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DHJJ Financial Advisors offers insight on a variety of topics. From current market events to our perspective on timeless financial topics, you will find that our articles provide information that will help you to navigate your own financial landscape.


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ABLE Accounts: What You Need to Know

ABLE Accounts for DisabilitiesAchieving a Better Life Experience Act of 2014, or the ABLE Act of 2014, encourages and assists individuals with disabilities and their families in saving private funds in a tax-advantaged savings account.  These funds can be used to pay for education, health care, transportation, housing and other expenses. Here are some of the most frequently asked questions about ABLE accounts:

 

1.      What is an ABLE account?

ABLE accounts are tax-advantaged savings accounts for individuals with disabilities and their families.  Similar to college savings 529 plans, the earnings from ABLE accounts do not get taxed. Many individuals with disabilities depend on public benefits for income, health care, and other assistance.  Eligibility for public benefits often requires meeting a means or resource test that limits eligibility of a beneficiary if they accumulate assets over $2,000.  An ABLE account gives eligible individuals and their families the ability to establish a savings account that will not affect their eligibility for SSI, Medicaid and other public benefits. 

 

2.      Have ABLE accounts always been around?

No, the federal ABLE Act of 2014 allowed for the creation of these accounts.  The bill was signed by President Obama in December of 2014. 

 

3.      Who is eligible for an ABLE account?

Individual beneficiaries are eligible to open an ABLE account if they meet Social Security’s definition and criteria regarding significant functional limitations and have a letter of certification from a physician.  Beneficiaries need to have the disability onset before the age of 26, but contributions can be made after the age of 26. 

 

4.      Are there limits on how much I can put in an ABLE account?

Yes, there are annual limits for each ABLE account.  Annual contributions per beneficiary are limited to the federal gift tax limitation.  Currently, this amount is $14,000 per year.  Many states have set a limit on the amount that can accumulate in an ABLE account.  In addition, the ABLE Act set some further limitations, stating the first $100,000 in ABLE accounts would be exempt from the $2,000 SSI individual resource limit.

 

5.      How can I open an ABLE account?

Various institutions allow an eligible beneficiary to establish an ABLE account - some can even be opened online.  If you are an Illinois resident looking to open an account, visit the following website for more information and to get started:  www.savewithable.com/il/home.html

ABLE accounts can be beneficial in providing a tax-advantaged way to provide additional resources for disabled individuals without impacting their eligibility for federal benefits. For more information on Illinois ABLE accounts, please visit the Illinois State Treasurers’ website at: www.illinoistreasurer.gov/Individuals/ABLE.

 

How Can DHJJ Financial Advisors Help?

If you have other questions on ABLE accounts and how it may impact your overall financial plan, please contact Cammy Corso at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Financial Planning Checklist for 2017

Have you thought about how much money you need to retire?  Or if you have enough insurance—or even the right kind? Or if there is anything more you can do to save taxes throughout your lifetime?  These are just a few questions you can answer by doing a comprehensive financial plan.

According to a national survey conducted in 2016 by the Certified Financial Planner Board of Standards, Inc., more than 52% of American households are unsure if they will have enough money in retirement.  Only 35% have used a financial planning professional to assess their situation and create a plan for the future.  Financial planning can benefit people of any income level by answering some of these “unknowns”.  Here are seven financial planning areas to think about in 2017.

  1. Set your savings goals and create your cash flow plan. Have you put your financial goals on paper?  Do you know where you will be financially this year, or next year, or in retirement? Putting a cash flow plan in place and keeping it current every year will help you achieve what you’ve set out to do, financially.
  2. Create your estate plan. Basic estate planning documents include a will, a durable power of attorney for financial matters, a healthcare power of attorney for health care matters, and a living will. Significant life events such as births, deaths, divorces, marriages, or changes in state residency often lead to changes in your goals, so documents should be reviewed and updated to reflect these changes, as needed.
  3. Get an insurance review. Consider all types of insurance needs, including life, long-term care, and disability coverage.  They all serve a different purpose.  The insurance industry is constantly changing. New products become available, premiums may go up or down, and what you needed five years ago may be different than what you need today. If you are wondering about your existing policies and if they are still in line with your needs, have an insurance review done and discuss with your advisor if you still need the policies you have or if you want to add any additional coverage.
  4. Understand your investment strategy. Is your investment strategy still in line with your risk tolerance, your time horizon for retirement, and your cash flow needs now and in the future? A financial plan will show you how much risk you need to take on to grow your assets to the amount you will need in the future. From understanding your needs, you can then decide how much risk you want to take on.
  5. Look at asset location. Where are you holding your assets? From a tax standpoint, there are three different “buckets”: (1) a taxable account; (2) a tax deferred account like a Traditional 401(k) or a Traditional IRA; and (3) a tax-free account like a Roth 401(k) or a Roth IRA. Starting with where your assets are located today, think about if there are any changes you can make to create more tax-efficient accounts and maximize your after-tax returns over your lifetime. For example, consider holding your dividend paying stocks in the taxable accounts as the income these investments generate get preferential tax treatment at “qualified rates” (up to 23.8% at the top federal bracket) vs. bonds that pay ordinary income and get taxed at your marginal tax rates (over 43% at the top bracket).
  6. Consider a Roth conversion. Roth conversion can be a powerful tool in your overall financial plan. Assess your personal situation and see where your tax bracket is today vs. where it might be in the future.  If you are in a lower bracket today, it may be an opportunity to shift money from a tax-deferred bucket (Traditional IRA) into a tax-free bucket (Roth IRA). If you can use lower tax rate years to move money into tax-free accounts, this will minimize the taxes you pay on traditional retirement distributions over your lifetime.
  7. Do a multi-year tax plan. Your cash flow plan will help lay out your taxable income levels over the years.  The biggest tax savings come from taking advantage of deductions in high tax rate years and taking advantage of income recognition in lower tax rate years.  In addition, there may be years you can take advantage of certain deductions you would otherwise lose out on if you fall into paying the Alternative Minimum Tax. Running a tax projection every year to see how the current year compares to the following year will help identify tax savings opportunities and reduce the taxes you pay over your lifetime.

How DHJJ Financial Advisors Can Help

Your plans will change throughout your life and your financial plan should change with you. Contact DHJJ Financial Advisors to work with a Certified Financial PlannerTM or email Cammy at  This email address is being protected from spambots. You need JavaScript enabled to view it. .

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529 Plans: Common Questions and Answers – And Potential Tax Savings

529 Plans: Common Questions and Answers – And Potential Tax Savings

What is a 529 Plan?

These plans are named after Section 529 of the federal tax code. The 529 plans are a great vehicle to save money and let it grow tax-free. The requirements for guaranteeing the tax free growth are simple – use the money in the 529 plan for qualified education expenses.

What tax benefits and implications are there to a 529 Plan?

529 plans are a great way to accumulate wealth for future generations to use towards education and have that wealth grow income tax free and also estate tax free if used in the proper way.

A contribution to a 529 plan is considered a gift to the beneficiary of the plan. There may be gift tax reporting requirements and gift tax consequences if you give more than $14,000 to any particular beneficiary during the year.

There are limits on the amount that can be contributed into a 529 plan. These limits are generally between $300,000 and $400,000, depending on the state sponsoring the plan.

You can use any state 529 plan. You are not required to use the plan of your resident state; however there may be tax benefits if you use your resident state 529 Plan. Illinois allows for a subtraction of the contribution amount up to $20,000, if your filing status is married filing joint.

What are the “qualified education expenses?”

Qualified education expenses can be a variety of things. They include tuition, fees, book, and room and board. A beneficiary can even use them to purchase a computer so long as they are enrolled in an eligible educational institution.

Who can get a 529 Plan?

Anyone can set up a 529 plan. There are no income limitations on who qualifies to set up a 529 plan. The beneficiary can be anyone as well – a child, grandchild, relative, friend, and even yourself.

An eligible educational institution is generally any university, college, or vocational school that is attended as postsecondary education. If you are curious if your institution qualifies, there are websites that list all qualified institutions (http://ope.ed.gov/accreditation/).

How DHJJ Can Help

If you have questions on how your 529 Plan impacts your taxes, please contact DHJJ at 630-420-1360, or email Cammy Corso at ccorso.dhjj.com.

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