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Archive for Ed Mahaffy

Dear Ed: TaxConnections Friday Financial Planning Q&As

Dear Ed: TaxConnections Friday Financial Planning Q&As

Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.

Dear Ed: Financial Planning Questions  

Question: The SECURE Act of December 2019 raised the beginning age for RMDs from 70 1/2 to 72. When should households with higher incomes consider ROth conversions?

Answer: In their first few years of retirement before the temporarily lower tax rates expire at the end of 2025.

Question: The SECURE Act creates problems for IRA trusts, what problems should I be aware of if I have an IRA trust?

Answer: Before the SECURE Act, language in an IRA trust might restrict access to the beneficiary to annual RMDs from the IRA. The intent was to stretch the payments to mitigate taxes however now the maximum stretch period is only ten years. This means there is no RMD due in years 1-9, but distributions must be taken by the end of year 10, after the death of the owner.  This may sense with a Roth, but it can penalize beneficiaries of traditional traditional IRAs who, although they get ten years of tax deferral, will be forced to take a large taxable distribution possibly resulting in higher taxes.

Question: What is one estate planning strategy to consider now that the stretch IRA has been removed?

Answer: Life insurance death benefits can be received free of income tax as well as estate tax free. Proceeds can be used to offset the higher tax liability caused by the  the new 10-year distribution period.

Contact Ed Mahaffy

(How To Select A Financial Advisor – Ed Mahaffy)

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How To Select A Financial Advisor: The Least You Should Know (Part 9 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 9 In eBook Series)

Chapter 8: Hidden Ongoing Commissions

When I was growing up, I spent summers working on the family farm, which grew cotton, soybeans and rice. There were many snakes in the rice fields. I learned quickly that the snake you can see is not the one that bites you. It is the same way with hidden commissions, also known as 12(b)-1 fees. If you own a mutual fund or variable annuity, you are most likely paying a 12(b)-1 fee, whether you realize it or not. A 12(b)-1 fee is an ongoing commission often amounting to 1.0 percent of the value of your investment annually.

Named after the 1980 legislation that created them, 12(b)-1 fees were intended as one-year relief for struggling mutual funds. Today, over 70 percent of mutual funds and many variable annuities charge these onerous fees, which cost investors well over $10 billion each year. They are collected by the mutual fund directly from fund assets, and paid to the brokerage firm that holds the fund. Also known as trailing commissions or “trails,” these fees can be charged for many years for mutual funds, variable annuities, or other products that impose them.

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Dear Ed: Financial Planning Questions And Answers

Dear Ed: Financial Planning Questions And Answers

Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.

Dear Ed: Financial Planning Questions  

Question: How much cash reserve should I maintain in the post-Covid environment?

Answer: Obviously, the answer varies depending upon the circumstances, but generally 1.5- 3.0 years of expenses.

Question: What is the best way to access these funds?

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How To Select A Financial Advisor: The Least You Should Know (Part 8 In eBook Series)

Ed Mahaffy: How To Select A Financial Advisor

Chapter 6: FEES MATTER
Too often, what makes big bucks for Wall Street makes
little sense for investors.

The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs. ~ John C. Boyle, Founder, Vanguard

How long will it take for your money to double? The “Rule of 72” provides the answer: simply divide 72 by your compounded annual rate of return.

For example, if your investment return is 10 percent, it will take 7.2 years to double your money: 72/10. With an 8.0 percent return, it takes 9 years to double your money: 72/8 = 9.

Let’s examine the impact of fees on your returns. It is not uncommon for annual fees to exceed 2.0 percent for many financial products—variable annuities, mutual funds, and separately-managed accounts, for instance. Many products collect fees directly from the fund’s assets, so shareholders never see an invoice (Wall Street’s true genius) for charges such as management fees, administrative fees, and ongoing asset-based commissions known as 12(b)-1 fees. A 2.0 percent expense ratio (annual expenses/total assets) is a huge burden to overcome. Consider the illustration on the following page.

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Dear Ed: TaxConnections Friday Financial Planning Q&A

Financial Planning Questions And Answers

As the CEO of www.taxconnections.com, I had been searching for a top expert in Financial Planning. Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series.

On Fridays, TaxConnections presents questions often asked of a Financial Planner. Although the majority of Ed Mahaffy’s clients have in excess of 1M in assets, Ed has made himself available to answer financial planning questions for our readers.

Dear Ed: Financial Planning Questions  

Question: Do individuals have the option to forego a retirement plan required minimum distribution (RMD) in 2020?

Answer: Yes. If taken in 2020, the distribution will be treated as a voluntary distribution. The distribution is still taxable, but the withdrawal can also be converted to a Roth IRA. The RMD waiver applied to SEP, SIMPLE, 401(k), 457(b) as well as 403(b) plans although defined benefit plans are not part of the RMD waiver.

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How To Select A Financial Advisor: The Least You Should Know (Part 7 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 7 In eBook Series)

Chapter 5: Your Financial Advisor’s Business Model Matters

Despite the many job titles and professional designations that exist in the financial advisory profession today, there are three basic business models for financial advisors: a retail broker employed by a brokerage firm, an independent broker, or an independent investment advisor. Although you will find exceptional financial advisors working under each of these business models, the following discussion identifies the strengths and weaknesses of each business model from the client’s perspective. Let’s compare them.

The Retail Broker

The retail broker is employed by a brokerage firm and is otherwise known as a stockbroker or registered representative. Retail brokers offer brokerage accounts. As noted in Chapter 4, brokerage accounts provide no fiduciary legal obligation to act in your best interest.

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Dear Ed: TaxConnections Friday Financial Planning Q&A

Dear Ed: TaxConnections Friday Financial Planning Q&A

As the CEO of www.taxconnections.com, I had been searching for a top expert in Financial Planning. Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series.

On Fridays, TaxConnections presents questions often asked of a Financial Planner. Although the majority of Ed Mahaffy’s clients have in excess of 1M in assets, Ed has made himself available to answer financial planning questions for our readers.

Dear Ed: Financial Planning Questions  

Question:  How can I determine my investment expenses?

Answer: Ask your financial advisor to identify, in writing, the total investment expenses incurred by your account last year and what portion – expressed in dollars as well as percentage – his firm received. Have him compare expenses to Vanguard index funds.

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How To Select A Financial Advisor: The Least You Should Know (Part 6 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 6 In eBook Series)
Chapter 4:
The Type of Account You Maintain Matters

The type of investment account that you maintain will determine the extent to which you receive the protections offered by the fiduciary standard. Your account type also can affect the investment recommendations that you receive. Will your portfolio be comprised of cost-effective, tax-efficient investment vehicles? Or will it include financial products characterized by high annual expenses, surrender charges and unnecessary tax liability? Over time, these factors can make a huge difference in your account balance.

There are two basic account types: the Brokerage Account and the Advisory Account. What is the difference? Brokerage accounts must only meet the suitability standard, but advisory accounts must meet the fiduciary standard. To repeat from the previous chapter, the suitability standard provides far less protection for investors than does the fiduciary standard.
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How To Select A Financial Advisor: The Least You Should Know (Part 5 In eBook Series)

Ed Mahaffy: How To Select A Financial Advisor: The Least You Should Know (Part 5 In eBook Series)

Chapter 2

Fiduciary: The “Gold Standard” Of Care

What is a fiduciary or a fiduciary relationship?

A fiduciary is a person or organization that owes to another
the duties of good faith, trust, confidence, and candor.
This special relationship of trust established by law is similar to the relationship one has with an attorney or doctor. When an advisor acts in a fiduciary capacity, that advisor is legally obligated to maintain an allegiance of confidentiality, trust, loyalty, disclosure, obedience and accounting to his or her clients. All NAPFA members must sign and abide by the NAPFA Fiduciary Oath. Source: NAPFA

Chapters 3, 4, and 5 provide an historical perspective of the landscape prior to Regulation Best lnterest (Reg BI), which took effect in 2019. lt requires somewhat better disclosure on the part of broker-dealers. However, Reg BI fails to require brokers to meet the fiduciary standard, or anything close to it. Although chapters 3, 4, and 5 now serve the purpose of providing an historical perspective, the past and the present are not too far afield. Again, Barbara Roper, Director of lnvestor Protection for the nonprofit Consumer Federation of America stated the following regarding Reg BI: “lnstead of strengthening protections for investors, the new standards place them at greater risk—misled into expecting best interest advice that the rules do not require.”

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Dear Ed: TaxConnections Friday Financial Planning Series

TaxConnections Friday Financial Planning Series: Dear Ed

As the CEO of www.taxconnections.com, I have been searching for a top expert in Financial Planning. Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, then interviewed him, then reviewed his video library, I knew we had the right person for this special financial planning series.

On Fridays, TaxConnections will present the questions most often asked of a Financial Planner. Although the majority of his clients have in excess of 1M in assets, Ed has made himself available to answer anyone’s questions. Please leave your financial planning questions in the comments section below and we will ensure Ed Mahaffy receives them to post answers in TaxConnections Friday  Feature Series on Financial Planning. Welcome Ed Mahaffy, CFP!

Dear Ed: Financial Planning Questions  

QUESTION:  Should annuities be purchased in an IRA?

ANSWER: No. The retirement account already provides tax deferral. Annuities also provide tax deferral  however you pay dearly for this feature as your investment is subject to hefty operating expenses and hefty surrender charges imposed by the issuer to ensure that it recovers the hefty commissions it advanced to your financial advisor. Whenever a financial recommends purchasing an annuity in your IRA it should be a red flag and you should consider another financial advisor.

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How To Select A Financial Advisor: The Least You Should Know (Part 4 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 4 In eBook Series)

Chapter 2:
The Least You Should Expect

What are the basic credentials, skills, and policies that you should expect from your financial advisor?

1. A clean disciplinary background. Ask the advisor which organization regulates his conduct: the Securities and Exchange Commission or the Financial Industry Regulatory Authority. Then, go to the appropriate website (www.sec.gov or www.finra.org), and see if the advisor has faced any disciplinary proceedings.

2.A full-time fiduciary obligation to always act in your best interests. A fiduciary is a person with a legal requirement to always act in your best interests.

3. Use of transparent investment vehicles that clearly identify the costs of ownership.

4. A reputation for honesty, integrity, accessibility, accountability, and confidentiality that is confirmed by several long-standing clients.

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How To Select A Financial Advisor: The Least You Should Know (Part 3 In eBook Series)

How To Select A Financial Advisor

Chapter 1: Doing Your Homework

Many people are uncomfortable managing their own investments. They may be overwhelmed by the myriad of unfamiliar terms and investment vehicles, and they may lack the confidence to select their own investments.

Selecting a financial advisor can be equally difficult. There are many different choices—from the large publicly held Wall Street brokerage firms (also known as “wire-houses”) with well-known brand names and offices on every corner, to the small independent boutiques comprised of financial planners and/or investment managers. As the industry has expanded in the last 30 years, financial advisors have adopted many job titles, and they can earn many different credentials. Distinguishing among all the choices of firms and financial advisors can be bewildering—like sorting through all the makes, models, and options on a new vehicle. At least with vehicles, it’s easy to obtain an apples-to-apples comparison. Not so with financial advice.

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