Tag Archives for " CFP "

Jul 19

Getting Help When You Need It Most

By Chris Chen CFP | Divorce Planning , Financial Planning

Getting help when you need it most

chess pieces divorcingWhen “Lindy” was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband “Ted,” she panicked. She would have asked her lawyer for
guidance, as 79% of divorcing individuals end up doing, but she was not sure that her divorce lawyer could give her the guidance she needed .

The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision “on the steps of the courthouse”, so she said no.

Even Lindy’s lawyer was happy with the process

Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce have become terribly complex ranging from shorter-term tax issues to longer-term financial planning issues.  Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, divorce lawyers are unable to counsel their clients in depth on the financial implications of divorce , which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.

According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces . According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations and 40% of those mediating their divorces feel the same way.

No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.

In Lindy’s case, she was fortunate to be referred to a Divorce Financial Planner by a divorce coach. Divorce Financial Planners build on financial expertise often acquired by Certified Financial Planners (CFP®) or Certified Public Accountants (CPAs). They also often hold the Certified Divorce Financial Analyst (CDFA®) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, Divorce Financial Planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning.

They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?

In Lindy’s case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony.

However, Ted’s offer was still not clear about his employee stock options, as he did not know how to value them. In addition, the offer did not address the issue of college funding for their 13 year old daughter.

Lindy’s Divorce Financial Planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer. After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy’s lawyer was happy with the process , as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.

A previous version of this post was published in Kiplinger

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 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!