Saturday, January 26, 2019


So you’re ready to file your 2018 taxes, right? Great! Especially with the what-seemed-like-it’s-going-to-last-forever government shut-down coming to an end, there’s no doubt that everyone – well, not quite everyone – is looking forward with excitement to the “big, fat” refund check that they’re going to receive and therefore can’t wait to get their tax returns filed in order to make the refund happen. Now, I’m sure that just about everyone has heard something about the tax law changes that took effect at the beginning of last year (2018); I’m also sure that a lot of folks out there are wondering exactly how they (their taxes, that is) are going to be impacted by these changes. With that in mind, let’s take a quick look at the key changes in the law that are set to impact nearly every taxpayer (individuals only, for the most part – a discussion of corporate taxes is beyond the scope of this write-up) not only this year (i.e., this filing season) but also for many years to come.

1 – A Bigger Standard Deduction – Good-bye Exemptions

One of the major features of the new law is the near-doubling of the standard deduction, which was designed (supposedly) to not only free more of your income from Uncle Sam’s ever-sharpened tax hatchet but also to simplify the tax system.

This change raises the standard deduction to $12,000 on single returns, $18,000 for head-of-household filers and $24,000 on joint returns—up from $6,350, $9,350 and $12,700 respectively (2017 figures). As under previous law, the change also gives a higher standard deduction to seniors (age 65 or older) and blind people ($2,500.00 more for joint filers, $1,550.00 for single).

In exchange for the bigger standard deduction amounts, the new law takes away what used to be the exemption deduction: the $4,050 (2017 amount) by which you reduced your income for each exemption claimed on the tax return. So, for example, a married couple with four kids will lose $24,300 in exemptions ($4050 x 6 exemptions) in exchange for the $11,300 boost in their standard deduction. (Obviously, this does not seem like “a fair trade”, but part of the “loss” – in this example – is made up via a larger child tax credit amount and a new family credit, both of which are discussed in the next paragraph.) It was estimated by Congressional analysts (during the run-up to the passing of the bill enacting these changes) that increasing the standard deduction by so much would let more than 30 million taxpayers avoid the hassle of itemizing their deductions on their tax returns because the bigger standard deduction would likely exceed the write-off amounts for their qualifying Schedule A expenses.

2 – Say “Hello!” To Bigger Child Tax Credits – and a new Adult Credit, Too!

Starting in 2018 (this filing season), the tax credit for each child under age 17 is doubled from its long-time amount of $1,000 to $2,000, with $1,400 of the credit being refundable to lower income taxpayers. Additionally, the new law significantly increases the income phase-out thresholds for taking the credit: unlike before, couples with adjusted gross income all the way up to $400,000 (up from $110,000 in 2017) and $200,000 for all other filers (up from $75,000) are now eligible to take the credit!

In addition to the enhanced child tax credit, there is a new, nonrefundable credit of $500 for each dependent who is not a qualifying child (for child tax credit purposes) including, for example, a dependent elderly parent, a disabled adult child or even an adult child in college who is still a dependent. This credit would phase out under the same income thresholds.

3 – Simplified Tax Brackets(?)

There was a plan (in the House of Representatives) to squeeze the previous system of seven income tax brackets down to just four, but in the end, that was abandoned and instead, the Senate proposal to keep the seven (7) existing brackets while lowering the tax rates and also increasing the level of income at which the next higher rate kicks in was adopted. (There is a chart showing the new brackets and tax rates, but it is not produced here because I do not find it – the details – essential to this discussion; besides, tax preparation software do all the “heavy lifting” with regards to the computation of actual tax amounts, so in my opinion, knowing the brackets and rates off the top of your head would do nothing more for you than, at best, equip you with some easy-to-reference knowledge for “hollow bragging rights”.

4 – Tax Breaks on Home Ownership – Gone!

The interest deduction you can take for buying or building a home has taken a hit: it is now limited to home values up to $750,000, down from the $1 million home-value cap that it used to be. This is applicable to homes bought or built after 12/15/2017; deductions of interest on loans existing prior to 12/31/2017 retain the $1 million limit. The deduction limitation is also applicable to second homes, just as before.

Another significant change to this particular deduction going into effect this year is that interests on home equity loans and home equity lines of credit (whether existing before 12/31/2017 or coming into effect afterwards ) are no longer deductible as part of Schedule A itemized deductions.

5 – No More “Limitless” Deductions for State And Local Taxes (S.A.L.T.)

The federal tax write-off for what individuals pay in state and local income taxes (or sales taxes – mostly for states without income taxation) and property taxes, which is one of the most valuable tax deductions allowed them, has been significantly reduced.

Effective this filing season, the new law passed in 2018 limits this S.A.L.T. deduction to $10,000. An earlier proposal to limit the write-off to property taxes only was scrapped, so any combination of state and local income taxes, sales taxes or residential property taxes is still deductible, as long as the total does not exceed the $10,000 maximum.

(Note: There have been all kinds of reaction to this particular change in the law, with intense debate over its merits as well as its seeming “punitive” and unequal impact on taxpayers in certain states only. Be that as it may, it is the law now, and attempts by some of those states to come up with ways to “circumvent” the law and limit its negative impact on their residents have all been ruled illegal by the IRS – for the moment, with court suits by those states challenging the change’s legality (the  constitutionality of that section of the law) still pending.

One thing to remember – to help put this in the right perspective: if you are subject to the alternative minimum tax (AMT, which quite a bit of the people with hitherto high S.A.L.T. deductions were, anyway), those items were not deductible under the old law, and are still not deductible now. Thus, for such taxpayers, there’s going to be hardly any difference.

Also, even under the new rules, property and sales taxes will remain deductible for taxpayers in a business or for-profit activity. For example, if you own a residential rental propertyyou can continue to fully deduct property taxes paid on that property on Schedule E; similarly, property taxes paid on real estate used in the conduct of a business can be deducted on the business return, and this is true even if the business is a sole proprietorship reported on a Schedule C filed with their Form 1040.)

6 – Casualty Losses – Gone!

Going forward, the new law greatly restricts the opportunity for individuals who suffer unreimbursed casualty losses from sharing the pain with Uncle Sam. Under the old rules, such losses were deductible by those who itemize to the extent the loss exceeded $100 plus 10% of their adjusted gross income. Starting in 2018, the law allows a deduction of such losses only if they occur in a presidentially-declared disaster area.

7 – Did You Say Estate Taxes? What’s That?

For most people, this is one aspect of tax law – with or without the new changes – that they do not have to worry about, which is why they may not even know about it. Be that as it may, it is still worth mentioning (and for people to know it exists): who knows when one might find oneself in the “rich 1%”? So, suffice it to know that contrary to the efforts by some to kill the federal estate tax (the “death tax” as some people call it), it still exists, except that the new law doubles the amount that can be given out as gifts while you’re alive (total life-time) or left to heirs tax-free upon your death to $11.2 million for singles and $22.4 million for married couples. These respective exclusion amounts are called life-time exemptions, and beyond those amounts, donors (or the deceased’s estate) pay tax at the estate tax rate of 40 percent. The changes in this section of the tax law will expire at the end of 2025, when the tax-free amount will revert to earlier levels.

[One important thing to note here is that this particular section of tax law also deals with gifts and their taxation (you probably didn’t know that, did you?), which is why we often hear of “estate and gift tax”. As with corporate taxes, a full discussion of this is beyond the scope of this write-up; suffice it to know that under existing tax law, if you give a gift of more than $15,000 to any one person, you will have to pay tax – a gift tax, filed on a gift tax return – on the excess amount at the same 40% rate mentioned above. In other words, one person (donor) can give multiple gifts of $15,000 each to several different recipients, and one recipient can receive multiple gifts of $15,000 from multiple (several different) donors, all without triggering the gift tax – unless the life-time maximum of $11.2 per donor is reached.]

As with many things relating to exclusions, exemptions and limitations in tax law, the amounts mentioned under these particular provisions will rise each year to keep up with inflation. 

8 – Medical Deductions – Maybe

Despite efforts to eliminate the deduction for medical expenses, the new law is actually more generous than the old one. Under the old rules, medical expenses were deductible only to the extent they exceeded 10% of adjusted gross income. For 2017 (if you still haven’t filed your return or need to amend) and 2018, however, the threshold drops to 7.5% of AGICome 2019, the 10% threshold returns.

9 – Thinking of Divorce? It Might Be Cheaper To Keep Her (Him)!

The Tax Reform Act now gives alimonies the same treatment as it has been for child support: no deduction by payor, no income reporting by recipient. In short, the law (originated from the House floor) looks to get the tax law out of marital financial arrangements. Thus, for any divorce decree executed (or altered) after the end of 2017, alimony payments would be tax-free to the recipient, and the paying spouse would not get a deduction.

10 – Employer Commuter Benefits Deduction? Gone!

Uncle Sam says you can no longer get a $260.00 tax-free employer subsidy to commute to work; sorry.

11 – Students Loan Interest Deduction A Keeper

Just as under the old law, you can deduct up to $2,500 a year of interest paid on your student loans, and also as under the old law, you don’t have to itemize to take this write-off (i.e., you can have this deduction even if you take the standard deduction); however, it still phases out at higher income levels.

The new law also makes it clear that if a student loan is discharged due to the borrower’s death or their becoming permanently disabled, the amount discharged will no longer be considered taxable income.

 12 – Help to Pay for Your Child-care Expenses

The new law allows parents to continue to put aside pre-tax money in dependent care flexible savings accounts (FSA) for child care costs, but that will only continue until 2023. Also, credit for dependent care expenses is still allowed, with the same $5,000 expense limit and high-income phase-out rules.

13 – Want a Roth Do-Over? Nah, You Can’t; Not Anymore!

Under the new law, one has to convert a traditional individual retirement account to a Roth account with extreme caution! Previously, you could reverse a Roth conversion—and eliminate the tax bill—as long as you re-characterized the conversion by the tax-filing date, including extensions, in the year in which you convert. The new law repeals this provision, so no more ROTH do-overs: once you do a ROTH Conversion, you’re stuck with it!

14 – Tax Relief for Pass-through Businesses

The new law significantly reduces the tax rate on regular corporations (often referred to as “C Corporations”) from 35% to 21%, starting in 2018. The law offers a different kind of relief to individuals who own pass-through (or flow-through) entities – e.g., S corporations, partnerships and LLCs – that pass their income to their owners for tax purposes; the relief is also available to sole proprietors who report income on Schedule C of their Form 1040. Starting in 2018, many of these taxpayers will be allowed to deduct 20% of their qualifying income before figuring their tax bill. Using a sole proprietor in the 24% bracket as an example, excluding 20% of income from taxation would have the effect of lowering their tax rate to 19.2%.

(Note: These changes to the taxation of pass-through businesses are some of the most complex provisions in the new law, in part because of lots of limitations and anti-abuse rules that are designed to help prevent “gaming” of the tax system by taxpayers who might try to have their income taxed at the lower pass-through rate rather than the higher individual income tax rate. For many pass-through businesses, for example, the 20% deduction mentioned above phases out for taxpayers with incomes in excess of $157,500 on an individual return and $315,000 on a joint return. At the end of the day, most individuals who are self-employed or own interests in such entities will be paying less tax on their pass-through income than they did in the past.)

15 – Lots of Your Deductions And Credits Have Been Axed!

The new law eliminates the deduction for moving expenses, which allowed taxpayers to deduct the cost of a job-related move whether they itemized or not. Under the new changesonly members of the military can claim this deduction.

The law also repeals all miscellaneous itemized deductions subject to the 2% of AGI threshold (reported on Schedule A), including the write-off for unreimbursed employee business expenses (such as mileage/car expenses), investment fees and tax preparation fees.

16 – 529 Plans Aren’t Just for College Anymore

The new law allows families to spend up to $10,000 a year from tax-advantaged 529 savings plans to cover the costs of K-12 expenses for a private or religious school. Previously, tax-free distributions from those plans were limited to costs relating to college education only.

17 – Expanded ABLE Accounts (Achieving Better Life Experience Act of 2014) 

The new law expands the uses of these tax-advantaged accounts, which allow families to put aside up to $14,000 a year to cover expenses for a beneficiary with special needs. The money can be used tax-free for most expenses, and account assets of up to $100,000 don’t count toward the $2,000 limit for Supplemental Social Security Income benefits. Under the new law, ABLE beneficiaries will be allowed to contribute their own earnings to the account once the $14,000 contribution limit for gifts by others has been reached.

The law also allows parents and others who established a 529 plan for a disabled beneficiary to roll the money into an ABLE account for that individual. However, the rollover would count towards the $14,000 annual contribution limit.

18 – More time to repay your 401(k) debt

The new law allows you (employees) more time to repay a loan from your 401(k) plans if you lose your job or the plan is terminatedBefore the 2017 tax reform law came into effect, borrowers who leave their jobs are usually required to repay the balance in 60 days to avoid having the amount outstanding treated as a taxable distribution. Under the new law, they will have until the due date of their tax return for the year they left the job.

19 – AMT Not Quite Dead Yet

Even though Congress thought of eliminating the alternative minimum tax (AMT), they ended up leaving it in place. The final bill was amended (in the Senate) to retain the AMT but limit the number of taxpayers caught it its “trap”. (For those who might never have heard of it, AMT is a parallel tax system developed more than 40 years ago to ensure that the very wealthy paid some income tax. Taxpayers who fall into the AMT trap have to calculate their taxes twice to determine which system applies to them – the regular tax or the alternative minimum tax.)

Well folks, that seems to be quite a bit more that we might have expected at the onset, but this goes to show just how significant and far-reaching the Tax Cuts and Jobs Act of 2017 (the official name of the bill – also known as TCJA, P.L. 115-97 – passed to enact these changes, which are the most extensive to the Internal Revenue Code in decades) is! And these are not even everything, just those expected to impact most individual taxpayers. It is our hope that you’ve found this to be worth the time spent reading it and, ultimately, a good resource for reference as you get ready to “dive” into the tax season (and possibly long afterwards).

We wish you many happy returns! 

Sunday, January 18, 2015

Things to Pay Attention to This Tax Season

Tax season for this year officially begins on Tuesday January 20, 2015. While it is 20 days later than most people would have wished, there is still plenty of time for everyone to get their tax returns filed before the deadline on April 15, 2015. That notwithstanding, it is best to file early to avoid the head-aches and stress that generally come with the subject of taxes, not the least of which is one topic that is gaining a whole lot of notoriety these days: tax filing and refund scams. And for those people who don’t have to write a check to Uncle Sam, another reason to prepare and file your returns early is simple: the earlier you file, the faster you can expect to get your refund.
Regardless of your reason for filing your returns early (or at least wanting to), there are a few things that you might want to keep in mind as you prepare to deal with this annual ritual:
  1. Should You Go DITY (Do It Yourself) or Use A Paid Preparer – This is perhaps the most important decision you will make this tax season: whether to do your own taxes (and that includes having Cousin Jane or Uncle Bob – none of whom is a tax professional – do it for you) or pay someone else to do it for you. You may take this for what you will, but unless you really know what you’re doing (and by that I don’t mean just being able to input numbers in TurboTax!), you want think twice about going the DITY route. Sure, you may save on the front-end by trying to do it yourself ($50.00 or less for TurboTax versus $150–$200 average for a paid preparer), but when you factor in the real costs involved – your time spent (it could take you several hours, possibly even days, to get it right when a professional might have finished it in a matter of one or two hours); missed deductions and credits, misunderstood and/or misinterpreted tax rules/regulations, omitted and/or incorrectly input information (inadvertently or otherwise) and a host of other possible mis-steps that could all result in the IRS rejecting your returns, accepting them but making changes to increase your tax bill or reduce your refund, or (and here is the big one) opening up your return for audit a year or two after you file it, the big question then comes: was it worth the $50.00–$100.00 that you saved to do it yourself?
  2. Choosing the Right Preparer – For those who opt to have someone else prepare their returns for them (generally a wise decision), the next most important decision you will make has to do with whom you select to do the return preparation. Let’s get one thing clear here: there is a difference (and a very important one at that!) between a tax return preparer and a tax professional. It is critical that you understand this difference, and also know that while anyone can pretend to be a tax preparer, not all those out there – with signs in windows, or nailed to tree trunks or telephone poles, or plastered on their vehicles – professing to be “tax preparers” and promising just about everything under the sun if you came to them to do your taxes, not all of them really, truly know what they’re doing on the tax return, much less be classified as tax professionals. As one well-respected and very knowledgeable tax practitioner puts it, with “a poster in one window (touting) that the preparer would ‘Pay You $100 To File Your Taxes’” and “other signs (promising) free food and beautiful girls”, there are so many odd promotions out there “that should make you think: Am I going to a club or getting my taxes done?”. Bottom-line, make sure you check the credentials of the person you're trusting with the preparation of your tax returns, and at the very minimum, ensure that they have a PTIN (Preparer Tax Identification Number), which is a 9-digit alpha-numeric code – starting with a P – that the IRS issues to all tax professionals that have officially registered with them to prepare tax returns.  
  3. Gathering Your Tax Documents – It is important to put together all the necessary records and information that will be needed for the preparation of your returns. This matters whether you’re doing it yourself or using a paid preparer. Obviously Forms W-2 and 1099 are big players here when talking about income, but it is also important to have documents showing proof of any other income you report (including how that income was calculated if it is not that obvious). Equally important – even more so – is having all the necessary back-up records to support any deductions and credits that you claim on the return. One cannot down-play the importance of ensuring that the information you put on your return with regards to income, deductions and tax credits is accurate: long after your returns are filed the IRS may decide to audit them, in which case you will be asked to provide proof of the deductions and credits that you claimed on the return. (In some instances you may even be asked to show proof of your income if it was not the type reported on standard forms. i.e., Forms W-2 and 1099.) Thus, not only do you need to have these documents and records ready for getting your taxes done; you also need to keep them safely for a while – at least 3 years, generally – after the returns are filed. Also, remember to keep a copy of your return before you file it: use the print function in your tax software to print a copy before submitting the return for e-filing if you do it yourself, and if you use a paid preparer and they are e-filing, insist on getting a copy of the return from them.  
  4. Credits and Deductions – If you decide to do your own returns, be sure to claim only the deductions and credits that you are correctly eligible for (what legitimately you qualify for) on the return, and if you use a paid preparer (or have Uncle Bob help you with it) it wouldn’t hurt to ask them to give you a quick run-down of what deductions and credits they reported on your return for you (and also how those were determined).
  5. The Affordable Care Act – Another thing that will impact the returns of most people this season and is therefore important to know about is the Affordable Care Act (ACA). While the law will not necessarily present any difficulties for most taxpayers, many people will still be caught in its web either because they received a government subsidy to purchase health insurance for 2014 under the Act, or because they did not have health insurance coverage during the year as mandated by the law and therefore would have to pay the required penalty. The pertinent information will have to be provided – including any major changes such as marriage, divorce, birth of a baby or change in address or name that may have occurred in your life during the year – so that any determinations involving tax credits (for health insurance subsidies) or penalty applicable under the health-care law may be correctly made on the return.
  6. Fraud Alert – Throughout the tax season and beyond, beware of fraudsters and scammers who would try to steal your identity and use it to do any number of things, including filing false tax returns and receiving tax refunds in your name. Each year the Internal Revenue Service (IRS) releases a list of common tax scams that it names the “Dirty Dozen”, and over the past few years identity theft, telephone scams and phishing have ranked high on that list, with scams pulled by con-artists posing as tax preparers ranking right underneath those. Don’t fall prey to any of these tax fraud traps, and one of the easiest ways for that to happen is for you, the taxpayer, to be greedy and/or overly aggressive in your attitude towards the fulfillment of your tax obligations: either trying to get a bigger tax refund than you rightly deserve or a much smaller tax bill than you should correctly pay. Once the tax scammer sees that, you’re already half-way to being fully in their web, and who knows where that would end you? Be wise and protect yourself.
Well, hopefully we have given you enough tips to guide you and help make going through this tax season a less taxing (pun intended) experience for you. We wish you many happy returns 

Have a question about taxes, issues with the IRS, life insurance, how to accumulate wealth and enjoy it income tax-free, or financial planning in general? We're only a phone call or email away; simply ask us.
Patrick C. OsBourne 

AAKOBB Financial Services
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134

Tuesday, December 30, 2014

Don't Make Them Pay for Your Life Insurance!

Earlier this afternoon I read something on LinkedIn that resonated so much with me that I could not help but think of sharing it with you, readers of this blog. It is the comments of another person1 (a fellow member of a LinkedIn group that I subscribe to) regarding a post from the website that another group member had shared previously. (Actually, the group member who shared the original post is no other than Marv Feldman, President and CEO of Life Happens2, and as a matter of fact, I too was struck by the story in the Life Happens post and so shared it on our Facebook page back on December 24, 2014. You may visit the page – ours, that is – at to read the story, and while you're there please don't forget to like us; thank you.)

Anyway, to go back to what I started saying, I found the comments (concerning that story) made by my LinkedIn group member to be so insightful, so spot-on on the subject of life insurance and the lack of appreciation by a majority of people of its importance in providing financial security for any family. In my humble opinion, it is this lack of appreciation for what life insurance can do – what it stands for – that often results in people procrastinating on getting a life policy when faced with the choice to do so (by coming up with a million different excuses why they can’t get it now) or sometimes even refusing completely to get it. As such, I couldn’t agree more with what that LinkedIn contributor said, and I asked his permission to share his comments here on this blog. Fortunately for us all, he graciously agreed1.

Honestly, I wish I could simply put his words out here exactly as I read them, because I don't believe any changes I could make to his comments would suffice in expressing his sentiments on the subject as poignantly as they need to be (the way he undoubtedly intended them to be). That being said, I do have a few words of my own that I would like to inject into the conversation, and so I am unable to just reproduce everything I read verbatim and leave things at that. Rather, I’m going to try and paraphrase the gentleman as closely as I possibly can (with direct quotes thrown in where possible) without losing much of the meaning to – and emotion in – his words while adding my own two cents’ worth.

So, here we go.

There is nothing funny about life insurance. Seriously, there isn’t. Why would there be, when the whole concept revolves around some very serious – even grim – aspects of the human existence? security...illness...death…these are all serious matters that should not – and cannot – be taken lightly, let alone be spoken about with any element of mirth.

And yet, in at least one respect that is ironic, one can consider the subject of life insurance with a twinge of humor: it has to be paid for one way or another, whether it is bought or not.

If you buy the life insurance your family needs, then you pay for it out of current income. You may not have a whole lot of disposable income to pay for it, so you’re forced to spend a little less here and a little less there. In essence, you learn to practice a little frugality in order to have your life insurance, and (it may even help) "you do a better job of budgeting, of watching out for unnecessary expenditure"1.

On the other hand, “if you don't pay for the life insurance out of the money in your pocket today, then your family may have to pay for it someday.

You may ask, “But how is that? If I’m not spending any money on life insurance, then how will my family pay for it?”

Well, the answer is simple, really. Your family pays in many ways for your failure – or refusal – to pay for life insurance (and thereby make provision for their financial security when you are no longer around to provide for them), and there is no escaping that! They have to. Yes, your family pays for the life insurance you don’t pay for out of the things they are forced to do without when you (and the income you earn) are no longer around to continue to make those things possible. They pay for it with the loss of the life-style they were accustomed to but are now no longer able to enjoy. They pay for it with the home from which they are forced to move (because there isn’t enough money to make the house payment – it makes no difference whether that payment is for rent or a mortgage).

Yes, your children will pay for the life insurance you don’t pay for today with the school they are unable to attend because the fees may no longer be affordable; the education that you want for them that they will be unable to get (because they either drop out of school entirely to get a job and help take care of the family, or they simply cannot focus on studying to get good enough grades while also having to hold a job). They will pay for it with the opportunities they are no longer able to take advantage of; they will pay for it with "a mother's attention that is not theirs" (fully now) because she must work to support the family…”work to live so that they may also live”1.

Yes, just because you fail – no, actually refuse – to commit a little bit of your income to pay for life insurance today, your entire family pays a hefty price tomorrow with the sense of security (and it is not just financial security that we’re talking about here) they no longer possess when you get taken away from them prematurely!

And there you have it, my dear reader; that is what may be considered “funny” about life insurance: you pay for it if you buy it, or you make your family pay for it if you don’t buy it! Now ask yourself, which way would you rather have it?

So, the next time you’re confronted with the choice (or opportunity) to buy a life insurance policy – if you don’t already have one – or pay your life insurance premium (for those who already have a policy) and you start dithering or making excuses (perhaps because you’re thinking you could use the money to buy the latest hi-tech gizmo on the market – or that new fancy dress you would probably wear only once and then leave hanging in your closet to collect dust), ask yourself another question: “Who pays the biggest price for life insurance, me or my children?” Then, act in accordance with your answer. My hope and prayer is that you will do the right thing for your family.

PS: If you do not have life insurance yet, (or even if you do but are not sure whether you have enough to meet your family’s financial needs – and especially if you’re not sure that you have the right kind… the new kind of life insurance), simply click here to get a free, no-obligations quote.

  1. The person I talked about at the beginning of this article (the one whose comments on LinkedIn inspired this blogpost) is called Joaquin Wilwayco. He is a fellow financial services professional with SynergiaDGW in Austin, TX, and he explained to me that the words he used in his comments were not original to him. (He actually credited an “Unknown Author” at the bottom of his comments.) Along with the title of this post, most of the lines with parentheses (" ") and/or the superscript1 are either direct quotes from or paraphrases of that LinkedIn commentary.
  2. Life Happens, formerly known as the LIFE Foundation, is a non-profit organization dedicated to helping Americans take personal financial responsibility and make smart insurance decisions to protect their families financially through the ownership of life insurance and related products. Learn more about the organization and what they do at

Have a question about taxes, issues with the IRS, life insurance, how to accumulate wealth and enjoy it income tax-free, or financial planning in general? We're only a phone call or email away; simply ask us.
Patrick C. OsBourne
AAKOBB Financial Services
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134

Monday, December 1, 2014

Financial Independence Is Rarely An Accident

Albert Einstein was once asked what the most powerful force in the Universe was...

His answer?

Compound Interest.

Protecting your money against loss is the most fundamental principle in investing, and if there is one thing all good investors know (or should know), it is this: never touch the principal!

The Difference Between A Good Investment And A “Real” Investment

A little over a year ago I had a conversation with a client who had approached me about what to do with his modest savings in a 401(k) account that he had left at his previous employer. He could see the market threats mounting against his little nest egg and was concerned about how to protect it.

My advice was that he should move at least half of the value of his portfolio into fixed indexed annuities (the recommendations for the remainder of the account are not relevant to this discussion), and I had a couple of reasons for making that recommendation:

First, I believe it’s never a good idea to leave your 401(k) portfolio with your previous employer. It is similar to leaving your valuable possessions in the house of your ex-spouse after a divorce.

Second, with everything that had happened with the market over the past few years, I thought he needed a vehicle that would preserve and grow his nest-egg for the long-term. (Note: The fact that the stock market has been on a tear lately and reached record highs this year in no way invalidates this particular concern, as the rest of this article will try to show.)

My client said he would think about it and get back to me. About a week later he told me that he had discussed the situation – and my recommendation – with a relative who also happened to be a banker, and the relative had advised him to "stay put" because "stocks always bounce back". Now that response is typical of most folks when it comes to a discussion of market-based investments, especially stocks and mutual funds.

All too often – as in that particular case – this kind of response comes from the often-repeated, but mostly inaccurate assumption that "the returns on annuities are low”! And usually it also comes with this thinking: “I've lost some money in the market and I want to get it back when the market rebounds. As soon as stocks come back up and I break even, I will make the move to a fixed indexed annuity”.

Unfortunately, my experience (and that of most advisors I know) has been that this classic response – and its accompanying “the market will always rebound” philosophy – keeps people at the break-even level with their investments, never being able to really pull out ahead. But even worse, it also comes with lots of regret, and inevitably those who subscribe to it come back to say, "I wish I had listened to you; I wish I had made that switch to annuities or at least moved a part of my money into annuities…”

This is because the expected market rebound and recovery of losses typically doesn't happen as anticipated; instead, those folks end up with disappointing investment results and even more losses, often at a time when such losses can least be tolerated. Of course, hind-sight is always 20-20 so they can now see things more clearly, but then the damage has already been done!

The other side of the coin – what some folks don’t seem to appreciate – is that those of us in the industry are privy to the asset management and investing strategies of successful investors and therefore get to see what moves are made to help ensure investment success and enduring financial stability as the years go by.

I Would Like You To Consider This...

If you start the year with $100,000 in the stock market and lose 40% by year end, it would take 2 subsequent years of 30% returns to break even. The question is, how often does that happen? What are the chances of the market having two consecutive years of 30% growth?

Against this background, placing at least a portion of your retirement (and other financial) assets into an alternate investment vehicle that could help protect your principal against market losses should be considered a good (even great) investment strategy. And annuities – the right kind of annuity – could be just the vehicle you need for that.

Sure, the occasional “giddy highs” of the market (as we have seen this year) can be intoxicating and fun, but we all know too well that “what the market gives, the market takes away”, and as much as we all want to wish that it wouldn't happen, there is no doubt in my mind that it would not be long before this “raging bull” that we've seen for most of this year tires itself out and a sanguine bear (if not a rampaging one) takes over and allows the market to correct itself. When that happens, having a decent chunk of your assets in a vehicle (or basket, if you will) that assures a rock-solid 6 – 10% average annual returns over the long-term will be a pretty good position to be in – and clearly a worthy proposition to be considered by any serious investor.

So you ask, what is a Fixed Indexed Annuity? How does it work, and what can it do for me and my investment or retirement portfolio?

Well, how would you like an investment with the following features:

Ø  100% Principal Protection – Your money (what you put in) will never be lost due to a down-turn in the stock market.
Ø  6% – 10% average returns annually, with a guaranteed minimum of 2% typically
Ø  Gains locked in each year, and once locked-in, they can never be lost by a market down-turn.
Ø  A guaranteed income for life during retirement, even if you out-live your investments.
Ø  A good night’s rest – because you neither have to worry about losing your money in the market, nor about out-living your income in retirement.

If any of what has been said above sounds good to you and you would like to know more, take a few minutes and get back to us at AAKOBB Financial Services with your questions and concerns. We will work with you to explore some options that would get your money working for you (instead of it working for Wall Street money "managers" and/or Uncle Sam!)

We Are Here to Help You  Help Yourself!

To recap, if you want something that...

Ø  Has zero market risk – no losses from market down-turns – with gains locked-in!
Ø  Is relatively liquid
Ø  Comes with tax-deferred growth
Ø  Allows you portioned tax-free, penalty-free distributions
Ø  Provides you with guaranteed lifetime income you cannot outlive,
Ø  Assures that your retirement will pay out (i.e., that you have funds to adequately support you in retirement) even if you outlive your other savings
Ø  Could be set up as a ROTH (after-tax contributions) if you qualify...

Then…speak with us. We wish you all a happy holiday season.

Patrick C. OsBourne
Phone 1: (614) 707-1775
Phone 2: (513) 889-2134