Category Archives for "Financial Planning"

May 20

Have you received a tax refund this year?

By Chris Chen CFP | Financial Planning

Have You Received a Tax Refund This Year?

If you have received a tax refund this year, especially a big one, you may look at it as a form of forced savings. If the money is automatically withheld, you cannot spend it, right? Maybe so. Another way to look at it is that you have lent money to Uncle Sam, and now you got it back interest-free.

There are better way to save than making an interest-free loan to our government. For instance, consider setting an automatic transfer from your checking to a savings, or money market account. The money will be available and you might get some interest. When interest rates go back up, it may add up to a nice little bonus.

If you prefer not to have the money available, consider setting an automatic deposit to an IRA or another investment account (be mindful of the contribution limits). This gets your money working for you right away, and may fit well with your long term planning.

Alternatively, you could pay down credit card debt. Your return would be equal to the rate of interest that the credit card charges you.

Leave a comment if you have other ideas!

May 12

Marriage and Building Wealth: Finding a Happy Balance

By Chris Chen CFP | Financial Planning , Retirement Planning

Marriage and Building Wealth: Finding a Happy Balance

Marriage affects your finances in many ways, including your ability to build wealth, plan for retirement, plan your estate, and capitalize on tax and insurance-related benefits. Here are some considerations to keep in mind if you are thinking of getting married or have just tied the knot.

Building wealth

If both you and your spouse are employed, two salaries can be a considerable benefit in building long-term wealth. For example, if both of you have access to employer-sponsored retirement plans, your joint contributions are double the individual maximums ($17,500 for 2013). Similarly, a working couple may be able to pay a mortgage more easily than a single person can, which may make it possible for a couple to apply a portion of their combined paychecks for family savings or investments.

Retirement benefits

Some (but not all) pensions provide benefits to widows or widowers following a pensioner’s death. When participating in an employer-sponsored retirement plan, married workers are required to name their spouse as beneficiary unless the spouse waives this right in writing. Qualifying widows or widowers may collect Social Security benefits up to a maximum of 50% of the benefit earned by a deceased spouse.

Estate planning

Married couples may transfer real estate and personal property to a surviving spouse with no federal gift or estate tax consequences until the survivor dies. But surviving spouses do not automatically inherit all assets. Couples who desire to structure their estates in such a way that each spouse is the sole beneficiary of the other need to create wills or other estate planning documents to ensure that their wishes are realized. In the absence of a will, state laws governing disposition of an estate take effect. Also, certain types of trusts, such as QTIP trusts and marital deduction trusts, are restricted to married couples.

Tax planning

When filing federal income taxes, filing jointly typically results in lower tax payments when compared with filing separately.

Debt management

In certain circumstances, creditors may be able to attach marital or community property to satisfy the debts of one spouse. Couples wishing to guard against this practice may do so with a prenuptial agreement.

The opportunity to go through life with a loving partner may be the greatest benefit of a successful marriage. That said, there are financial and legal benefits that you may want to explore with your beloved.


Apr 29

Beware of the Mortgage Tax Deduction

By Chris Chen CFP | Financial Planning

Beware of the Mortgage Tax Deduction

Last week I wrote this short piece for the Boston Globe’s website series on tax planning for 2013 (it’s never too early!):

“For many of us, the mortgage tax deduction provides the single largest reduction in taxable income.

With mortgage interest rates continuing to be very attractive, it makes sense to consider refinancing your mortgage, if you have not already done so.

A mortgage refinance has the potential of reducing your payments, and improving your cash flow. It will also reduce reduce your mortgage tax deduction, and therefore increase your taxes due. Make sure to adjust your tax withholding so that you won’t owe taxes (and interest and penalties) as a result of refinancing.

Apr 22

High-Yield Bonds: Income Potential at a Price

By Chris Chen CFP | Financial Planning , Retirement Planning

High-Yield Bonds: Income Potential at a Price

High-yield bonds have long been a popular source of diversification for long-term investors who seek to maximize yield and/or total return potential outside of stocks.(1)  High-yield issues often move independently from more conservative U.S. government bonds as well as the stock market.

These bonds — sometimes referred to as “junk” bonds — are a class of corporate debt instruments that are considered below investment grade, due to their issuers’ questionable financial situations. These situations can vary widely — from financially distressed firms to highly leveraged new companies simply aiming to pay off debts.

As the name “high yield” suggests, the competitive yields of these issues have helped attract assets. With yields significantly higher than elsewhere in the bond market, many investors have turned to high-yield bonds for both performance and diversification against stock market risks.

These are valid reasons for investing in high-yield bonds, especially long term. But as you read about what these issues could offer your portfolio, it’s also wise to consider how these bonds earned their nicknames.

The Risk-Return Equation

In exchange for their performance potential, high-yield bonds are very sensitive to all the risk factors affecting the general bond market. Here are some of the most common risks.

  • Credit risk: A high-yield bond’s above-average credit risk is reflected in its low credit ratings. This risk — that the bond’s issuer will default on its financial obligations to investors — means you may lose some or all of the principal amount invested, as well as any outstanding income due.
  • Interest rate risk: High-yield bonds often react more dramatically than other types of debt securities to interest rate risk, or the risk that a bond’s price will drop when general interest rates rise, and vice versa.
  • Liquidity risk: This is the risk that buyers will be few if and when a bond must be sold. This type of risk is exceptionally strong in the high-yield market. There’s usually a narrow market for these issues, partly because some institutional investors (such as big pension funds and life insurance companies) normally can’t place more than 5% of their assets in bonds that are below investment grade.
  • Economic risk: High-yield bonds tend to react strongly to changes in the economy. In a recession, bond defaults often rise and credit quality drops, pushing down total returns on high-yield bonds. This economic sensitivity, combined with other risk factors, can trigger dramatic market upsets. For example, in 2008, the well-publicized downfall of Lehman Brothers squeezed the high-yield market’s tight liquidity even more, driving prices down and yields up.

The risk factors associated with high-yield investing make it imperative to carefully research potential purchases. Be sure to talk to your financial professional before adding them to your portfolio.

Note (1): Diversification does not ensure a profit or protect against a loss in a declining market.

© 2013 S&P Capital IQ Financial Communications. All rights reserved.


Apr 04

I Just Made the Last College Tuition Payment! Yea!

By Diane Pappas | Financial Planning

How To Pay for College - Real-Life Edition

Anyone who pays for college tuition can understand the joy and need for celebration when you finally make that last tuition payment.  It means two wonderful things – (1) your child is graduating from college next month and (hopefully) moving out into the real world and (2) you now have more available money with which to spend somewhere else – unless of course, child #2 is bringing up the rear.

Regardless, paying for a child’s college education is a big accomplishment and making that last payment is a milestone worth celebrating.  But if you still have a child in college and more on the way, the thought of celebrating doesn’t even cross your mind.  With college tuition payments resembling monthly mortgage payments these days, the real question becomes, how are you going to afford it?

There is plenty of information on the internet addressing this very question, but we wondered, how many of them are written by people who have actually gone through the process?  In this series, ‘How to Pay for College – Real Life Edition’, we will share some of the things that have been done in real life, that have helped made paying for college a little more affordable and easier on the pocketbook.


Tip # 1 – Use a Monthly Payment Plan or MPP

If your child is currently in high school, there are obviously more important things you should be doing right now than worrying about an MPP, but at least you will now be informed.  Looking back over the last four years, the MPP stands out as the one thing that made my life a lot easier.

Typically, you are sent a bill for the fall semester in the beginning of August and asked to pay an outrageously large sum of money within 30 days.  Gulp.  However, if you have already arranged a 10 or 12 month MPP or Monthly Payment Plan, then you don’t need to ‘gulp’ as deeply as someone who did not.

Most colleges and universities participate in this type of program and will designate an outside company as the administrator of their MPP.  It is essentially an extension of credit by the school to the tuition payer, typically with no interest charges and only a small annual fee of around $65.  To me, it’s a no brainer.  You can even have the monthly payments automatically withdrawn from your checking or savings account.

An MPP accomplishes two things.  First, this once, ambiguous and unknown amount is now a fixed expense, and second, spreading that payment out over 10 or 12 months helps in budgeting your money. You no longer need to fear that looming tuition bill in August and January, because, even though the amount hasn’t changed, paying for it (even if just psychologically) has become easier.

Be sure to inquire with the Financial Aid or Admissions Office to see if they offer an MPP.  In order to use the 12-month payment plan, the first payment is typically due in April for enrollment in the fall semester.  You may have to play catch-up freshman year, but by sophomore year, you will be a pro!


I’m amazed at how quickly the last four years have flown by.  One minute you’re packing your kid up and sending them off to live in small cinderblock room with a complete stranger and the next minute, they are graduating with a whole new set of lifelong best friends and an educational experience that will get them started on the path towards a fulfilling life.

Don’t let the stress of paying for college over shadow the wonderful opportunity you are providing your children.  With the proper planning and a realistic approach as to what your family can afford, paying for college does not have to be such a scary thing.


Be sure to check back here for the next ‘How to Pay for College – Real life Edition’.












Apr 02

Tax Season Dilemna: Invest Money in a Traditional IRA or a Roth IRA?

By Chris Chen CFP | Financial Planning , Retirement Planning

Invest in a Roth IRA or a Traditional IRA?

This being tax season, you may want to know, should you put your money in a (traditional) IRA or a Roth IRA?

In a traditional IRA, your contribution will be deductible from your taxable income, and will grow tax-deferred .  Income taxes will be paid when you take distributions at retirement.  The immediate benefit is that a contribution will help you reduce your taxable income, and, therefore, your taxes.  (For the 2012 tax year, you have until April 15 to make that contribution.)

For a Roth IRA, your contribution is not tax deductible .  However, it will grow tax free, and distributions in retirement will not be taxable.  Hence, your retirement income from the Roth would be tax-free.

The traditional IRA helps you save on taxes now , and the Roth IRA helps you save on taxes later .  What then should you do: save on taxes now or save on taxes later?

The answer is entirely about what you expect your taxes to be when you retire.  If you expect your tax rate to be lower in retirement than today, you may want to consider a regular IRA.  That is because, you will be saving a relatively large amount in taxes today, and paying at a relatively low rate in retirement.

On the other hand, should you expect your tax rate to be higher in retirement than today, you may want to consider a Roth.  That is because you would be paying at a low tax rate today, and saving even more taxes later on.

So, you might ask, how can you figure out what your tax rate will be in retirement?  That is a different question altogether!

Check out out other retirement posts:

Is the new tax law an opportunity for Roth conversions

Rolling over your 401(k) to an IRA

7 IRA rules that could save you time and money

Doing the Solo 401k or SEP IRA Dance

Roth 401(k) or not Roth 401(k)




Mar 25

Time for Some Spring Financial Cleaning – Getting Rid of Financial Clutter

By Diane Pappas | Financial Planning

Time for Some Spring Financial Cleaning - Getting Rid of Financial Clutter

If you are like most people this time of year, you are probably searching through piles of papers, documents and receipts trying to find the right ones to give to your accountant.  So much financial clutter.  You may be wondering – Do I really need to keep all this stuff?

One of the keys to financial success is being organized.  It is an empowering experience knowing where all your paperwork is and easily locating an important document within minutes.   To help you get started, we’ve provided you with a list of what you need to keep and what you can get rid of.

This is a great time for some spring financial cleaning to put you on the path towards financial success.

What to Keep for 1 Year

  • Paycheck stubs – you can get rid of once you have compared to your W2 & your Social Security earnings statement
  • Utility Bills – throw out after one year, unless using them as a deduction for a home office – then you need to keep them for 3 years after you’ve filed your tax returns.
  • Cancelled Checks – unless needed for tax purposes
  • Bank Statements – unless needed for tax purposes
  • Quarterly Investment Statements – hold onto until you get your annual statement

What to Keep for 3 Years

  • Income Tax Returns – keep in mind that you can be audited by the IRS for no reason up to three years after you filed a tax return.  If you omit 25% of your gross income, that goes up to 6 years and if you don’t file a tax return at all, there is no statute of limitations
  • Medical Bills and Cancelled Insurance Policies
  • Records of Selling a House – needed for documentation for Capital Gains Tax
  • Records of Selling a Stock – needed for documentation for Capital Gains Tax
  • Receipts, Cancelled Checks and other Documentation that Support Income or a Deduction on your Tax Return – keep for 3 years from the date the return was filed
  • Annual Investment Statement – keep for 3 years after you sell your investment

What to Keep for 7 Years

  • Records of Satisfied Loans

What to Hold While Active

  • Contracts
  • Insurance Documents – Homeowner’s Insurance and Auto Insurance Policies until new renewal arrives, then throw out
  • Stock Certificates
  • Property Records – including original Settlement Statement from when you purchased the home, as it shows closing costs and settlement fees paid.  These maybe added to the cost basis calculation when you go to sell your home.
  • Stock Records
  • Records of Pensions and Retirement Plans
  • Property Tax Records Disputed Bills – keep until the dispute is resolved
  • Home Improvement Records – hold for at least 3 years after the due date for the tax return that includes the income or loss on the asset when it’s sold

Keep Forever

  • Tax Returns – You may want to keep your tax returns indefinitely.  The IRS destroys original 1040s after 3 years, but you and your heirs may need information from the returns at some point in the future.
  • Marriage Licenses
  • Divorce or Separation Agreements
  • Birth Certificates
  • Death Certificates
  • Social Security Cards
  • Wills
  • Living Wills and Advanced Medical Directives
  • Trusts
  • Estate Documents
  • Powers of Attorney
  • Deeds
  • Records of Paid Mortgages

A Word About Home Improvement Records and Cost Basis

If you plan to sell your current home at any time in the future and you have made home improvements that add to the value of your home, you should keep all your sales receipts for items purchased for the improvement, (like a sink and the hardware to install the sink), credit card statements showing purchases if no receipt, and checks to contractors.  When you go to sell your home, you will need to establish a cost basis, which is the original cost of the property, plus any improvements made by you, the owner.  You will want to keep these records for at least 3 years after the due date for the tax return year that you sold your home in.

Improvements can be items such as:

  • Remodeling the interior of the home
  • New roof or deck
  • Installing utilities on a building lot (new well or septic)
  • Numerous other improvements performed by the owner, see for more details


Mar 21

Have you updated your financial plan yet?

By Chris Chen CFP | Financial Planning

Have you updated your financial plan yet?

As originally published in

If we could predict the future, we would always be ready for anything that life throws our way, right?

The truth is that even for what we do know, many of us are not ready. We do know that most of us should probably contribute more to our retirement plans, that we should save for the college fund; and that we should purchase long term care insurance. Yet we don’t do it.

We do know that the sooner we contribute to a retirement plan, the more there will be when we need it. We do know that the more we contribute to the college fund, the easier the burden when our son or daughter goes to college. We do know that the longer we delay buying long term care insurance, the more likely we won’t be able to.

The reason is simple: We are overwhelmed. We are overwhelmed by all the things we know we need to do, and all the other things we need to spend on. We don’t know how to prioritize them.

Yet, imagine that we were to take a minute to prioritize all these very important issues, that we were to realize the benefits of planning sooner, and the penalties for delaying, then surely we would get back on track, wouldn’t we? Plan sooner.

Mar 15

Are your affairs in order?

By Chris Chen CFP | Financial Planning

While it is not  pleasant to think of one’s own passing, having your affairs in order can help ease the burden on friends and family, when the time comes, and can contribute to your own peace of mind knowing that you have done all you can to prepare. There are many factors that should be considered when trying to create an effective and comprehensive estate plan. Some considerations include:

  • Instructions on your own care in sickness
  • Guardians for your minor children should both parents pass
  • Protection from creditors
  • Charitable contributions
  • Continuation of a family business
  • Reducing or eliminating tax
  • Maintaining family harmony
  • Legacy creation and support of future generations

In addition, all these factors should integrate appropriately with your retirement income planning and your investment decisions.

Even if you already have an estate plan in place, you may want to conduct a review. Decisions made years ago may not accurately reflect your current wishes. Estate plans are not for the significantly wealthy alone. If you have children in your care or a business you wish to leave to future generations, it is important that protections and guidance are put in place now and are not put off until your retirement years. It is always a possibility that you may not have the luxury to wait so long.

A poorly executed estate plan, or the lack of one at all, could leave those you most care about suffering needlessly in your absence.  Get ready today to gain control of your estate plan!

Feb 22

Alice in Wonderland and financial planning

By Chris Chen CFP | Divorce Planning , Financial Planning , Retirement Planning

Alice in Wonderland and Financial Planning

Those who have read Alice in Wonderland may know the Cheshire Cat as a mysterious and baffling being.  The Cat often makes some very good points, although rarely in a very helpful way.  One is in the picture below.  Unfortunately,  I took it with my phone, and the  text is a little blurry.  So I re-wrote it.

Financial Planning

“Would you tell me please, which way I ought to go from here”

“That depends a great deal on where you want to go” said the Cat.

“I don’t much care where ___” said Alice.

“Then it doesn’t matter which way you go,” said the Cat

“__ so long as I get somewhere,” Alice added as an explanation.

“Oh, you’re sure to do that,” said  the Cat, “if only you walk long enough.”

If you are reading this blog post, chances are you are interested in financial planning.  Alice has taken the first step: she knows she would like to get somewhere, she realizes that she does not know how to, and she has asked for advice.

Hopefully in real life you won’t have to rely on the Cheshire Cat for advice, or any Cat for that matter!  Do remember though: if you walk long enough, you will eventually get somewhere.

Will it be where you want to?