Financial Insights by Stewart Welch

Financial Insights

Financial Insights


Shopping CD Rates can mean BIG Bucks

Shopping CD Rates Can Mean BIG Bucks

Question: According to information on, investors can earn higher interest rates on their savings and money markets by banking on-line than they can earn at local banks. For example, Synchrony Bank pays 1.25% on a one-year CD. Is there any risk in doing this? G.H.
Answer: No, just be certain your bank is a member of the FDIC and that your account does not exceed the FDIC insurance limits, currently $250,000. If you have more than $250,000, there are still ways to get full insurance coverage by splitting the funds into accounts with different titling. For example, you could have one account titled in your name, one in your husband’s name and one titled jointly under both of your names…allowing you to up to $1,000,000 fully insured in a single bank. How much difference can ‘shopping rates’ make? A $100,000 one-year CD at your Internet bank would pay $1,250 in interest while a large Birmingham, Alabama bank would pay only $100!

IRA Gains & Losses

Question: If stock is sold in an IRA and there is a loss, why can’t that loss be taken off your taxes just like you have to report a gain doing the same thing? C.J.
Answer: Federal laws for the Traditional IRA do not allow losses to be taken from your income taxes. Think of a Traditional IRA as a contract that has a beginning, a middle, and an end. In the beginning, when you contribute to your IRA, you receive an income tax deduction. At the end, when you withdraw money from your IRA, those withdrawals are taxable as ordinary income. In the middle, if you sell a security for a loss, there is no tax deduction. Likewise, if you sell a security for a gain, that gain is not taxable.

janeb13 / Pixabay

Avoiding the Obamacare Penalty

Question: I work part time and have no health insurance. In 2014 I made under the threshold for paying the penalty. For 2015 I made more ($12,560.) which is over the threshold ($11,880). My question is can I open a regular IRA now and put in $1000 to get me under the penalty limit? I already have a Roth IRA. I am 55 years old. J.W.
Answer: “The Obamacare penalty is specific to size of family and is based on Modified Adjusted Gross Income. There are also several potential exemptions that you may qualify for that would allow you to avoid the penalty. Your best bet is to complete your tax return for 2015 to determine your actual MAGI, then you can determine how much to invest in a Traditional (deductible) IRA in order to avoid the penalty”, says Kimberly Reynolds, CFP, a partner at The Welch Group. As a reminder, you have until April 18th, 2016 to make your IRA contribution for calendar year 2015.

Gift Tax Limits for 2016

Question: Regarding the statement: “In any calendar year, you are allowed to give away up to $14,000 per person to as many people as you desire without triggering any gift taxes.” Does this mean you can give 10 people $14,000 each or that you can only give a total of $14,000 divided among the 10 people? S.T.
Answer: For 2016, you can give as many people as you wish $14,000 each. If you are married, you can join in the gifts and together give up to $28,000 to as many people as you choose.

Jump Start Your Finances in 2016

grop-profile-picYep, the holidays are a busy time of year full of distractions that can easily draw you away from your financial game plan.  You do have one, right?  Here is a basket of tips from my colleagues to give you a head start on your finances for 2016.  There’s even an opportunity for you to share your own financial tips with our readers in my column next week and win a prize.

Do meal plans; save money.  Write down a weekly/monthly meal plan before you go grocery shop.  Only buy what’s on your list, and then stick to what you planned for lunch/dinner.  It will also make you feel less stressed to be able to easily answer the looming “what’s for dinner?” question.  This will save you lots of money!  Use part of your savings to start a savings plan.  If you saved $5 per week for one year, your total savings for the year would be over $250 and you won’t even miss $5.00 per week!  – Andrea Messick

Be a smart shopper.  Challenge yourself to not make any unnecessary purchases.  Before buying an item ask yourself if the purchase will be worth it a year from now.  – Ramona Boehm

Leverage your pay raise.  Set aside a portion of any compensation adjustment to help fund your 401K or IRA / Roth.  – Greg Weyandt, CPA

Change a habit.  Stop a bad habit that negatively affects your health and your wallet i.e. smoking cigarettes and eating fattening foods.  – Marshall Clay, JD, CFP

Invest in yourself by getting in shape.  Regular exercise has been shown to reduce stress, make you more productive at work, reduce sick days and improve self-esteem.  Plus you might meet your next client, referral source or employer while working out.  Accountability is the key to success.  Find a friend who has similar goals and commit to work out together as ‘accountability partners’.  You’ll be more likely to reach your goal and develop a special bond with the person as they reach their goal too.  – Michael Wagner, CPA, CFP

Leverage your year-end bonus.  Use your Christmas bonus to pay off credit card debt, start an emergency fund, or fund a Roth IRA.  – Callie Jowers, CFP

Rebalance your portfolio.  Take a moment to rebalance your company retirement account’s asset allocation to your target allocations.  This insures that you are not taking more risk than you intended.  Also, given a possible rising interest rate environment, consider paying down loan balances in advance?  – Woodard Peay, CFP, MBA

Build an emergency reserve…the easy way.  If you set aside just $5 every couple of days (price of a Starbucks), you’d have about $1,000 for an emergency reserve fund.  – Wendy Weber

Use the “back door” Roth IRA strategy.  If your adjusted gross income (AGI) exceeds the Roth Contribution Limits for 2015 make a nondeductible IRA contribution (no income limitations) then convert to Roth (also no limitations).  CAUTION: if you have other IRAs you will have to prorate for taxes.  To avoid this tax problem, see if your company 401k plan will allow you to roll-up your existing IRA into your plan.  Be sure to discuss this strategy with your tax advisor before implementing.  – Hugh Smith, CPA, CFA, CFP

Track your money.  Try uploading all of your accounts into a website like  If you are really diligent, you may track spending and create a budget.  If not, you can at least track your net worth to see if you are trending up, treading water or spending down your assets.  – Foster Hyde, CFA, CFP


My Challenge to You! 

  1. Take action now.  Choose two or three of these ideas to implement now.  Creating financial success is about doing the little things right, consistently, over a long period of time.
  2. Join the game.  Email me ( your own ideas to share with my readers.  If I use your recommendation, I’ll send you a signed copy of my soon-to-be-released book, “THINK Like a Self-Made Millionaire”.  Be sure to include your mailing address.

Caution!  Do you own an inherited IRA?  Michael Wagner, CPA and partner in The Welch Group, reminded me that those of you who have inherited IRAs must also take a Required Minimum Distribution from that account before December 31st, 2015 or face a potential 50% federal penalty.  I’ve made numerous references to RMD requirements for those of you who are age 70 ½ or older but had never mentioned the requirement for those of you with inherited IRAs no matter what your age.  While most brokerage firms automatically notify age 70 ½ or older customers of both the requirement and the amount of the RMD, most provide no notice (or amounts) for inherited IRA customers.  You’ll have to figure the amount due…typically based on your life expectancy using the IRS tables


What are the Required Minimum Distribution Rules for my IRA?

“Avoid This 50% Tax Penalty in 2015”

This is one penalty you’ll want to avoid.  If you (or someone you know!) are age 70½ or older this year, don’t forget that you must take a Required Minimum Distribution (RMD) from your retirement accounts before December 31st of this year.  The federal penalty for failing to do so is 50% of the amount of the distribution you should have taken.

There are a couple of exceptions to the rules:

  • If you turned 70½ this year, you can postpone your 2015 RMD until April 1, 2016. If you do wait, you’ll also need to take your RMD for 2016 by December 31st, 2016.  In other words, you’ll have to take two RMDs in 2016.
  • If you’re still working (assuming you don’t own more than 5% of the company), you can postpone RMDs on your 401k (or similar company retirement plan) until the year you actually retire. But you must still take RMDs for other retirement plans such as IRAs or prior employer 401k plans.

People often ask me, “Why does the government have a law requiring RMDs?”  The simple answer is, “Because they want their money!”  Your RMDs are taxed to you as ordinary income and Uncle Sam would rather get his tax money sooner rather than later.

I find many age seventy-plus clients do not need the money from their retirement accounts.  Here are some of the options you might consider:

  • If you are still working (and don’t own more than 5% ownership of the company), see if your company retirement plan allows you to roll-up your IRA into the company plan. By doing so, you’ll effectively postpone RMDs until the year you retire.  Many professions such as law, insurance, and accounting lend themselves to remaining ‘active’ as employees well beyond normal retirement age.
  • After setting aside funds for payment of taxes on your RMD, invest the money tax free bonds or bond funds so as to avoid (or minimize) income taxes on interest earned.
  • After setting aside funds for payment of taxes on your RMD, invest in dividend-paying stocks (or similar stock mutual funds) which typically have much lower income tax rates than investments producing ordinary income. Federal income tax rates on dividends are typically 15% but can be as high as 23.8% while the maximum rates for ordinary income are 39.6%.
  • Transfer your RMD directly to your favorite charity. In past years, Congress has extended the law allowing RMDs to be paid directly to a charity.  While they have not yet extended the law for this year, many expect them to do so.  Ask your IRA custodian to have your RMD check made payable to your favorite charity of charities.  If Congress extends the law you’ve simplified the reporting process.  If they don’t extend the law, you’ll report your RMD on your tax return and take an offsetting charitable deduction on your return as well.  Consult with your tax advisor before implementing this strategy.

Caution #1.  If you have multiple IRA accounts, you can calculate your RMD based on the total of all accounts and take your RMD from any one or combination of those accounts.  For any 401k plan (or similar type plans), your RMD must be both calculated and taken from each plan separately.

Caution #2.  I often hear people say, “I never pay any taxes until they are due!”  However, when it comes to your IRA account, we’ve found that in many cases, your smartest move is to withdraw some funds from your IRA each year before your RMD date if you can get it out in a lower tax bracket than your expect to be in once you reach age 70½.  The best way to determine this is to do a ‘trial tax return’ before the end of the year to determine your estimated effective tax rate and compare that rate to your estimated effective tax rate at 70½. Your tax advisor can easily help you with this.

Finally, even if you have not yet reached age 70½, I bet you know someone who has.  Be someone’s hero and give them a copy of this information.