Starting the New Year on sound footing

Augusta, GA (WJBF) -- With the holidays upon us, the last thing many of us want to think about is finances. We are more focused on the season of giving - which often includes breaking the bank buying holiday presents. With a New Year less than two weeks away, Jeff Fehrman gives solid advice for things we want to think about before the ball drops at midnight on December 31.

Brad Means: Welcome back to The Means Report. Alright, so in our first segment we heard about ways to donate to the United Way of the CSRA. Ways that you can give your money to charitable causes, and that ties into our second segment, which is how do we handle our money especially here at the end of the year and beyond, as in retirement? Well, we're gonna talk about those subjects today with Jeff Fehrman, of the Fehrman Investment Group. He always has great financial advice for us. Jeff, thank you for being back. We appreciate it.

Jeff Fehrman: Great to be with you, especially during this holiday season. It's an exciting time of year.

Brad Means: It is exciting, and it's busy, too, because everybody is doing their holiday planning, and you don't have time for anything. I need you to talk to me about what you should be doing when it comes to financial planning, especially when it comes to our retirement accounts this time of year.

Jeff Fehrman: Sure, so when thinking about retirement accounts, a couple of things that you have to do before year end. If you're in an employer plan, so you're an employee somewhere, something that could help you tax-wise when it comes to Spring, would be to bump up your contributions here at year end. If you're self employed or get bonuses at year end, put incrementally more of that money into the retirement plan would help you. Again, going into next year, sometimes you can't control all those pieces. IRA's, people think sometimes there's a year end deadline. Those are good things to complete if you're eligible for a ROTH or a regular, but keep in mind you have until filing time for those. You have a little bit of time there in the new year to tackle those individual retirement accounts.

Brad Means: Jeff, what percentage of somebody's paycheck can they put into their 401K, and would you like to see everybody max it out?

Jeff Fehrman: Yeah, certainly you want to maximize it. A general planning rule is 10 or 12% gets you to your retirement goal. Used to be 10 or 15 was the max in a plan, today's world sometimes as much as 100%, so that's why I bring in the year end you might can bump up your contribution and put like your last paycheck of the year all into your retirement account if you didn't just spend too much money at Christmastime. There's that snafu.

Brad Means: I was trying to process what you just said, and I bet a lot of people are like, "My last paycheck!" But, long run, it'll help you get ready when you retire.

Jeff Fehrman: Exactly.

Brad Means: We hear 401K all the time. Do businesses have alternatives when it comes to retirement plans?

Jeff Fehrman: The business owners are gonna have some of the same options that we talked about in our first part, but also they would maybe have available Simplified Employee Pension, SEP account. A simple plan, you're past the deadline to set it up, but if you had one set up that would work. Also, solo 410K may be an option. Again, all those kinda depend on your employee roles in those things, but there are alternatives. Some of which need to be done before year end, not necessarily funding those, putting your last paycheck in that we joked about, but at least the actual paperwork to set it up. So those are some things to maybe check with your advisors on

Brad Means: A lot of viewers out there, a lot of you and we appreciate it, are charitable people. Do you have any, I guess unique, ideas when it comes to gifting to charity?

Jeff Fehrman: Certainly, as you said, United Way was on the first segment of the show, there's lots of great local charities. Most of us are inclined to just give cash gifts, not literally but in form of a check, and now I know even our church does credit cards and those kind of things. A great gifting idea, especially when you've had a year like this year, is to think about gifting securities. If you have a security that has a low cost base, so you've had a good run in it, which would not be unusual because we've had a great year, you can gift that to the charity. You can give it to your church or whoever is the eligible charity. They don't pay capital gains, because they're not for profits, and you get the full deduction. Again, you have to check with your tax person on the deductibility, but it's a great strategy. We even have clients that gift that money into what's called a Donor Advised Fund. The beauty of that is you can put it in there, get the deduction, and you don't even have to determine which charity you want to gift to this year.

Brad Means: Let's take a look at the stock market. Seems like most every time that your or Will Caywood, from the Fehrman Investment Group, have been on this year, you've had pretty decent news about the stock market. So let's just say it's been a good year, and you can confirm that. I feel like it has been. Anything we should review related to individual stocks at this time?

Jeff Fehrman: You're right, it has been a fantastic year. Most securities have had a pretty good run. If you own mutual funds or diversified, in particular in stocks, you probably have had a good year. It's still worth looking through your portfolio. You may have a fund or two, or a stock or two, in particular if you look at individual stocks, you'll get more disparity in returns. Think about some tax loss sales. That only works in your non-retirement accounts. There's some potential there that's gonna offset some gains, because more than likely, if you do have mutual funds, some different securities, you're probably gonna have some gains that were declared this month. So you, again, look at your individual account. It should have that gain loss statement, or on your internet site as well.

Brad Means: A lot of retirees watch this broadcast. In fact, it's interesting, since we started broadcasting Sunday and Monday, a lot of the retirees watch on Sunday as best as I can tell, because they'll DVR it and watch us after church. My question for them, or on their behalf, is anything retirees should know or plan for this time of year? They've already reached their goals.

Jeff Fehrman: Hopefully they're on track for their goals. A good year in the market hopefully helped with their goals. A couple things to think about goal planning-wise, and this is not necessarily, it probably is retirees but even maybe some people that retired early this would not be applicable to, but if you turned 70 1/2 this year, you need to be 100% certain you've taken your Required Minimum Distribution. There's a huge tax penalty if your not drawing out of those qualified retirement accounts. Another idea with what we call the RMD, Required Minimum Distribution, is you can gift that to charities, as well, directly. That can help you in particular if you're not able to itemize your taxes. Again, that's something you got to work through with your advisor and or your CPA as well.

Brad Means: Would it be a good idea for the retirees to gift that to their children?

Jeff Fehrman: That's a great strategy. Kids'll love gifts. It will not help you tax-wise to do gifting out of the IRA.

Brad Means: Okay, question about tax saving strategies when it comes to medical insurance. A lot of our paychecks go out the door to the doctor. Any tax benefits there?

Jeff Fehrman: Potentially you can write off some of those costs. That's a percentage of your adjusted gross, so you'd have to look at your total for the year. One that I would really look at hard as well, is if you're eligible, or participating rather, in a high deductible health plan, you can set up a health savings account, which I'm a big fan of. That acts like an IRA from the standpoint of everything goes in there's deductible when we use it for health care is tax free as well.

Brad Means: Okay, help me understand this. The health savings account, that is the account where pre tax dollars go in it.

Jeff Fehrman: Exactly, so if you have it at work, you would've been contributing by paycheck. If you're self employed or just haven't done it yet, you can go, depends on the bank but I know we have a local bank that we use, that can set up that health savings account. It looks and feels like a checking account, has a debit card, you go to the doctor, they put it in or actually debit right out of there for your bill. The advantage is it's free tax money, and you get a deduction this year. So you want to fund that to the extent you can.

Brad Means: Okay, that's good. And then going back to that medical expenses, and are they high enough to help us tax-wise, is that threshold pretty high? In other words, do we usually have to spend a ton at the doctor to benefit?

Jeff Fehrman: Typically, yeah. Again, it's a percentage so it's a number varied by your income. We don't see that number unless you've had a really catastrophic illness. Typically you're not gonna be able to deduct those expenses.

Brad Means: Let's look ahead to 2018. Anything you can tell us as far as a great way to start the new year and to make sure our financial plans are where they should be?

Jeff Fehrman: A couple things to think about any given year. Certainly the first one is don't spend too much at Christmas. I love Christmas as much as any holiday, more so than any other holiday of the year, spending too much money doesn't make for fun the start of the new year. So think about that one. The other one I always say is if you're not doing it now, whether it's 401K like we talked about earlier, or IRA, or just a regular investment account, start that systematic savings so if you're younger or even close to retirement, and if you're not doing it, either start it or increase it. That's a great way to start the year. And because we've had a lot of disparity in returns, I would take a really hard look at your personal portfolio. Is that risk changed because we've had different assets grow at different rates this last year.

Brad Means: Very quick question, we have just about 40 seconds left, and you've touched on it. Young people. I know a lot of young people have come to me and said they enjoy The Means Report. If they just come see you, Jeff, can you, I don't want to oversimplify it, but can you put them on a budget and make sure that everything in their life, including their investments is where it needs to be?

Jeff Fehrman: The budgeting piece of it, we can help a little bit with that. Are you in line with the numbers? We use the reverse budget, which is easier to me, which means basically we figure, we back into a budget number, what are we actually able to save each month? If it's $300 we put that on the systematic savings, and the budget works itself out. I tried a budget in my house, and I almost got divorced. Some people operate great on that. I find it's difficult for people to stay on a really strict budget.

Brad Means: But it is good to have that financial plan early in life if you can get on that track.

Jeff Fehrman: Absolutely. The earlier you can start, the better off you'll be.

Brad Means: Well, here's to a happy new year to you and your family.

Jeff Fehrman: Happy New Year to you all and your viewers.

Brad Means: And to you all, make it happier. Check out the Fehrman Investment Group. Get some first hand advice from them. There's their address. Or just give them a call when their business opens back up on Monday. 706.922.3590. Take that first step so the next time Jeff or Will appears on the show, you'll know what they're talking about, and say, "I'm doing that. I'm taking those steps." Jeff, thank you so much, sir.

Jeff Fehrman: Thank you.


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