Category Archives: Financial Planning

Life Insurance vs. Roth IRA for Retirement

Mark Fitzpatrick of recently asked about insurance vs. Roth IRA for retirement. Here’s what I shared with Mark:

Our research indicates some consumers are considering whether to fund a Roth IRA or permanent life insurance to plan for retirement. Why might they be making this comparison?

The Roth is a retirement account specifically designed for retirement savings; alternatively, life insurance provides income to dependents in the event of your passing.

How do the contributions and contribution limits for a Roth IRA compare to premium payments for life insurance?

In this scenario, one would be comparing apples to oranges. I would encourage consumers to first determine their goals and then find the right tools to accomplish them. Both are useful in the right context, but I would not necessarily promote the use of life insurance for retirement unless there was a compelling reason.

For the typical consumer who’s not eligible for a Roth IRA, but isn’t ultra wealthy, how would you recommend they employ these products? Would you recommend one over the other or some usage of both?

Most consumers have employer-sponsored retirement plans, so if they cannot contribute to a traditional IRA or Roth, they will have some plan available to them.

You can also view the article here.

What are Capital Losses?

You’ve heard the term “capital losses”, but what are they and how do they impact your finances? Our infographic explains the basics.

Have more questions? Contact

What Are Capital Gains?

Capital gain is the profit you make when you sell an asset. Imagine you decide to invest in the stock market. You buy some shares of a company, let’s call it ABC Inc., at $50 each. Fast forward a year. The value of those shares has gone up to $70 each! If you decide to sell those shares, you’ve made a profit of $20 per share. That profit is what we call a capital gain.

Capital gains are essentially the profits you make from selling an asset like stocks, real estate, or even art, for more than you paid for it. However, the government wants a piece of that profit. That’s where capital gains tax comes in.

The amount of tax you pay on your capital gains depends on how long you’ve held onto the asset. If you sell it within a year of buying it, it’s considered a short-term capital gain, and you’ll usually pay taxes at your regular income tax rate, which could be higher. But if you hold onto it for more than a year, it’s a long-term capital gain, and you might qualify for a lower tax rate.

Let’s go back to our ABC Inc example. If you held onto those shares for over a year before selling them, you might pay a lower tax rate on the $20 per share profit compared to if you sold them within a year.

Tax laws can vary depending on where you live and your individual financial situation. It’s always a good idea to consult with a tax professional to understand how capital gains taxes apply to you.

Overall, capital gains are a way to make money from your investments, and understanding how they work can help you make smarter financial decisions.

Traditional IRAs, Roth IRAs and 401 (k)s, Oh My!

Embarking on your financial planning journey can seem overwhelming – at first. A common question that is asked is about the process of converting a traditional IRA to a Roth IRA, and any potential tax liabilities involved. There are additional considerations if 401 (k)s are one of your portfolio’s moving parts. A multi-year strategy may optimize tax benefits. I was quoted in a recent article addressing this subject in MarketWatch.

Financial Literacy for Young Adults

Regarding taxes, here are three things you should know:

I told you that the Federal withholding tables are broken. You probably shrugged and figured it was some sort of political commentary or something: surely the government couldn’t do something so basic so very wrong? But the Federal withholding tables only really work  if you’re a one-job household. One job just doesn’t know what the other job will make. So the solution here is to aim to make sure your withholding is around 10% for the Federal taxes once your income is over about $12,000/year. You can change the W-4 anytime you want. I generally recommend putting 0 for the exemptions and then adding extra to be withheld each week once you’ve looked at a paystub and can see how the withholding will work. (The state withholding tables work, just say 0 exemptions and you’ll be fine.)

Tax returns are a reconciliation tool to put down what you REALLY earned and what you REALLY paid in taxes already, then compare it to what is calculated you’d owe now that the whole picture is in place. The tricky part isn’t usually figuring the tax, it’s figuring the taxable income after we throw in the things that you are allowed to deduct against it.

We also use the tax return to administer a bunch of anti-poverty programs like the Earned Income Tax Credit, and to disperse tax credits for things like tuition paid and solar panels installed, things like that. It’s just a handy moment to total up what the government owes you as they’re generally based on your income.

Types of accounts. We talked about how you can “title” an account in a bunch of ways, which will cause them to be taxed differently.

The basic default type of account is to title it as an individual or joint checking at a bank, or an online savings account (individual or joint). But there are several other types of accounts. This is beautifully illustrated (if I do say so myself ) in the AGDEWT chart below. But the short version is that besides bank accounts, there are also:

  • Individual or joint brokerage accounts,
  • Roth IRAs (IRAs stand for Individual Retirement Arrangement: they can’t be joint.)Your own Traditional IRA (that I referred to as a bucket to collect all the drips from previous employer plans, and
  • Workplace tax-deferred and Roth accounts,
  • Health Savings Accounts are for people who ever had a high deductible health insurance plan.

How to do a budget/bill pay:

I mentioned that Quicken is a great checkbook register program that you can use to track all your past spending, but it’s not very helpful for figuring out where your next dollar should go. For that, the killer app is, a program that lets you tell your money where it needs to go to fill up envelopes for essential spending (groceries, rent) but also rainy day spending (new tires, winter clothes). It’s good in conjunction with short-term savings accounts like at, but also really helpful for building up a rainy day cushion in your operating bank account. Two of my adult children use it, while the third uses his self-made excel sheets. The gist of it is to make sure money is where it needs to be when it needs to be there. 

Otherwise, you’ll see money accumulating and think, “oh, I’ve got money for a weekend in Vermont!” when you ACTUALLY  have money saved towards the expected vet bills an old cat will have.

We also talked about how emergency money is DIFFERENT than rainy day money. Emergencies are for things you don’t expect. If nothing unexpected happens, it’s for old age. On the other hand, it rains every other day. Rainy day money is a way to spread out likely annual expenses that WILL land, we just don’t know when exactly.

We talked a bit about how it’s nice to have parents that help you with large capital expenses that provide you with a start in life, but how it’s somewhat infantilizing for them to help you with everyday operating costs. The need to buy groceries and pay your car insurance bill is what forces you to do the annoying work of getting a job.

I talked about the best way to fix a budget: earn more. A great book that made a big impact on me years ago was Overcoming Underearning by Barbara Stanny. Another trick is to ask a man what he’d accept as a salary and then ask for that! (Women tend to accept 15% less than men, uggh.)

A great idea is to do a moonlighting job to save for a short-term goal (like replenishing your emergency money). We learn in ALL our scut jobs. Don’t look down on any.

I talked about “massive action”, and visualizing your best life.

I asked you to stop and do some dreaming about what your perfect life will be like when you’re 28. Where are you? City or country? Are you working with people or alone? Are you working inside or out-side? Are you doing detailed work or is showing up and doing your best each day enough to succeed? (Accountants can’t say “meh, close enough”, but teachers sort of can!) Do you want to be sitting at a desk or moving around during the day? Do you want the safety of a career in a governmental agency, or would you like the risk/reward of being self-employed? Just sit and imagine your best possible life. Don’t worry about trying to figure out how to get there, just really VISUALIZE what success would look like to you. This exercise is super useful because you’ll now be primed to notice an opportunity as it arises that might lead you in that direction.

Massive action is where you commit to taking action until you get your desired result. If you apply for 3 jobs you might not get one. But if you keep applying, using what you’ve learned, after 300 you certainly will!

We talked about going to grad school in a non-funded program straight out of college. That’s usually a terrible idea. A far better idea is to go work for a while in the general industry you’re thinking of joining after grad school and see what you like. Even better is to try to get a job at a place that pays tuition for its employees. I’m paying for my paraplanner to become a Certified Financial Planner. Colleges give tuition waivers to their employees. Various agencies will pay for you to get a graduate degree in the field they’ve hired you into. Look for those jobs.

I have more to say about retirement plans, but that’s a story for another day.

By Wendy Marsden, CPA CFP®
Greenfield, MA

Possibilities in a Pie Plate – or Crèche

Who Gets Grandma’s Yellow Pie Plate? A Guide to Passing on Personal Possessions has terrific worksheets that help families navigate the challenges involved in determining who gets the “stuff”—not the cars, houses, bank, and retirement accounts but the personal possessions that are imbued with sentimental value. Their fate can tear families apart. Available from University of Minnesota Extension, this workbook is a great resource to help you to plan, or to help surviving family members distribute “stuff”.

See this crèche? My siblings and I discovered it in a box of Christmas treasures after my mom died. Unopened for years, I thought it had been lost. My overwhelming emotion at seeing the little Hallmark card box with these plastic figures was met by fascination among my siblings—no one knew that I would rearrange all the characters every Christmas when I was young.

The journey from unpacking that crèche in my mom’s apartment to coming out at my home every Christmas is a long and treacherous one that I wouldn’t wish on anyone. I think that’s probably why I encourage my clients so enthusiastically to think about how to manage expectations—when it comes to the stuff they leave behind.

There are lots of good reasons to avoid dealing with this. For one thing, it’s likely the pie plate for your famous pecan pie is so familiar that you can’t even imagine the civil war it might trigger after your death. It’s only a pie plate to you, right? But that pie plate—or crèche—might symbolize what your family has lost in your passing and provoke an acute experience of grief.

Then there’s the question of fairness. I told my three children many times that fair and the same were two different things. But perceptions of what is fair differ. What makes these valuable treasures special is their uniqueness. It’s not possible to settle a perception of unfairness by giving everyone the same thing or breaking it up into pieces.

Have you ever stopped and considered what these items embody? Things like wedding photographs or your dad’s hammer carry personal meaning. What makes these items “non-titled,” is that they are without specific instructions about where to go, unlike the beneficiary designations on your life insurance and retirement accounts. It will be left to your family and legal representatives to decide where your “stuff” goes.

Planning ahead can be challenging. The possibility I want to inspire is that planning for the transfer of these items gives you the opportunity now to preserve their beauty and meaning to you —and possibly avoid the tears in the woof and warp of family tapestries when this advance planning isn’t done.

Here are some ideas:

Start by making a quick list of the property and possessions that you treasure. I suggest three columns: Type, Description, Location. Type examples: Jewelry, Clothing ; Hobby supplies, Creations; Books, Cookbooks; Sentimental (photographs, letters, journals, baby items)

What are your reasons for completing this task? Which reasons are most important:

• maintain harmony within my family
• give myself peace of mind
• learn what items are important to family members
• tell others what personal items have value to me
• decide what I think is fair, or discover what my family thinks fair is
• record personal and family history embodied in items
• explore my goals and what I want to accomplish

What challenges do you see in this process? What alternatives or options do you see for meeting these challenges?

What experience would you like to create for yourself and those around you?

How will important relationships be impacted? What can protect relationships?

Who else do I/we need to involve in this process?

Now consider the items on the list. Are there items you assume someone wants? Or you expect they want? List those: Who, What, Why, When, How I/we feel

Create a “Property Decisions” list and keep it with your Letter of Instruction. Location, item, description, when, to whom.

By Miriam Whiteley, CFP®, RLP®, CeFT®
Eugene, OR

Recognize Your Freedom to Choose

“When we are no longer able to change a situation, we are challenged to change ourselves.” – Viktor Frankl

We may not always be able to control the circumstances of a given situation we find ourselves in. But we always have the freedom to choose how we respond. The choice we make – and how we make it – often determines how well we survive the situation, and if we go on to thrive.

If challenges in your family life, your career, or your finances are making you feel powerless, try approaching the challenge from a new angle. This simple three-step process can put you back in touch with your freedom to choose how and why you live your life.

1. Consider your reaction.

Take a step back from the problem. Take a breath. Take a walk. Pour yourself a cup of coffee.

By creating some space, you’ll be able to ask yourself, “Why am I reacting the way that I’m reacting? Is there a better perspective I could be taking? Am I letting past experiences influence my reaction for better? For worse?”

When we feel overwhelmed by a challenge, we often fall back on established patterns in our thinking. Often these default reactions are negative. If we’re arguing with our spouse, we might replay past arguments in the back of our heads. Financial difficulty might trigger memories of our parents struggling with money as we were growing up.

Identifying the negative experiences and perspectives that create our immediate reactions to challenges can help us find ways to create more positive and empowering reactions.

2. Consider your purpose.

Instead of allowing the situation to dictate how you’re responding, push back. Refocus how you choose to respond around the goal that you are trying to accomplish.

For example, if your business partner backs out of the new company you’ve been planning to start, that loss of manpower and capital could make you feel defeated and powerless. But the reality is that you are choosing to dwell on negatives that you can’t control.

So, what can you control?

If you’re really committed to starting your new company, you can choose instead to focus on alternative funding sources. You can reach out to other friends, family, and colleagues about potential partnerships. You can choose to work on Plan B.

Another example is the investor who feels powerless as market volatility chips away at his nest egg for a quarter. No, you can’t control the natural disaster or political spat that’s giving the market fits right now. But you can choose to focus on your long-term purpose: a secure retirement for you and your family. That positive thinking and big-picture perspective could prevent a costly knee-jerk reaction.

3. Consider your values

One of the best ways to drive negative thinking from our reactions is to focus on the things that matter the most to us. Reconnecting our decision making to our values can lead to solutions that make life more fulfilling.

Work might be the most common source of challenges in our lives. And while no one loves absolutely everything about their job all the time, it’s worth considering how your job affects your sense of freedom. Do those 40 hours per week give you the financial resources to spend your free time doing what you want with the people you love? Are your skills and talents utilized in ways that make you feel like you’re making positive contributions? Does your employer have a mission bigger than profit that’s important to you?

If your answers are no, no, and no, you can choose to keep dragging yourself out of bed every Monday, resigned to the uninspiring week ahead. Or you can follow your values towards a more empowering choice. Consider a career change. Learn a new skill that will bolster your resume or line you up for a better job at your current employer.

If switching careers is really out of the question right now, choose to appreciate the parts of your job that you do well because of your unique skillset. And when you’re not working, make time for the hobbies, interests, and experiences that do fully engage your core values. Who knows? One day these pursuits might lead to exciting new opportunities for you and your family. If you’ve been committed to your values all along, you’ll be ready to make the right choice.

By Edward Fulbright, CPA/PFA, CPA
Durham, NC

Tax Inflation Reduction Act 2022: Tax Credits & Student Loan Forgiveness

The Inflation Reduction Act and other items passed by Congress may affect decisions you make in 2023 and beyond. Some of these were immediately in place as of August 16th, 2022. While student loan forgiveness has dominated headlines, there are other important changes to be aware of as well as you make financial decisions.

The existing credit of up to $7,500 for new electric vehicle purchases was extended to 2032 and a new credit was added of up to $4,000 for used electric vehicles more than two years old. The caveat is for vehicles purchased after August 16, 2022, final assembly has to be in North America so this significantly limits which vehicles qualify now ( gov/laws/inflationreduction-act) and no longer includes foreign companies like Kia, Hyundai, or Toyota. On a positive side, the previous exclusion on tax credits by manufacturer once they sell 200,000 vehicles has been removed, making GM and Tesla eligible purchases once again. The credit is limited to the vehicle’s value as follows:

  • New Trucks, SUVs & Vans – $80,000
  • New Sedans – $55,000
  • Previously Owned Vehicles – $30,000

New income limits to qualify have also been added:

  • Couples – $300,000
  • Individuals – $150,000

The rules for this credit continue to change based on the release of additional information by different government entities. As a result, the safest way to determine if your vehicle will qualify for the credit is to enter the VIN at before you make a purchase.

Starting in 2023, homeowners may take a tax credit of 30% for the cost of installation and equipment of solar panels, wind power systems, and geo-thermal heat pumps. The prior lifetime limit for credits for eligible appliances was replaced by a $1,200 annual limit. This allows for greater use of the credit over time. In addition, credits will be available for efficient exterior doors, windows, water heaters, and biomass stoves ranging from $250 to $2,000 per year. You can find more details on these credit limits at

Another significant change involves a new plan for student loan forgiveness. Qualifications for forgiveness include:

  • Couples – $300,000
  • Individuals – $150,000

The rules for this credit continue to change based on the release of additional information by different government entities. As a result, the safest way to determine if your vehicle will qualify for the credit is to enter the VIN at

  • Loans must be federal student loans taken out prior to July 1, 2022
  • Household income below $125,000 for an individual or $250,000 for a couple for the 2020 or 2021 tax year.

Pell Grant recipients can have up to $20,000 forgiven, others may have $10,000 forgiven. An important element to the program is that forgiveness amounts are capped per borrower, not per household. This means that if you and your spouse both have federal student loans, then you both could qualify. The process could move quickly if you already have had your income verified through income-based repayments and would then show up as a credit in your student loan account. If your income is not verified, an application will be available in the coming weeks to qualify.

Currently, the student loan debt relief is blocked by court orders. In the meantime, they extended the pause on student loan repayments until the earlier of 60 days after implementation of the debt relief program is allowed or litigation is resolved or 60 days after June 30, 2023. You can find more information and updates at

By Steve Martin, CFP®, CPA, JD, LLM
Nashville, TN

Tax Loss Harvesting: A Good Idea That is Overrated?

Turning lemons into lemonade should be considered during the market volatility that we find ourselves in today. In periods of market downturns or even market upturns, one strategy that is often suggested is tax loss harvesting. It can be a beneficial strategy, but its application is often misunderstood or wrongly implemented.

Knowing when to utilize capital loss harvesting is beneficial. First, we must start with understanding how capital gains and capital losses are treated under the tax laws. You likely understand that long-term capital gains are taxed at different tax rates than ordinary income (such as wages and interest income). Like ordinary income, capital gains are taxed based on tiers. If one’s income falls under a certain threshold, capital gains are taxed at 0%! That’s huge, and there are planning opportunities here that we can hold for another day. The next two tiers are taxed at 15% and 20%. (Also note that net investment income tax can also be applied at a 3.8% rate for those exceeding certain income levels and state income taxes may apply.)

If you have a capital loss, there is an ordering rule for applying those capital losses. In simple terms (and without getting into short-term versus long-term capital gains and losses), capital losses are first applied against capital gains. Thus, if you realize a $40,000 gain on the sale of some stock and a $10,000 capital loss from the sale of another stock in one year, then your net capital gain is $30,000. If it is indeed a net long-term capital gain, then it is generally taxed at the capital gains rates. Effectively, your “deduction” for this capital loss was applied at the lower capital gains rates. If realized capital losses exceed capital gains in one year, then you can offset a portion of such losses against your ordinary income. Unfortunately, this offset against ordinary income is limited to $3,000 per year. Any unused losses (i.e., those that exceed the $3,000 limit) can be carried forward until such losses are used up. The same ordering rules apply to these carried forward amounts. Unlike many tax thresholds, the $3,000 capital loss limit is not inflation-adjusted.

Taking losses against capital gains can be advantageous in a few respects:

  1. The losses may allow you to avoid recognizing the gain at a higher tax rate.
  2. Taking losses may allow you to take advantage of other tax breaks (deductions or credits) or minimize financially-related penalties by reducing certain key thresholds.
  3. Minimizing income taxes earlier may have a time value of money benefit.

Offsetting losses against ordinary income can be even more beneficial considering the generally higher ordinary income tax rates compared to capital gains rates. Of course, one key is understanding your relative capital gains rates and ordinary income rates over the relevant period.

There are a few caveats before implementing this strategy:

  1. Understand that taking losses also reduces your tax basis in the portfolio, and this can result in larger capital gains down the road. This can, in turn, lead to higher taxes in the future.
  2. When deciding whether to buy and sell assets, the investment characteristics should be the primary factor.
  3. Consider the transactional costs and the time required to implement this strategy.
  4. Be aware of the wash sale rule.

Thus, capital loss harvesting should be considered, especially during market downturns. It can produce economic benefits in the right situation, but there are certainly other tax strategies that are often more beneficial. If done incorrectly, implementing this strategy can backfire on you. In addition to capital loss harvesting, there are a host of other strategies to consider when trying to minimize capital gains taxes, and these strategies should be coordinated with your overall cash flow and financial plan. If you would like help with this or other tax strategies, you should search for a financial planner that has expertise in the tax arena as that has the potential to enhance your overall situation.

By Steve Martin, CFP®, CPA, JD, LLM
Nashville, TN