The Secure Act and Your Early 2020 Financial To-do List


What are your financial moves in year 2020? First, I think you need to start by checking out a legislation called the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, which is effective on January 1, 2020. In this article, I will outline some of the key changes in the Act and how these changes may impact a person’s retirement, college and/or estate planning.

The following are some positive changes coming out of the Secure Act:

  • The Act allows families to pay for up to $10,000 in student loans tax free using the money in their 529 college savings plans.
  • The Act has pushed back the age that retirement plan participants need to take the required minimum distributions (RMD) from 701/2 to 72.
  • The Act encourages retirement plan sponsors to include annuity as an option in their plans by reducing plan sponsor’s liability if the insurer which sells annuity fails to meet its financial obligations.
  • The Act states that any employer who creates a 401(K) or SIMPLE IRA plan with automatic enrollment will get a maximum tax credit of $500 per year.
  • The Act also makes it easier for small businesses to set up 401(K) plans.

Now, on to some of the negative changes brought by the Secure Act:

  • The Act mandates that inherited IRAs for non-spouse beneficiaries must be distributed over 10 years.
  • The changes for the age that requires RMD from 701/2 to 72 creates confusions among individuals who attain age 701/2 in 2019 or 2020.

In order to minimize the confusion, the IRS issued Notice 2020-6 saying that the Secure Act did not change the required beginning date for IRA owners who attained age 701/2 prior to January 1, 2020. Given its significance, the first thing I suggest you to do is to learn more of this Secure Act and plan accordingly based on your individual situations.

Second, you need to know updated retirement and Health Savings Account contribution limits for 2020 and adjust your own contributions accordingly. According to the Internal Revenue Service the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500. The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020: 

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000. The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is $196,000 to $206,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly; $48,750 for heads of household; and $32,500 for singles and married individuals filing separately.

Annual HSA contributions for 2020 for individuals with family coverage are increased from $7000 to $7100. Account holders ages 55 or older can contribute an additional $1,000. However, in order to qualify for the contribution, a person must be enrolled in one of employer sponsored HSA-qualified high deductible high premium health insurance plans.

In 2020, the annual exclusion for gift tax is still the first $15,000 of gifts to any individual.

(Sources: IRS publications)

A Look into Year 2020


Dear readers,

Do you have the feeling of toasting the coming of year 2019 seems to have happened just yesterday? I do. Seems to me that writing an article forecasting year 2019 is not a distant memory. Yet, right now I am writing a blog looking back at 2019 and looking forward to 2020. Time just flies by and life must go on.

Looking back at 2019, I think two words stand out and aptly summarize the year: uncertainty and change. Beginning 2019 we have two biggest uncertainties: trade war between China and the US, and Brexit drama. These two biggest uncertainties hung over our heads until the end of 2019.  Last Friday, it is reported that the US and China have agreed on a so-called Phase One trade deal while Boris Johnson’s Conservative Party won big and he will return to Downing Street with a big majority.  In 2019 we see changes going on in world’s supply chains, and investment trends such as the ESG (environmental, social and corporate governance) movement in the world of investing. Amid these changes and uncertainties there is one shining spot that stands out: the return of US equity. For example, the iShares Core S&P Total Us Stock Market ETF returned 28.15% so far this year thanks to US corporate tax cut, good jobs market, resilient consumer spending and the Fed rate cut.

So, what is year 2020 going to be like in economic, market and business perspectives? The advisor at NorStar Financial thinks the themes of “uncertainty” and “change” will continue into 2020. For one thing, 2020 will be US presidential election year. This is big enough of an uncertainty given the stark contrast of economic policies between the President and likely Democrat presidential nominees. In addition, a recently published World Economic Outlook by IMF sees coming economic weakness worldwide. However, based on a survey of financial advisors by Financial Planning Association (FPA), majority of advisors don’t see a recession in the US in 2020, but rather an economic slowdown. Fortune magazine predicted in its December issue that US GDP growth will be hovering around 2% throughout 2020. During 2019, the Fed has cut its benchmark rate three times with its rate now in a range of 1.5% to 1.75%. Will the Fed cut rate again in 2020? Right now, it signals that it has no plan to do so in 2020. But Fed Chairman Powell also said that Fed will do whatever it is needed to support the US economy. With Fed rate once again under 2%, investors who seek current income will have to be creative in 2020 for higher yields.  On trade, US and China will probably not further escalate during 2020, but the damages resulted from the trade war since 2018 have already been done to the world economy. And the negative effects will continue to be felt in 2020 in areas such as commodity prices and energy sector. All these uncertainties have already affected business sentiment and business investments. Given this overall macroeconomic backdrop, investors may see single digit returns in stock market in general.  Despite the impressive run of the so-called “passive investing” since the last Financial Crisis, where investors just buy index funds to catch market return, individual stock picking maybe come back in favor in 2020. However, individuals need to assess their own financial situations or talk to their financial advisors to develop best investment strategies based on their unique situations. At the same time, another “trade war” among brokerage houses to race to zero commission fee for online trading, the merger of Charles Schwab and TD Ameritrade, and the emerging trend of ESG investment will continue to be changing and shaping the world of investing. In the meantime, the undergoing disruption and change happening to worldwide supply chain will continue into 2020. Artificial Intelligence will pick up momentum, and so will 5G. It is no business as usual anymore.

Thanks for reading and have a great holiday!

2019 End of Year Tax Moves


The end of year 2019 is rapidly approaching. For financial advisors and their clients this means it’s time for clients’ income tax planning. The 2018 Form 1040s are a natural starting point for advisors to identify tax planning strategies for 2020. For DIY readers who haven’t made any tax saving moves yet, however, there are still some time to do so by the end of 2019. Of course, everyone’s tax situation is different. In this article, I will just list some of the strategies.

2019 is the second year when Tax Cuts and Jobs Act has gone into effect. Because standard deduction is much higher under the new tax law, this eliminates the need for itemized deductions for many families. According to Tax Foundation, 10% of the population itemized deductions in tax year 2018 vs. 30% itemized deductions in tax year 2017. But, if you can still itemize your deductions, and you own a home and have paid your property tax at the beginning of 2019, you may want to pay off your 2020 property tax by the end of this year. That way you will have bigger amount of property tax deduction on your 2019 tax year return when you itemize.

Another area to look for saving taxes is your tax-deferred retirement contributions. Some readers may have forgotten to adjust their contributions at the beginning of each year after IRS raised qualified retirement contribution limits for that year. Even if you cannot or do not want to contribute to the maximum limit, bumping up your contributions a bit more still helps. Now is the time to play catch up.

Americans are generous, especially during holiday season. Many made charitable givings every year. If you are considering making some charitable gifts to your favorite cause(s) again this year, and if you didn’t itemize on 2018 tax year return, consider bunching strategy of combining multi-year charitable givings into one tax year. Bunching may make the amount of charitable giving large enough for you to exceed the standard deduction during the year you use this strategy.

Zero commissions for stock trade, is this good for investors?


Tuesday, October 1 Charles Schwab rocked Wall Street by announcing that it’s cutting stock trading commissions to zero. TD Ameritrade fired back immediately by lowering its stock trading commissions to zero, too. Anytime a cut in investment cost is a boon for the average investors, as a general rule. So, should we cheer for the news that these brokerage houses are cutting investors’ trading costs? Not so fast.

First, look a little closer you will see that the new zero commissions apply only to trades done online or on mobile devices, and they do not apply to transactions in foreign stocks, large block transactions requiring special handling, restricted stock transactions, transaction-fee mutual funds, futures, or fixed income investments. Also trades placed by phone will continue to cost $5 each and through a broker at $25. So, the cut in commissions literally benefits only those investors who often do online trades of domestic stocks.

Second, this move could encourage some investors who don’t trade often in the past because of the concern of incurring large amount of trading costs to trade more. Numerous studies in the past have shown that frequent tradings by timing the markets are detrimental to average investors’ long-term investment success. Whether or not Charles Schwab or TD Ameritrade’s customers will trade more often after this move remains to be seen in the future.

Third, according to Charles Schwab’s Chief Financial Officer Peter Crawford the zero-commission policy will reduce company’s quarterly revenue by $90 million. Charles Schwab, or any other company, is not a charity. Companies need revenue to survive and compete in their respective industries. If Charles Schwab cuts its stock trading commissions to zero, how does it make up for the lost revenue? For that I suggest readers look no further than the recent example of Fidelity Investments. Last year, Fidelity touted its zero expense fees funds and marketed them to the general public. Not long after that news broke that Fidelity charges customers with hidden fees and has been probed by the government. Will Charles Schwab make up for the lost revenue by starting charging hidden fees and cut corners of their services? I will leave that to readers to draw their own conclusions.  

All in all, what I see from Charles Schwab’s move is a lose-lose scenario. Brokerage houses lose revenue, yet investors gain little because this may encourage frequent trading which is bad for investors’ long-term investment results.

Have you included pet(s) in your financial plan yet?


One night in March this year, our nine-month-old puppy was enjoying his favorite treat-beef trachea. All of a sudden, he started licking his lips and pacing up and down, unsettled. It turned out that he swallowed a big piece of the trachea without chewing it sufficiently, and the piece blocked his esophagus. We took him to an animal clinic that can perform an endoscopic procedure to get the trachea out. With pet health insurance, the whole procedure would cost us only several hundred dollars. Without pet insurance, however, it would set us back several thousand dollars. The surgery was successful. Now, my puppy has fully recovered. He is sleeping sound and well as I am writing this article.

Americans are pet lovers. More than 80% of Americans regard pets as their family members. Sadly, sometimes pets suffer from their owners’ lack of forethought and planning. We see dogs and cats not getting proper care or medical treatments because of financial trade-offs. We see dogs become homeless after their owners’ deaths. Therefore, a little planning before hand can prevent heartbreaking situations for our pets.

Pet Insurances

Before adopting a pet, think about the time and money you can commit. Do you have to alter your current lifestyle a little bit or a lot? Are you willing to change? What about the financial consequences? Take, for example, the case of owning a dog. Some breeds of dog could incur a large amount of medical bills down the road. One way to mitigate the financial burden is to buy pet insurance. Do a cost/benefit analysis. Does it make sense to buy pet health insurance in your individual situation? Many pet insurances only cover cats and dogs, but a couple of insurers will also cover birds and reptiles. Before you purchase health insurance for your pet, be sure you understand what covered and excluded conditions are and how you file an insurance claim. Many pet insurance companies put their sample insurance policies on their websites. Locate these policies and read them carefully.

Setting Up Companion Animal (Pet) Trusts

Our pets bring us joys and companionship, but they also depend on us for continuous care. How to provide such care in case we are not able to? Pet trust can be a valuable tool for pet owners to do so. So far, all 50 states of the U.S have passed laws allowing pet owners to set up trusts for their companion pets. While considering setting up a trust for your pet, it is a good practice to designate different parties as caregiver of your pet and trustee that administer the funds in the trust for pet respectively.

Alternatively, pet owners can opt for a pet protection agreement, which is simpler than setting up pet trusts, to protect their pets. With a pet protection agreement, pet owners can name their pets’ guardians, leaving funds, and providing instructions for how to care for your pets when you are not around.

Talk to your advisor or lawyer about how to include pets in your financial plan. Don’t let our four-legged family members suffer from the consequences of our lack of planning.

What role does your financial advisor play in estate planning process?


What comes to your mind when the words “estate planning” are mentioned? I bet many would conjure up an image of an old, super wealthy man, pondering plans with his lawyers about who will get his enormous amount of fortune after he is gone. There are a couple of inaccuracies with this image. First of all, estate planning is not only about dealing with one’s monetary assets. Second, estate planning is critical and beneficial not just for older people.

So, what is estate planning? It involves using wills, trusts, insurance policies, and other legal documents to give instructions on what happens to your personal property, your tax, care of your young children and/or pets, if any, your health care arrangements and final arrangements upon your death, etc.

Then, what role does a financial advisor play in her client’s estate planning process?

  • A financial advisor can help clients create plans that truly reflect their values, goals, and wishes with consideration of their overall financial situations.

Experienced financial advisors know that having estate planning documents do not always mean that a person’s estate planning goals are accomplished. Does the plan achieve what one wants to leave behind? A financial advisor knows a client and his/her family well and will take consideration of client’s overall situation in clarifying and prioritizing client’s goals and objectives before going to estate law attorney.

  • A financial advisor helps ensure continued success of client’s estate plan.

Estate planning is a dynamic process. Estate planning does not end after a client sign the estate planning documents. A financial advisor helps clients identify proper assets to fund their estate plan, designate and update beneficiary, review their situations annually and work closely with attorneys to update any changes in client’s family situations in the estate planning documents.

  • A financial advisor can reduce client’s mistakes and save them costs by increasing the chance that client’s estate plan will be carried out successfully.

An estate plan is not successful if client’s estate plan is not carried out as intended. Working with attorneys, a financial advisor can help ensure client’s assets are transferred properly by avoiding mistakes and minimizing administrative costs at death. Also, in some cases an advisor can help client’s intended beneficiaries locate and account for the assets they previously might not know of.

It is probably true that nobody wants to talk about his or her own death. But, let’s be honest, by avoiding and delaying this important planning, one simply does disservice to their loved ones. So, stop delay and start planning.   

Tax Deduction/Credit Texas Taxpayers May Have Overlooked


The tax season has set upon (most of) us. Don’t forget the deadline for filing your 2018 individual tax return is April 15, 2019. Some of you may have already filed your returns. Cheers!
For those of you that haven’t started yet, here are some places that you might want to look for tax deduction/credit.

1. Texas taxpayers can deduct state and local general sales taxes they paid during 2018
Since Texas residents don’t pay state income taxes, this allows them to deduct general state and local sales tax on their federal tax returns. Texas taxpayers can deduct either actual sales tax paid during 2018 or use a default amount determined by the IRS. But, the taxpayer has to itemize in order to take advantage of this sales tax deduction.

2. Mortgage Credit Certificate (MCC)
Good news for some Texas first-time home buyers who bought their homes in 2018. A Mortgage Credit Certificate, or MCC, provides first-time buyers with a dollar for dollar tax credit of up to $2,000 on the interest they pay on their mortgage every year. This certificate must be issued by a state or local governmental units or agencies. Usually, only the taxpayers who itemize can deduct their mortgage interests paid on their tax returns. With a MCC, however, homeowners can take the standard deduction while apply their MCC tax credit to their remaining tax liability. However, this credit is not available for everyone. According to Texas Department of Housing and Community Affairs the program is open to those individuals and families who:
• meet income and home purchase requirements;
• have not owned a home as primary residence in the past three (3) years;
• meet the qualifying requirements of the mortgage loan;
• will use the home as their principal/primary residence.

For further information on MCC, qualified Texas taxpayers may go to for the latest information.

3. Museum Membership Fee
Some of you may pay membership fees or dues to become members of local museums and/or organizations. My family, for example, pays membership fees to Perot Museum every two years. You may not realize that you can deduct this kind of fees or dues on your tax return. However, there is a caveat. Of course, another caveat. Don’t you love them! you can deduct only the amount that is more than the value of the benefits you receive from the museum or qualified organization.

Five Myths About Financial Planning Profession


The profession of personal financial planning has existed for over four decades by now, yet it still has not been as well known to general public as other professions such as accounting or law. The Financial Planning Association (FPA), an industry organization, is recently stepped up efforts to raise the awareness of the profession among general public. There are, however, from my reading and personal experiences, still some misconceptions about this profession. I summarized five common myths or misconceptions about financial planning services, and I will explain them in the rest of this article.

1. Financial Planning is about how to invest your money.

There are more to financial planning than just what and where to invest your money. Investment planning is only a subset of financial planning that a financial planner does for clients. A financial planner can help you turn your dreams and hopes for life into concrete, measurable goals and monitor and evaluate their progresses. A financial planner can teach you how to choose and leverage the latest financial technologies to simplify and manage your personal finance. A planner can also help you cope with financial aspects of life events such as health issues, divorce, change of employment status, aging parents, special needs children, etc.

2. Financial planning is for rich people, or high net worth folks

In fact, there are thousands of financial planning professionals out there who serve all walks of lives in our society. They serve traditional family, single parent, same-sex couples, blended family or widowhood. They serve ultra-high net worth, high net worth, mass affluent, emerging affluent, or mass market. You will find a professional that can help you based on your individual needs and/or family status, net worth/income level.

3. Financial planning is for someone that is still years away from retirement. I am already in my 40s (50s), and it is too late for me to save or plan.

A financial planner helps clients in their various life/professional stages: student, starting a career, career transition, pre-retirement, or retirement. A financial planner helps clients find resources and solutions to address the needs and challenges whether they are in their 20s ,40s, or60s. So, it is never too late to save or plan.

4. I have a CPA, why do I need a personal financial advisor?

Certified Public Accountants (CPA) are professionals that mainly advise clients on tax and accounting issues. A financial advisor helps clients with all aspects of their personal finances including tax planning. In fact, financial advisors often work with CPAs of clients who have very complicated tax issues. So, these professionals play different roles and both have useful places in a person’s financial life.

5. There is nothing a human advisor does that a robot advisor can’t do.

These days, artificial intelligence is being touted and used in many fields ranging from industrial manufacturing to financial services. A robot advisor is such an example. It utilizes mathematical rules or “algorithms”, for example, your age, income, savings, etc. to formulate investment portfolio, or create financial plans. By doing so it can quickly produce plans for the masses. But, how do you quantify a person’s pride, value, fear or sense of security? In that sense, I would argue that financial planning in most part is half science, half art. When constructing a financial plan, a financial planner considers not only those hard, quantitative aspects of a client’s life: assets, liabilities, income, but also his/her emotional side: personal values, priorities, and dreams. Even if two clients have identical jobs, family status, income, education level, their financial plans including their investment portfolios could be very different.

Does that mean that robot advisors and human advisors are mutually exclusive? Of course not. The future of personal finance will probably be a mixture of robo advice and human advice. In fact, many financial advisors are already utilizing technologies to streamline their jobs and better serve their clients.

Your Early 2019 Financial To-do List


You have probably reviewed your financial situations at the end of year 2018 and are thinking about plans for 2019.  Here are some starting points for you to consider to get your plan in place for 2019:

Adjust your retirement account contributions for 2019

  • According to IRS, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,000.
  • For an individual with family coverage, annual HSA contributions for 2019 are increased from $6,900 to $7000. Account holders ages 55 or older can contribute an additional $1,000. The contribution limits are indexed annually for inflation. However, in order to qualify for the contribution, an employee must be enrolled in one of employer sponsored HSA-qualified high deductible high premium health insurance plans.
  • For IRA contributions, the annual limit is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Review your Insurance policies

If your situation has changed during 2018, such as change of job, birth of a new child, or purchases of new car, house, etc., review your insurance coverages or talk to your financial adviser to see if those coverages are still adequate to reflect these changes.

Brace yourself for continued market volatility that may affect your Investments in 2019

October 10,2018,  Dow Jones index and S&P 500 index fell almost 3%, and NASDAQ fell close to 4%. The world stock markets have been volatile ever since. Despite a strong labor market in the United States, entering 2019, the advisor at NorStar Financial believes the stock market volatility trend will continue, given the current geopolitical uncertainties: US-China trade disputes that affect the earnings of multinational corporations and perhaps, drag down global growth; and the flip and flops of so-called Brexit. Against these backdrops, financial professionals started doubting about the likeliness that the Federal Reserve will continue raising its federal funds interest rate. In addition, there are some signs of the softening of once hot US housing market. So, what are an individual’s defenses under these circumstances?

  • Now is especially important to make sure you have adequate emergency fund in place that suit your individual situations.
  • Have a sound investment policy that can guide you through these market ups and downs and stick to it.
  • Review your goals and sort them into near, intermediate and long term goals and make sure you have enough liquid assets to cover your near term goals.

Plan your education funding strategies for 2019

Following the enactment of Tax Cuts and Jobs Act (TCJA) in 2018, new tax law allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing.

Don’t forget the deadline for individual tax filing is Monday April 15, 2019.

  • Gather and organize all your paperwork such as W-2 forms, bank statements, mortgage payment statements, property tax receipt, business expenses, investment statements from your broker-dealers, charity donation receipts, etc. for your 2018 tax filing.

*2018 Standard Deduction Chart

IF your filing status is… YOUR standard deduction is…
Single or Married filing separately $12,000
Married filing jointly or Qualifying widow(er) 24,000
Head of household 18,000
Sources: Internal Revenue Services
  • Child tax credit and additional child tax credit

For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly.

  • The AMT exemption amount

The AMT exemption amount is increased to $70,300 ($109,400 if married filing jointly or qualifying widow(er), $54,700 if married filing separately). The income level at which the AMT exemption begins to phase out has increased to $500,000 or $1,000,000 if married filing jointly.

  • 20% deduction on qualified business incomes. (sources: IRS)

The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains. Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.

Review your estate planning documents and strategies

  • Review

Usually, you only need to review your estate plan once every three years. Again, if there were major life events happened during 2018 you need to review your estate plan documents to see if they are still applicable to your current situations.

  • Annual Exclusion for Estates and Gifts

In 2019, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $155,000 for gifts to spouses.

Since 2018, the TCJA temporarily increased the basic exclusion amount for estate and gift taxes for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2019 the exclusion amount is $11,400,000 per individual, up from $11,180,000.