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Recent Widows and Widowers – Important Financial Planning Steps

by Elizabeth Camp

The loss of a spouse may be one of the most difficult experiences any of us face in life. And while the emotional burdens may be high, the financial costs of inaction or misguided action could be significant. That’s why it’s critical to identify and eventually address certain important financial matters.

 

 

The First Step: Know Where You Stand

Statements and contracts are the essence of financial control, so you should quickly make every effort to gather as much documentation of your current financial condition as possible. Use this checklist as a guide to help ensure that you are building a comprehensive picture of your circumstances:

  •  Your spouse’s will and trust documents, and any statements of intent that may have been drawn for executors, trustees and guardians;
  • Your spouse’s death certificate (certified copies are most useful. Your funeral director or family attorney can usually help obtain them from the local medical examiner or clerk’s office);
  • Property and vehicle documents, including title certificates, deeds, and lease contracts;
  • Bank, investment, and retirement account statements;
  • Credit card, mortgage, and installment loan documents;
  • Insurance policies;
  • Federal, state, and local tax documents.

Immediate Action Items

The federal government has three different retirement benefit programs – the Social Security Administration (for most people except railroad employees and many federal workers), the United States Railroad Retirement Board, and the Federal Employees Retirement System.1 You are expected to notify all relevant agencies when your spouse passes away and you are required to return all federal pension payments made after passing. Since most federal pension benefits are paid by direct deposit, the receiving bank should be able to handle the necessary payment returns once notified.

The next immediate step is to be sure that ongoing family financial obligations continue to be addressed in a timely manner. This includes mortgage and rental payments, utilities, subscriptions, insurance premiums, tax payments, and the like. Automatic payments that had been made from accounts controlled individually by a deceased person are generally terminated once the paying agency is notified of the death; automatic payments made from joint accounts should continue unabated.

The last necessary step to take right away is to notify institutions responsible for your late spouse’s payments, benefits, and assets. This group could include banks and trust companies, life insurance and annuity providers, stockbrokers, investment custodians, retirement plans, pension administrators, and IRA trustees. Some of these may require certified copies of death certificates to effect important changes. As a fraud-fighting move, you should also consider notifying the credit reporting agencies and requesting them to include the notices in their future reports on your spouse.

 

Things to Do When You Are Ready

Many important decisions can be deferred (for days, weeks or sometimes months) until you feel ready to calmly evaluate your choices. You will face required minimum distribution rules for your late spouse’s retirement accounts, but except for those, you can take all the time you want to decide which assets to keep and which to sell. You should also take your time before buying any new insurance or investment products. Eventually, you’ll want to be sure that you’ve got a financial program and an asset allocation that fit your needs and objectives. And when you are ready to develop that plan, let me help you weigh your options carefully.

 

Sources:
1Social Security Administration, United States Railroad Retirement Board, and Federal Employees Retirement System.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1013340 [09/14]

 

 

Money Management for the Single Parent

by Elizabeth Camp

Money Management for the Single Parent

As a single parent, you’re probably familiar with the dual challenges of managing a household and planning for the future on your own. But are you as familiar with the financial strategies that can stretch your income and help you get ahead? Consider the following lessons to help improve your family’s bottom line.

Lesson #1: Identify Your Goals

You can’t have a financial plan without first defining your financial goals. Start by recording all of your short-, medium-, and long-term goals.

For example, paying for a child’s education could be one of the biggest expenses in your future. During the 2012/2013 school year, the average total cost of one year in a private college was $39,518. At the average public college, it was $17,860. If expenses continue to rise at their current rate, a college education could exceed $490,000 (private) or $220,000 (public) by the year 2031.1

Retirement is another important goal. Financial planners often suggest accumulating enough of a nest egg so that — when combined with Social Security and pension payments — it will provide at least 80% of your final working year’s salary during each year of retirement. To determine how much you may need for retirement, consider using one of the many free, online retirement planning calculators.

Lesson #2: Be a Better Budgeter

To pursue your family’s goals, it’s necessary to manage your household’s cash flow. That involves tracking income and spending, eliminating unnecessary costs, and living within the confines of a realistic budget.

For example, if you spend $1.50 each day on a take-out coffee, that amounts to about $45 each month. By eliminating that minor expense from your budget, you could easily save an additional $500 per year.

Lesson #3: Say No to Debt

High-interest credit card debt can make it extremely difficult to get your budget in order. If you have an outstanding balance, consider paying it off as aggressively as possible. The savings in interest alone could allow you to address other important financial goals.

Consider this: The average U.S. household with credit card debt owes about $7,100.

The average U.S. household with credit card debt owes approximately $7,100; interest rates typically average over 12%. If you made only the minimum monthly payments on such a debt at a 12% annual percentage rate, it would take years to pay it off, and you would spend thousands in interest in the process. But if you paid the minimum plus an extra $100 each month, then you could be out of debt in under seven years.2

It’s also a good idea to review your credit history — commonly referred to as your credit report — to make sure that the information it contains about your past use of credit is accurate.

To obtain and review a copy of your credit report, contact the following companies:

  • Equifax (1-800-685-1111; www.equifax.com)
  • TransUnion (1-800-888-4213; www.transunion.com)
  • Experian (1-888-397-3742; www.experian.com)

 

Lesson #4: Learn About Savings and Investment Opportunities

Once you free up some cash, apply it toward your goals. But first, learn about the savings and investment opportunities available to you. Keep in mind that tax-deferred investment accounts may enable you to “grow” the value of your assets more significantly than taxable accounts. That’s because investment gains in taxable accounts are taxed every year, while those in tax-deferred accounts remain untaxed until you make withdrawals later in life.

  • Employer-sponsored plans, such as traditional 401(k) plans, allow workers to set aside a portion of their pretax income in a company-sponsored, tax-deferred retirement account. As an added benefit, some employers make a “matching contribution” to employees’ accounts each time employees contribute.3
  • Traditional individual retirement accounts (IRAs) may allow you to deduct a portion of annual contributions from your taxes (depending on your income) and offer tax-deferred investment growth. Roth IRAs do not offer a tax break for contributions, but investment earnings are untaxed and qualified withdrawals are tax free.3
  • Coverdell Education Savings Accounts (also known as Education IRAs) allow tax-free earnings on nondeductible contributions of up to $2,000 annually. Qualified withdrawals may be used to pay for college, as well as elementary and secondary schooling.3
  • Section 529 college savings plans are state-sponsored investment programs that allow tax-free withdrawals for qualified college expenses – including tuition, fees, room & board, books and required equipment or supplies.3 College savers who contribute to their home state’s 529 plan may be eligible for state tax breaks. (Some states even offer the dame tax break whether you invest in the home state’s Plan or another state’s Plan) If your state or your designated beneficiary’s state offers a 529 plan, you may want to consider what, if any, potential state income tax or other benefits it offers before investing – but you should also consider other factors such as the breadth and performance of the investments.

Consider the Benefits of Tax Deferral

This chart compares the growth of $100 monthly contributions in taxable and tax-deferred accounts over 30 years at an 8% average annual rate of return.Source: Standard & Poor’s. Assumes a tax rate of 25% for the taxable account. All assets in the tax-deferred account are taxed at the same rate at withdrawal. Nonqualified withdrawals from tax-deferred accounts may be subject to income taxes and/or a 10% early withdrawal penalty. The hypothetical rate of return does not reflect the cost inherent in investing.

Once you’ve selected an appropriate investment account, you’ll then need to determine an appropriate investment strategy. In general, stocks have the most short-term risk, but they also have the potential to generate better long-term returns than money market or bond investments. Therefore, the longer your investment time frame, the more you may want to rely on stock investments to pursue your financial objectives.

Lesson #5: Get Professional Advice

A financial professional can suggest specific strategies for you and point out any considerations you may have overlooked, such as insurance, estate planning, or tax planning.

Always ask how — and how much — a professional charges for his or her services.

Remember, successfully managing the finances of a one-parent household takes time and dedication. But once you begin to see an improvement in your family’s bottom line, you’ll know it’s worth the effort.

Points to Remember

  1. To begin establishing your entire range of priorities, divide your goals into one of three categories: short term, medium term, or long term.
  2. Don’t procrastinate about getting your financial life in order. Cut back on wasteful spending immediately and channel the extra money to your most pressing needs. If big expenses are in your future, start learning what it will take to accomplish them. That could mean signing up to participate in an employer-sponsored retirement plan, or researching financial aid for college.
  3. Consider working with a financial professional at least one time for input into how you may better manage your finances and plan for the future.
  4. Break the credit card habit. Consider transferring balances to lower interest rate accounts, and pay off existing debts aggressively. Check to ensure that the information in your credit history is accurate.
  5. Search for fun, low-cost ways to spend family time together. Ask the children for ideas.

 

1Sources: The College Board; Standard & Poor’s. Private and public college cost projections assume 6% annual increases, which were the average increases at all private and public colleges for the 2012/2013 year. http://advocacy.collegeboard.org/sites/default/files/college-pricing-2012-full-report_0.pdf

2Sources: Federal Reserve, 2010 Survey of Consumer Finances (latest available). http://www.federalreserve.gov/econresdata/scf/files/2010_SCF_Chartbook.pdf Minimum monthly payment of 4% of the balance or $20, whichever is greater.

3 The earnings portion of any nonqualified withdrawal is subject to ordinary income tax and a 10% penalty.

Equity Securities’ prices may fluctuate in response to specific situations for each company, industry, market conditions, and general economic environment.

Investments in a 529 Plan are not FDIC-insured, nor are the deposits of or guaranteed by a bank or any other entity so an individual may lose money.  Investors should review a Program Disclosure Statement, which contains more information on investment options, risk factors, fees and expenses and possible tax consequences.  Investors should read the Program Disclosure Statement carefully before investing.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice.  This material was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC# 756342 11/13

 

Social Security and Medicare: What the Future Holds

by Elizabeth Camp

Social Security benefits currently represent approximately 37% of the aggregate total income of Americans aged 65 and older, according to the Social Security Administration.1 But for future generations of retirees, Social Security may represent a much smaller percentage of retirement income. In fact, the 2014 Trustees’ Reports for Medicare and Social Security bring some cautionary forecasts for the future as the nation’s baby boomers put ever-increasing stress on these two government programs.
Social Security

The 2014 Social Security Trustees’ Report2 indicates that, by 2020, the Social Security Trust Fund will begin operating at a deficit—workers’ payroll taxes combined with Trust Fund interest will not be enough to cover annual benefit payments. The report further estimates that by 2033, assets in the Trust Fund will be exhausted. The slow increase in costs is being driven by well-documented demographic trends: fewer workers to fund the system and more retirees tapping into it. Until 2009, Social Security was running cash surpluses—bringing in more tax revenue than it was paying out to retirees—and these surpluses were expected to last for years. But the Great Recession brought with it a decline in payroll taxes coupled with an increase in benefit claims. In 2010, these factors resulted in Social Security outflows exceeding its income—a pattern that experts say will continue indefinitely.3

Medicare

The 2014 Medicare Trustees Report2 indicates that the program’s outlook has improved considerably in the past year, and it attributes that good news in large part to the passage of the Affordable Care Act (ACA). Specifically, the trustees found that Medicare’s Hospital Insurance Trust Fund is in good shape until 2030—that’s four years longer than the trustees projected last year—and 13 years longer than they anticipated the year before the passage of the ACA.3

 

But even though Medicare appears to be in good shape for the time being, serious fiscal issues loom in the decades ahead as the nation’s population ages. Today 54 million Americans receive Medicare benefits. By 2030, when the trustees indicate Medicare will start having financial difficulties, the ranks of Medicare enrollees will hit 81 million and the numbers will keep growing.4

 

The upshot of both reports is that future retirees may need to depend more on their own resources to fund their retirement. Although it is very unlikely that either program will go away, benefits may be trimmed or payroll taxes increased to support them. Anyone saving for retirement—especially younger workers—may want to keep this in mind when deciding how much to contribute to an IRA or employer-sponsored retirement savings plan.

 

Sources:

1Social Security Administration, Fast Facts & Figures About Social Security, 2013.

2 Social Security Administration, Status of the Social Security and Medicare Programs, July 2014, http://www.ssa.gov/OACT/TRSUM/.

3The Center for Retirement Research at Boston College, Social Security’s Financial Outlook: The 2014 Update in Perspective, August 2014.

4The New York Times, Good News and Gloom for Medicare, Wrapped in a Mystery, July 28, 2014.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1013269 [09/14]

 

 

 

Let Year-End Planning Lower Your Tax Bill

by Elizabeth Camp

With the passage of the American Taxpayer Relief Act of 2012, many Americans are facing higher tax rates, making tax planning more important than ever. And there’s no better time for tax planning than before year-end. That’s because there are a number of tax-smart strategies you can implement now that will reduce your tax bill come April 15. Consider how the following strategies might help to lower your tax bill for 2014.

 

Put Losses to Work

If you expect to realize either short- or long-term capital gains, the IRS allows you to offset these gains with capital losses. Short-term gains (gains on assets held one year or less) are taxed at ordinary rates, which range from 10% to 39.6%, and can be offset with short-term losses. Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20% and can be reduced by long-term capital losses.1 To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year’s tax return and carry forward any unused losses for future years.
Given these rules, there are several actions you might consider:

  • Avoid short-term gains when possible, as these are taxed at higher ordinary rates. Unless you have short-term losses to offset them, try holding the assets for at least one year.
  • Take a good look at your portfolio before year-end and estimate your gains and losses. Some investments, such as mutual funds, incur trading gains or losses that are reported on Form 1099 and must be reported on your tax return. These are difficult to predict because they depend upon the fund’s trading activity during the year and are not known until after year-end. But most capital gains and losses will be triggered by the sale of the asset, which you usually control. Are there some winners that have enjoyed a run and are ripe for selling? Are there losers you would be better off liquidating? The important point is to cover as much of the gains with losses as you can, thereby minimizing your capital gains tax.
  • Remember that unused losses may be carried forward for use in future years, while gains must be taken in the year they are realized.

When evaluating whether or not to sell a given investment, keep in mind that a healthy unrealized gain does not necessarily mean an investment is ripe for selling. Remember that past performance is no indication of future results; it is expectations for future performance that count. Moreover, taxes should only be one consideration in any decision to sell or hold an investment.

 

Callout:

Unearned Income Tax – Medicare TaxA new 3.8% tax on “unearned” income went into effect in 2013, effectively increasing the top rate on most long-term capital gains to 23.8%. The tax applies to “net investment income,” which includes interest, dividends, royalties, annuities, rents and other passive activity income, among other items. Importantly, “net investment income” does not include distributions from IRAs or qualified retirement plans, annuity payouts or income from tax-exempt municipal bonds. In general, the new tax applies to single taxpayers with a modified adjusted gross income (MAGI) of $200,000 or more and to those who are married and filing jointly with a MAGI of $250,000 or more.

 

IRAs: Contribute, Distribute or Convert

One simple way of reducing your taxes is to make tax-deductible contributions to a traditional IRA, if you are eligible.

Contributions are made on a pretax basis, so they reduce your taxable income. Contribution limits for the 2014 tax year—which may be made until April 15, 2015— are $5,500 per individual and $6,500 for those aged 50 or older. Note that deductibility phases out above certain income levels, depending upon your filing status and if you or your spouse are covered by an employer-sponsored retirement plan.

An important year-end consideration for older IRA holders is whether or not they have taken required minimum distributions. The IRS requires account holders aged 70½ or older to withdraw specified amounts from their traditional IRA each year. These amounts vary depending on your age, increasing as you grow older. If you have not taken the required distributions in a given year, the IRS can impose a 50% tax on the shortfall; so make sure to take the requirement minimum distribution for the year by year-end.

Another consideration for traditional IRA holders is whether to convert to a Roth IRA. If you expect your tax rate to increase in the future—either because of rising earnings or a change in tax laws—converting to a Roth may make sense, especially if you are still a ways from retirement. You will have to pay taxes on any pretax contributions and earnings in your traditional IRA for the year you convert, but withdrawals from a Roth IRA are tax free and penalty free as long as you’re at least 59½ and the converted account has been open at least five years. If you have a nondeductible traditional IRA (i.e., your contributions did not qualify for a tax deduction because your income was not within the parameters established by the IRS), investment earnings will be taxed but the amount of your contributions will not. The conversion will not trigger the 10% penalty for early withdrawals.

 

Let me work with you and your tax advisor to see what you can do now to reduce your tax bill in April.
Footnotes/Disclaimers

 

1Under certain circumstances, the IRS permits you to offset long-term gains with net short-term capital losses. See IRS Publication 550, Investment Income and Expenses.

 

Sources

Internal Revenue Service, Publication 550 (2013), Investment Income and Expenses.

Internal Revenue Service, Publication 590 (2013), Individual Retirement Arrangements (IRAs).

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she  is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1013963 [09/14]

 

 

Making Divorce Work: Tax Time

by Elizabeth Camp

With divorce comes significant and complex changes to your income tax filing status and your tax return. It is very important that you discuss these changes with your own qualified tax advisor or accountant.

Perhaps the most important tax subject, and certainly something central to your budget, is the cash flow provided by alimony and child support. If you are receiving alimony, it is taxable as income to you and tax deductible for your former spouse. On the other hand, child support payments you make are tax-free to you but not deductible by your former spouse. The different tax treatment of these two types of payments can become a contentious topic in divorce, making it particularly important to get good advice before you finalize any agreement.

 

Additional issues you may encounter include:

  • When it is appropriate and advantageous to consider filing a joint tax return with your spouse — and when it is no longer legal.
  • Whether you can take advantage of filing as a head of household because a dependent lives with you.
  • Claiming a child or children as dependents on your tax return. (In general, you must be the custodial parent, which may also allow you to claim other types of exemptions as well.)
  • Tax credits for child care and work related expenses if your child is younger than 13.
  • Deductions for a child’s medical expenses. (Generally, the parent paying can take the deduction, even if he or she is not the custodial parent.)

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article byMorganStanleySmithBarneyLLC. Courtesy ofMorganStanleyFinancial Advisor.

 

Articles are published for general information purposes and are not an offer or solicitation to sell or buy any securities or commodities. This material does not provide individually tailored investment advice.  Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives.

 

Tax laws are complex and subject to change. This information is based on current federal tax laws in effect at the time this was written. Morgan Stanley

Smith Barney LLC, (“Morgan Stanley”) its affiliates and Morgan Stanley Financial Advisors do not render advice on tax and tax accounting matters to clients.

This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on

the taxpayer under U.S. federal income tax laws. Clients should consult their own legal, tax, investment or other advisors, at both the onset of any transaction

and on an ongoing basis to determine the laws and analyses applicable to their specific circumstances.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/Camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 951282 [06/14]

 

 

 

 

Municipal Bonds—Still Appealing

by Elizabeth Camp

The City of Detroit may have dominated municipal finance headlines for more than a year with its long descent into bankruptcy and its contentious reorganization efforts since. But a closer look suggests that there may be little in these select events that apply to the overall state of municipal bonds.

 

For example, it is true that there was an increase in municipal bond defaults in 2013, to seven from six in 2012 among the municipal bond issuers rated by Moody’s. But four of those sevendefaults involved entities connected to Detroit (such as schools) who were dragged down by the city’s primary insolvency.1

There have been 30 defaults since the recession began in early 2008. This averages five defaults per year compared with an average of 1.3 annual defaults over the period 1970 ‑ 2007. 1To put the default numbers in perspective, although the bond amounts involved in the high-profile defaults may look large when viewed in isolation, they account for a very small percentage of the overall municipal bond market, which tallied some $3.7 trillion at the end of 2013, according to the Securities Industry and Financial Markets Association (SIFMA), an industry trade group.2

In other words, the great bulk of municipal bond debt is being repaid on time.

Chart: Number of Defaults per Calendar Year1

 

 

Past performance does not guarantee future results.

After holding periods of 10 years, the average cumulative default rate for investment-grade municipal bonds rated by Moody’s was 0.08%, ranging from 0.01% for Aa-rated debt to 0.32% for Baa-rated debt. There were no defaults of Aaa-rated municipal debt during the study period.

Source: Moody’s, US Municipal Bond Defaults and Recoveries, 1970-2013, May 7, 2014.

A Closer Look at the Municipal Market

There are two broad categories of bonds in the municipal market:

•           General obligation bonds are the direct debts of a state or local government entity and are backed by the issuer’s full faith and credit. Historically, general obligation bonds issued by states have shown a negligible default risk. A small number of cities and towns have defaulted on general obligation debt over the years, but bondholder losses have been relatively small in comparison to the overall market, and recovery values have tended to be higher than for revenue bonds.

•           Revenue bonds are bonds tied to a particular project or agency. Since revenue may come from a specified tax, a particular user fee or toll, or a lease payment. Revenue bonds tied to commercial projects may carry additional risks if a tenant in the project becomes bankrupt.

Many other factors impact the risk and reward potential of any specific municipal bond. Among them are the availability of collateral or insurance to secure repayment and the health of the economic environment for the bond issuer. These factors are usually reflected in credit ratings. They may also be reflected in the prices of bonds relative to others in the market.

Let me work with you and help you assess the value of a specific bond for your investment needs and risk profile.

As with all fixed income securities, interest rate risk is a consideration, especially as our forecast is calling for a rising interest rate environment.

Footnotes/Disclaimers

 

1Moody’s, US Municipal Bond Defaults and Recoveries, 1970-2013, May 7, 2014.

 

2SIFMA market estimate is as of December 31, 2013, published on July 7, 2014, and retrieved from http://www.sifma.org/research/statistics.aspx on July 7, 2014.

 

 

Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer.

 

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state of residence and, if applicable, local tax-exemption applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability. The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value.

 

Insurance for bonds is subject to the claims paying ability of the insurer.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp

Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 1015412 (09/14)

 

Declaring Credit Independence During and After Divorce

by Elizabeth Camp

Distractions and financial pressures can multiply during divorce, along with the likelihood of making late payments or missing them altogether. Managing your credit may be something new to you if your former spouse handled your family’s finances, but it is a critical skill to develop when you are on your own.

Check your credit report.  A good credit report translates into financial flexibility.  Equally important, credit scores are used by many types of organizations for purposes that extend beyond credit.  For example, insurance companies and prospective employers may request authorization to review your credit reports as a qualifier for employment or coverage.

Note the word “reports.”  There are three primary credit reporting agencies that monitor your credit: Equifax, Experian and TransUnion. You are entitled to request a free credit report from each of these agencies once a year. Because each company scores your credit and reports it slightly differently, it is important to check all three. Fortunately, that is not as complex or time consuming as it sounds.  One easy and free way to start is to visit this government approved website: www.annualcreditreport.com/cra/index.jsp.

Your credit report will be based on a number of factors, the most important being your payment history. If you and your spouse were both listed on an account, payment history for that joint account will influence your individual credit score. That will continue to be true for as long as your name is associated with an account.

You have the right to correct errors on your credit report, and it is important that you do so as quickly as possible — but you won’t know about the errors unless you request the report.

Protect Your Credit. Joint credit is usually not appropriate after divorce, since there is a risk that your credit rating can be damaged by the actions of your former spouse. One way to protect yourself is to close joint credit cards and other joint accounts. Remember, even after your divorce, if you signed the original credit application, you can be held responsible.

Here are the rules regarding joint accounts, as summarized by the Federal Trade Commission:

By law, a creditor cannot close a joint account because of a change in marital status but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation. E

Establish your own credit. One of the first things you can do to establish credit is to open your own bank and investment accounts. If you work with a financial advisor, he or she may be able to help you establish credit as part of that relationship. If your credit reports are strong, you may want to apply for credit cards and store accounts in your own name. A secured loan, such as an auto loan, is often a faster and easier way to establish an independent credit history than an unsecured account.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article byMorganStanleySmithBarneyLLC. Courtesy ofMorganStanleyFinancial Advisor.

 

Articles are published for general information purposes and are not an offer or solicitation to sell or buy any securities or commodities. This material does not provide individually tailored investment advice.  Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 951233 [06/14]

 

 

 

 

The Reality of Alimony

by Elizabeth Camp

As with most things related to divorce, alimony laws vary from state to state. Fundamentally, however, alimony — also known as “spousal support”— is a monthly payment that one former spouse is required to make to the other as part of the divorce settlement.

There are four types:

  • Temporary support is paid during a separation before the divorce is final. It is likely to change, or cease altogether, depending on the final agreement.
  • Rehabilitative support is also temporary in that it is designed to last until you become self-supporting.
  • Permanent support lasts until the death of either former spouse, or until you remarry or begin living with another person. (Keep in mind that permanent alimony can be increased or decreased by a court, and that there has been recent discussion of reducing alimony when the paying spouse reaches retirement age.)
  • Reimbursement is designed to repay you for specific expenses you helped pay during the marriage, such as the cost of medical or law school for your spouse.

Courts usually award alimony based on a number of factors, including how long you were married, your pre-divorce lifestyle (which makes a pre-divorce budget important), the disparity in earnings between spouses and the health of the receiving spouse.

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article byMorganStanleySmithBarneyLLC. Courtesy of Morgan Stanley Financial Advisor.

 

The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley Smith Barney LLC (“Morgan Stanley”).  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she  is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 951297 [06/14]

 

 

 

 

Transferring Wealth With Spousal IRAs

by Elizabeth Camp

An IRA offers married couples some powerful tools to share their wealth efficiently and preserve their tax benefits for as long as either spouse survives. But you should tread carefully to take full advantage. Here are the highlights:

 

An easy place to start is with the beneficiary designation on the account, so be sure that the official paperwork associated with your account reflects your intentions. As a designated primary beneficiary, a spouse would receive his or her assigned share as the same type of IRA as the owner had (Roth or traditional) when he or she died. What is more, when you use the beneficiary process to convey IRA assets, you generally supersede the provisions of any wills or probate proceedings.  The distribution options available to beneficiaries will differ depending on the beneficiary type: spousal, non-spousal (i.e. children) or a non-living entity such as a charity or trust.

 

IRAs created as a result of the beneficiary process are known generically as inherited IRAs. A living individual who is a beneficiary can (a) cash out an inherited IRA in full, paying all taxes due immediately, (b) begin taking required minimum distributions under a schedule determined typically by the beneficiary’s age and continue to defer a portion of the tax liability, or (c) if the IRA owner died before reaching April 1st of the year following the year in which he or she would have turned age 70 ½, withdraw the entire interest in the inherited IRA (in a single or multiple payments) no later than the end of the calendar year containing the fifth anniversary of the IRA owner’s death . New contributions are not permitted to an inherited IRA, and the assets would not be protected from creditors’ claims in bankruptcy.

 

A spouse has additional options–to retitle the IRA as his or her own if he or she was the sole designated beneficiary of the IRA or roll it over to his or her own IRA.  As the spouse’s own IRA, it can accept new contributions, and distribution requirements would be determined by the spouse’s age and circumstances. The spouse’s own IRA would also be generally protected from many bankruptcy claims.

 

All of these choices have complex tax considerations and important deadlines. I can help you weigh your options and navigate the procedures to carry out your intentions.

 

Sources:

 

Internal Revenue Service, “Retirement Topics – Beneficiary,” retrieved June 13, 2014.

Forbes, “Supreme Court Finds Inherited IRAs Not Protected In Bankruptcy,” June 12, 2014.
If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged LifeMeisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 973998 [07/14]

 

 

The Family Business: The Key to Preservation Is Planning

by Elizabeth Camp

Business planning involves a complex array of personal, legal and financial decisions. To execute an effective plan, small business owners typically need an integrated team of financial professionals to guide the process.

Some Common Transfer Strategies

Many strategies are available to assist small business owners in transferring–and preserving–both business and personal wealth while also minimizing tax consequences. Following are general descriptions of a few of the more commonly used instruments.

Family Limited Partnerships (FLPs) are used by business owners to shift income and equity to the next generation without surrendering management control. Assets placed in an FLP are converted to “limited partner” and “general partner” shares. As the general partner, the owner retains control over the business.  The limited partnership interests are gifted to beneficiaries, generally at a discount from the underlying value of the business.  The ability to apply a discount results in reduced gift tax liability. The discount applied to the limited partnership assets results from the fact that the limited partnership interest  are restricted–less liquid, harder to sell–and consequently, their value can be  discounted for tax purposes.1

Grantor Retained Annuity Trust (GRAT) is a type of irrevocable trust that allows a business owner to gift assets to the trust, retain an income stream from the trust for a period of years, and pass the appreciation in the value of the business free of tax to his or her beneficiaries at the end of that period.  However, in order for the GRAT to work as intended, the business owner must outlive the term of the trust.

Life insurance is used by many family-owned businesses to transfer assets and/or fund estate taxes, either through an irrevocable life insurance trust or in connection with a buy-sell agreement.

Private annuities allow business owners to transfer the business to another family member in exchange for a lifetime stream of income. By doing so, the owner removes the value of the business from his or her estate (and relinquishes interest in the business).  In order to be effective, the  value of the annuity must equal the value of the business.

Systematic Gifting removes future appreciation of the gifted assets from your estate and may enable you to take advantage of valuation discounts. The current gift tax annual exclusion amount is $14,000.  This means that a gift of $14,000 can be made to as many people as you wish without incurring any gift tax or the need to file a gift tax return.2

When a business is a central part of the wealth equation, transfer strategies such as those outlined above represent just a small part of the planning that is required to ensure a smooth passing of wealth from one generation to the next. Other equally important elements include a business valuation and net worth assessment, a contingency plan to protect the business and the owner’s family in the event of sudden death or disability, and liquidity strategies to help the owner facilitate other financial goals.

If you count yourself among the many business owners who have navigated their companies through the past several years of economic hardship and are ready to pass the baton on to the next generation, contact your CPA, legal counsel and/or tax planning professional to explore the opportunities and challenges involved in implementing the best wealth transfer strategy for you and your family.

 

Sources:

 

1Inc. Encyclopedia, Family Limited Partnership.

American Institute of CPAs, “Family Business Succession Planning.”

Journal of Accountancy, “Wealth Harvesting: More Than Just Retirement or Succession Planning.”

 

2Formulating Your Business Succession Plan, Morgan Stanley,  CRC611116 (1/2014).

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged LifeMeisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

Individuals should consult their personal tax and legal advisors before making any tax or legal related decisions.  Morgan Stanley and its Financial Advisors do not provide tax or legal advice.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 973980 [07/14]

 

 

Roth Conversions for Estate Planning

by Elizabeth Camp

One decision frequently faced by retirees planning their estate is which accounts to use and which to bequest to beneficiaries. Certain accounts or assets make more sense to leave to heirs than others. For instance, it is generally a good idea to include highly appreciated assets in an estate since estate-tax rules typically permit a step-up in tax basis, potentially avoiding capital gains taxes.

 

Roth IRAs are also good accounts to leave to heirs. Because you pay the taxes on the converted amount, future distributions are tax free if certain conditions are met and your designated beneficiaries can typically stretch distributions from a Roth over their lifetimes, allowing the investment to continue to grow tax free. Although distributions from traditional IRAs can also typically be stretched over the beneficiary’s lifetime, he or she must pay taxes on all distributions at ordinary income rates (except to the extent a distribution is treated as a return of after-tax amounts, e.g., nondeductible contributions) and there is no step-up in tax basis.1

 

Accordingly, if you have a traditional IRA, and you don’t need the money for living expenses, it may make sense to convert all or part of it to a Roth IRA to grow your retirement assets potentially tax-free and help benefit your heirs. Although converting will result in a one-time tax bill for all taxable amounts converted (taxed at ordinary income rates), the future tax benefits to you and your heirs may more than offset this payment.

 

The critical factor is time. For instance, if your designated beneficiaries plan to take large distributions quickly, there may be little or no benefit from converting. But if they will be stretching distributions out over a long period, the tax savings can be significant.

 

One common scenario is to convert a traditional IRA to a Roth, then name a younger relative as the account beneficiary. Although the beneficiary would generally be required to commence distributions by December 31 of the year after the IRA owner died,1 he or she may be able to stretch out such distributions over their lifetime, permitting a long period of potential tax-free growth.

 

Choosing and naming beneficiaries is critical if such a scenario is to save taxes. To give heirs maximum flexibility, it is a good idea to name both primary and alternate individual beneficiaries. Your primary beneficiary then has the option of “disclaiming,” or turning down, the account, enabling it to pass to the younger alternate. It is also wise to make sure your named beneficiary does not intend to take significant distributions up front, but will let the account grow over time. Otherwise, the tax benefits to the heir may not be sufficient to offset the tax you pay on conversion.

 

By contrast, if an estate is named as beneficiary, tax deferral is cut short. If it’s a Roth IRA, all funds must be withdrawn within five years. For a traditional IRA the same rule applies unless the former owner was already 70½ — the age at which a traditional IRA owner must begin taking required minimum distributions each year. In that case the distribution rate for the estate is based on the age of the person who died, but the estate may need to liquidate the account sooner in order to close the estate.2

 

Keep in mind that both traditional and Roth IRAs are counted as part of your taxable estate. If your total estate exceeds $5.34 million in 2014, estate taxes may be due, unless left to a spouse.

 

Tax rules governing inherited IRAs are complex, so make sure you work with a qualified estate planner and financial advisor, who can help you decide if converting to a Roth makes sense for your estate plan.

 

Sources:

1Internal Revenue Service, Publication 590, Individual Retirement Arrangements, http://www.irs.gov/pub/irs-pdf/p590.pdf.

2Forbes.com, Inherited IRA Rules: What You Need To Know, May 1, 2013.

http://www.forbes.com/sites/deborahljacobs/2013/05/01/inherited-ira-rules-what-you-need-to-know/

3Internal Revenue Service, Estate Taxes, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax.

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

A Roth Conversion may not be right for everyone. There are a number of factors taxpayers should consider before converting, including (but not limited to) whether or not the cost of paying taxes today outweighs the benefit of income tax-free Qualified Distributions in the future. Before converting, taxpayers should consult their tax and legal advisors based on their specific facts and circumstances.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged LifeMeisters to feature this article.

 

Elizabeth Camp may only transact business in states where she  is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 974063 [08/14]

 

 

Bridging the Retirement Gap

by Elizabeth Camp

Early retirement can be a dream or a nightmare. It’s a dream if you’re healthy enough to enjoy the leisure pursuits you want and if you have the resources to fund them. It could be a nightmare if you’re forced out of the job market by ill health or disability, or you can no longer find meaningful employment. Either way, planning ahead will help you make the best of your situation.

 

Retiring Early by Choice?

You’ve worked hard, saved diligently, and your retirement fund is flush, so you want to enjoy the fruits of your lifelong labors. Here are some of the things you should think about as you embark on this journey:

 

  • Setting your withdrawal strategy should be a high-priority item. Do it correctly and you can be positioned to meet the financial needs of the future head on; take too much too quickly and you could find yourself without the tools to address unforeseen needs. You’ll want to lay out a blueprint for how much you can appropriately withdraw each year. You should also consider constructing a portfolio optimized to provide stable income flow and the flexibility to adapt to changing market conditions.
  • You will probaberly need to obtain individual health insurance to meet the terms of the Affordable Care Act (ACA), at least until you reach age 65 when Medicare takes over. HealthCare.gov can get you started and show you a range of options, or you can deal directly with insurance carriers.
  • The question of when to collect Social Security has no simple answer. You must wait until at least your 62nd birthday before you can begin collecting. But generally speaking, the longer you put off starting after that point, the more you’ll receive each month. You can use the Social Security Estimator to see how different scenarios might play out. Once you do take your first Social Security benefit check, the decision is effectively irrevocable except for certain limited circumstances. So consider your financial resources and your general health status carefully when you start weighing these possibilities.

 

When Retirement Is Thrust Upon You

There is a fair possibility that your last years of work life may not go as planned. In fact, 49% of retirees told the EBRI Retirement Confidence Survey that they had to retire sooner than they originally expected.1 When the U.S. General Accounting Office (GAO) examined census reports, they found that ill health, obsolete job skills and the death of a spouse were the biggest drivers of early retirement.2 If you are find yourself in this group, where does it leave you? With some difficult choices, certainly, but you are not without options:

 

  • Social Security says its payout formulas are set up so that someone living to the actuarially normal life expectancy would end up with the same total lifetime benefit amount regardless of what age he or she began collecting benefits.
  • Health insurance for individuals may be more widely available now than it ever has been, especially for people who’ve lost their employer-sponsored coverage but are still too young to qualify for Medicare. HealthCare.gov can show you a range of potentially subsidized options.
  • Consider ways to minimize your taxable income until you reach age 65 to help you qualify for health insurance subsidies under the ACA..

 

Remember, retiring early poses some unique challenges. I can help you focus on choices that might work well for you.

Sources:

 

1The 2014 Retirement Confidence Survey, Issue Brief 397, Employee Benefit Research Institute, March 2014.

2Retirement Security, U.S. Government Accountability Office, Report GAO-14-311, April 2014.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or elizabeth.camp@ms.com

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she  is registered or excluded or exempted from registration. http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 978401 [08/14]

 

 

Active vs. Passive Funds: It’s More Than Just Fees

by Elizabeth Camp

Since the first index fund was invented in 1975, the debate has raged between active and passive investing styles.

Passive investors adhere to the principal of market efficiency, which holds that all information available about a company is reflected in its current stock price. Rather than trying to second-guess the market, passive investors buy the entire market, or a specific segment of it, via index funds.

Active investors counter that the market is not always efficient and that through research, active fund managers may be able to uncover information not already reflected in a security’s price and potentially profit by it. A less-than-efficient market, they reason, favors active stock selection.

Which is better? That depends on what you look at.


Performance

Over the years, numerous performance comparisons have been made between the two styles. Most have found that in the aggregate, passive outperforms active, especially after fees are taken into consideration. One of these, Standard & Poor’s SPIVA® (S&P Indices Versus Active Funds) U.S. Scorecard, found that 57% of all actively-managed domestic equity funds underperformed their benchmarks after expenses during the 10 years ended Dec. 31, 2013.1

But the results are more mixed during shorter time periods or when different segments or investing styles are examined. For instance, although actively managed large- and small-cap funds underperformed their benchmarks in 2013, actively managed midcap funds outperformed, as did actively managed growth funds in the large-cap, midcap, and multi-cap categories.1

Fees

Actively managed funds generally charge higher annual expenses than their index-based cousins. As of December 31, 2013, the average dollar-weighted expense ratios of actively managed domestic large-cap, midcap, and small-cap funds was 0.80%, 0.97%, and 1.03% respectively. By comparison, the index versions of these fund categories charged 0.13%, 0.23%, and 0.23% respectively.2 Although fee ratios for actively-managed funds have been trending down in recent years, they are still well above those of passive funds and are likely to remain so given that they require higher research and management costs and are consequently more expensive to run.

Takeaways for Investors

Although aggregate, long-term performance and fees both favor passive over active, there are some important points to be made in favor of active management. In certain segments, such as growth and international small-cap equity, active managers have tended to outperform the benchmarks more frequently, often when the economy and financial markets are in a state of flux.1 While active management cannot guarantee market-beating returns, it does offer the potential to capitalize on market shifts and the flexibility to take advantage of different investing strategies. Active managers also appear to have the edge in markets that are not efficient and when implementing investment strategies that are complex and fast moving. Such circumstances can pose issues for index funds, which typically must adhere to a predetermined set of rules and may not be able to respond as nimbly as active managers.3

In practice, a blended approach may be the best answer. Consider index funds for efficient markets and active management for less efficient areas. When the broad market turns volatile, adding a defensive, actively traded fund to a portfolio of index holdings may help to smooth out bumps and moderate overall portfolio risk. Alternatively, passive investors can potentially build risk management into their portfolios by diversifying among a range of index funds covering a wide, varied swath of the market.

Keep in mind that how you construct your portfolio should consider much more than performance and fees. Let me work with you to find the mix that best suits your situation.

 

Sources:

1S&P Dow Jones Indices, “S&P Indices Versus Active Funds (SPIVA®) U.S. Scorecard,” March 20, 2014.

2Morningstar. Based on the dollar-weighted average expense ratios for all funds tracked by Morningstar within each category.

3The Wall Street Journal, The Experts: When Does Active Management Make Sense? April 21, 2013.

 

Index Funds are offered by prospectus.  It is not possible to directly invest in an index.

 

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund before investing.  To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website.  The prospectus contains this and other information about the mutual fund.  Read the prospectus carefully before investing.

 

The investor should note that funds that invest exclusively in one sector or industry involve additional risks.  The lack of industry diversification subjects the investor to increased industry-specific risks.

 

Diversification does not ensure a profit or protect against loss in declining financial markets.

 

Equity Securities’ prices may fluctuate in response to specific situations for each company, industry, market conditions, and general economic environment.

 

Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.

 

Small Capitalization Funds are managed aggressively and typically carry more risk than stock funds investing in well-established companies.

 

International investing involves certain risks, such as currency fluctuations, economic instability and political developments. 

Past performance is not indicative of future results.

 

This material does not provide individually tailored investment advice.  It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.  The securities discussed in this material may not be suitable for all investors.  Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 930688 [05/14]

 

 

Putting a Perspective on Inflation

by Elizabeth Camp

The term “inflation” figures importantly in discussions of finance and investment. But many kinds of numbers may be bandied about, and they don’t all mean the same thing. Here’s an overview of the principle measures of inflation:

 

  • The Consumer Price Index (CPI) measures the changes in price for fixed baskets of common consumer goods and is intended to show how changing prices impact consumer spending power from month to month.

 

The CPI assumes that the consumer would be buying the same quantities of identical goods each month. As a result, the CPI does not fully capture the impact of structural changes on individual buying behavior, such as purchasing a more fuel-efficient car in response to a spike in energy prices. Many consumers use changes in spending patterns to free up resources and lessen the impact of inflation on other priorities.

 

The CPI also assumes that each price change hits every consumer equally. However, some consumers may bear the brunt of some price changes disproportionately. For example, a sharp change in home prices would not have any immediate effect on most homeowners’ actual monthly spending priorities even though the change would impact reported CPI.

 

  • The GDP Implicit Price Deflator shows how changes in price levels impact the economy from quarter to quarter. It was developed by economists who wanted to see how much of any given change in GDP represented real growth in output, and how much was simply the result of changes in prices.

 

The deflator uses price comparisons for every element included in GDP and weights those comparisons according to the item’s weight in the latest economic snapshot. As a result, the deflator is instantly responsive to shifts in economic patterns, affording increased influence over the inflation tally to growing sectors and decreased influence to contracting sectors.

 

  • The Chained CPI is the newest inflation benchmark, existing in its current form for little more than a decade, compared with the century’s worth of history in the original CPI. Where the original relies on inflexible formulas and rigid weighting, the chained CPI is meant to capture the effects of consumer substitutions. For the years when the chained CPI has been calculated side by side with the original CPI, the chained CPI has generally shown lower inflation. Economists debate which metric better captures consumer experience.

 

Measured across the grand sweep of the economy’s ups and downs, average inflation has appeared moderate. Over the long term, there appears to be little practical distinction between measurements produced by the CPI and the GDP deflator. But narrow the focus and important distinctions can appear. For example, during crushing price volatility sparked by the OPEC oil price shocks, there were potentially significant differences in the amounts of inflation recorded by each of the metrics.

 

Annualized Inflation for Selected Time Periods by Three Different Metrics1

 

1947-2013(The post-
war era)
1974-1980(The oil
price shocks)
2009-2013(The past five years)
Headline measure:
The Consumer Price Index
3.63% 9.15% 2.05%
Alternative measure:
GDP Implicit Price Deflator
3.25% 7.59% 1.39%
Net difference (0.38%) (1.56%) (0.66%)

 

 

Inflation assessments are embedded in many financial decisions. In retirement planning, underestimating inflation can leave you short of income later in life; overestimating it can lead to unnecessary sacrifice. In the context of evaluating a potential investment, a proper assessment of inflation potential can help determine whether the proposed investment could compensate for the loss of purchasing power as well as the risk you’ve assumed.

 

Understanding inflation trends can be a key to financial and investing success. Using metrics properly is an essential part of that understanding. If you would like to discuss how inflation affects your financial strategies, please call me.

 

Source: 1Bureau of Labor Statistics (Consumer Price Index); Bureau of Economic Analysis (GDP Implicit Price Deflator).

 

The U.S> CPI Index is a measure of the average change in prices over time in a fixed market basket of goods and services.  The index is for all U.S. Urban Consumers, which covers approximately 80% of the non-institutionalized civilian population.  This index is seasonally adjusted.  Seasonal adjustment removes the effects of events that follow a more or less regular pattern each year.  These adjustments make it easier to observe the cyclical and other non-seasonal movements in a data series.  Due to availability this is an estimated return until the 15th business day of each month, which is then revised to the finalized return.

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 931091 [05/14]

Choosing the Right Health Care Plan

by Elizabeth Camp

Maybe you’ll be among the many whose companies are phasing out their employer-sponsored insurance plans (29 million lost employer-sponsored coverage between 2000 and 2012.1) or, you may be starting a business and striking out on your own.

You could join the 5.4 million shopping for health care coverage on one of the new health exchanges set up under the Affordable Care Act.2 Or you could count yourself among the 7.8 million people buying new individual coverage directly from an insurance company.3 Whatever path you take, being an educated consumer can make you a better customer. Here some considerations when shopping for coverage:

  • Insurance premiums are only your upfront costs. They may not be the only health care expenses you’ll have. Deductibles, copayments, coinsurance and out-of-pocket limits vary widely from plan to plan.  Review the entire costs outlined on the plans since low individual deductibles and copayments may be aligned with high out-of-pocket limits, and vice versa. Different treatment scenarios in the same plan can also have dramatically different costs.

 

  • From a plan’s perspective, doctors, hospitals and clinics are not all equal. Insurance plans generally have preferred providers. You’ll get the best financial cost structures only if you go to designated practitioners and institutions. If certain providers are important to you, confirm that they participate in the plans you are considering.

 

  •  Review the specialist referral policies and primary care responsibilities. Some plans require referrals from your primary care physician (PCP) before you can see a specialist, and they may have financial incentives for PCPs to limit referrals.4 What’s more, each plan has its own limits for prescription medication, medical appliances and diagnostic tests. Medication and devices that are important to you may not be covered at favorable reimbursement rates; they may even not be covered at all. Diagnostic tests may be limited to those that the plan defines as medically necessary

 

If you find yourself shopping on a state health care exchange, you’ll find that each plan fits one of five general categories to describe the overall division of costs between you and the plan. Bronze plans pay 60% on average, and you pay about 40%. Silver plans pay 70%, Gold, 80% and Platinum, 90%. So-called Catastrophic plans pay less than 60% of the total average cost of care on average and are available only to young people and those who have a financial hardship exemption.5

 

As you can see, shopping for health care coverage has become complex. I can help you weigh your options carefully.

 

Sources:

1Employer-Sponsored Health Insurance Coverage Continues to Decline in a New Decade, EPI Briefing Paper 353¸ The Economic Policy Institute, Washington, D.C., retrieved 5/21/2014.

http://s4.epi.org/files/2012/bp353-employer-sponsored-health-insurance-coverage.pdf

2New Survey Results Show Significant Decline in the Uninsurance Rate, Press Release, The Robert Wood Johnson Foundation, retrieved 5/21/2014.

http://www.rwjf.org/en/about-rwjf/newsroom/newsroom-content/2014/04/new-survey-results-show-significant-decline-in-uninsurance-rate-.html

3Private Insurance Market Booming, Kaiser Health News, The Kaiser Family Foundation, retrieved 5/21/2014.

http://www.kaiserhealthnews.org/Stories/2014/April/15/private-insurance-market-booming.aspx

4Implementation of Financial Incentive Programs under Federal Fraud and Abuse Laws, Governmental Accountability Office Report GAO-12-355, http://www.gao.gov/products/GAO-12-355, retrieved 5/21/2014.

5https://www.healthcare.gov/how-do-i-choose-marketplace-insurance/#part=2

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration – http://www.morganstanelyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 938999 [06/14]

 

 

Renting vs. Owning — Portfolio Implications

by Elizabeth Camp

If you are one of the 35% of Americans who currently rents versus owns a home, your investment profile is likely different from that of a homeowner.1 Instead of being tied to one very large, long-term asset, renters have the freedom and, one could reasonably assume, more liquidity to pick and choose a broadly diversified portfolio of investments that complement their lifestyle choice and financial objectives.

Weigh some of these renter-friendly investing strategies as you pursue your own version of the American Dream.

Think Past Stocks and Bonds. While traditional investments shape the foundation of most long-term investment portfolios, individuals at higher income levels or with more investable assets may turn to alternative investments.2

Alternative investments include hedge funds, private equity partnerships, commodities, and derivatives, among other vehicles.

Although these investments may differ in their individual risk/return features, they share some common characteristics—namely a historically low correlation to publicly traded stocks and bonds, a high risk-high return profile and a potential lack of liquidity, the chance that an investor may be unable to sell or forced to sell a security at a discount in the secondary market, due to a lack of buyers.

 

For Real Estate Exposure, Consider Real Estate Investment Trusts (REITs) or Rental Properties. REITs feature investment in different types of commercial real estate. A rental property also offers exposure to real estate, with the potential to build long-term equity and take advantage of tax deductions.

 

Turn to Municipal Bonds to Lighten Your Tax Burden. Without access to the attractive tax benefits available to home owners, renters may find municipal bonds, or “munis,” to be a wise investment choice. In general, the interest paid on municipal bonds is exempt from federal taxes and may also be exempt from state and local taxation if they are purchased by residents of the issuing state/municipality. This tax- advantage makes munis particularly attractive for investors in higher tax brackets. Although interest on munis may be tax exempt, any capital gains generated from the sale of a muni bond or bond fund are taxable at the applicable capital gains rate, currently a maximum of 20% for gains from most types of investment assets held over one year.3

 

Maximize Tax-Advantaged Retirement Accounts. Without the significant expenses associated with home ownership renters may be in a better position than homeowners to fully utilize the savings and tax benefits of employer-sponsored retirement plans and IRAs. In 2014, individuals can make pretax contributions of up to $17,500 to a 401(k)—$23,000 if they are age 50 or older, while the contribution limit for IRAs is $5,500, or $6,500 if they are age 50 or older.4

 

Like investing in a home, all of these investing strategies carry their own risks. If you are a renter and looking to diversify your holdings please contact me to discuss the risks and strategies outlined here and how they might work for your situation.

 

Sources:

1National Multifamily Housing Council, NMHC tabulations of 2012 Current Population Survey, Annual Social and Economic Supplement, U.S. Census Bureau (http://www.census.gov/cps). Updated October 2012.

 

2Alternative investments are complex, high-risk instruments with limited liquidity compared with stocks, bonds or mutual funds. In addition most require individuals to have investable assets of $1 million and some require assets of up to $5 million or more. You should consult your financial advisor before investing in any of these products.

 

3 Investors whose taxable income exceeds the thresholds set for the 39.6% ordinary income tax rate will be subject to the 20% long term capital gains rate (for 2014, the threshold is $406,750 for single filers, $457,600 for married filing jointly or qualifying widow(er), $432,200 for heads of household, and $228,800 for married filing separately).”

 

4 IRS, A Guide to Common Qualified Plan Requirements; Publication 590, Individual Retirement Arrangements (IRAs).

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

A security that is usually traded like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.  The risks of REIT investing are similar to those associated with direct investments in real estate: lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change. This information is based upon current federal tax rules in effect at the time this was written. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. This material was not intended nor written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.

 

Interest in municipal bonds is generally exempt from federal income tax.  However, some bonds may be subject to the alternative minimum tax (AMT).  Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence.

 

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration.  http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 925699 [05/14]

 

 

Five Common Estate Planning Mistakes–and How to Avoid Them

by Elizabeth Camp

Estate planning is intricate. Here are the most common pitfalls to avoid and tips on how to avoid them.

Choosing the Wrong People to Fulfill Your Estate Plan

Choosing your fiduciaries is important as creating the plan itself, since your plan won’t work as you intended if your fiduciaries aren’t capable or unwilling to carry out the tasks required from them.  Being the oldest or the smartest child does not necessarily make that child the best choice for executor, trustee, guardian or health care agent; each of these roles has specific expectations that the person appointed must be able and willing to fulfill. Care must also be given to choosing appropriate successors, because the person you name may not be able or willing to fulfill those duties. Avoid this mistake by working with your estate planning attorney to assign the right people or institutions for these different roles.

Not Factoring in Probate

Probate is a legal process that takes place after a person dies. It involves the general administration of his or her estate, including the appointment of an executor, validation of the will, collection and liquidation of assets, payment of debts and taxes, and distribution of the estate’s net assets to beneficiaries. The probate process necessarily involves costs, and can take months, or even years.  It is open to public record and overseen by state courts.

Although a simple will must pass through probate, there are several ways to structure your estate plan to avoid probate. One way is by establishing joint tenancy, whereby all property ownership and title is shared between you and your spouse, child or other party so that, upon the death of the first person, all the property passes directly to the surviving owner without probate. A second way is to establish a living trust, into which ownership of all assets is placed. Upon death, assets are distributed by the trustee to named beneficiaries without going through probate.

Not Keeping Beneficiary Designations Current

Accounts, such as IRAs, employer-sponsored retirement savings plans, or insurance policies offer you the opportunity to name beneficiaries. Typically you will name the beneficiaries when you first open the account. However, you need to periodically review your beneficiary designations to make sure that it still reflects your wishes. It is possible to have beneficiaries who are deceased, or whom you may no longer wish to leave assets to. It is important to remember that any account with a designated beneficiary will not be distributed according to the terms of your Will, but will be distributed pursuant to the beneficiary designations. To insure that the assets are paid to those you wish, keep your beneficiary designations current and coordinated with beneficiaries named in your Will or trust.

Not Having a Health Care Directive

Unless your wishes are spelled out in a health care directive–otherwise known as a living will or health care proxy–you risk having your health care decisions handled in a manner that is not in accordance with your wishes, which may create strife among your loved ones. Establishing a health care directive and naming a health care agent authorizes someone to make health care decisions for you and will help assure that your wishes are carried out.

Procrastinating

Perhaps the most common estate planning mistake is simply putting off your estate planning. You take a significant risk in not having an estate plan in place, regardless of your age or the value of your assets. If you die intestate, your state’s succession guidelines determine your heirs who will receive your property. In many cases, following the state intestacy guidelines will result in a distribution that is not in accordance with your wishes. In the event that you have a dependent child, the state may end up selecting the guardian for your minor child. Begin your estate planning now, then regularly review and update your estate plan to ensure that it continues to reflect your wishes.

 

Planning ahead and working with qualified legal and financial professionals will help you avoid these and other estate planning mistakes.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.camp@ms.com.

 

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstaleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 938534 [06/14]

 

 

Teenagers, Freshmen and Finances

by Jennifer DeSarro

First of all, what do you know about money, specifically yours?  As a psychotherapist, I’m amazed by how little most people know about their own finances.  Yes, most people know about sales that stores have, it’s better to pay off your credit cards monthly rather than carry a balance, etc.  But, ask people about a budget, what percentage they save, spend, or put away for long term, and their eyes glaze over, or, worse, they say, “My wife/husband takes care of all that”. 

Recently I read an article from LearnVest, June, 2012, about managing money and budgeting, which was a quick and easy read, to the point, and just perfect for today’s teenagers who are short on patience since everything they do occurs sooo FAST!  They use a 50/20/30 rule of percentages to teach people how to manage their money which basically says 50% of your take home pay is used for what are termed Essential Expenses, 20% of your take home pay is used for Long Term Savings, and the last 30% of take home pay is for Lifestyle Choices.  And, wait, not so fast; begin amassing a 6 month emergency fund using 1% of the 30% Lifestyle Choices money.

It was the last part that some of my 30 something patients and couples in counseling thought was so helpful, and I’m sharing it with you, hoping it will help your new college freshman long before they reach the ripe old age of 30!  So, exactly what constitutes an emergency?  As one of my young male patients asked, “Finding out only 2 months before my friend’s bachelor party will be in Las Vegas and how can I say No?  We’ve been friends since camp!”  Or the wife of a couple asked, “Can I buy this fabulous lace dress for a wedding we’re invited to that I know his ex-girlfriend will be attending also?”

Unfortunately, neither of those two scenarios constitutes an emergency, albeit that it was obvious how important the causes were to the two people.  Emergencies, according to LearnVest are only any of these 5 occurrences:

1: job loss and you still have to support yourself; 2: especially if you live here in South Florida, major auto repair or purchase of at least 2 new tires; 3: a dental or medical emergency; 4: emergency home expense, like a flood or loss of A/C & you must get a hotel for a few nights; and lastly 5: emergency travel costs, for death or sickness.

Most Millenials take a dim view of what is being said here, saying things like, “Are you kidding?  I’ll never have a life if I don’t get to dip into my emergency savings every now and then!”  And ironically, both parents of teenagers or those with college aged kids and/or these same Millenials say things like, “Well, if any of those things happened, we’d pay for it” and/or “If any of those things happened my parents would take care of it”.

Does this sound like you or someone you know?  Don’t worry you aren’t alone.  Teaching our kids how to become self-sufficient is one of our most important jobs as parents, if not the most important one.  Allowing them the space and opportunity to struggle through and eventually conquer the issue (their finances) gives them a chance to feel the pride of overcoming an obstacle, finding a solution for a difficult problem, and is the stuff self-esteem is made of.   Plus, you as the parent will know you’ve successfully raised a person who can become a contributing member of society.

So Moms and Dads, as your kids are getting ready to go to college at the end of summer, have you sat down and discussed in detail their monthly budget?  Or, even better, do they have a summer job prior to leaving for college and have you discussed what to do with the money they’re going to earn?  Maybe utilizing this summer’s paychecks would be a good way to begin practicing the 50/20/30 rule. 

What do you think?  How do you feel about teaching your kids how to take care of themselves financially?  Can you do the same for yourself?  Do you do the same for yourself? 

 

Jennifer DeSarro is a bilingual Registered Nurse and Psychotherapist in private practice in South Florida. Her experience emphasizes Marriage and Family Therapy utilizing a Biopsychosocial approach, as well as Individual counseling and coaching, Elder care and Parenting training.

Exit Strategies for Small-Business Clients

by Elizabeth Camp

For successful entrepreneurs, the road into the business is often more clearly laid out than the route from involvement. However, a well-drawn roadmap for the endgame can be the difference between achieving success and missing the target on important life goals. As a result, preparing an effective exit plan can provide a valuable service.

 

Laying the Groundwork

Since a viable entrepreneurial exit strategy must take account of both where your client is today and where he or she would like to be in the future, exit planning should start with a comprehensive appraisal of business and personal finances. Many planners have found it valuable to start with a net-worth assessment with their clients. This not only helps to identify all available resources, but it also helps to match those resources against specific goals. (The assessment process may also help you identify potential opportunities for client relationships unrelated to the exit plan.)

Perhaps less objective but no less key to a successful exit strategy is values clarification. For example, if some or all of your client’s children are involved in the business, does your client want them to continue in their current roles or expect that all will move on when the business is sold? Your client might have a clear choice for successor, and so might wish to consider how that choice will impact other family relationships. Keep in mind that many exit plans have foundered because of internecine conflicts. A related area of concern that will form a backdrop for the exit strategy is your client’s vision for life after the event. Is he or she planning to retire? To remain involved as a consultant or part-time executive? To start a new venture in another field? How each of these questions is addressed will direct the practical thrust of the nascent exit strategy.

Finally, a successful exit process should be based on a sound understanding of existing business relationships and provisions. Your client should identify the key professional and executive talent in his or her firm, and then formulate appropriate reward and retention strategies for them.

 

Potential Deal Forms to Consider

The various choices of deal structure each offer unique cost/benefit tradeoffs. Here is an overview of the options:

  • Buy-sell agreement – This arrangement is designed to permit the dissolution of a partnership by setting the parameters for some partners to buy out others. It enables one or more partners to maintain involvement in a business when others might wish to sever their ties to it. A buy-sell agreement requires careful design to ensure that its execution does not work at cross-purposes with other estate and succession planning tools.
  • Cash sale to a third party – A pure cash transaction may create the greatest immediate liquidity for the seller, but other financing structures may have the potential to generate greater net yield over time. A cash sale may also be the simplest means to execute a complete and immediate separation from the business.
  • Buyout or recapitalization – In leveraged transactions, partners, managers, or the business as a corporate entity borrows the funds to purchase the stock of the exiting entrepreneur. These deals may be especially useful for dissolving a partnership while otherwise maintaining the business as a going concern. They are also often used for transferring business responsibility to children or other heirs while creating financial independence from them. Recapitalizations can also be used to finance an annuity for a business owner who might wish to combine financial independence with limited business involvement.
  • Employee Stock Ownership Plan (ESOP) – An ESOP is a form of leveraged buyout designed specifically to give control of the business to a broad base of its current employees. ESOPs may have higher transaction costs than ordinary cash sales, but in many cases these costs are not out of line with the costs of other more complex deals. There are also specific tax benefits for ESOP transactions that may improve their net value significantly.

 

Managing the Proceeds

A key part of any exit strategy is the financial plan for managing the proceeds of the deal in a manner consistent with the client’s post-sale goals. Such plans typically include a blueprint for investing sale proceeds in a diversified portfolio. They also typically include an estate plan crafted to take advantage of the trust structures and tax code features that allow your client to preserve wealth and protect the future interests of heirs. Among the favored devices may be family limited partnerships and grantor retained annuity trusts, which can reduce the estate value of shares passed on to heirs. In addition, many entrepreneurs are interested in charitable remainder trusts. These may be used to fund philanthropic programs that realize specific charitable goals while maximizing tax benefits and minimizing costs.

 

Points to Remember

  1. The sale of a business is only one small transaction at the center of a larger plan often referred to as an exit strategy.
  2. The most successful exit strategies are those that give the business owners the greatest probability of comfort with the results as seen in their financial security, family dynamics, and long-range goals.
  3. There are many options for structuring the sale of the business, and each has different implications for other elements of the broader strategy. Buy-sell agreements can help maintain continuity for remaining partners in a wide range of circumstances. Pure cash transactions typically yield the greatest immediate liquidity. Leveraged transactions may enable managers, partners, or family to take over and maintain continuity for the business. ESOPs can provide tax benefits and empower employees.
  4. Trusts can be valuable tools for managing the income tax and estate planning implications of the wealth derived from a business sale.

 

 

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by McGraw Hill and provided courtesy of Morgan Stanley Financial Advisor.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 557785 [09/12]

 

 

Are You Being Financially Bullied?

by Elizabeth Camp

Financial bullies come in all shapes and sizes: husbands who insist on control of their wives’ money; wives who control finances by manipulating the purse strings; domestic partners who insist on making all financial decisions. In fact, bullying is common behavior. A 2013 survey conducted by Credit Karma found that one-in-10 respondents classified their spouse or live-in partner as a “financial bully.” 1

 

Portrait of a Bully

Couples often argue over money, but sometimes one partner can exhibit behavior associated with financial bullying. By definition, a bully is someone who uses his or her influence or strength to intimidate others and force them to do what they want. Financial bullies control household finances by restricting access to accounts, limiting spending and withholding money. Typical bully behaviors include making their partners show receipts for all purchases, preventing them from having credit cards, making them feel guilty for shopping, or requiring them to live on an allowance. Bullies may even threaten to leave knowing this would place their partner in financial trouble.

The young are especially vulnerable to financial bullying, according to the Credit Karma survey, which found that:1

  • Those aged 18 to 34 are three times more likely to say they are financially bullied than those aged 55 or older.
  • Those with children under the age of 18 in the household are more likely to classify their mate as a bully than those who don’t live with children.
  • Over one-fifth of married 18- to 34-year-olds surveyed said they would get a divorce “if money were no object.”

 

What to Do About It

If you think you are being financially bullied, there are ways to take back control of your finances. First, discuss your concerns with someone you trust, sharing with them the specific behaviors you have encountered. An objective ear will help you better gauge how real or severe the problem actually is.

Next, consider involving a third party such as a financial advisor when making major financial decisions. He or she can effectively act as a facilitator, and can help you formulate mutually satisfactory goals and strategies.

Finally, look for ways to build trust between you and your partner. Finances, like other aspects of a relationship, are best tackled with transparency and communication, and mutual trust is a critical first step.

 

Source:

1CreditKarma, Is Your Partner a Financial Bully?, 2014

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 914742 [05/14]

 

 

Key Tax Changes for 2014

by Elizabeth Camp

Although taxpayers this year will not face the dramatic changes they did in recent years as a result of the Tax Relief Act of 2012, they will still encounter several important changes, including those associated with implementation of the Affordable Care Act (ACA) and the extension of joint-filing rules to married same-sex couples. Below is a summary of some of the key changes you’ll want to be aware of.

Health Insurance Subsidy

For 2014, a new credit is available to eligible taxpayers who obtain qualifying health insurance by enrolling through either a state or federal Health Insurance Marketplace established under the ACA. You are potentially eligible if your household income is between 100% and 400% of the federal poverty line and you don’t have access to employer-sponsored affordable coverage. The allowable credit can vary widely depending on your specific circumstances.

The credit can be paid by the government directly to your insurance company to lower your monthly premiums or it can be claimed when you file your federal income tax return. Any differences between what you receive in the form of reduced insurance premiums and the credit you’re actually entitled to for the year will be reconciled when you file your 2014 return sometime next year. In other words, if you collect more than you’re entitled to, you’ll have to pay back the excess with your return. Note that the credit is first used to reduce your 2014 federal income tax bill. After your tax bill has been reduced to zero, any remaining credit can be either refunded to you in cash or used to make estimated tax payments for 2015.

 

Health Insurance Penalty

If your health insurance coverage is lacking or insufficient, the IRS will impose a tax penalty—$95 per uninsured adult and $47.50 per child (up to $285 for a family), or 1% of income in 2014, whichever is greater. Any penalty will be assessed when you file your tax return on the basis of proof-of-coverage documentation, which you will need to file with your tax return. Note that there are a number of exceptions to the penalty, such as one for eligible lower-income individuals and one for those whose existing health insurance plans were canceled.

 

Higher Threshold for Medical Expense Deductions

Starting in 2014, taxpayers who itemize face a higher threshold for deductible healthcare expenses. You may now deduct only those expenses that exceed 10% (previously 7.5%) of your adjusted gross income, or AGI. People aged 65 and over, however, may continue to use the 7.5% threshold through tax year 2016, at which time they will default to the 10% framework.

 

Joint Filing for Same-Sex Spouses

Because the Supreme Court struck down the Defense of Marriage Act, any couple with an official marriage license is now treated as “married” for all federal tax matters. All married couples—regardless of gender—are expected to file their federal income tax returns as “Married Filing Jointly” or “Married Filing Separately.” This policy applies to any couple with a properly issued marriage license from any U.S. state or territory, or any foreign jurisdiction, and it applies whether or not the couple currently lives in a state that recognizes their marriage. Accordingly, same-sex married couples may take advantage of the same deductions, tax credits and other rules that apply to joint filers.

 

Expiring Tax Deductions and Credits

The following expired at the end of 2013 and will not be available for 2014 taxes.

  • A deduction for teacher out-of-pocket costs for school and classroom-related supplies.
  • A deduction for qualified tuition and related expenses that you paid for yourself, your spouse, or a dependent.
  • Tax credits for a number of energy-efficient home improvements, including up to $500 for the installation of qualified insulation, windows, doors and roofs as well as certain water heaters and qualified heating and air conditioning systems.
  • The provision that allowed residents to deduct state and local sales and use taxes instead of state and local income taxes on their Schedule A.
  • The provision that allowed seniors to make direct gifts to a qualifying charity of up to $100,000 from their individual retirement accounts (IRAs) without reporting it first as income.

 

There are many other changes in addition to these. Work with your tax accountant to find which might impact you. And please contact me to find ways to help reduce your tax bill through tax-advantaged investments such as municipal bonds and qualified investment accounts.

 

Sources: Tax information was compiled from the following: Internal Revenue Service (IRS) Affordable-Care-Act-Tax-Provisions; IRS HCTC: The Premium Tax Credit; Forbes, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More, January 5, 2014.

 

http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions

http://www.irs.gov/Individuals/HCTC:-Latest-News-and-Background

http://www.irs.gov/uac/The-Premium-Tax-Credit

http://www.forbes.com/sites/kellyphillipserb/2014/01/05/what-you-need-to-know-about-taxes-in-2014-expired-tax-breaks-obamacare-penalties-more/

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com.

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account, their tax advisors for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 916189 [05/14]

 

 

Protect Yourself from Identity Theft

by Elizabeth Camp

Millions of Americans fall victim to identity theft each year—and their financial losses are in the billions. In 2012, an estimated 16.6 million Americans experienced identity theft, causing losses of $24.7 billion.1

What can you do to help reduce your chances of having your identity stolen? The steps below can help you prevent significant losses.

  • Never divulge your credit card number or other personally identifying information over the Internet or telephone unless you initiate the communication.
  • Reconcile your bank account monthly, and notify your bank of discrepancies immediately.
  • Actively monitor your online accounts to detect suspicious activity. Report unauthorized financial transactions to your bank, credit card company, and the police as soon as you detect them.
  • Review a copy of your credit report at least once each year. Notify the credit bureau in writing of any questionable entries and follow through until they are explained or removed.
  • If your identity has been assumed, ask the credit bureau to print a statement to that effect in your credit report.
  • If you know of anyone who receives mail from credit card companies or banks in the names of others, report it to local or federal law enforcement authorities.

Finally, be very wary of any email or text message expressing an urgent need for you to update your personal information, activate an account, or verify your identity. Practice similar caution with email attachments and downloadable files and keep your computers protected with the latest security updates and virus protection software.

 

Source:

1Source: Bureau of Justice Statistics, December 2013.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045 or Elizabeth.Camp@ms.com

 

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration http://www.morganstanleyfa.com/camp Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

©2014 Morgan Stanley Smith Barney LLC. Member SIPC.

 

CRC 914845 [05/14]

 

 

7 Great Ways for Parents of High School Students to Spend Their Tax Refunds

by Mandee Adler

According to the Internal Revenue Service, the average tax refund this year is roughly $3,000.  Here are some great suggestions on what to do with the refunded money for parents of teenagers who plan to attend college:

1. Pay for tutoring. The importance of grades for colleges cannot be ignored.  The GPA is the single most important part of a college application. Not only that, colleges want to see a challenging high school curriculum. If a student needs help in one or more subjects, spend some money on tutoring. (It may even pay off more in the form of scholarships.)

2. Put money into a 529 plan. Even if a child will be a junior this year, it’s not too late to make a tax-preferred investment for college. Many states provide a tax deduction for 529 contributions even if it is only a short time investment.

3. Invest in a summer enrichment program. Summer enrichment programs can help propel students toward college, as well as help them gain acceptance into a school of their choice.  Students can explore a subject of interest or bolster volunteer work credentials.  There are programs for all interests, including engineering, career exploration, robotics, entrepreneurship, women’s leadership, music, drama and test prep.  Nearly every school, including the Ivies, offers a summer program for high school students, allowing students to experience life on a college campus.  Some programs offer college credit.

4. Go for the test prep. Next to grades, test scores are one of the most important factors in college admissions. Look into test prep courses with a (SAT word alert) splendiferous SAT, ACT, SAT Subject Test, AP and/or TOFEL tutor who can help boost a student’s confidence and increase the test scores.

5. Visit colleges. College visits can be costly but worthwhile. A student just may find their top-pick school is nothing like they imagined. Visiting a school may also increase chances of gaining admittance and of getting a better award package, if only slightly. Taking the time to tour campus shows commitment.

6. Encourage summer college courses. Summer college courses can give a student the opportunity to attend school classes with undergraduate students or other select high school students and earn college credits.

7. Hire an independent college counselor. An expert college advisor like one at International College Counselors can give a student the individualized attention to properly tackle the college admission process. From help choosing colleges, going on interviews, editing essays and applications, refining extracurricular activities and more, an expert private college advisor gives students the tools they need to find and get into the college of their dreams.

FOR MORE INFORMATION

International College Counselors is an independent college admissions company that helps students in the U.S. and all over the world find, apply to, and gain acceptance into the college of their dreams. The college counselors are dedicated to helping students and their families successfully navigate the college admission process. For more information on International College Counselors or to contact an expert college counselor, please visit www.internationalcollegecounselors.com or call 954 414-9986.

Five Strategies for Tax-Efficient Investing

by Elizabeth Camp

With higher top tax rates now in effect, it may be time to ask yourself: Are you doing everything possible to improve your portfolio’s bottom line through tax-efficient investing? Here are five tried-and-true strategies to help lower your tax bill while improving your net return.

 

Take Advantage of Tax-Sheltered Accounts

To encourage Americans to save for retirement, Uncle Sam offers tax incentives in the form of IRAs, 401(k)s, 403(b)s and other qualified retirement savings plans. These accounts provide the opportunity to defer paying tax on contributions and earnings, or to avoid paying taxes altogether on earnings, depending on the type of vehicle you choose.

By contributing as much as possible to these accounts, you can realize significant savings over time. For instance, contributing $400 per month to a traditional IRA will save you nearly $22,000 in taxes over 20 years, assuming a 5% annual return and 25% tax rate.1 (Taxes, however, will be due on distributions at the time you make withdrawals.)

For 2013, you can contribute up to $5,500 to a traditional or Roth IRA. And if you’re over 50, you can contribute an extra $1,000. For employer-sponsored retirement savings vehicles such as 401(k) or 403(b) plans, you can contribute up to $17,500 in 2013 and an additional $5,500 if you’re over 50.

But keep in mind that most withdrawals prior to age 59½ from a qualified retirement plan or IRA may be subject to a 10% federal penalty in addition to any taxes owed on contributions and accumulated earnings.

Turn to Municipal Bonds for After-Tax Yield

 In today’s low-rate environment, finding yield can be a challenge. Rates on high-quality corporate bonds have hovered at historical lows, and the yield on US Treasuries has not topped 4% since 2008. While municipal bonds, or “munis,” are no exception, they carry one significant advantage: Interest paid by muni bonds is generally exempt from federal and, in some cases, state and local taxes.

Consider this: A municipal bond yielding 4% translates to a tax-equivalent yield of 5.33%, assuming a 25% tax rate. In other words, you would need to earn 5.33% on a taxable bond to receive the same after-tax yield as a 4% municipal bond.

Remember, however, that any capital gains arising from the sale of municipal bonds are still taxable (at capital gains rates), and that income from some municipal bonds may be taxable under alternative minimum tax rules.

Avoid Short-Term Gains

Before you sell an investment, check to see when you purchased it. If it was less than one year ago, any profit will be considered a short-term gain. If it was more than one year ago, the profit will be considered a long-term gain. That’s important because long-term capital gains are taxed at significantly lower rates than short-term capital gains, especially if you’re in a high tax bracket.

 

•           Short-term capital gains are taxed at ordinary income rates which can be as high as 39.6%.

•           Long-term capital gains are taxed at a maximum rate of 20% in 2013.2

 

Considering those different rates, it can pay to look at the calendar before you sell a profitable investment. Selling just a day or two early could mean that you’ll incur significantly higher taxes.

 

Make the Most of Losses

As most taxpayers know, the IRS lets you use long-term capital losses to offset long-term gains. In any given year, you can minimize your capital gains tax by timing your losses to correspond with gains. What’s more, you can carry forward unused losses to future years, and use them to offset future gains, subject to certain limitations.

You can also offset up to $3,000 of unused capital losses per year against ordinary income. So before taking a long-term capital loss, consider the timing of gains as well as ordinary income.

Get a Professional’s Perspective

Keeping an eye on taxes is a prudent way to try to enhance your investment returns over time. However, tax laws are complex, subject to change and may have implications you haven’t considered.

 

Footnotes/Disclaimers

 

1Example assumes monthly pre-tax contributions of $400 over a 20-year period, a 5% annual rate of return, compounded monthly, and a marginal tax rate of 25%. Example is hypothetical. Your results will differ.

2Does not take into consideration Medicare tax on certain unearned net investment income or state or local taxes, which will vary.

 

If you’d like to learn more, please contact Elizabeth Camp at 954-762-3045.

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

 

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of MorganStanley.  The information and data in the article or publication has been obtained from sources outside of MorganStanleyand MorganStanleymakes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of MorganStanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

 

Tax laws are complex and subject to change.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under such account.

 

 

Morgan Stanley Financial Advisor(s) engaged Life Meisters to feature this article.

 

Elizabeth Camp may only transact business in states where she is registered or excluded or exempted from registration. http://www.morganstanleyfa.com/camp  Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Elizabeth Camp is not registered or excluded or exempt from registration.

 

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC.

 

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