We hope you are well and staying healthy.
Please know we are here to help. We are open and happy to chat by phone or video or meet in person at our office under CDC guidelines.

  • 3rd Quarter Commentary

    Dear Friends,

    We trust you all survived Hurricane Irma last week. The office was out of power for a day before resuming normal operations. It is so sad to see the pictures and hear the stories about the devastation in the Keys and the Caribbean. The forces of nature are powerful indeed!

    Meanwhile, the markets continue to shrug off any negative news and move higher. Your third quarter statements which you will get in a couple of weeks are on pace to show another 2-3% increase for the most recent three month period. For the year so far, domestic equity funds are up over 12% while international funds are up over 20%.

    Calculating Personal Finances There are some real economic fundamentals that are helping to drive this upward trend and provide the basis for our continued optimism. First, the major economies of the world are expanding in unison for the first time since the 2008 financial crisis. Second, inflation remains subdued keeping both the Federal Reserve and the European Central Bank on the sidelines to leave interest rates unchanged. Third, the U.S. economy is not over leveraged as there has been minimal credit growth over the past 10 years; and the U.S. financial system is better capitalized than it has been in years. Fourth, the stock market is not being driven upward by investor euphoria as $737 billion has been pulled out of equity strategies since the 2008 financial crisis.

    Our client meeting next week will focus on the overall economic picture and discuss the importance of the active investment management that happens in each fund you own with us. Our typical client portfolio consisting of 8-10 funds which hold about 1,200-1,500 different publicly traded companies. During the course of the year approximately 300-400 of those companies will be sold and other companies bought. This very active investment approach generates superior long-term results.

    Brad Rutan of MFS Investments will be our guest speaker at the event on Wednesday, September 27. As usual, the event starts at 5:30 at the Country Club of Orlando (1601 Country Club Drive, Orlando, FL) and features dinner and drinks. If you have not yet reserved your space at this meeting or would like to bring a friend, please call the office at 407-629-6477 or reply to this email.

    On another note, many of you have asked us how to respond to the widely reported data breach by Equifax, one of the three credit monitoring agencies. We discussed this topic this past Sunday on the radio show (“Dollars & Sense” Sundays 9-10 AM on 102.5 FM/540 AM) and you can listen to the show on Facebook via this link https://www.facebook.com/NelsonFinancialPlanning/posts/1944460429170427 . You can also refer to the information put out by the Federal Trade Commission at https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do .

    I followed the steps outlined by the FTC to find out that I may have been affected by the data breach at Equifax so I subscribed to the free credit monitoring service. Another option is to place a credit freeze or fraud alert on your credit. The fraud alert is not quite as cumbersome as the freeze when seeking credit in the future so I prefer the fraud alert unless there has been a specific incidence of identity theft. Protecting your information is of the utmost priority here at the office and we recently upgraded our firewall to the best available option on the market. We certainly live in a different and vastly electronic era these days!

    If you have not been in to see us lately, please call the office to arrange a review. Thank you as always for your continued confidence and the referral of your friends to us! Look forward to seeing you on the 27 th .

  • The State of Your Retirement Intro & Chapter 1: The FRS Pension Plan – The Guaranteed Check a Month Club

    It is surprising to me how often state employees are not given all the information necessary to make an informed decision about their retirement. This series will feature seven chapters covering, among other topics, the Pension Plan, DROP, the Investment Plan, the litany of changes since 2008 and some successful retirement income strategies that reduce your taxes and provide flexibility in retirement.

    If you are a member of the Florida Retirement System (FRS), you have seen a lot of changes to your retirement options over the past few years. The state of your retirement has changed dramatically and what made sense in the past often does not make sense today. We regularly meet with state employees to help them figure out these ever changing options. These meetings generally focus on reviewing the pros and cons of your retirement choices to help you make an informed decision and are done as a free service to you.

    While you are working, we keep you informed on a continuous basis by mailing FRS Update letters every few months or so. We do not charge for this ongoing service. Simply put, keeping you informed about the latest legislative changes and market performance while you are still working is somewhat straightforward. It also gives you an opportunity to try us out before you’ll really need us in retirement.

    Couple having a walk at beach As a current employee, your options have changed a lot since 2008. These changes fundamentally shift your retirement options.

    Once you retire, things get a lot more complicated. Our focus shifts to providing personalized retirement income strategies to meet your unique retirement expenses and tax liabilities. These income needs are ever changing and the tax implications in retirement are very important. There are a variety of accounts available as a state employee and each has different tax implications depending on your age and job. Your investment focus also shifts to a more growth and income oriented mix which is very different from the approach used while working. Simply put things get a lot more complicated in retirement and that’s when our customized advice applies.

    The FRS Pension Plan — The Guaranteed Check a Month Club
    The oldest retirement option within the FRS is the Pension Plan. The Pension Plan is a defined benefit plan where your benefit of a monthly retirement check is defined by law. The amount of this check is determined by your years of service, your creditable service percentage and your average final compensation. In addition, you select from among four different options for your retirement income. The two most popular options are Options 1 and 3. Option 1 generates the most amount of income but ends when you die and Option 3 generates income for you and then your spouse when you die but with a reduction in income over Option 1 of typically 15-20% depending upon the age of your spouse.

    This retirement income amount is annually supplemented in retirement by the application of a cost of living adjustment (COLA). However, the COLA has been suspended effective July 1, 2011 which results in a reduction of the prior COLA benefit of 3% per year. Despite better finances in Tallahassee, there has been no suggestion about reinstating this COLA in the future. Consequently, the COLA continues at 0% for all years of services after 2011.

    Effective for new employees after July 1, 2011, retirement eligibility has increased to age 65 or 33 years for regular class and age 60 or 30 years for special risk class. Previously, normal retirement was age 62 or 30 years for regular class and age 55 or 25 years of service for special risk class. The vesting period for the Pension Plan has also increased from six to eight years for new employees hired after July 1, 2011. In addition, a 3% employee contribution is required that goes into the general Florida Retirement System.

    For a more complete description of the FRS Pension Plan, please refer to the Frequently Asked Questions about the Pension Plan and the Pension Plan Summary prepared by the State of Florida Division of Retirement. Both of these documents can be found within www.myfrs.com .

    In summary, the FRS Pension Plan is a traditional check a month retirement plan. This check is guaranteed by the state to last for your lifetime or, with a reduction in income, for a set period of time or the life of another like your spouse. There is never any ability to utilize lump sum amounts from the Pension Plan nor leave a legacy to your beneficiaries. For some, this is the appeal of the Deferred Retirement Option Program (DROP).

    Where indicated, market data and performance represents past performance which is no guarantee of future results. Individual results may vary and values do fluctuate in any investment. This booklet contains our most current understanding of the Florida Retirement System and U.S. tax laws as of October, 2016. This booklet is intended to detail complicated retirement topics but is not a complete discussion as each individual’s situation is different and various exceptions exist. Nelson Financial Planning offers securities through Nelson Ivest Brokerage Services, Inc., a member of FINRA/SIPC. Please note that the information provided in this document has not been approved or endorsed by the State of Florida or the Florida Retirement System.

  • What Makes Nelson Financial Planning Different?

    1. Expert Tax Advice You Can Actually Rely On. You hear a lot of conversations about saving for retirement but not much about planning your retirement income. The biggest reason for this is that most financial firms don’t or won’t give tax advice. Check out their websites. If the fine print says the firm you are using does not provide tax advice and you should consult your own tax advisor, how good is the tax advice you are getting? Our firm employs a full time IRS Enrolled Agent as a member of our financial planning team. We also have a tax preparation service for our retirees that includes a CPA and we stand behind our tax advice.
    1. Expertise and Unbiased Advice of a Certified Financial Planner TM . In the financial services industry, credentials matter. Being a Certified Financial Planner TM , means that the advisor has completed extensive training and experience requirements and is held to a rigorous ethical standard. According to the Certified Financial Planning Board, certificants “understand all the financial complexities of the changing financial climate and will make recommendations in your best interest”. If the firm you are using does not employ Certified Financial Planners TM , how “expert” and “unbiased” is their financial advice?

    Nelson Financial Planning Logo

    1. Only Recommend Investments that We Own Personally. Our most important policy is that we only recommend to our clients investments that we personally own. In the financial industry, few firms can make that claim of their financial planners. Jack Nelson started that commitment when he began the firm in 1984. While Jack has since passed, this bedrock principle continues today. Don’t you want to be dealing with somebody that truly has a vested personal interest in how your investments perform?
    1. Central Florida’s longest running Radio Show – 31 Years and Counting! Many firms do radio shows for certain periods of time but ours is the longest running in Central Florida. We view the radio show more as an opportunity to speak to our followers every week with fresh ideas and perspectives on the most current events of the day. Our radio show “Dollars and Sense” is heard live every Sunday at 9AM on Newsradio 102.5 WFLA and is simulcast on 540AM as well. If you miss the show on Sunday, it is always available on any of our social media sites – Facebook, Twitter, Soundcloud, Google or Linked IN – or at www.NelsonFinancialPlanning.com. Unlike other shows that constantly tell you to call the office now, ours does not because its purpose is to educate, inform and hopefully entertain the listening audience.


  • An unlikely pairing: Oil & Virus

    Dear Friends,

    Well, market volatility took a step up yesterday. Looks like that volatility continues today (but in a positive way so far!). Just another example that underscores how difficult it is to predict market behavior in the short term. People forget that volatility has two sides – up and down- and if you get out on the down days chances are very high that you will miss one or more up days. Those moves will cost you, which is why we work as hard as we do to provide perspective to ensure you achieve the best possible investment results over time.

    Now between the two headlines – oil and virus – the one to watch is oil. That one has the greatest potential economic impact. While the U.S. economy is certainly strong, with low unemployment and less leverage or borrowed money in the economic system than other times, it is not immune to contraction. As we mentioned in our email two weeks ago, the chance of the virus driving the economy into a recession was “Frankly, maybe!”  However, the combination of an oil price drop that disrupts energy production in our country (which has been a main driver in economic growth over the past few years) would push that assessment to – Frankly, probably!

    The markets certainly seem to be pricing a full blown recession into the mix given this quick decline of 20%. The silver lining on that front is recessions are always followed by expansions and bull markets! Remember you accumulated your assets over time – usually a 20-30 year period that consisted of plenty of headlines and a few recessions – and you will spend your assets over a similar 20-30 year period that will consist of plenty of headlines and a few recessions.

    On an additional note, I just don’t understand the current approach to coronavirus. Clearly, if you are older and have health issues, then this virus is not something to be taken lightly. But it almost seems like the world (or at least the media) is expecting a zero-risk tolerance approach to combating this virus. When did that become the standard? And if it is, why do I still see cars on the road (accountable for 1.25 million deaths each year), cigarettes in the stores (accountable for 480,000 deaths each year just in the U.S.), and pools in everybody’s backyard (accountable for 360,000 deaths each year from drowning). Could some of the reaction to the virus be the death of common sense?

    As always, we are here to answer any of your questions and concerns. That’s why you hired us in the first place – to provide some perspective in difficult times and create investment allocations that stand the test of time against the constant whirlwind of headlines and events. So don’t hesitate to give us a call or send us an email!

    As a reminder, our next client event is coming up on March 26 at 5:30 PM.

    Look forward to seeing you on the 26th. And remember wash your hands and cough into your elbow!

  • Has the bull caught a deadly virus?

    Dear Friends,

    The Coronavirus has certainly dealt a quick blow to the markets. The ongoing quarantines, lost production and supply chain disruptions are putting further stress on a Chinese economy that was already growing at its slowest level in 30 years and still dealing with the effects of the U.S. trade war. With each passing day there is increased concern that this China problem will become a U.S. problem that derails one of the longest periods of expansion on record. We believe this is a fair concern that cannot be ignored.

    Every expansion ends and is followed by a recession. Every recession ends and is followed by an expansion. This is the normal ebb and flow of the economy that has been going on for a hundred years plus. There is nothing in these headlines that suggest that this overall economic pattern won’t continue in the future. At some point, markets and the economy contract and reset themselves for the next period of expansion. Over the course of the next 30 years there will be no less than three expansions and three recessions based on the historical pattern. And guess what, for those of you who have been clients with us for 30 years or more, that’s exactly what you have experienced during that time – 3 recessions (1992, 2001 & 2008) and 3 expansions (all the other years!)

    So is Coronavirus the “thing’ that precipitates an economic recession in the near term. Frankly, maybe. Remember though most of the time these types of events produce more of a V shape in the economic pattern. The event produces an immediate impact on growth and then once resolved, acceleration occurs as that pent up demand is unleashed. Certainly, that was the template for prior outbreaks like SARS or Ebola.

    When the next recession does occur (and it will!). We believe that it will be quite mild and not a repeat of the financial crisis of 2008. Why? The combination of low interest rates and low unemployment should damper any economic decline.  The absence of any obvious asset bubbles (i.e. think real estate in 2008) also suggests a milder decline when it does occur.

    So, what to do for now? Well, bottom line, stay consistent and stay diversified. Your portfolios are predominantly invested in large companies that make the stuff that the world will continue to use each and every day. They are highly diversified (often with hundreds of different companies in them) and well balanced between growth companies and dividend paying companies. If you have some extra cash, now may be a great time to actually add to your accounts.

    And finally, a little prospective on the virus itself as the media (and even the CDC) are in overdrive mode which means there is little perspective provided and fear of the unknown is sky high. Every year in this country for the past decade, there was an average of 30-45 million cases of the flu that resulted in 20,000 – 40,000 deaths according to the CDC. Bottom line, the regular run of the mill flu is far deadlier to you living here in the U.S. So, wash your hands and take your flu shot!

    In the meantime, tax season is underway at the office and the pattern so far is decent news with most experiencing lower tax bills due to the continued effects of the tax cuts in 2018. As a reminder, please be sure to RSVP to our next client dinner at 5:30 on March 26, 2020 at the Country Club of Orlando. (1601 Country Club Dr. Orlando Fl.). We have had a change of speaker for that event and are pleased to welcome Emily Tillman who is an Equity Investment Director with American Funds.

    We look forward to seeing you on March 26.

  • 2020 FRS Letter

    2020 FRS Legislation Developments

    Did you get your Free Copy of our FRS booklet?

    For the latest updates, listen to our weekly podcast.

    Do you need a strategy shift under the FRS Investment Plan?


    January 16, 2020


    Dear State of Florida Employee,


    Welcome to 2020!  How has it been 20 years since we rang in the new millennium!  On December 31, 1999, the DOW set a then record high of 11,497.  On December 31, 2019 the DOW closed at 28,538.  That’s a pretty good return over those 20 years considering the litany of events that occurred!

    1. Market Commentary.

    2019 certainly generated a great return with the DOW up 22% and the broader markets up even more for the best calendar year since 2013.  But remember, a lot of that performance was a recovery from the 15% decline in the last three months of 2018.  The markets are only up about 7% from September of 2018 even with the big return for 2019.

    The major drivers for 2019 were consumer confidence and lower interest rates.  As we head into 2020, those catalysts appear to have continued strength.  Consumer savings is double from just a decade ago and consumer debt relative to GDP is at its lowest level since 2003.  Interest rates are certainly not expected to rise anytime soon either.  Consequently, as we detailed in our weekly radio show/podcast from December 29, we expect 2020 to produce positive results for the markets on the upper end of the historical average of 8-10%.  Stay tuned for how that plays out.  For 2019, our annual tongue in cheek fearless forecast turned out to be 99.5% accurate!

    As with any year, 2020 will have its share of volatility – we’ve already seen that just a few days into the year with the headlines swinging from the positive (a China trade deal to be signed later this month) to the negative (heightened Middle East tension).  As always, volatility is a normal part of the markets and history and countless studies confirm that being consistent is the best option for achieving investment results over time.

    1. Our Weekly Podcast; Upcoming Meetings & FRS Booklet.


    Many of you know we host Central Florida’s longest running radio program but did you know it is now available as a podcast.  Dollars and Sense is broadcast live every Sunday morning from 9:00 AM to 10:00 AM on Newsradio 93.1 and AM 540.  The show is then converted to both audio and video podcasts.  To listen,  follow us on Facebook under Nelson Financial Planning and be sure to like us too!  To watch, subscribe to our Nelson Financial Planning channel on Youtube.  We are also on a variety of other platforms like Twitter, itunes, Google and many others.  Visit our website at www.NelsonFinancialPlanning.com to find your favorite podcast format.


    Our spring client meetings are rapidly approaching. These meetings represent an opportunity for you and your friends to hear from senior financial personnel about the markets and the economy.  We are particularly excited to welcome Dr. Sean Snaith to our January 29 event.  Dr. Sean Snaith is the Director of the Institute for Economic Forecasting at UCF and is a nationally recognized economist and highly sought after speaker.


    Wednesday, January 29, 2020 from 5:30 – 7:00 PM

    Dr. Sean Snaith of UCF featuring dinner and drinks


    Thursday, March 26, 2020 from 5:30 – 7:00 PM

    Mark Seaman with American Funds featuring dinner and drinks


    Our Booklet – The State of Your Retirement; The Essential Guide for all State of Florida Employees – continues to be the one source for state employees that describes all of unique choices you face at retirement.  The latest edition includes information about your eligibility for the Health Insurance Subsidy along with a chapter on the importance of 457 Deferred Compensation Plans. Please be sure to call (407-629-6477) or email (Joel@NelsonFinancialPlanning.com) us to request your free copy today.


    III. Is a Strategy Shift under the FRS Investment Plan necessary for you?


    If you are in the FRS Investment Plan, the table below shows the most recent performance of the funds we typically recommend.  This mix represents a more growth approach which reflects the accumulation phase of life – those years when you are working, saving and accumulating the resources to retire.  However, as you approach retirement, you should enter into more of a growth and income approach.  Receiving income while maintaining some growth to cover that income becomes paramount in retirement.  This shift means that your investment mix needs to adjust as well.  We encourage those that are within 3-5 years of retirement to review their investment allocation.  As always, we are happy to provide free consultations to state employees who would like to review their investment allocation.  Simply contact the office at 407-629-6477 to schedule a conversation and be sure to have your login information handy.


    1. 2020 Legislative Update.


    In a sharp contrast from prior years, there appears to be a number of proposed bills in the upcoming Florida Legislative session that in fact benefit state employees.  For many years, your benefits have been getting cut in response to the  economic decline of 2008.  Specifically after 2008 there were substantial cuts in the employer contribution rates to FRS which had a profound impact on your retirement.  However, over the years, as the markets and economy have improved so to has the state of the Florida Retirement System.  As of November 1, 2019, the state’s FRS Pension Plan now has nearly $165 billion invested in a mix that is 70% in equities and 30% in cash and bonds – a very typical asset allocation that we follow as well for retirees.  This is a dramatic improvement over the $110 billion that was in the plan just 10 years ago.


    With those improved finances, there is finally proposed legislation that increases the contribution rates by employers to your retirement – albeit still not to the levels that existed prior to 2008!  SB 992 proposes raising the employer contribution rates from 6.3% to 10.3% for regular class employees and from 14% to 18% for special risk employees over a three year period between 2021 and 2024.  This would certainly contribute to a better retirement picture for all state employees.  Unfortunately, under this bill, state employees are also being forced to increase their required contributions from 3% to 5% for regular class employees in 2021 and from 3% to 5% for special risk employees between 2021 and 2024.


    1. Retirement Under the Florida Retirement System.


    There are many factors that go into properly planning your retirement.  The various types of FRS retirement accounts such as IRAs, FRS Investment Plan Accounts and Deferred Compensation Accounts are unique and have different tax consequences depending on your age.  These are very important and very complicated issues that require proper planning in order to have the most flexibility in retirement.


    If you are thinking of retiring or have recently done so, please contact us at 407-629-6477 to schedule an appointment to discuss planning your retirement in the most tax and cost efficient manner.  THESE RETIREMENT PLANNING SESSIONS ARE ABSOLUTELY FREE NO OBLIGATION CONVERSATIONS THAT ANALYZE ALL YOUR RETIREMENT OPTIONS.


    We look forward to seeing you at our events on January 29 and March 26. In addition, please be sure to visit the latest exhibition at Cornell Fine Arts Museum at Rollins College.  “African Apparel: Threaded Transformations across the 20th Century” runs from January 18 to May 17 and we are proud to be a presenting sponsor.  As always, please contact us with any questions on any financial matter.






    Joel Garris

    FRS Investment Plan Current Growth Recommendations

    As of December 31, 2019 2019 2018 2017 3 YR
    5 YR
    10 YR
    FRS U.S. Large Cap Stock Fund 28.87% -7.00% 25.49% 14.57% 11.03% 13.82%
    FRS Global Stock Fund 30.48% -5.57% 29.26% 16.78% 11.44% 10.96%
    FRS Foreign Stock Fund 27.40% -14.91% 31.17% 10.20% 6.15% 6.41%
    FRS U.S. Stock Market Index Fund 31.09% -5.20% 21.24% 14.64% 11.33% 13.49%
    FRS Small/Mid Cap Stock Fund 29.14% -8.19% 16.31% 11.31% 10.33% 14.51%
    Average 29.40% -8.17% 24.69% 13.50% 10.06% 11.84%

    Note: 10 year returns as of November 30, 2019


    Performance data quoted represents past performance, which is no guarantee of future results.  Please note that the information provided in this letter has NOT been approved or endorsed by the State of Florida or the Florida Retirement System.  All examples shown reflect actual performance; however, individual results may vary and values do fluctuate.

  • Top 10 Tax Changes for 2020

    The Tax Cut and Jobs Act (the “Tax Act”) enacted at the end of 2017 produced extensive changes to tax rates and deductions for both businesses and individuals. In addition, the recently enacted Setting Every Community Up for Retirement Enhancement Act (the “SECURE” Act) produced sweeping retirement changes. These two acts have widespread implications on your 2019 tax return. If you have any questions about the effect of these tax changes on your personal situation, please contact us at 407-629-6477.


    1. Mandatory Health Insurance Tax Removed. Effective January 1, 2019, the Individual Shared Responsibility Payment Mandate, which previously assessed a penalty on individuals without health insurance, was removed. If applicable, the penalty was calculated on an individual’s federal tax return and paid with their taxes. The penalty was the larger of $695 per adult ($2,085 per family) or 2.5% of annual income. When filing your 2019 tax return in 2020, there will be no penalty. Although removed on the federal tax return, some states, such as California, Massachusetts, New Jersey, Vermont, and Washington DC, still have their own individual health insurance mandate penalty.
    2. Elimination of the Stretch IRA. Effective January 1, 2020, the SECURE Act eliminated the Stretch IRA, which previously allowed most non-spousal beneficiaries to stretch the required minimum distributions (RMD) from an inherited retirement account over their own life expectancy. The SECURE Act requires non-spousal beneficiaries to withdraw all assets from an inherited account within 10 years of the deceased’s death. Beneficiaries no longer have minimum distribution amounts required each year but can instead withdraw the balance at their discretion until it must be liquidated in the 10th year. This change will not only accelerate distributions, but also accelerate the associated income taxes. This was a truly unfavorable change in the tax law and effectively eliminated one the most powerful and flexible estate planning tools that was previously enacted.
    3. Required Minimum Distribution (RMD) Age Raised and Age Restriction for IRA Contributions Eliminated. The SECURE Act increased the RMD age for IRAs from 70 ½ to 72. The SECURE Act did not change the age for Qualified Charitable Distributions (QCD), which remains at 70 ½. Any QCD made between age 70 ½ and 72 are considered non-taxable on your tax return and may reduce your future RMD since the IRA balance decreases from the distributions. Additionally, the SECURE Act removed the age restriction of 70 ½ for IRA contributions for taxpayers that are still working. This also applies to spousal IRAs. Thus, if at least one spouse is working after age 70 ½, both spouses can continue to make IRA contributions and receive a potential tax deduction.
    4. Higher Contribution Limits for 401(k)s, 403(b)s, 457s, Simple IRAs, IRAs & HSAs. The contribution limits to retirement accounts increases for 2020. For 401(k)s, 403(b)s and 457s the limit increases from $19,000 to $19,500. For those over age 50, the catch-up contribution limit increased to $6,500 allowing for a maximum possible contribution of $26,000 for 2020.  The limit for SIMPLE IRAs increases from $13,000 to $13,500 with the over age 50 catch up contribution staying at $3,000.  The annual limit on Traditional IRAs and Roth IRAs remains the same at $6,000 for 2020.  The age 50 catch-up contribution remains at $1,000 for these accounts.  The Health Savings Account limits also increases from $3,500 in 2019 to $3,550 in 2020 for individual plans while family plan contribution limits increase from $7,000 to $7,100.  In addition, HSA account holders age 55 and older may contribute an extra $1,000 annually.  These increases reflect inflation adjustments on the contribution limits and allow tax payers to save more.
    5. Qualified Business Income Deduction (199A) for Rental Properties. The Qualified Business Income Deduction (QBID) allowed owners of sole proprietorships or pass through entities to take a 20% deduction on qualified business income. With one year under their belt, the IRS has increased their scrutiny towards taxpayers taking this deduction, especially for rental real estate. The IRS released a renal real estate safe harbor, which requires taxpayers to keep separate records for the rental real estate business and perform at least 250 hours of rental services per year, to be able to utilize the deduction on their 2019 tax return. The taxpayer must keep contemporaneous records that detail the hours, dates, and description of services performed. Typical rental services include: advertising to rent, collecting rent, performing daily operations including lawn services, maintenance, and repairs, and managing the property. These activities can be performed by you, your employees, outside services, or independent contractors. In order to take the QBID on a rental real estate business, you must sign an election under penalties of perjury certifying that you meet the requirements for the rental real estate safe harbor.
    6. Alimony Payments and Divorce Agreement Modifications. Divorce or separation agreements executed after December 31, 2018 exclude alimony payments from the tax return entirely. To facilitate proper reporting under the new regulations, taxpayers are now required to indicate date of divorce on their 2019 tax return when reporting alimony. If a divorce or separation agreement executed prior to December 31, 2018 is modified, it may trigger use of the new tax treatment depending on the changes made. If you previously received a deduction for alimony payments and had a material modification to your divorce agreement in 2019, you may not be entitled to the deduction moving forward.
    7. Higher Medical Expense Deduction Threshold Averted. The medical expense deduction threshold was supposed to increase from 7.5% to 10%. Fortunately, the SECURE Act extended the lower threshold of 7.5% for 2019. Taxpayers can still deduct unreimbursed medical expenses but only if the expenses exceed 7.5% of adjusted gross income on their 2019 tax return and only if they itemize their deductions.
    8. 529 Education Savings Plan. One of the Tax Cuts and Jobs Acts changes now allows distributions from 529 Plans to be used to pay up to $10,000 of tuition each year at an elementary or secondary (K-12) public, private or religious school. Additionally, the SECURE Act allows for 529 Plan distributions to pay for student loan payments and the cost of apprenticeship programs up to $10,000 per plan. 529 Plans previously only offered tax-advantaged savings for qualified higher-education expenses. Contributions up to $15,000 are eligible for the gift-tax annual exclusion ($30,000 combined gifts for couples).
    9. Capital Gains & Dividend Tax Rates. The Net Investment Income Tax of 3.8% on dividends and capital gains remains. This additional tax applies to investment (unearned) income for single filers with income above $200,000 and married filers with income above $250,000. Investment income includes dividends, interest, rents, royalties and capital gains. The capital gains and qualified dividend rates remain at 0%, 15%, or 20% dependent on income and marital status.
    10. Form Changes. On the 2018 tax return, the IRS removed over 50 lines from the face of Form 1040 in efforts to simplify the tax return for individuals. Consequently, most of the 50 lines were then picked up on six new schedules. On the 2019 tax return, the IRS has reduced the number of schedules from six to three. Some of these items have been moved back to the face of Form 1040, while other items have been grouped together and/or renamed. Additionally, the IRS released a draft version of Form 1040-SR, which will be available for taxpayers age 65 and older. Essentially, it is a simplified income tax form with larger font and predominately displayed charts. Form 1040-SR was created to help seniors who file their tax returns on paper instead of electronically.

  • Dear Friends,

    Welcome to 2020! How has it been 20 years since we rang in the new millennium! On December 31, 1999, the DOW set a then record high of 11,497. On December 31, 2019 the DOW closed at 28,538. That’s a pretty good return over those 20 years considering the litany of events that occurred!

    2019 certainly generated a great return with the DOW up 22% and the broader markets up even more for the best calendar year since 2013. But remember, a lot of that performance was a recovery from the 15% decline in the last three months of 2018. The markets are only up about 7% from September of 2018 even with the big return for 2019.

    The major drivers for 2019 were consumer confidence and lower interest rates. As we head into 2020, those catalysts appear to have continued strength. Consumer savings is double from just a decade ago and consumer debt relative to GDP is at its lowest level since 2003. Interest rates are certainly not expected to rise anytime soon either. Consequently, as we detailed in our weekly radio show/podcast from December 29, we expect 2020 to produce positive results for the markets on the upper end of the historical average of 8-10%. Stay tuned for how that plays out. For 2019, our annual tongue in cheek fearless forecast turned out to be 99.5% accurate!

    As with any year, 2020 will have its share of volatility – we’ve already seen that just a few days into the year with the headlines swinging from the positive (a China trade deal to be signed later this month) to the negative (heightened Middle East tension). Please be sure to listen to our live show Sunday morning from 9-10 am on Newsradio WFLA Orlando or subscribe to any of our podcast or Youtube channels to stay informed along the way. Those social media channels can be found directly by going to the upper right hand corner of our website and just clicking on the icon that looks most familiar to you to become a subscriber.

    The start of a new year also means that tax time will be upon us soon. While the tax changes are not as sweeping as last year, there are certainly many to be aware of so be sure to review our next blog post of the Top 10 Tax Changes of 2020. In particular, two of the major changes involved removing the age cap of 70 on being able to contribute to an IRA if you or your spouse are still working and increasing the required minimum distribution age to 72.

  • Merry Christmas, Happy Hanukkah and Other Year End Musings

    Dear Friends,

    Happy Holidays!  We hope you all have the opportunity to spend time with family and friends this season and enjoy the craziness of life!

    This year the market has given us all much to cheer about but lest our memories fade too quickly remember where we were one year ago at this time.  The markets were in a bit of a tailspin and from early November until Christmas Eve of last year proceeded to decline by nearly 20% (19.6% to be exact). Our view for 2019 was that the markets would recover from that rapid decline (the Federal Reserve certainly helped out by cutting interest rates early in January and then again, a couple of more times this year) and so the year has unfolded somewhat as expected.  Better economic and employment data coupled with increased consumer spending have provided additional fuel for the markets upward trajectory as well.

    If you follow our radio program/podcast (which you can do by following this link), https://www.youtube.com/channel/UCMkUy7pgh5x0jzAYwdUx9og  you know at the start of every year we do our tongue in cheek exercise of a Fearless Forecast for what the markets will do for the coming calendar year.  This tradition started over three decades ago by my father-in-law Jack Nelson and it continues today.  We are on a bit of a lucky streak on our forecasting these days as this year will mark the fourth time in the past eight years where our forecast has been nearly spot on – plus/minus within 400 points of where the DOW finished the year at.  This year may turn out to be our most accurate yet – our prediction was a DOW at 28,400 by year end and yesterday the DOW closed at 28,239.  Needless to say – stay tuned as there are still a few more days left in 2019!  We will look to recap the numbers on our program that will air on December 29.  As for the other four years of those past eight – well, suffice it to say that we were less than accurate in our forecasting.  This underscores the reason why we don’t time the market!!!

    Looking ahead to next year, well, you’ll have to wait for our December 29 radio program/podcast for the official Fearless Forecast but basically, we believe the current positive economic trends will carry into 2020.  Beware though the uncertainty of election years can produce some heightened volatility (that plus China trade, North Korea, Brexit – there’s always a host of headline events that provide distraction).

    What we do know about 2020 is that we have a very exciting line up of client meetings ahead. In a bit of a change, for the first time in a number of years, we are bringing in an independent nationally known speaker for our first client meeting on January 29.  Dr. Sean Snaith, Director of the Institute for Economic Forecasting at UCF, will be our featured speaker for a dinner session.  Sean is a nationally recognized economist in the field of business and economic forecasting and has won multiple awards for the accuracy of his forecasts, his research and his teaching.  He is a highly sought after speaker and is frequently interviewed in international, national and regional media.  We are confident he will have much to say about 2020 and beyond!

    After that, our next client meeting will be another dinner session on March 26 and feature a national speaker from the American Funds.  Looking further ahead we are excited about returning to Quantum Leap Winery for our annual client appreciation event.  Remember it is the identical event on both nights so look for a formal invitation and response card in your mail in late March in order to secure your first choice of date.

    Lastly, thank you!  Our business continues to grow thanks to your continued confidence, loyalty and referrals.  We appreciate you all so much!

    Enjoy the holiday season!





  • Retirement Income – Your Age and the Account Matters

    Planning your retirement income as a member of FRS is a very intricate process. Depending on your age, your years of service, your job, your FRS choices, and your deferred compensation account, the composition of your retirement income and your taxes will be different. We typically spend several hours with FRS retirees properly planning their retirement income. We encourage you to contact us to schedule your complementary, no obligation conversation about planning your retirement income.


    We want to warn you about three examples of FRS retirees receiving bad advice that limited their retirement options.


    First, do not rollover your deferred compensation account to an IRA if you are under age 59½. Once this money is placed in an IRA, you have to pay an extra 10% tax penalty to use the money if you are under age 59½. If the funds are left alone in the deferred compensation plan, you have completely flexible access to the funds with no tax penalty. Bottom line, if you are under age 59½, leave your deferred compensation alone.


    Second, the guarantees and promises that come with these “new” income approaches that use annuities are simply not as they are described. These guaranteed income streams and returns are filled with caveats, fine print and high costs. These promises don’t actually guarantee any real return on your money as they only apply to internal insurance company values. If FDIC guaranteed CDs are paying around 2% currently, insurance companies aren’t really paying you 5% or more. Bottom line, if it sounds too good to be true, it is.


    In addition, the State of Florida is now promoting the use of annuities in its Investment Plan correspondence to state employees. The state’s suggested annuity approach offers an irrevocable option that leaves nothing to your beneficiaries. If state employees prefer a guarantee, they should consider staying with the Pension Plan.


    Third, if you are over age 55 and under age 59½ when you retire, you need to leave the amount of money you will need to spend before age 59½ in the FRS Investment Plan. The FRS Investment Plan provides you an exception to draw money out in any amount or frequency without having to incur a 10% tax penalty for early withdrawal if you retire in the year you turn age 55. This is a very valuable option for those that qualify. If all the money is rolled out of the FRS Investment Plan and into an IRA, you lose the flexibility of this option. Bottom line, if you are retiring in the year you turn age 55, you have more flexibility by actually leaving some money behind in the FRS Investment Plan.


    Properly planning your retirement income is of the utmost importance. These are just some of the examples we have seen where if the retiree had followed the advice given, they would have effectively eliminated their flexibility in retirement or even worse been subject to an extra 10% tax penalty. Simply rolling over your FRS Investment Plan, DROP or Deferred Compensation account to an IRA may not be the best course of action and could generate an extra 10% tax cost in retirement.