Tag: Charitable Planning

Year End Strategies

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Investors are limping into the fourth quarter battered and bruised from a bumpy market as stocks and bonds continue to trade lower on inflation fears and rising interest rates. Regardless of the chaos, there is still time to make smart year-end moves to shore up your finances.

Buy Stocks. Buy stocks if your time horizon is three to five years or more. The price drop allows you to purchase individual stocks and funds at lower valuations. History shows it pays to buy stocks during bear markets while others sell. If you need proof, review the previous bear markets of 1956, 1961, 1966, 1968, 1973 -1974, 2000 – 2003, 2007-2009, 2018, and 2020.

Buy Bonds. Buy bonds if your time horizon is one to three years. The one-year US T-Bill yields 4%, the highest level in fifteen years, and the rate is guaranteed!

Sell Stocks. If you own a few losers in your taxable account, sell them to realize a loss. You can offset your gains with losses, and if you don’t have any gains, you can write off $3,000 from your tax returns and roll over the loss forever until it’s gone. You can buy back stocks you sell in thirty-one days to avoid the wash sale rule. For example, if you sell Apple today, you can repurchase it on October 23.

Sell Bonds. If you purchased bonds during the COVID crisis, you have losses because the yields were considerably lower than they are now, and when interest rates rise, bond prices fall. Selling your bonds will trigger a tax loss and allow you to buy new ones with higher yields.

Required Minimum Distribution. If you’re 72 or older, it’s time for your IRA required minimum distribution. The calculation is a function of your 2021 year-end valuation and your age. If you fail to take your RMD, the IRS will assess a 50% penalty on the projected distribution amount. For example, if your RMD amount is $20,000, the IRS will penalize you $10,000, so don’t forget!

Rebalance. It’s been a volatile market this year, and your asset allocation might need an adjustment. Your asset allocation is probably too conservative as stocks have fallen. Rebalance your account to return your portfolio to your intended target.

Qualified Charitable Distribution. If you’re 70 or older, consider a qualified charitable distribution. The IRS allows you to donate up to $100,000 from your IRA to charities. Why use a QCD? The distribution qualifies as a required minimum distribution, avoids taxes, and benefits groups or organizations you support.

401(k) Contribution. The maximum contribution for 401(k) plans is $20,500 if you’re under 50 and $27,000 if you’re 50 or older.

Roth 401(k). Take advantage of your Roth 401(k). Plan participants can contribute to the Roth 401(k) regardless of income; at retirement, it can roll over to a Roth IRA.

Roth Conversion. If your IRA is down in value, consider a Roth conversion, especially if you’re still working and have significant assets in a taxable account. You can take advantage of lower stock valuations in your new Roth IRA by converting today. As stocks recover, you needn’t worry about paying taxes or the required minimum distribution again.

IRA Contribution. The maximum contribution for an IRA is $6,000 if you’re under 50 and $7,000 if you’re 50 or older. The amounts apply to both traditional and Roth IRAs. However, you can’t contribute the maximum amount to both IRAs.

Donate. The giving season is here, and non-profit organizations raise most of their funds during the fourth quarter. Donating to charities benefits you and the groups you support because they get your money, and you receive a tax write-off. Consider donating stocks or funds with significant capital gains because you can write off the security’s fair market value and avoid paying the capital gains tax.

Give. You can give away $16,000 per year under the annual exclusion, which is not a taxable event to you or your beneficiary. For example, if you’re married and have ten kids, you can give away $320,000.

Get outside. The fall is an excellent time to visit a national or state park as temperatures cool and leaves change color. Hiking in the mountains or walking on the beach is a reminder that all is well in the world.  

Look deep into nature, and then you’ll understand everything better. ~ Albert Einstein

September 22, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Do You Have a Blessing Budget?

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I’ve struggled to write about financial matters lately because Russia invaded Ukraine. It doesn’t feel appropriate to discuss wealth or investing while Ukraine is under attack, but I found some inspiration at my church this past Sunday.

Our church recently finished a sermon series called: Are You Ready? Senior Pastor Will Davis led the series. Pastor Will is an avid mountain climber, and this past weekend he talked about carrying extra supplies in your backpack to help other climbers in need. If you have hiked or climbed a mountain, you know things can change quickly, and if you’re not ready for an emergency, it could end badly. One of his topics during these troubling times was creating a blessing budget to help and bless those in need. He added it’s in our DNA to be generous. It was a timely message.

Creating a budget is a crucial ingredient of financial planning. A well-constructed budget can help you save and spend with confidence because it will give you a roadmap of where your money is going. Typical budget line items include groceries, personal care, travel, dining, debt payments, mortgage payments, rent, etc. Budgeting forms include a section for gifts but not giving, but I’ve yet to see one containing a category for blessings.

Giving includes a combination of tithes and offerings. A tithe is 10% of your income, your first fruits, and an offering is an amount you give above and beyond your tithe.

If you include blessings in your budget, you can pay it forward. When you’re getting coffee, pay for the person in line behind you, or leave a big tip for your server after breakfast, lunch, or dinner. A group of men at my church will dine at a restaurant together, where each one leaves a $100 tip. The amount given to the server is about $1,500 to $2,000. Can you help a student with a tuition payment or a neighbor with a medical bill? How about buying a car for someone who relies on public transportation? There is no shortage of serving opportunities to help those in need.

How much should you allocate to your blessing budget? As much as you can. It can be a percentage of your income or a flat dollar amount. Will said, and I agree, that the person who benefits the most from giving is you, and If you’re a giver, you know the joy it brings by blessing others.

But when you give to someone, do not expect anything in return; it’s not a quid pro quo transaction. Don’t anticipate praise or recognition, and do not wait for a thank you note because it probably won’t come. If your sole reason for donating money is to get a tax deduction, you’re missing the point. Give because you want to help others.

People are hurting and need your help. If you own stocks are bonds, you’re in a position to lend a hand. Stocks will eventually recover, so don’t worry if your account bounces around for a bit. It’s a first-world problem. Giving a few dollars to others won’t ruin your financial future, but it could change someone’s life.

Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold of the life that is truly life. ~ 1 Timothy 6:17-19

Here is a link to Will’s message. https://www.acfellowship.org/sermon/are-you-ready-carrying-extra/

March 2, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Are you rich?

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Are you rich? It depends, of course, on where you live. In Malawi, the per capita income is $357, Uganda $631, Haiti $766, United States $59,939, and Luxembourg $105,280.

According to the Pew Research Center, 70% of the world’s population, about 5 billion people, live on less than $10 per day.[1] What can you buy for $10? A few low-budget items on Amazon are Super Glue, Uno, Frisbee, and a jumbo muffin pan. If you lived on $10 per day, would you buy a jumbo muffin pan?

How can you help the less fortunate? How can you assist the 70%? Here are a few ideas on how to give.

  • Develop a philanthropic plan. It will focus your charitable efforts on causes and groups you support. It will assist you in determining the most efficient way to distribute your assets. To maximize your giving strategy, incorporate it inside your financial plan.
  • Open a Donor Advised Fund (DAF). A DAF allows you to contribute significant dollars today and distribute the funds to your charities over time. In addition, you can manage the assets inside your DAF to grow the assets and potentially give more money away.
  • Use the Qualified Charitable Deduction (QCD). If you’re 70 or older, the IRS allows you to send up to $100,000 to charities you support from your IRA. The QCD satisfies your required minimum distribution, but you don’t have to report it as income.
  • Donate appreciated assets. If you own taxable assets with unrealized gains, consider donating them to nonprofit organizations. The organization receives your gift, and they can sell it without any tax consequences while you receive the deduction and avoid a capital gains tax.
  • Cash is earning nothing, so you might as well donate it to others. It will benefit your charities, and you will receive a tax deduction.
  • Give as a family. If you have children, involve them in the giving process. Give your children a seat at the table so they can experience the joy of helping others.

I must warn you, however, once you start giving, you won’t be able to stop. You can’t calculate the ROI on your philanthropic activity, but donating money to others will pay huge dividends.

The best definition of wealth I heard was from a fraternity brother.  He said, “I’m a rich man. I’m not rich monetarily but rich with friends, family, and faith.”

We are approaching the giving season, so examine your balance sheet to see how you can best help those in need.

“And the King will say, ‘I tell you the truth, when you did it to one of the least of these my brothers and sisters, you were doing it to me!’ ~ Matthew 25:40

October 19, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.pewresearch.org/fact-tank/2015/09/23/seven-in-ten-people-globally-live-on-10-or-less-per-day/

Giving It Away

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My family donates money through tithes and offerings, so I incorporated the practice into my business model when I started my investment firm. Giving is not a budget item because contributions come from the top – 10% of our firm revenue. At the end of each quarter, my wife and I sit down to pray over our offerings before giving any money away. It’s a joyful time, and it’s the best part of my job.

  • Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver. ~ 2 Corinthians 9:7

Our charitable giving spans the globe from Austin to Africa. We help local groups like Partners in Hope, Candlelight Ranch, The Heart of Texas Pregnancy Resource Center, and International organizations like Arise Africa, Eagle’s Nest International, and the Nicaragua Resource Network. We also support organizations we met through serving and our travels, like Galveston Urban Ministries, Mission Waco, Wellspring Church, and Wind River Ranch. Giving is part of our DNA. It’s what we do, and I can’t imagine a time where we’re not helping others with our resources.

  • Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it. ~ Malachi 3:10

It was easy to commit to a giving program when we had no revenue, but our firm is growing, and so are our donations. My goal is to manage a billion dollars in assets to give more than $500,000 per year. At our current growth rate, we expect to reach this milestone in fourteen years. God willing.

  • Jesus sat down opposite the place where the offerings were put and watched the crowd putting their money into the temple treasury. Many rich people threw in large amounts.But a poor widow came and put in two very small copper coins, worth only a few cents. Calling his disciples to him, Jesus said, “Truly I tell you, this poor widow has put more into the treasury than all the others. They all gave out of their wealth; but she, out of her poverty, put in everything—all she had to live on.” ~ Mark 12:41-44

To be clear, we do not give to get. We’re not looking for quid-pro-quo relationships. Rather, we strive to be humble servants through giving, and it forces us to be sage stewards of our capital. When I launched my firm, industry experts and consultants panned my business model, saying my fees were too low and I can’t give away 10% of our revenue. They foreshadowed doom and gloom. However, five years later, we’re thriving, and we recently moved to the Securities and Exchange Commission (SEC) for regulation – a big deal for a small firm.

  • Give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap. For with the measure you use it will be measured back to you.” ~ Luke 6:38

Our giving has increased each year, but I’m not alone, thankfully. Americans gave $449 billion in 2019, and corporations added $21 billion – record amounts.[1] As stocks climb to new highs and real estate prices soar, I expect the amount people donate to charitable organizations will increase substantially this year. The wealth effect is in full force.

  • Do not neglect to do good and to share what you have, for such sacrifices are pleasing to God. ~ Hebrews 13:16

If you’re curious, here is a list of organizations we supported through the years.

https://www.parrottwealth.com/community

Give early, give often, and be well.

June 15, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.nptrust.org/philanthropic-resources/charitable-giving-statistics/

Taxes

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Bill Murray once said the best way to teach your kids about taxes is to eat 30% of their ice cream. Give it a try. When my daughter was young, she poured herself a glass of milk, and when she turned her back, I drank it all. She was not happy with me and still gets upset (but not really) talking about it today.

Lately, there’s a lot of talk about taxes, and not in a good way. President Biden is considering raising the capital gains tax rate to 43.4% from 20% for individuals who earn $1 million or more.[1]  His estate tax proposal would drop the exemption to $3.5 million from $11.7 million. If you’re worth more than $3.5 million, your estate could pay a 40% tax on every dollar above the threshold. Also, President Bident is talking about eliminating the cost basis step-up. Not to be left out, the corporate tax rate could rise to 28% from 21%. We’re moving on up.

Since 1913, the highest individual income tax bracket has ranged from a high of 94% to a low of 7%. The 108-year average has been 57.69%.

If you’re concerned about rising taxes, here are a few strategies to help you reduce the bite.

  • Buy stocks in your retirement accounts. When you realize a profit inside your IRA, you won’t pay a capital gains tax.
  • Open a Roth IRA. Roth contributions grow tax-free. Distributions are tax-free as well.
  • Contribute to a Roth 401(k). Consider changing your contributions from the traditional plan to the Roth, and they will grow tax-free.
  • Consider a Roth conversion. If you own a traditional IRA, consider moving it to a Roth IRA. You will pay income taxes when you convert, but it will occur at a lower rate if tax rates continue to increase.
  • If you’re a business owner, a doctor, a lawyer, an architect, or other professional services provider, open a cash balance plan for your company. A cash balance plan allows you to contribute significant amounts of money to your retirement plan, lower your taxable income, and increase your retirement savings. For example, if you’re 55 years old, you can contribute up to $230,000 to your plan in addition to your 401k, IRA, and profit-sharing contributions.[2] A cash balance plan is well suited for high-income earners.
  • Give your money away. The IRS allows you to give away $15,000 per person per year. An annual gift to loved ones can lower your taxable estate and give them a boost.
  • Donate to charities and non-profits. The government allows you to deduct up to 100% of your adjusted gross income through charitable cash donations.
  • Consider a donor-advised fund. If you own a stock with a low basis, transfer it to a donor-advised fund, sell it, and buy new securities. You will not pay taxes when you sell, and the charities you select will benefit from your donation. You can deduct your contribution from your taxes as a charitable gift.
  • Transfer your life insurance policies to an irrevocable life insurance trust. The trust will remove them from your taxable estate, but they will still benefit your loved ones. For example, if you own a $1 million life insurance policy in your name, the proceeds are added to your estate when you die, potentially increasing the taxes you owe. If the policy is inside the trust, it’s exempt from your estate assets.

So far, Biden’s proposals are just that, so don’t make any changes yet. You will have several chances to act if there is an increase in taxes, even if it’s retroactive to January 1, 2021.

For now, hold on to your wallet!

The only difference between death and taxes is that death doesn’t get worse every time Congress meets. ~ Will Rogers

April 26, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.wsj.com/articles/capital-gains-taxes-are-on-bidens-radar-as-he-seeks-money-for-social-programs-11619192256?mod=searchresults_pos5&page=1, Richard Rubin, 4/23/2020.

[2] https://assets.futureplan.com/futureplan-assets/FPCashBalance.pdf

I Don’t Want to Invest In Stocks

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Investors are nervous; despite the recent rally in stocks, and they are looking to sell shares because of the virus or the economic environment. It’s forcing some individuals to reconsider their exposure to risk assets. As the market climbs higher and interest rates fall to zero, what else can you do with your money?

If you want to sell your stock holdings, and you’re not excited about investing in bonds, consider a few other alternatives for your assets. Here are a few suggestions.

  1. Reduce your debt. Though interest rates are low, reducing or eliminating your debt is a smart choice, especially debt you can’t deduct like credit cards or auto loans. It doesn’t make sense to store your cash in a bank account with a zero percent interest rate if you’re mortgage rate is 3%, 4%, or higher. Let’s assume your current mortgage balance is $250,000, with twenty years remaining, and it carries a 4% interest rate. If you pay it off today, you will save $113,588 in interest payments.
  2. Buy a second home. Buying a second home in the mountains, at the beach, on a lake, or in the country sounds inviting. In a COVID-19 world, a little elbow room would be nice. Several years ago, I helped a friend run numbers before he purchased a lake house. He made the plunge, and his family has enjoyed the property for many years. Recently, a client purchased a small ranch in central Texas after we completed his financial plan. The plan validated his decision. My grandparents owned an immaculate second home in Laguna Beach – family and friends used it often. A second home can create experiences and memories that last a lifetime.
  3. Remodel your home. The shutdown is creating a remodeling boom. Individuals are upgrading kitchens, bathrooms, and backyards. If you plan to stay in your home for another five to seven years, then give it an upgrade. If you don’t want to spend big bucks, consider a paint job or a few small landscaping projects. According to HGTV, bathrooms, landscaping, and kitchen upgrades have the best ROI.[1]
  4. Donate to a charity. Nonprofits and charitable organizations are struggling, so any money you donate will go along way to help those in need. Consider contributing to groups or organizations you support. A Google search for nonprofit organizations in your neighborhood will yield many results.
  5. Love your neighbor. Are you aware of any friends or relatives who are struggling financially? Do they need a new car? Can you help them pay their medical bills? According to the BBC, “The US is expecting an avalanche of evictions.”[2] If you know someone who is on the brink of being evicted, pay their rent.

Money should be spent; it’s meant to change hands, and hoarding cash is not a wise investment. If you’re not sure how much to spend on a home project or donate to your favorite charity, consider a financial plan. Your plan will help you quantify and prioritize your goals. When a client asks me if they can buy a car or a home or donate money, we will review their financial plan together. And, more often than not, they can proceed. A financial plan gives them the confidence to act on their wishes.

So, if you’re not ready to invest in the stock market, look for alternatives.

“Each time you muster up what it takes and go for it, the next go-round becomes that much easier. Real and important changes begin with small, courageous acts.” ~ Chip Gaines

July 14, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

[1] https://www.hgtv.com/lifestyle/real-estate/top-home-updates-that-pay-off-pictures

[2] https://www.bbc.com/news/world-us-canada-53088352, Jessica Lussenop, June 19, 2020

How Can You Help?

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It has been a brutal, exhausting year, and people are hurting. COVID-19 and the racial tension has cast a pall on 2020, and people are living with heavy hearts. As a result of the economic, political, and social turmoil, small charities are in a pinch. Local nonprofits are on the ground in your community doing work few people are willing to do, and they need your assistance. What kind of help do they need? Financial support. These vital organizations rely on donations to keep their doors open, and the recent economic trouble is leaving their coffers empty.

Small nonprofits are the original first responders. Local nonprofits know what they are doing because they have spent years cultivating relationships. In a recent Wall Street Journal article about small charities, they wrote, “The coronavirus pandemic has highlighted the importance and the agility of small community-based charities, especially in a crisis. Often these groups don’t get much attention. They are overshadowed and out-funded by big better-known nonprofits like the American Red Cross and the Salvation Army.” They added, “Local charities also often know who most need help.”[1]

If you decide to give, give only your resources, and leave your opinions at home. Nonprofits don’t need your advice on how to improve their organization. Also, don’t tell the organization how to best spend your donation. If you don’t trust them to handle your gift correctly, give it to someone else.

How can you help? Here are a few ideas on how to donate to nonprofits.

  1. Cash. Cash is easy to give away – quick and efficient. The IRS generally allows you to deduct 50 percent of your adjusted gross income (AGI) for tax purposes. If you give more than 50 percent of your AGI, the IRS allows you to carry your donation forward for up to five years.
  2. Appreciated Securities. If you own stock with a considerable capital gain, consider donating it to your favorite charity. When you gift your shares directly to your charity, you will avoid paying a capital gains tax, and you can deduct the fair market value of your gift. The charity will sell the stock to receive the cash, and they, too, will avoid a capital gains tax.  For example, if you purchased 100 shares of Amazon ten years ago for $110, you have an unrealized gain of $2,582 per share based on a closing price of $2,692. By donating your shares, you avoid the capital gains tax of $51,640 on your gain of $258,200. The charity receives $269,200.
  3. Qualified Charitable Distribution. The IRS allows you to satisfy your required minimum distribution by donating your money directly to a charity from your IRA. You can donate up to $100,000 with a qualified charitable distribution (QCD). You can avoid paying taxes (legally) with a QCD distribution, and it will satisfy your required minimum distribution for the year.
  4. Donor-Advised Fund. If you want to support several charities, but you’re not sure how much to give, or when to give it away, then consider a donor-advised fund (DAF). You can contribute cash or securities to a donor-advised fund, receive a charitable deduction, and then payout your donation over several years. Once you fund your DAF, you can take your time to decide how much money to give to your charities. You can also sell your assets inside the DAF and reinvest the proceeds into a diversified portfolio of stocks, bonds, or funds.
  5. Charitable Remainder Trust. If you own appreciated stock, land, or some other asset, you can transfer it to a Charitable Remainder Trust (CRT) to generate income. After you transfer the investment to your trust, you can sell it to avoid the capital gains tax. You can deduct your donation from your taxes and reinvest the proceeds. The CRT allows you to withdraw 5% to 8% of your account balance each year. At your death, the assets in the trust will transfer to your charitable beneficiary. The CRT is a great way to avoid a capital gains tax, diversify your portfolio, and benefit your favorite charity.  Your gift to a charitable remainder trust is irrevocable.
  6. Charitable Lead Trust. A Charitable Lead Trust (CLT) is the opposite of a Charitable Remainder Trust in that your charity of choice will receive the income from the trust, and your beneficiary will inherit the asset on your death. If you want to transfer assets to your children, the CLT is an excellent choice because it removes the asset and growth from your estate. The CLT is a limited-term trust, and it is irrevocable.
  7. Private Annuity. A private annuity works well with colleges, universities, and nonprofits. You can donate stock, land, or any asset to your charity, and they can establish a private annuity for you so that you can receive income for life. Your charity can sell your asset tax-free and use the proceeds to fund their operations. They will create an annuity for you and your family based on the size of your gift. You will receive a monthly, quarterly, or annual check for ten or fifteen years along with a tax deduction.
  8. Private Foundation. You can establish your own nonprofit to benefit other nonprofits to create perpetual gifts. Donations to your foundations are limited to a 30 percent deduction for cash and 20 percent for appreciated securities. A private foundation is expensive to maintain, and you will need to create a board of directors.

If you don’t have financial resources to give, donate your time. Small nonprofits are in dire need of helping hands to assist them with a variety of tasks. A Google search for nonprofits in your neighborhood will yield plenty of fruit and give you several choices of groups to serve

Our church serving model is FUN: F stands for flexibility, U stands for useful, and N stands for not about you. When you’re ready to give or serve, don’t forget to have some fun!

When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more, will be required. ~ Luke 12:48

June 27, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

[1] https://www.wsj.com/articles/how-a-small-charity-pivoted-to-get-food-to-those-hit-by-covid-shutdowns-11593010891?mod=itp_wsj&ru=yahoo, Betsy Morris, June 24, 2020

The Giving Season

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November is the beginning of the giving season. From now until the end of the year, charities and non-profits will receive much-needed dollars to help fund their mission. For several organizations, the money they receive in the next few weeks will subsidize most of their annual budget. Individuals typically wait until the end of the year before they give because they don’t have a giving or philanthropic plan.

For where your treasure is, there your heart will be also. ~ Matthew 6:21.

During my financial planning meetings, I ask people if they have a charitable giving strategy or if they donate money regularly; thankfully, most people are generous. I once worked with an individual who didn’t believe in giving money away while he was living. He was going to donate his money at his death through his estate. He was missing an opportunity to see his gifts bear fruit.  I didn’t tell him that people who don’t give today won’t give tomorrow.

Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. ~ 2 Corinthians 9:7.

Most individuals don’t have a coordinated giving plan, and as a result, they wait until the last minute to make donations. Without a strategy, you may be missing valuable deductions, so here are a few ideas to help you with your charitable contributions.

Appreciated Securities.  The stock market has done well, so you probably have stocks with unrealized capital gains. When you donate appreciated securities to a charity, you get the deduction, avoid a capital gains tax, and your charity receives the money. Let’s say you purchased YETI Holdings in January at $14.84, and today it’s selling for $31.90 for an unrealized gain of $17.06 or 115%. You can gift your shares directly to your charity and avoid paying taxes on the appreciation. The charity will sell the shares on the open market to receive the cash, and they, too, will avoid a capital gains tax. You must donate your securities to a 501c3 organization to receive a deduction

Qualified Charitable Distribution.  The IRS allows you to satisfy your required minimum distribution by giving your money directly to a charity from your IRA. It’s called a qualified charitable distribution (QCD), and you’re allowed to donate up to $100,000 per year. The QCD will enable you to avoid paying taxes on the distribution, and it will satisfy your required minimum distribution.

Donor-Advised Fund (DAF). A Donor Advised Fund allows you to transfer appreciated shares to the fund. Once inside the DAF, you can sell your shares and purchase new investments without realizing a capital gain. You can deduct the contribution from your taxes, and it occurs in the year of your gift, not in the year of distribution. You don’t have to distribute the proceeds immediately, so if you’re not sure which charities to support, you can defer the payment until you identify the organizations. For example,  you can transfer $100,000 worth of ABC Inc. stock to your Donor Advised Fund, sell it, reinvest the proceeds, and then send a portion of the funds to your favorite charity. The funds that remain inside your DAF will grow tax-free.

Charitable Remainder Trust (CRT). This trust allows you to transfer your shares to a Charitable Remainder Trust, sell your holdings, diversify your assets, and receive income from the proceeds. At your death, your charity will receive the remainder of the trust assets. The stock, once transferred, can be sold free of taxation and the proceeds reinvested into a diversified portfolio of stocks, bonds or funds. Your contribution to the trust qualifies for a charitable deduction. The amount of income you can receive from the trust is between 5% and 8% of the portfolio value. You will pay ordinary income tax on the income you receive.

Cash.  Cash is king, and it’s easy to give away. The IRS allows you to give away $15,000 per person per year without having to pay taxes. However, you won’t receive a tax deduction, but you’ll be able to help the next generation. For example, if you have four children and ten grandchildren, you can give away $210,000 this year. You can also give $15,000 to friends and strangers if you want.

The end of the year is a great time to give money to those in need, and it’s always the right time to help others.  However, an annual charitable giving strategy may be beneficial to your long-term planning and budgeting needs.  A philanthropic plan can pay huge dividends to you and those you support.

Do not withhold good from those to whom it is due, when it is in your power to do it. ~ Proverbs 3:37.

November 5, 2019

Bill Parrott, CFP®, CKA®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

How to Generate More Income.

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Interest rates remain stubbornly low and this is an issue for individuals looking for income.   How can you generate more income in this low interest rate environment?

Here are three simple strategies you can employ today to help you generate more income.

Systematic Withdrawal Plan:   If you own mutual funds, a systematic withdrawal plan (SWP) will allow you to generate monthly, quarterly or annual income from your existing mutual funds.   For example, in 1976 you decide to invest $100,000 in the Vanguard S&P 500 Index Fund (VFINX) and withdraw 4% of the account balance each year.   At the end of July, you would have received over $930,000 in total income and the fund balance grew to $1.34 million!   In 1976, your annual income was $4,000 and this year it will be $53,600, an increase of 1,240%.[1]

Option Writing.  Writing options or selling calls on stocks you own is a great way to pick up more income.  Let’s say you own 1,000 shares of ABC company trading for $37 per share.  If you decide to sell your shares at $40, you can employ a covered call strategy.   A hypothetical option expiring in October may be priced at .50 cents.  You can write ten call contracts on your ABC holdings because one contract equals 100 shares of stock.   1,000 shares, or ten contracts, at .50 cents will generate $500 before fees and commissions.  If ABC stock trades above $40 per share on the October expiration, you must sell your stock at $40 regardless of how high it trades above $40.  If ABC stock settles below $40 on expiration, you get to keep your shares and you can write another ten contracts for November or December.[2]

Charitable Remainder Trust.  If you own appreciated stock, land or some other asset, you can transfer the investment to a Charitable Remainder Trust to generate income.  Once your investment has been transferred to the trust, you can sell it and avoid all capital gains.  In addition to avoiding capital gains, you’ll get a tax deduction for your contribution.   After the asset has been sold, you can reinvest the proceeds into investments of your choice and withdraw 5% to 8% of the account balance each year.  At your death, the assets in the trust will transfer to your charitable beneficiary.   The CRT is a great way to avoid a capital gains tax, diversify your portfolio and benefit your favorite charity.

These strategies are easy to incorporate and may benefit your family.  If you want to learn more about income producing ideas, please give me a call.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

August 24, 2017

 

[1] Morningstar Office Hypothetical Tool, 8/31/1976 to 7/31/2017.  Your rate of return may vary and your results may differ.  They hypothetical does not include fees or taxes which will adjust the results.

[2] Options involve risk and are not suitable for every investor.

Don’t Read If You’re Under 50!

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Turning 50 is a huge milestone and an exciting time.  Age 50 is considered the gateway to the golden years with much to look forward to especially with a projected life expectancy of 31 years.  The pressure to look and act cool also wanes as you grow older.  If you want to wear sweaters with shorts or sandals with socks, go for it.   If you want to eat dinner at 4:00 and be in bed by 8:00, knock yourself out.  If you want to wear a big floppy hat, wraparound sunglasses, long sleeve shirts and cover yourself in zinc oxide before heading off to the beach, who’s going to stop you?

Age 50 is also the year when most individuals get serious about retirement planning.  A person who is 49 years, 11 months, and 29 days old has little interest in retirement planning.  When they turn 50 they freak out because retirement is now on the horizon.  Age 65 is still the preferred retirement age for many workers so turning 50 means there are only 15 years until they ride off into the sunset.  Fifteen years isn’t a long time and this is what makes individuals nervous.

By age 50 you should have 5 times your annual salary saved according to a report by CNBC.[1]  If your annual income is $100,000 you should have $500,000 in savings.  Congratulations to you if you’ve achieved this savings milestone.  If your current asset level falls short, have no fear because you still have time to salvage a comfortable retirement.

Once you turn 50 you can contribute more money to your retirement accounts.  The government allows you to invest an extra $1,000 to your IRA and $6,000 to your 401(k).  The additional savings will help you make up for lost time.

As you march through the golden years, here are a few things to consider.

  • Health is wealth. It pays to take care of yourself.   As you age, time and gravity are working against you so focus on eating well and working out.   Eating fruits, vegetables and anything that swims or flies will be good for the ticker.   Hit the gym and put a few miles on the road to get some quality exercise.  According to the American Academy of Family Physicians exercise prevents chronic disease and improves your mood.[2]
  • Help others. A benefit of aging is you’re able to help others spiritually, emotionally and financially.  It’s time to put your wisdom and resources to work.
  • Give. A philanthropic plan will pay dividends for you and others. A thoughtful giving plan will help others for many years while giving you income and estate tax benefits.
  • Pursue your dreams. Do you want to start a business?  Explore distant lands?  Try a new hobby?  The golden years are a perfect time for you to start checking off items on your bucket list.
  • Own stocks. Stocks will allow to grow your wealth and generate more income.  Stocks will also help you offset the force of inflation.   You need to own assets that will grow over time so your purchasing power grows or stays constant.  A 3% inflation rate will lower your purchasing power by 59%.  A dollar today will be worth 41 cents in 30 years.

Aging is a benefit not afforded to many so enjoy the ride.  Attack your golden years with spunk and gusto.  Live your life to the fullest so you have no regrets when Gabriel blows his horn.

How old would you be if you didn’t know how old you were?  ~ Satchel Paige.

Bill Parrott is the President and CEO of Parrott Wealth Management.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

May 21, 2017

[1] http://www.cnbc.com/2017/02/22/heres-how-much-money-you-should-have-saved-at-every-age.html, Kathleen Elkins, 2/22/2017.

[2] https://www.agingcare.com/articles/exercise-benefits-for-the-elderly-95383.htm, Marlo Sollitto, website accessed May 20, 2017.