Elliot H. Kallen

Financial Planner, Wealth Manager, Registered Principal
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Advanced Financial Strategies for CPAs Event a Big Success

On June 22, Prosperity Financial principals Elliot Kallen and Chuck Ballweg hosted an Advanced Financial Planning event strictly for CPAs and Lawyers. Speakers included Simeon Hyman, Senior Director at Proshares and Ryan Chapman, Regional Vice President at the Blackstone Group.

Discussion topics include "Avoiding Landmines in Today's Bullish Environment" and the "Barbells of Alternative Investments".

Thanks to our speakers and all the professionals who attended. Look for more upcoming events coming soon!

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Count Off 3 Tax Breaks For Higher Education

Going to college these days costs a pretty penny—and then some. But you may be able to defray some of the costs if you qualify for tax breaks such as the two tax credits for qualified higher education expenses or the tuition-and-fees deduction. The recent Protecting Americans from Tax Hikes (PATH) Act breathes new life into these tax breaks and may provide more options.

The catch is that all three breaks—the two credits and the tuition-and-fees deduction—are phased out at relatively modest income levels. What's more, even if you qualify for one, two, or all three of these benefits, you can claim only one on your current tax return. Here's a brief synopsis of the three breaks:


1. American Opportunity Tax Credit:The American Opportunity Tax Credit (AOTC), previously known as the Hope Scholarship credit, has been extended and modified several times. With the last extension, the AOTC was scheduled to expire after 2017, but now the uncertainty about this tax break has ended. Under the PATH Act, the enhanced AOTC is a permanent part of the tax code.


The maximum annual credit is $2,500. Significantly, the AOTC is available for each qualified student in your family—so if you have two kids in school at the same time, for example, you may qualify for a maximum credit of $5,000. Also, thanks to another recent improvement, you can claim the AOTC for up to four years of study for each child. Previously, the credit was allowed for only two years.

One complication here is that semesters often span two calendar years, beginning in the fall of one year and continuing through the spring of the next. Because the AOTC can be claimed in only four tax years, you have to pay special attention to timing on your tax return, which generally is based on a calendar year.

Your ability to claim the AOTC is based on your modified adjusted gross income (MAGI). For 2016, the phase-out range is between $80,000 to $90,000 of MAGI for single filers and $160,000 to $180,000 for joint filers. Once you exceed the top limits, you can't claim the AOTC.

2. Lifetime Learning Credit: The Lifetime Learning Credit (LLC) features a maximum credit of $2,000 that is applied on a per-taxpayer basis—you can claim it only once, even if you have more than one student in college.

Another potential drawback to the LLC is that it is phased out at income levels even lower than the AOTC. The phase-out range in 2016 is between $55,000 to $65,000 of MAGI for single filers and $111,000 to $131,000 for joint filers. For these reasons, the AOTC is usually more helpful than the LLC—and remember, you have to choose one or the other.

3. Tuition-and-fees deduction: Finally, you may be able to claim a deduction for tuition and related fees that you pay to a college for your dependent children. This deduction has expired and been extended numerous times in the past. The PATH Act preserves it again, but only through 2016, though it could be extended once more.

On your 2016 tax return, you may claim a deduction of $4,000 or $2,000, depending on your MAGI for the year. For single filers, the $4,000 deduction is available for a MAGI up to $65,000 and $2,000 if you earn between $65,000 and $80,000. Similarly, joint filers can deduct $4,000 for a MAGI up to $130,000 and $2,000 if their MAGI is between $130,000 and $160,000. You can't take this deduction if you exceed the upper thresholds.

Who can claim these tax breaks? Generally, if parents pay college expenses and claim a student as a dependent on their tax return, they are eligible. However, in cases where the student isn't claimed as a dependent, he or she may be in line for the tax break. You may need professional tax advice to get this one right, especially if you're divorced.

Which should you take—one of the credits or the deduction? It depends on your circumstances, but a credit, which reduces your tax bill dollar for dollar, is usually better than a deduction, whose value depends on your tax bracket. As shown in the attached chart, if you're in the 25% tax bracket, a $2,000 tuition-and-fees deduction is effectively worth $500. Compare that to a maximum AOTC credit of $2,500.

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Seven Good Reasons To Create And Fund A Trust

Who needs a trust? Maybe a better question is: Who doesn't? Trusts can be an essential part of an estate plan for anyone who owns significant assets. Reasons for establishing and funding a trust may range from gaining protection from creditors to saving on taxes. A trust can also create a legacy.

There are many different types of trusts, some of which are revocable—you retain certain rights over trust assets—while others are irrevocable, requiring you to cede all control. And some trusts are complex while others are simple. Although every situation is different, consider these seven potential benefits of have a trust.

1. Avoiding probate. Assets distributed according to the provisions of your will must go through a process known as probate, governed by state law. In some states, this can be extremely lengthy and costly, especially if your will is contested. What's more, your will is open to public inspection—anyone can find out what you're giving to which beneficiaries. Assets transferred to a trust, however, are exempt from probate. When you die, the trustee of a trust can quickly—and privately—distribute your worldly goods to the beneficiaries you've chosen.

2. Protecting assets from creditors. Irrevocable trusts are often used to protect personal assets from creditors. That could be helpful if you (or your beneficiaries) work in a profession in which you might be sued or if you have large debts. But keep in mind that an irrevocable trust is permanent—you can't change your mind.

3. Deterring spendthrift family members. If you would like to leave assets to a someone—perhaps a young child or grandchild—you might be concerned about what will happen when that young person gets his or her hands on the money. A trust can include restraints that may deter profligate spending. For instance, you might set up a trust to dole out amounts at regular intervals, with a lump sum coming when a minor is mature enough to handle the wealth. Or you might impose specific requirements for gaining access to the funds—for example, completing a college degree.

4. Authorizing "dead-hand" control. This basically means that the conditions that a trust imposes will remain in effect after you've passed away. So, for example, that youngster might not finish college until years down the road. But maintaining this kind of control may not have the desired effect, or the trust could be subject to legal challenges if its conditions violate public policy.

5. Shifting responsibility for your investments. Usually, when you're investing for yourself, you shoulder most of the responsibilities. But transferring assets to a trust and placing them under the control of a trustee can relieve you of that burden. The trustee, who must meet certain fiduciary standards, then becomes responsible for managing the portfolio of trust assets and other property in the trust. Establishing a trust may also be a way to consolidate some investments.

6. Meeting charitable intentions. You can use a trust to direct donations to a charity both while you're alive and after your death. With a charitable remainder trust (CRT), your family can receive regular payments during your lifetime, with the remainder of the assets going to the charity when you die. A charitable lead trust (CLT) reverses that equation, providing current income to a charity and then directing the assets that remain at your death to your beneficiaries. In either case, establishing the trust is likely to reduce your taxes.

7. Saving estate taxes. A properly structured trust can maximize the available estate tax benefits on both federal and state levels. Federal law allows an unlimited marital deduction for transfers between spouses and a generous estate tax exemption ($5.45 million in 2016) for other transfers. Trusts can also utilize your generation-skipping exemption as well as providing future tax protection of your heirs.

There are other reasons why you might utilize a trust, but these seven are among the most common. What about you? Consult with your estate planning advisors to see which type of trust, or combinations of trusts, might best suit your needs.

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20 Questions On Required Minimum Distributions

Do you remember playing "20 Questions"? Here are the answers to 20 questions about required minimum distributions (RMDs). Most of this information comes from the frequently asked questions section of the IRS website.

Q1. What is an RMD?

A. This is the amount you're required to withdraw from your 401(k) plans, other employer-sponsored retirement plans, and IRAs.

Q2. Which plans do the RMD rules apply to?

A. The rules cover all employer-sponsored retirement plans, including pension and profit-sharing plans, 401(k)s, 403(b) plans for nonprofits, and 457(b) plans for government entities, plus traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE-IRAs.

Q3. When do I have to begin taking RMDs?

A. The required beginning date (RBD) is April 1 of the year after the year in which you turn age 70½. For example, if your 70th birthday was January 1, 2016, you must begin taking RMDs no later than April 1, 2017.

Q4. When do I have to take RMDs in future years?

A. The deadline is December 31 of the year for which the RMD applies. Thus, if you turn 70½ in 2016, you must take the RMD for the 2017 tax year by December 31, 2017.

Q5. How do you figure out the RMD amount?

A. Divide the balances in your plans and IRAs on December 31 of the prior year by the factor in the appropriate IRS life expectancy table.

Q6. Can I withdraw more than the required amount?

A. You can withdraw as much as you like; RMDs are the least you are allowed to take.

Q7. If I take more than the RMD this year can I withdraw less in a future year?

A. No. Each RMD is calculated based on the account balance and life expectancy factor for that particular year.

Q8. Do I have to take RMDs from all of my retirement plans?

A. Although you must calculate the RMD separately for each IRA you own, you can withdraw the total amount from just one IRA or any combination of IRAs that you choose. However, for employer-sponsored plans other than a 403(b), the RMD must be taken separately from each plan account.

Q9. What happens if I fail to take an RMD?

A. The IRS imposes a penalty equal to 50% of the amount that should have been withdrawn (reduced by any amount actually withdrawn).

Q10. How are RMDs taxed?

A. Generally, the entire amount of an RMD is taxable at ordinary income rates. The exception is for amounts attributable to non-deductible contributions to an IRA.

Q11. Are there any exceptions to the RMD penalty?

A. The penalty may be waived if you can show that the shortfall was due to reasonable error and you now have withdrawn the required amount.

Q12. Is an RMD subject to the net investment income (NII) surtax?

A. Distributions from retirement plans don't count as NII. However, RMDs will increase your modified adjusted gross income (MAGI), and a higher MAGI could make you subject to the tax.

Q13. Can I still contribute to my plans if I'm taking RMDs?

A. Yes. If you're still working and participating in a plan, you may qualify to continue your contributions.

Q14. Do I have to take an RMD if I'm still working?

A. Generally, you have to take RMDs from all employer-sponsored plans and IRAs. However, you don't have to withdraw an RMD from non-IRAs if you still work full-time and don't own 5% or more of the business.

Q15. Can an RMD be rolled into an IRA or other plan?

A. Absolutely not. Rollovers are prohibited.

Q16. Can an RMD be donated to charity?

A. Yes. Under a recent tax law extension, if you're 70½ or older you can transfer an RMD of up to $100,000 directly from an IRA to a charity without paying tax on the distribution.

Q17. What happens if I die before my required beginning date?

A. No distribution is required for the year of death. For subsequent years, RMDs must be taken from inherited accounts. A spousal beneficiary has greater flexibility than non-spouses, including being able to treat the account as his or her own.

Q18. What happens if I die after my RBD?

A. The beneficiaries of the accounts must continue to take RMDs under complex rules. Again, spousal beneficiaries have greater flexibility than other heirs.

Q19. Do the RMD rules apply to Roth IRAs?

A. No. You don't have to take RMDs from a Roth IRA during your lifetime. After your death, however, your heirs must take lifetime RMDs from the Roth.

Q20. When should I arrange my RMD?

A. The sooner, the better. Don't wait to get caught in a year-end crush. We can help with the particulars.

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Meeting With The Family For Elder Care Planning

Business managers would never chart a course of action for the future without gathering all of the necessary information, analyzing the pros and cons of different approaches, and meeting with the main people who have a stake in the outcome. Yet many families approach eldercare issues with a similar lack of foresight.

If there is an aging member of your family who soon may need help at home or perhaps will move into an eldercare facility of some kind, it's essential for everyone to talk about what's ahead. Consider trying to call the appropriate relatives together for a family meeting—and be prepared to answer some of these questions:

Can you meet? Frequently, inertia will take over or some family members won't see the need for a family discussion. It's difficult to find the time with our busy schedules and other commitments. What's more, many families today are dispersed around the country and beyond. Nevertheless, it's important to bring everyone together to work out a plan.

Why should you meet? Whether or not specific problems need to be addressed immediately, a meeting gives family members a chance to share information and air their concerns. One or more siblings may feel that too much of the caretaking is falling to them, while others may express their intention to do more. Encourage family members to get such feelings out on the table. Keep in mind that there is no right or wrong approach. The needs of each family and the best solutions for everyone will vary.

Who should you invite? This depends on the size of your family, who takes an active family role, and other factors. Certainly, the children of an elderly parent should be involved, and perhaps the grandchildren, too, if they're old enough to be meaningful participants. Depending on the situation, close family friends and professional advisers also might be included. There could be value to bringing in a third-party caretaker, perhaps a nursing aide or someone else paid to help the parent, who might contribute insight to the discussion. Finally, consider whether or not to include the loved one whose future is being discussed.

What should you cover? The older family member's health care may be at the top of the agenda. You may decide to move the person to a nursing or assisted living facility or to upgrade accommodations at a current location. Another option is to keep the person at home and use live-in care. It's also important to determine whether the parent has a living will or other health care directives that express what kind of care he or she wants to receive. Finances also will be an important part of the equation. Establishing a durable power of attorney for a designated person to handle financial matters could be helpful, and you might decide that one or more trusts could help protect family assets. Federal and state rules covering such documents are complex, so be sure to consult with professionals experienced in this area of the law.

How should you conduct the meeting? Just as for a business meeting, an agenda that you develop beforehand could help keep the discussion on track. One of you may want to take the lead in creating an agenda and distributing it by email to everyone who will be there, then revising it to include other family members' concerns.

What should you do next? Trying to maintain good communication with everyone is very important, and even in families that have not always been harmonious, this is one time when everyone needs to try to come together for the benefit of the loved one. Of course, conflicting viewpoints are likely to be expressed at the meeting, so you all will need to be prepared to compromise. Have someone take detailed notes and circulate them to everyone, and then ask everyone to agree to honor the agreements you've reached.

You all will have to remain flexible in case the situation changes. Develop a "plan B" if, for example, you choose a particular facility that doesn't work out or the elderly person's condition suddenly worsens. Finally, don't expect miracle solutions, but do involve your financial and other advisers in this crucial effort to help this family member.

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