Castle Rock Investing

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#save4yourself

Prepare for the Unexpected!

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Ever wonder what would happen if you were not able to make critical decisions by yourself because you were incapacitated? Is there anything you can do to prepare for the unexpected? Yes, there is! While you are still able to do so, there are three crucial documents that all adults should have to be prepared for one of life’s major curveballs. The documents include:

  1. The Financial Power of Attorney (“FPOA”): This is a document that allows an individual (the “principal”) to appoint someone (an “agent”) to make financial decisions on their behalf. This authority can be in effect immediately or come into force when the principal is incapacitated. This can also be beneficial for those who travel internationally and will not be available to sign financial documents.
  2. The Medical Power of Attorney (“MPOA”): This is a document that appoints an agent to make most medical decisions on someone’s behalf if they are incapacitated. It is crucial to also include something called a HIPAA waiver which will allow the agent to access medical records. Without the HIPAA waiver, the agent might not be able to act in the best interest of the principal due to lack of information. It is also important to know that if the principal is in terminal condition, a MPOA will not suffice. In that instance, there is another document that will.
  3. The Living Will/Advanced Directive: This document will allow an individual to decide how they want to be treated in the instance that they are in terminal condition and cannot communicate verbally. For instance, the individual can elect to refuse to be on life support or to be heavily medicated so they can pass peacefully. But perhaps the reason why this document is so crucial is because it will remove the burden from family members required to make these painful decisions and can even prevent families from falling apart due to disagreements.

So, what if you have children or if you were to pass away earlier than expected? If so, how can you communicate those wishes to your children along with other family members?

Contact Michele at MSuriano@CastleRockInvesting.com or (303) 725.7086 today to get your documents in order.

Will Morgan Stanley Replicate Merrill Lynch?

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During Morgan Stanley’s third quarter earnings conference call, James Gorman (CEO of Morgan Stanley) stated that the firm will announce their plan to comply with the DOL’s upcoming Fiduciary rule within the next couple of weeks. However, James Gorman did state that “we are not changing things”, “we run our business with the values of doing everything we can to support our clients and we will continue to do so.” In other words, Morgan Stanley will more than likely not go the Merrill Lynch route by no longer offering commission based IRA accounts.

So, if Morgan Stanley decides not to forgo commission based retirement accounts, what would be another possible strategy for them? Although the Fiduciary Rule will technically still allow commissions, it will be required for brokers and advisors to disclose all conflicts of interests to their clients with retirement accounts. It is also important to note that Morgan Stanley’s wealth management division currently oversees $2.1 trillion in client assets, with $855 billion of those assets being under a fee-based model which is a 75% increase from the third quarter of last year. In other words, Morgan Stanley’s strategy could have a significant ripple effect with their clients as well as their advisors.

In addition, Morgan Stanley was charged by the Commonwealth of Massachusetts with “conducting an unethical, high-pressure, sales contest amongst its financial advisors to encourage clients to borrow money against their brokerage accounts.” Morgan Stanley says the allegation is “without merit” and will “vigorously” defend itself. Please note that Morgan Stanley has $70 Billion in client loan balances, which is a new record according to them.

With Morgan Stanley’s strong stance on how they run their business, it will be very interesting to see how this will all play out in the next couple of weeks. And if the charges from Massachusetts are correct, Morgan Stanley will face a world of hurt from regulators and potentially lose client assets. Click on the links to read further into Morgan Stanley’s conference call and the Massachusetts allegations.

Getting the Facts Straight about Qualified Plan Loans

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Are you considering making a large purchase but don’t have the money to do so? Are you in need of emergency cash? Typically, they are many options for people in that situation such as a home loan, a home equity line of credit, personal loans, etc. But what if you do not want to deal with a bank or have a poor credit score? Fortunately, there are a few options, with the most notable being the Qualified Plan Loan. That’s right, you could be able to take a loan from your employer’s retirement plan. In fact, over 75% of Qualified Retirement Plans allow participants to take loans from their accounts.

So now to the big question…is it worth taking a loan from your retirement plan? In short, no. However, it is still important to weigh the options of taking such a loan. Below are the major pros and cons of taking loans from your employer’s retirement plan.

Pros:
1. Qualified Plan loans offer a low interest rate, which is usually the prime rate plus 1%

2. You are not borrowing from a bank; you are just borrowing from yourself. In other words, the interest that you pay will actually go into your retirement account balance. (However, please note that all loan payments going back into the plan are in after-tax dollars).

3. The loan process is typically very easy and you can get the needed cash in a timely manner. On top of that, payments are simply deducted from your paycheck.

4. Loan minimums can be as low as $500-1,000 and people can borrow up to 50% or $50,000 of their vested balance, whichever is less.

Cons:
1. Payment options are not as flexible as other loans since the only two options are the minimum payments deducted from your paycheck or to pay the balance in full.

2. You have 90 days to start making payments back into the plan or else the loan will be considered taxable and will trigger a 10% tax penalty (for borrowers under 59 ½). Remember, if you are laid off, you may only have 90 days to pay the remaining balance in full or the loan will become a taxable event and will also trigger the 10% tax penalty (for borrowers under 59 ½)

3. People who borrow from their employer retirement plan may face loan fees, i.e. loan origination fees, loan maintenance fees, etc. And if the loan is particularly small (say $1,000 for an example) you could theoretically be paying 15% just in fees, which will not go back into your plan.

4. Finally, there are major opportunity costs associated with a Qualified Plan Loan. For example, if the borrowed funds in your account can potentially earn an average of 8% a year while your borrowed funds can only earn a theoretical 4.5% with the interest from the loan, you could theoretically be losing money (depending on market conditions).

In the end, a Qualified Plan Loan may not a great idea for those who have other means of getting an affordable loan and in most cases should only be used as a last resort.

So, how can someone get money for large purchases without going to a bank or borrowing from their retirement plan? For starters, people can make it a monthly habit to contribute to an emergency fund and/or a special purchase(s) fund so that they will not have to borrow money in the first place (please read our previous blogs on emergency funds and on general savings tips).

Overall, borrowing can be quite a hassle and could be costly in the long run no matter how you look at it. However, if you develop a plan for making a large purchase or plan ahead of an emergency, funding these events in our lives can be a much smoother and inexpensive process. If you currently do not have a plan, contact Castle Rock Investment Company to help you reach life’s major financial milestones, we will always work in your best interest!

HSAs and what you need to know about them!

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Since 2003, Health Savings Accounts (“HSAs”) have been an excellent tool for families to help cover current healthcare costs, along with future healthcare costs. HSAs are also known to be an excellent tax-planning tool since participants are allowed to contribute on a pre-tax basis and the funds grow tax deferred. Additionally, participants are able to make tax-free withdrawals for qualified medical expenses. Funds in an HSA may also be invested in a list of mutual funds, or even have a brokerage link for more savvy investors. On top of that, people have until April of the following year to make contributions (similar to an IRA).

With all of these excellent benefits, there are a few caveats:

  • There is a yearly contribution limit of $3,400 per year for individuals and $6,750 for family plans in 2017. If your health plan runs from January to September, you can only make contributions for these months.
  • There can be tax penalties if withdrawals are made for non-qualified medical expenses before age 65. This involves paying income taxes for the non-qualified withdrawals as well as a whopping 20% penalty.
  • In order to qualify to contribute to an HSA, individuals must have a high-deductible health care plan (“HDHP”). This means that an individual plan must have a minimum deducible of $1,300 and minimum “maximum out-of-pocket costs” of $6,550 for 2017. For family plans, the minimum deductibles and maximum out of pocket costs would be $2,600 and $13,100 respectively. You also cannot be enrolled in Medicare.
  • Finally, if you are currently enrolled in a health plan that is a part of a healthcare.gov exchange, finding a health plan that is HSA eligible for 2017 will be nearly impossible since the requirements for a health plan to be eligible for a government exchange go against the requirements for a plan to be HSA eligible.

These setbacks should not prevent people from taking advantage of these accounts. In fact, HSAs will more than likely save people money in the long term and even in the short term. With having a HDHP, premiums will be notably less expensive for individuals and families, meaning that people can use those up front savings towards HSA contributions. Also, people can reimburse themselves for medical expenses that occurred in the past as long as the HSA was opened before that expense occurred. This means that if someone needed to make a non-qualified distribution, he or she can make it appear as if they were reimbursing themselves for a prior medical expense.

Although you will have to increase your deductible and maximum-out of pocket costs, utilizing a Health Savings Account could be one of the best decisions you will make if you want to plan for future health needs, even in retirement. And, don’t forget to keep your medical receipts…you may need them later!

How to use Credit Cards the right way!

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By Mack Bekeza

Credit Cards, just a piece of plastic that spirals people into debt right? Well… not always. In fact, many people who use credit cards tend to actually save money on certain items. That’s right! People can actually save money by utilizing a credit card! But how? Although there are plenty of ways one can utilize credit cards, here are the two most common ways people can save money with them:

  1. Utilizing a Cash-Back Card for everyday purchases and racking up rewards in a form of a statement credit or even a check.
  2. Frequent travelers using a Travel Rewards Card to lower their travel expenses substantially via points when staying at a hotel, renting a car, or even everyday purchases.

Although these perks are great for people trying to save money, it is crucial that you pay off these credit cards on-time and on a regular basis. It is also important to note that cards with very generous rewards are known for charging higher interests rates (even to those with excellent credit).

So what is the best way to manage your credit cards without paying interest?

  1. One rule of thumb is to check and pay your balance once a week or every other week depending on how frequently you use it. Not only will doing this increase your credit score, you also will not have to worry about paying your bank any extra money!
  2. Another tip is to only use a credit card if you can pay the balance instantly, meaning that if you couldn’t pay for an item with a debit card without going into overdraft, don’t use a credit card!
  3. Last but certainly not least, do not pressure yourself to spend more money just to get a sign-up bonus, in fact, do not change your budget what so ever! Only attempt to go for the sign-up bonus if your regular spending habits will allow you to do so.

Now that you have an idea on how to manage credit cards, how do you know which one is right for you? There are a few things to consider:

  1. If you haven’t done so already, check your credit score or even your full credit report(credit reports are only free to view once a year). Many Banks and Credit Card Companies only issue certain cards to people who meet specific criteria such as credit score and income thresholds.
  2. Think of how can you best utilize a credit card. For instance, do you travel a lot? Do you frequently go grocery shopping? Or do you just spend a lot of money in general? Either way, there is a high chance that there is a credit card that can help you save money on certain or even all frequent expenditures.
  3. Like previously mentioned, make sure that you find a credit card that you can get the sign-up bonus without having to alter your spending habits.

If you have any questions about certain credit cards or how to interpret your credit score, don’t hesitate to contact us at mack@castlerockinvesting.com

© 2016 Castle Rock Investment Company. All rights reserved. Please share your insights with us at mack@castlerockinvesting.com or via phone at 303-719-7523

 

The Importance of Saving

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Saving, sounds hard, right? Well actually not as much as you think, but it does require will power and a positive attitude. In most cases, people begin to start saving but end up quitting because of a few things:

  1. They save too much and end up having to spend most of it to pay for life’s necessities.
  2. They save too little and think there is no point to continue saving at all.
  3. They save a fair amount of money but end seeing a big sale at their favorite stores and decide to blow it on clothes or other things.

So how can someone avoid those three things? It can be achieved by following a few steps:

  1. Develop a monthly budget for your bills and discretionary spending (budgeting tips can be found in our previous personal finance blog attached here).
  2. Think of a couple things that you can set a savings goal for. For instance, you could plan to start an emergency fund that can cover 3-6 months of expenses (Please take note that this should be done over a course of a couple years so don’t rush yourself on this).
  3. If you have not done so already, another goal you can start is creating a retirement savings goal. You know that 401(k) that your employer offers…take advantage of it! Not only will it possibly allow to exclude a portion of your income for tax purposes, it can be a big help to get you prepared for retirement.
  4. To fund these great savings goals, think of a suitable savings rate that can cover these goals. For instance, a rule of thumb is to be able to save 10%-15% of your income for an emergency fund and eventually contribute another 10% to your retirement goals. This might sound like a lot, but you do not have to automatically save this amount right away. These things take time to start building, so start with at least 5% for both and gradually increase the amount over time.
  5. Now that you have these in mind, how do you resist the temptation of using these savings for things you do not need? For starters, you can open your new savings account with an another bank so you really feel like you are putting money away and do not have instant access to it. However, for an emergency fund, it is important to have at least a check book to pay for emergencies (Money Market Savings Accounts allow you to have a check book and might even allow you to have a debit card). Check out banks that offer High Yield Money Market Accounts here.

Hopefully you will take this to heart and begin a plan to save! Although we will continue to write personal finance blogs over time, do not hesitate to contact us at ashley@castlerockinvesting.com if you would like us to help with your goals!