Tag Archives: Tips

How to Avoid Holiday Spending Headaches

gifts 3

SYB-Logo_Since1904

As early Black Friday deals kick off the holiday shopping season sooner than ever, it’s important for you to develop a holiday spending plan to avoid financial headaches in the future, says the American Bankers Association.  The ABA is highlighting seven tips to help consumers minimize their holiday spending debt.

Below are seven spending habits Americans should consider to help relieve the financial stress of the holidays:

  • Plan ahead. Before you start shopping, develop a realistic budget for holiday expenses. Figure out your bottom-line number and set aside holiday cash in increments throughout the year. If you need to use your credit card, think about what you can afford to pay back in January.
  • Keep track of other costs. Don’t forget costs beyond gifts, like postage, gift wrap, decorations, greeting cards, food, travel and charitable contributions. Keep in mind the end of the year is a time when large annual or semi-annual costs like car insurance, life insurance and property taxes arise.
  • Make a list and check it twice. Keep your gift list limited to family and close friends, noting how much you want to spend on each. If you’re donating to charities, factor in the total amount you plan to donate and how much each charity will receive.
  • Shop early and space out purchases. Avoid shopping while rushed or under pressure, which can lead to overspending. Make sure to comparison shop online first, or download an app that lets you compare prices before you buy anything in a store.  Before you head to the cashier (or online checkout), make sure your purchase is within the budget you set.
  • Avoid impulsive spending decisions. Finding a spectacular sale on something you’ve been wanting can easily throw you off course.  Stay strong and stick to your budget.  Don’t be blinded by limited-time incentives geared toward getting you to spend more.
  • Use credit wisely. Limit the use of credit for holiday spending.  If you must use credit, use only one card—preferably the one with the lowest interest rate—and leave the rest at home.  Pick a date when you can pay off your holiday credit card bills, and commit to paying off the balance by that time.  Be sure to check statements for unauthorized charges and report them immediately.
  • Save your receipts and get acknowledgements for charitable donations. Not only will you need receipts for possible returns, you’ll need them to keep track of what you’ve spent and to compare with your credit card statement.  Knowing how much you spent will help you plan for next year, too.  Keeping receipts or acknowledgement letters for charitable donations is a must if you want to receive tax deductions in the spring.

Information provided by the American Bankers Association

SYB-Logo_

Advertisements

Understanding Interest Rates and Your Financial Situation

interest.jpg Untitled-logo trustWhen discussing bank accounts, investments, loans, and mortgages, it is important to understand the concept of interest rates. Interest is the price you pay for the temporary use of someone else’s funds; an interest rate is the percentage of a borrowed amount that is attributable to interest. Whether you are a lender, a borrower, or both, carefully consider how interest rates may affect your financial decisions.

The Purpose of Interest

Although borrowing money can help you accomplish a variety of financial goals, the cost of borrowing is interest. When you take out a loan, you receive a lump sum of money up front and are obligated to pay it back over time, generally with interest. Due to the interest charges, you end up owing more than you actually borrowed. The trade-off, however, is that you receive the funds you need to achieve your goal, such as buying a house, obtaining a college education, or starting a business. Given the extra cost of interest, which can add up significantly over time, be sure that any debt you assume is affordable and worth the expense over the long-term.

To a lender, interest represents compensation for the service and risk of lending money. In addition to giving up the opportunity to spend the money right away, a lender assumes certain risks. One obvious risk is that the borrower will not pay back the loan in a timely manner, if ever. Inflation creates another risk. Typically, prices tend to rise over time; therefore, goods and services will likely cost more by the time a lender is paid back. In effect, the future spending power of the money borrowed is reduced by inflation because more dollars are needed to purchase the same amount of goods and services. Interest paid on a loan helps to cushion the effects of inflation for the lender.

Supply and Demand

Interest rates often fluctuate, according to the supply and demand of credit, which is the money available to be loaned and borrowed. In general, one person’s financial habits, such as carrying a loan or saving money in fixed-interest accounts, will not affect the amount of credit available to borrowers enough to change interest rates. However, an overall trend in consumer banking, investing, and debt can have an effect on interest rates. Businesses, governments, and foreign entities also impact the supply and demand of credit according to their lending and borrowing patterns. An increase in the supply of credit, often associated with a decrease in demand for credit, tends to lower interest rates. Conversely, a decrease in supply of credit, often coupled with an increase in demand for it, tends to raise interest rates.

The Role of the Fed

As a part of the U.S. government’s monetary policy, the Federal Reserve Board (the Fed) manipulates interest rates in an effort to control money and credit conditions in the economy. Consequently, lenders and borrowers can look to the Fed for an indication of how interest rates may change in the future.

In order to influence the economy, the Fed buys or sells previously issued government securities, which affects the Federal funds rate. This is the interest rate that institutions charge each other for very short-term loans, as well as the interest rate banks use for commercial lending. For example, when the Fed sells securities, money from banks is used for these transactions; this lowers the amount available for lending, which raises interest rates. By contrast, when the Fed buys government securities, banks are left with more money than is needed for lending; this increase in the supply of credit, in turn, lowers interest rates.

Lower interest rates tend to make it easier for individuals to borrow. Since less money is spent on interest, more funds may be available to spend on other goods and services. Higher interest rates are often an incentive for individuals to save and invest, in order to take advantage of the greater amount of interest to be earned. As a lender or borrower, it is important to understand how changing interest rates may affect your saving or borrowing habits. This knowledge can help with your decision-making as you pursue your financial objectives.

ART-PF-U-RATES

SYB-Logo_

fmex

Investment Insights, Q4: 2018

invest 1We Always Bring Something to the Table

KathyBy Kathy Thompson, J.D.

A table has several different meanings. It can refer to a set of facts and figures displayed in rows and columns. It can also indicate postponing consideration of something, as in, “Let’s table this discussion for another time.” But frequently the first image that comes to mind when hearing the word “table” is a piece of furniture that can be used for such purposes as eating, writing, or working.  Gathering around a table is conducive to discussion, problem-solving, and teamwork. For us, the table symbolizes this team-oriented, synergistic approach to wealth management that makes our collaborative method so effective.  We call our experienced and knowledgeable professionals our Table of Experts and we’re pleased to announce that it’s growing!  We’ve added three new place settings, and they all bring something valuable to the table. ♦

laura georgeLaura George, CTFA, CFP®

Wealth Advisor

With more than 20 years of extensive experience in wealth management with several major regional banks and asset management firms, Laura concentrates her efforts on the planning and administration of personal and institutional trust accounts and estates.  After receiving her Bachelor of Science from the University of Kentucky, she earned a master’s degree at Bellarmine University and is a Certified Trust and Financial Advisor and certified financial planner® professional.

(502) 625-9132    Laura.George@syb.com

 

j steStephen Turner II

Investment Advisor

Stephen provides professional investment advice for the successful accumulation, distribution, and transfer of wealth across generations.  Prior to joining Stock Yards Bank & Trust, he worked for a large, regional brokerage and money management firm, and holds various professional licenses in the investment and brokerage industry.  Stephen received his Bachelor of Science in Finance from Murray State University, and his MBA from Southern Illinois University Carbondale.

(502) 625-1010    Stephen.Turner@syb.com

maria.jpgMaria Tipton, JD

Wealth Advisor

Building relationships and working collaboratively with clients to achieve their goals and protect their financial future, Maria is responsible for the administration of personal trust accounts and client relationship management.  After receiving her Bachlor of Arts degree magna cum laude from the University of Louisville, Maria earned her Juris Doctor magna cum laude from the Louis D. Brandeis School of Law at the University of Louisville.

(502) 625-9904    Maria.Tipton@syb.com


 

Economic Update Q4: 2018
Oct. 5, 2018

markThe stock market as measured by the Standard & Poor 500 turned in a quiet but very positive return in the third quarter gaining 7.7% for the three months ending September 30th.  Year to date the domestic market has provided investors with a return of 10.6%.  Bond investors were not as fortunate.  The return from the Barclays U. S. Aggregate Bond Index was +0.02 and -1.6% for the quarter and first nine months respectively.

The United States domestic economy continues to build momentum.  The latest revision to second quarter Gross Domestic Product estimates came in at a 4.2% rate.  The increase in economic activity has surprised many economists and strategists.  This has been one of the longest periods of economic expansion in post-World War II history.  Generally, growth tends to slow as an economic expansion ages.  Accelerating growth in an economy that has been expanding this long is a rarity.    Because of the duration and slow pace of the recovery, market strategists and economists have been worried that the recovery could end abruptly.  This economy has gotten very little respect.  However, the pace of economic growth continues to accelerate.   What happened to cause this growth?  Two primary factors were responsible for the increase in growth.

  • Consumer and business confidence is soaring resulting in increased spending and consumption.  This is primarily the result of the recent tax law changes that lowered corporate and individual tax rates and reduced regulation which lowered some key barriers to investment in the United States.  Giving businesses and consumers more money to save, invest, and spend has always been a positive for economic growth.
  • The unemployment rate has dropped dramatically.  Most economists consider our current level of unemployment to be full employment because a small portion of the labor market is either between jobs or temporarily or permanently unemployed at any given point in time.  A high employment rate is very positive for economic activity.  People receiving paychecks are much more likely to spend money, and consumption accounts for over two thirds of our economy.

We expect economic growth to continue to improve in 2018 from the anemic 2% growth we have experienced for the last ten years to something north of 3% both this year and next.

Capital Markets

What does this mean for the capital markets the remainder of this year and next?  Addressing the stock market first, we believe that we are in a secular bull market for stocks.  What does that mean?  It means that the general trend of the stock market is up with higher highs and higher lows for an extended period of time.  It does not mean we will not have corrections or volatility.  What is driving our positive outlook for stocks?  The corporate profit picture is the main reason we are positive about the stock market.  Earnings are the fuel that drive stock prices higher.  The impact of faster economic growth and lower taxes will have a positive impact on corporate earnings in 2018 and beyond.  In fact the growth in corporate profits has exceeded the growth in the market for the last three years.  This has reduced valuation levels to much more reasonable ranges.  The combination of lower valuations and higher profit growth have historically given us very good long term returns from stocks.

The fixed income markets may not be so fortunate.  The bond market had a negative total rate of return in the first nine months of this year.  We expect fixed income returns to be meager for the next eighteen months or so for several reasons.   Generally, faster economic growth increases the demand for capital which results in higher interest rates.  In addition, the Federal Reserve has promised that it will continue to increase short term rates and unwind its quantitative easing program.  The Fed will shrink its balance sheet by not reinvesting the income or proceeds from maturing bonds and by beginning to sell bond holdings outright.  This reduction in demand and increase in supply is generally not good for bond prices.  Lastly, wage pressure appears to be increasing as the economy operates at full employment.  Wage pressure has been a precursor to inflationary pressure in the past.  Bond prices are negatively impacted by inflation as investors demand higher rates of interest to compensate for the loss of purchasing power that inflation creates.

What could blow this up and make us change our economic and capital markets outlook?  The first problem is the Federal Reserve and rising interest rates.  The Fed could normalize interest rates too quickly which would undo many of the positive economic initiatives.  The high debt level in the United States will leverage any increases in rates by immediately increasing the cost of servicing that debt.  This could disrupt economic growth.   If the Fed moves too slowly to unwind the quantitative easing they could create inflationary pressures especially in a full employment environment.  We are already seeing some wage pressure because of the increasing demand for workers.  This has been an early sign of increasing inflation in past economic cycles.  The second problem is tariffs.  Tariffs are essentially taxes placed by countries on imported goods.  These taxes are imposed to make the cost of locally produced goods more attractive and to punish low cost producing countries.  However, countries seldom sit idly by and allow their exports to be taxed.  They retaliate with tariffs of their own which can escalate to the extent that global trade is diminished and world economic growth is negatively impacted.  Some of you will remember from history that this was one of the reasons for the severity and length of the Great Depression in the 1930’s.  Finally, the shape of the yield curve is flashing a warning signal.  The yield curve graphically represents the yields available from fixed income investments at different maturities.  It is traditionally upward sloping meaning that shorter term fixed income investments yield less than longer term investments.  When the reverse is true, short term rates yield more than long term rates or the yield curve becomes inverted, it has been a very good indicator of a recession on the horizon.  Right now the yield curve is very flat.  If the Federal Reserve increases short term interest rates one more time this year and all other yields remain the same we will have an inverted yield curve.  The yield curve has inverted anywhere from ten months to two years before each of the last five recessions.

What could go right over the next year to six months that may not be factored into the markets?  What economic or political factors could provide a catalyst for higher stock prices for the remainder of this year and into 2019?  I want to mention a few possible scenarios because they are things you will probably not see or hear in the financial press or on the nightly news telecasts.

  • The Federal Reserve signals an end to rate hikes after the December increase in the Fed Funds Rate calling a time out on future rate hikes.  They could do this for several reasons.  The need to unwind the quantitative easing bond purchases on their balance sheet while interest rates remain relatively low would be the first reason.  Secondly, the Fed is also very much aware of the dilemma they have placed themselves in.  The last thing they would want to do is disrupt the economic growth that we are currently experiencing by increasing interest rates too quickly or to disrupt the supply and demand equation for bonds.
  • Trade negotiations could end positively with renegotiated agreements and no trade war.  This would be very positive for consumer and business confidence and global growth.   Right now the headlines could not be any worse.  Economists here and overseas are expecting a trade war that will slow global growth and lead to the next recession.  We have said all along that this might just be an art of the deal strategy to coerce our trading partners back to the table.  What if the unconventional methods used by the President result in continued successes like the recently announced USMCA that replaced NAFTA with positive results for Canada, Mexico, and the United States?  That is certainly not priced into the current stock markets here at home or abroad.
  • The economy and corporate profits could continue to expand.  This economy has been suspect because of the length of the economic expansion with few strategists expecting the recovery to last let alone accelerate.  What if the tax cuts continue to boost economic growth that translates into better earnings and cash flows for corporations for the next several years?  What if the economic expansion goes on through 2020?  A larger than expected earnings surprise resulting from faster and/or longer economic growth would be very positive for the stock market.
  • Investors might also come to realize that we may have already had our correction.  Market volatility has become more intense since January.  We have talked a lot about how normal a 10% correction is in a secular bull market.  Federated Investments recently noted that an astounding 83% of the stocks in the Standard & Poor 500 have had a correction of 10% or more year to date; just not all at the same time.  Does it matter that the market has not had the 10% correction when most stocks seem to have already experienced one?

ratioThe combination of lower valuation and faster corporate profit growth will eventually kick start the market.  The combination of faster profit growth and reasonable valuations has historically been a prescription for above average stock market returns.  If any one of the above unanticipated events happens, it could provide the catalyst for a much better second half and positive stock market returns in 2019.

Thank you again for the confidence you have placed in the Wealth Management and Trust team at Stock Yards Bank & Trust.  Please contact us at any time to discuss our outlook in more detail. ♦

Source: FactSet, FRB, Robert Shiller, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management. Price to earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since December 1989, and FactSet for June 30, 2018. Average P/E and standard deviations are calculated using 25 years of FactSet history. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Price to book ratio is the price divided by book value per share. Price to cash flow is price divided by NTM cash flow. EY minus Baa yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’sBaa seasoned corporate bond yield. Std. dev. over-/under-valued is calculated using the average and standard deviation over 25 years for each measure. *P/CF is a 20-year average due to cash flow data availability.Guide to the Markets –U.S.Data are as of June 30, 2018.


Paving the Road to Retirement: “Prudent” Spending Matters

laura georgeOne of the milestones on the road to retirement is reaching an understanding that you will be able to achieve the lifestyle and legacy you want with the assets and income you will have.  Developing dependable and/or varied sources of income gives strength to part of the retirement equation. The other part of achieving one’s retirement dreams lies in understanding how much you will personally need and working toward that goal through “prudent” spending.

The financial media provides a plentitude of recommended savings rates based on age and income level. We have also been educated that our current national savings rate hovering just above 3% will not adequately prepare most families for this special time of their lives. Rules of thumb like saving 10-15% of your annual income are less relevant to those nearing retirement since they are based on starting young and having a longer time horizon to “fill the bucket” through contributions and compounding.  Those beginning to develop a savings plan later in life will likely find they need to accumulate even more to maintain their current lifestyle, especially higher income individuals for whom Social Security will replace less of their income.

Understanding how much of your current income needs to be replaced is best achieved by breaking down what you will actually need in retirement. Rather than throwing a dart and accepting an arbitrary 60-80% income replacement guideline which may not be accurate for you, it is far better to undergo a simple assessment and understand the inputs to your personal retirement budget.

One way to consider what will be needed is to break retirement life down into spending categories-an easy mental walk with your favorite drink in hand or relaxing in your favorite space. Do what you need to do in order to make this process a rewarding one, but let your imagination take you to a place where every day you can choose how you spend your time and how robust your activity level will be.

Remembering that most of us will be in retirement for around 20 years, lean back, relax, and consider these categories:

Food and Dining Out:  What is your preference on eating in or dining out? Do you enjoy cooking, and for reduced numbers of people? If you dine out, how often and at what average cost?

Digital Services: What subscriptions or information access do you currently have personally or through your employer? Will you have the same needs/desires for access at retirement? What change in costs, if any, will be related to your needs for news, online, courses, or any retirement activity to supplement your income?

Recharge: What personal or recreational services do you wish to have in retirement?  Are hard copy or audiobooks, trips to the spa, mani-and-pedicures part of your vision? Are you planning to join or continue your country club membership?

Travel: Do your retirement plans include travel to places yet unseen? How frequently do you plan to get away, and how far will you travel by air or another vehicle?  Will you purchase or continue to maintain a vacation home?

Entertainment: What sort of sports activities, fine arts events, or classes do you like to attend?  Will you continue these or add to/subtract from the list during your retirement years?  Do you enjoy these activities with friends and will they continue into your twilight years?

Shopping and Gifts: Do you like to shop and give gifts to friends and family?  Are you charitably inclined?  How much change to your current spending on clothing and household goods do you imagine?

Basic Needs: What essential spending needs to occur to bring you happiness?  Utilities, and replacement appliances are not exciting, but are a necessary part of life. Housing and transportation are likely the two biggest parts of your current budget.  Do you plan to create more or less space for you and your family in retirement? Will you splurge on the luxury car you have worked hard to enjoy? How much will your healthcare costs change with age and when any employer subsidies are gone?

As you can see, there are many inputs to formulating an accurate retirement budget, and often handing the answers to these questions over to a professional can be a very rewarding experience. Quality financial advisors are trained to be your partner in constructing an easy-to-understand plan which includes tax implications and investment return projections. There is also no replacement for an objective opinion which highlights issues that can throw you off track, like assessing excessively high risk in your portfolio needed to achieve unrealistic goals.

Once you have worked the puzzle of what expenses you will have in retirement, it is an easy bridge to understand how much your current asset mix will support and any shortfall of income which needs attention between now and the time you retire.  For the average family, greater headway toward building the proper sized nest egg will be achieved by placing the focus on controlling “prudent” spending rather than attempting to target an arbitrary savings rate.

Examination of consumer spending for U.S. households clearly shows that transportation and housing monopolize the largest shares of overall spending.  It is highly probable these categories also consume the largest portion of your personal household budget as well.  Focusing your efforts on prudent spending in categories with the highest potential to increase savings for retirement clearly makes sense. Will reducing home expenses over the long term get you closer to your retirement dreams than eliminating your occasional stop at the coffee shop? It sounds all too simple. But what does it really mean to “live within your means”?

Distinguishing between “saving what is left over” and “prudently controlling flexible spending” to achieve your long-term goals is important. How often do any of us have something left over with no added attention given to our spending habits? If we are being good stewards of our resources and paying attention to high impact items, there are opportunities to make headway toward long-term goals as fixed expenses change from time to time. Focusing on prudent spending decisions even during periods when fixed expenses are lower provides greater positive results than curbing expenses with less budget impact. Although we sometimes feel hit with one outlay after another, indeed there are many expense decisions we can control and holding ourselves accountable for making those with a long-term mindset is key to making your retirement dreams a reality.

Given your new understanding of exactly what will be needed in retirement from the exercise above, there is no need to accept that simply being within acceptable debt ratios will keep your spending at the proper levels. In fact, consumer debt ratios are set by lenders to satisfy a different set of criteria, not to help average families select a level of debt in line with their long-term family goals. Prudent spending is actually the key driver to controlling what you can and reducing the risk of missing your retirement target.  Let us help you create a baseline plan and talk through the obstacles you see to reaching your ideal retirement.  With a quality conversation about a prudent spending plan, you may be closer than you think! ♦


Wealth Management & Trust

KATHY THOMPSON, Senior Executive Vice President, (502) 625-2291
E. GORDON MAYNARD, Managing Director of Trust, (502) 625-0814
MARK HOLLOWAY, Chief Investment Officer, (502) 625-9124
SHANNON BUDNICK, Managing Director of Investment Advisors, (502) 625-2513
REBECCA HOWARD, Managing Director of Wealth Advisors, (502) 625-0855

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE


We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

SYB-Logo_

6 Smart Money Moves for College Graduates

achievement-cap-celebrate-1205651.jpg

SYB-Logo_Since1904Living expenses add up quickly once you’re out on your own, and many young adults who didn’t plan ahead are delaying major milestones like getting married or buying a home because of their financial situation. The good news is that you can have a bright financial future if you think strategically about money right out of the gate.

We recommend the following financial tips for new college graduates:

  1. Live within your means. Supporting yourself can be expensive, and you can quickly find yourself struggling financially if you don’t take time to create a budget. Calculate the amount of money you’re taking home after taxes, then figure out how much money you can afford to spend each month while contributing to your savings. Be sure to factor in recurring expenses such as student loans, monthly rent, utilities, groceries, transportation expenses and car loans.
  2. Pay bills on time. Missed payments can hurt your credit history for up to seven years and can affect your ability to get loans, the interest rates you pay and your ability to get a job or rent an apartment. Consider setting up automatic payments for regular expenses like student loans, car payments and phone bills. Take advantage of any reminders or notification features. You can also contact creditors and lenders to request a different monthly due date from the one provided by default (e.g., switching from the 1st of the month to the 15th).
  3. Avoid racking up too much debt. Understand the responsibilities and benefits of credit. Shop around for a card that best suits your needs, and spend only what you can afford to pay back. Credit is a great tool, but only if you use it responsibly.
  4. Plan for retirement.  It may seem odd since you’re just beginning your career, but now is the best time to start planning for your retirement. Contribute to retirement accounts like a Roth IRA or your employer’s 401(k), especially if there is a company match. Invest enough to qualify for your company’s full match – it’s free money that adds up to a significant chunk of change over the years. Automatic retirement contributions quickly become part of your financial lifestyle without having to think about it.
  5. Prepare for emergencies. Hardships can happen in a split second. Start an emergency fund and do your best to set aside the equivalent of three to six months’ worth of living expenses. Start saving immediately, no matter how small the amount. Make saving a part of your lifestyle with automatic payroll deductions or automatic transfers from checking to savings. Put your tax refund toward saving instead of an impulse buy.
  6. Get free help from your bank. Many banks offer personalized financial checkups to help you identify and meet your financial goals. You can also take advantage of their free digital banking tools that let you check balances, pay bills, deposit checks, monitor transaction history and track your budget.

Resource information provided by the American Bankers Association

SYB-Logo_

Playing by the IRA Rules

ira rulesUntitled-logoIndividual Retirement Accounts (IRAs) offer favorable tax-deferral benefits to individuals who are saving for retirement. But with those benefits, there are certain rules about when distributions may be taken to avoid penalty taxes. Contributions to a traditional IRA, depending on your income and participation in employer-sponsored plans, may entitle you to certain current income tax deductions. Further, because your funds are not taxed until distributions begin, your savings have the potential for tax-deferred growth.

Generally, IRAs are designed to work as long-term savings vehicles, but you may be able to withdraw funds early and without penalty, provided your situation qualifies as an exception.

The Age 59½ Rule

The age 59½ rule provides that, if you take distributions from your traditional IRA before you reach the age of 59½, you may be subject to a 10% Federal penalty tax in addition to regular income tax. However, you may not have to pay the penalty tax if your early distribution meets certain requirements.

Exceptions

You may be eligible for penalty-free qualified distributions, if one of the following exceptions applies:

  1. You are taking distributions as the beneficiary of a deceased IRA owner. Generally, if you inherit an IRA, you are required to take required minimum distributions (RMDs) over a period no longer than your life expectancy. For non-spousal beneficiaries, RMDs must begin in the year following the year in which the IRA owner died.  Spousal beneficiaries may have additional time to begin taking RMDs, depending on certain factors, including whether they opt to treat an inherited IRA as their own. This penalty tax exception does not apply to spousal beneficiaries who opt to treat the account as their own IRA.
  2. You are paying for certain first-time home buyer expenses, generally referred to as qualified acquisition costs, such as buying, building, or renovating a first home. Distributions, which may not exceed $10,000, may be used to cover qualified costs for you, your spouse, your children, or your grandchildren.
  3. You, your spouse, or dependents have un-reimbursed medical expenses that total more than 10% of your adjusted gross income (AGI) (7.5% if you are age 65 or older, but only through 2016). If a medical expense for you, your spouse, or a dependent qualifies as an itemized deduction on your income tax return, it will generally qualify for this penalty tax
  4. The distributions are part of a series of substantially equal periodic payments (SEPPs) made at least annually that meet certain additional requirements. The Internal Revenue Service (IRS) currently recognizes three methods for calculating SEPPS: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method.
  5. Once SEPPs begin, they must be made for five years or until you reach age 59½, whichever is later.
  6. You qualify with certain physical and/or mental conditions as being disabled, determined by a physician and if the disability can be expected to result in death or continue for an indefinite duration.
  7. You are paying medical insurance premiums due to unemployment. If you lost your job, and received unemployment compensation for 12 consecutive weeks, you may take distributions from your IRA account, penalty tax-free, during the year in which you received unemployment compensation, or in the following year, but no later than 60 days after you have been re-employed.
  8. You are paying for higher education expenses, such as tuition, fees, and books at an eligible educational institution (generally all accredited postsecondary institutions). The distributions may not exceed your qualified education expenses, or those of your spouse, your children, or your grandchildren.
  9. The distribution is attributable to an IRS levy of the IRA.
  10. Reservists qualify while serving on active duty for at least 180 days.

IRAs are strictly regulated to ensure that they are used as vehicles for retirement savings. Therefore, they generally work best as long-term savings vehicles. However, if you do need income from your IRA before you reach age 59½, it is important to know if your situation excuses you from the penalty tax levied on early distributions before making a withdrawal. Playing by the rules may save you money and help preserve your savings for retirement. Be sure to consult your tax advisor to determine whether your individual situation will qualify as an exception.

Please visit https://syb.com/wealth-management-and-trust/how-we-serve-our-clients/ira-retirement-rollovers/.  for more information.

SYB-Logo_

fmex

6 Tips to Save for a Down Payment

untitled-design-22.jpg

When considering buying a home, the down payment you put upfront plays a major role in your future housing expenses. According to the Consumer Financial Protection Bureau, the amount you save can greatly influence your interest rate, monthly housing payment and also your need for mortgage insurance. As you prepare for the home buying process, we are highlighting six tips to help you cut the extra costs and save a substantial amount for your down payment.

Typically, lenders require anywhere between 5 and 20 percent of a home’s purchase value as down payment, but the more money you can put down, the better off you’ll be. By responsibly managing your spending and allocating extra cash to a savings account, you will be on the right track towards saving for your home purchase.

We are providing prospective homebuyers with these tips to save for a down payment:

  • Develop a budget & timeline. Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner.
  • Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
  • Shop around to reduce major monthly expenses. It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
  • Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.
  • Look into state and local home-buying programs. Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.
  • Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.

If you are interested in a first mortgage on a new home or refinancing an existing home please call the SYB&T Mortgage Department number listed below!

Louisville / Southern Indiana:
(502) 625-9388

Indianapolis
(317) 238-2888

Cincinnati
(513) 824-6190

Apply online for a Mortgage: https://mb.syb.com


 

Resource Information Provided by the American Bankers Association.

SYB-Logo_

Next Gen Family Wealth and the Softer Side of Planning

Untitled-logo trustNeil ByrneWhat do you want to pass on to future generations?  As the old saying about money goes, “You can’t take it with you.”  Money is important though, undoubtedly.  Of course, so are family, friends, and our social, cultural and intellectual pursuits.  Recent research from Purdue University has even found that money can increase people’s emotional well-being, as well as their overall satisfaction with life – to a point.  According to the researchers, money alone can actually lower a person’s well-being if it is not handled properly.  The research goes on to conclude that “[m]oney is only a part of what really makes us happy. . . .”

So, what else makes us happy?  Well, that depends on what makes you and your family unique.  What’s your family’s story?  Do your children and grandchildren know it?

Traditional financial advisors are good at tackling the technical challenges, such as the legal and financial planning that families must address.  A modern estate plan, however, is not all there is to consider when creating a legacy.  After all, most family interactions are not technical discussions about taxes or investment returns – they are far more interesting than that!

When is the last time you discussed the importance of community involvement, professional development, or shared family goals and expectations?  What non-monetary goals are important for your loved ones to achieve in their lives?  What values should their lives reflect?  Philanthropy?  Entrepreneurship?  The arts?

We frequently have clients who express their concerns about how loved ones would manage an inheritance, and those concerns are well-founded.  Often, however, clients have not told the story of how she or he earned those resources.  The story behind the assets is interesting, and extremely important to the choices that are made by succeeding generations.  If assets become part of the “family legacy” instead of just money in an account, there is a higher likelihood that they will be used wisely.  The story also becomes part of who the family members are, not just what is in their bank accounts.

Telling the family story does not mean telling younger generations every last detail about your finances.  Instead, it means dedicating time and attention to preparing family members for a future inheritance in a meaningful way, and doing that more than once.  It also means sharing with younger generations the intellectual, social, human and spiritual responsibilities they will take on as future family leaders – and as beneficiaries.

Mark Twain has been quoted as saying, “The difference between the right word and the almost right word is the difference between lightning and the lightning bug.”  A singular focus on technical details without discussion about the larger family legacy can be detrimental to a family and a family’s wealth.

We are inviting you to consider some of the less obvious, but incredibly important discussions and plans you may need to have with your family.  Please contact your advisor to talk more about your family’s legacy, or me at neil.byrne@syb.com or (502) 625-2459.


See:  https://www.futurity.org/money-can-buy-happiness-1685132/ “Money can buy happiness.  Here’s how much it takes,” February 21, 2018.

SYB-Logo_