option for 2012. You can contribute up to 20% of your self employment income (max $50,000). There may be other options for future years such as a solo 401(k).
Hi Arthur - Financial planning should look at your near and long term goals and put together a plan on how to achieve these goals. When I work with a client, the I first look at the current expenses and income. Then we projected out future expenses (college, retirement, buying a new house, etc). Then we look at the income sources they will have over their life (employment, pensions, Social security, investments). Then I run scenearios to see if the two match up. If not, then we work on how to make them match up
Deborah, can you take this question from cpep27?
If you are working with a stock broker, you are probably not getting financial planning through no fault of his. Brokers buy and sell stocks for you. What I would ask Jim is "are you a financial planner? Can I see some of the plans that you have done for me. If you want financial planning, you should seek counsel with a NAPFA member in your area. See who works on an hourly arrangement so that you can design what project you need to work on: retirement planning, education, etc.
Hi Arthur. Think of it this way. Financial planning is figuring out the house you want to build (ie. how much you need for retirement, paying for college, a second home, long term care, etc). Investments are just the tools to build the house. So, without a plan, how does the advisor know which tools to use that are appropriate for your circumstances? Without a plan, it's like taking a trip without a roadmap. You might end up where you wanted, but you may have wasted a lot of time and/or money getting there!
For the investment piece, it is important to look at your portfolio from a 'whole' and not just account by account. That is, if you have taxable savings and a 401k, it is important to get the right type of investment in each account. It is also easy to overlap investments if you are not ooking at the entire picture.
To follow up on Deborah's comment, - your financial planner should be a fiduciary - that is to have your interest above all others.
George, here's a question from mark stephenson...
Andy, here's a question from Sandy on capital gains from a home sale...
cpep27, I think the Utah 529 is great, but as you indicated you do not want to over fund it. Although your company stock is on fire you never know when the fire will have water thrown on it. It's a good idea to diversify. Have you considered a Roth IRA as a possible storage spot for educational funding if you are not using it for retirement?
And Lea Ann, can you take erin's question?
cpep27, You bring up an interesting issue. The $3000 per year for a 3 year old is probably a good amount for a state type college. You are right to not overfund your 529 plan with only one child to benefit. At 3, you have no idea what his interests will be in 15 years. Regarding the General Mills stock, it is wonderful to have company stock, but of course there are downsides to this. Working for and having company stock dominate your financial life is dangerous. I recommend that you occassionally sell some of the stock to diversify your portfolio. Good luck
Thanks, Deborah! Can you take Margeux's question?
Erin, you need a budget. It is a matter of sitting down (perhaps with an advisor) and putting your income and expenses on paper so you can determine how much you have available to pay down the loan.
Sandy, the tax laws have changed on how capital gains are treated from the sale of a principal residence. When the tax relief act of 1997 became law, the once-in-a-lifetime options were replaced with the current per-sale exclusion amounts. If you capital gain is not greater than $250,000 (single), then you should be ok.
We have a question from Brandon that I will throw out to the group.
Margeux, you are right to be cautious. I would find out the qualifications of the person giving the advice. See if they are independent (or is their compensation based on the advice they give). If they are not independent then any advice would have to be suspect.
George, another followup for you...
Margeux, the advice you get from the fund 'advisor" may be worth it if it is offered on a free basis. Often fund advisors know their plan's investments better than anyone. For anything other than that one issue, I would seek out side independent advise. Remember to share any other investments held outside the plan so that the advise you get is coordinated. But don't allow yourself to be swayed to transfer other assets to the retirement company.
HI Erin, You should also make sure you have consolidated those loans at the lowest possible rate and then prepare a debt snowball schedule. It may make sense to make minimum payments on some and try and accelerate the payoff of the highest interest rate loans first.
Brandon - congrats on your upcoming graduation. It is great that you plan to start saving right away. Start with a diversified portfolio of US and international stocks. If you have a choice of a total market index fund, that would be a good way to get broad diversification.
Andy, can you take Amanda's question?
Deborah, I've got a question from Kiki for you...
Lea Ann, can you take Ja's question?