September 19, 2020

Tax Strategies to Embrace, or Avoid, Before the November Election

In life, having an acceptable hedge is always a bonus.

Roth I.R.A. conversions can fit in here. A good hedge would be to convert some portion now and more after the election. Another strategy would be to see how the public markets respond to the election. If stocks go down, complete the Roth conversion then; the lower market value will translate into a smaller tax bill.

There are risks. Income tax rates could actually fall, and “you could end up paying a lot of taxes you don’t need to pay,” said Kim Bourne, chief executive of Playfair Planning Services.

People looking to transfer money to heirs can make a loan to a trust now and then, depending on how the election goes, keep the loan in place or forgive it. If the loan is forgiven, that amount will count toward their gift exemption, said Alison Hutchinson, managing director at Brown Brothers Harriman.

One of her clients lent money to a trust she created for her children and grandchildren this month. The trust has to pay her a small amount of interest on the loan, but if it looks like the exemption levels for gifts are going down, her client will forgive the loan. Ms. Hutchinson said that process would be as simple as writing a letter to say she forgave it.

“We’re focused on flexible and resilient structures that can withstand different outcomes,” Ms. Hutchinson said.

The ultimate flexibility for couples is to create trusts that move the money out of one spouse’s estate but maintain the other spouse’s access to it. Called spousal lifetime access trusts, they can act as a safeguard against changes to a tax strategy that could backfire.

“You’ve completed and made a full transfer into the trust,” Ms. Hovanessian said. “You have cut off personal rights, but you can have your spouse as a beneficiary. It’s your backdoor strategy to have access to the funds.”

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$2.50 a Year in Interest? That’s What $5,000 in Savings Gets

Other funds that you expect to use within the next year or two — say, for a down payment on a home — should also be kept in a low-risk account even though they are paying low rates, she said.

Online banks, which generally lack brick-and-mortar branches, typically pay higher rates, but still aren’t paying anywhere near the 2 percent interest they offered last year. Now, their rates are typically below 1 percent, even on so-called high-yield savings accounts. Ally Bank, for example, is offering 0.8 percent on its savings account; Capital One is offering 0.6 percent. (Your $5,000 deposit would earn you $40 at Ally and $30 at Capital One after one year, assuming you didn’t make additional deposits.)

Certificates of deposit, which lock in a rate for a fixed period, aren’t much better, and you’ll typically pay a penalty if you take the cash out early. Marcus, Goldman Sachs’s retail bank, is paying 0.85 percent on a one-year C.D.

If you really want to earn more, you may have to take on extra risk. One potential option to consider are “ultra” short-term bond funds, which invest in a mix of government bonds and high-quality corporate debt with terms of one year or less. But it’s important to know that they aren’t risk free.

“Yes, you’ll get a higher rate,” Ms. Costa said. “But there is the possibility of losing some money.”

Corbin Blackwell, a financial planner with the online adviser Betterment, said that while savings rates were quite low, they were better than leaving your money in a traditional checking account. If you’re comfortable with taking some risk, she said, another option may be to invest your cash conservatively, in a mix of 15 percent stocks and 85 percent bonds.

Here are some questions and answers about savings rates:

Are there C.D.s that don’t carry a penalty for early withdrawals?

Yes. Many banks, including online banks, have no-penalty C.D.s, which guarantee a rate for a specific term and don’t charge for early withdrawal. The downside: The rate will be a bit lower than a traditional C.D. of the same term. But if you don’t want to worry about access to your money, this can be a reasonable option.

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How Covid Has Altered the Conversation About Money

It’s a conversation that’s echoing in households across the country, as many women, who have often let their husbands deal with fiscal matters, recognize that they can no longer bury their heads in the sand. In an era when everything feels uncertain, they crave transparency, especially when it comes to money.

“Covid has provided an opportunity for people to turn more inward — inside their house, inside their finances,” said Erika Wasserman, a financial therapist in Miami, who has noticed this trend in her own practice. “Women are planners by nature, so for us this is an opportunity to ask the husband or whoever’s managing the finances, what’s our plan? Not just what’s our budget or mortgage, but what’s our plan for life insurance? Where do you want to be buried? That might be the first time they’re asking the questions in a long time.”

Beyond health concerns, there is the very real fact that more women than men have lost jobs during the pandemic. Between February and May alone, women lost 11.5 million jobs, compared with nine million for men, according to the Pew Research Center. Only a third of those jobs returned in May and June, reports the National Women’s Law Center. At the same time, many women are bearing the brunt of child-care responsibilities during the pandemic, while caring for parents at the same time. No wonder they are worrying about money.

“Financial planning is all about taking care of your dependents, and women feel like they have more dependents right now,” said Megan McCoy, a financial therapist and professor of financial planning at Kansas State University.

With that in mind, women are having to educate themselves. In the March 2020 U.S. Bank Women and Wealth Insights Study, a survey of 3,000 men and women investors with minimum investable assets of $25,000 found that 47 percent associated negative words like “fear, “anxiety,” “inadequacy” and “dread” with financial planning, compared with 31 percent of men.

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Help! My Very Direct Flight Added a Stop and So Many More Passengers

Yes. Allegiant’s contract of carriage — the take-it-or-leave-it agreement between an airline and its passengers — stipulates that flight schedules can change in any number of ways, and that the airline can “change, add, or omit intermediate or connecting stops” without notice.

These clauses are not specific to Allegiant — all airlines have them in some form. Consumer rights advocates find them problematic anyway.

“One problem with domestic flights is the lack of clear-cut air-passenger-rights regulations,” Mr. Nielsen said. “U.S. laws only regulate your rights to compensation when you get involuntarily bumped from a flight because the airline overbooked your flight. For other matters, the specific airline’s contract of carriage is often applied as the sole framework for rules and rights for the flight.”

Unless an airline can magically produce two versions of 12B, assigned seats on split flights are a headache, and surely the “take-any-open-seat” directive did little to quell the boarding chaos. Per its policies, Allegiant refunded your seat-assignment fees (as well as the baggage fees for good measure).

Split flights are considered schedule changes, and it’s easier to get restitution for those if you don’t actually board the plane. Allegiant’s contract of carriage, like those of other airlines, carves out concessions for “significant” schedule changes, including refunds for unused tickets.

“We regret that this passenger did not hear of the flight change until after boarding,” the Allegiant spokeswoman said. “But even so, had he alerted the flight crew of his discomfort with the additional stop, he could have chosen not to take the flight, and instead been re-accommodated or received a refund.”

Allegiant usually alerts passengers to schedule changes in advance, she said, but “this particular flight was a late decision.”

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Teen Stock Trading Seems Dangerous. It Doesn’t Have to Be.

If you’re under 18, you can’t have your own brokerage account and trade without supervision.

It may be tempting to simply open a regular account and trade with your kids, but a better option may be a custodial account, which an adult sets up for a person who is not yet 18. It may come with lower taxes on any gains, although the overall balance is subject to the calculations of college financial aid examiners.

Ask questions about trading commissions, account fees and any minimum balance requirements. Also, inquire about whether you can buy fractional shares of individual stocks that may have high prices for even a single share.

There are some guidelines that you as a parent, relative or mentor ought to set. Stick to basics for the first few years, which means no short sales, options or use of debt to buy on margin.

Then there are the firms’ rules, which adults sometimes ignore. Charles Schwab, Fidelity and TD Ameritrade were pretty much unanimous in this refrain: Don’t give kids the account passwords so that they can trade on their own. And if you do, don’t come running to us for help if they make some gonzo bet that doesn’t work out.

Robinhood, which does not offer custodial accounts, doesn’t want anyone handing out passwords, either. A spokesman declined to comment on how often it needs to shut down accounts because people under 18 have managed to trade anyhow.

Like so many newbie investors in the 1990s, I was set on a straight path by columns from The Wall Street Journal’s Jonathan Clements, who used his own children as guinea pigs in delightful ways.

In an interview this week, he reminded me of one failed test, where he doled out a bit of money and then held a mutual-fund-picking contest. His son lost to both his dad and his sister, but he didn’t seem to care or learn all that much from the experience.

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Who Gets Hurt When the World Stops Using Cash

Consumers still use cash for more than one-quarter of all payments, according to Federal Reserve data from October, its latest comprehensive study of payment behavior. Cash was used for almost half of the payments under $10.

In a narrower Fed survey in April and May, aimed at spotting payment changes during the pandemic, 70 percent of participants said they were not avoiding cash because of concern about the virus.

Cash remains important to consumers despite a menu of competing payment options. “Many consumers value and prefer to use cash for everyday purchases, while others use cash as a backup, or for the convenience of small value payments,” Mark Gould, chief operating officer of the Federal Reserve Bank of San Francisco, said in a statement last month that accompanied the narrowed Fed survey.

Shelle Santana, a visiting scholar at Harvard Business School who has studied payment trends, said it was unclear how aggressive the enforcement of the cash requirements had been during the pandemic. She said she foresaw a “less cash” society, rather than a truly cashless one, in the near term, since many people continue to rely on hard currency.

Some businesses that stopped accepting cash have reversed their policies voluntarily, Ms. Santana noted, after realizing they were excluding some customers.

“No one,” she said, “wants to turn away business.”

Here are some questions and answers about paying with cash:

Is it legal to refuse to accept cash?

There is no federal requirement that businesses accept cash or coins as payment, according to the Federal Reserve Board. “Private businesses are free to develop their own policies on whether or not to accept cash” unless state law says otherwise, the board explains on its website. Businesses like movie theaters, convenience stores and gas stations may refuse to accept bills over $20, and bus lines may ban payment of fares in pennies, the Treasury Department says.

How will New York City enforce its cash requirement?

The city’s Department of Consumer Affairs is responsible for enforcing the new rule, which was enacted this year. The department said that enforcement would be based on complaints and that it would issue instructions for filing a complaint before the rule took effect. Businesses that fail to comply may face fines of up to $1,000 for the first violation and $1,500 for subsequent violations.

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Weighing Pandemic Risks When Donating to Colleges

A recent survey from Crescendo Associates, which creates software for charities, found that over 80 percent of nonprofits followed the recommended rates.

The other rate that matters is the investment return; the recession has driven those rates down. That could be bad for donors expecting a tax deduction on what is eventually left to the nonprofit because a lower assumed rate of return means more money that needs to be paid back as an annuity and less left over at the end, said Russell James, a professor of personal financial planning at Texas Tech University.

In an examination of over 100 years of charitable gift annuities, Dr. Clontz said, only a handful of organizations defaulted on their obligations or had their annuity pools moved to different nonprofits when they ran afoul of the law. In all of these cases, the organizations were not operating as legitimate nonprofits. Instead they were selling gift annuities with false promises as a way to enrich themselves. Several were outright Ponzi schemes that offered unsupportable returns.

“They were shell entities,” Professor James said. “There was no hospital there. There was no university there. There was nothing other than these names selling annuity products as if they were nonprofit organizations. In those cases, we didn’t have a normal operating charity.”

If anything, reputable nonprofits treat charitable gift annuities too cautiously. Joe Bull, the president-elect of the American Council on Gift Annuities and previously a gift officer at Ohio State University, said nearly all institutions that adhered to the council’s guidelines did not touch the annuity amount until the donor died.

“The annuity is backed by all the assets of the organization, and the charities don’t want to have to dip into other assets to make the payments,” Mr. Bull said. For many organizations, the gift annuities are treated like bequests that are locked in.

Consider George Washington University, which has an endowment of $1.7 billion. Charitable gift annuities constitute just 1 percent of its annual giving, and the university invests the entire amount of the annuity contract in its reserve fund, said Courtney L. Tsai, assistant vice president in the office of planned giving, development and alumni relations.

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Tips on Spending the Money in College Savings Accounts

Here are some questions and answers about paying for college with a 529 account:

My daughter may have to borrow for college. Should she spend all of her 529 money before taking out student loans?

Families often spend down 529 funds first so they can wait as long as possible to take on debt. But it may be better to borrow as you go rather than waiting until the 529 is drained, advisers say.

“I suggest spreading it out over four years,” Mr. Kelly said, referring to the 529 balance.

That’s because there are limits on the amount of low-interest federal student loans that can be borrowed each year (and in total). Once you have missed the borrowing deadline for a given year, you can’t tap those loans retroactively. If it turns out that the remaining amount available to borrow is insufficient, you may need federal Plus loans, which carry a higher interest rate, or private student loans, which lack important borrower protections.

Under a law passed last year, up to $10,000 from a 529 account can be used to repay the beneficiary’s student loans. So if you end up with leftover money in a 529, you can use the money toward the student loan balance.

Do I have to spend the money I withdraw from the 529 right away?

Generally, withdrawals from a 529 must be made during the same calendar year that the expenses are paid. Families should be particularly careful about spring tuition bills, advisers say, because academic years span two calendar years. The spring term often begins in January, but colleges may send out the bill in December. If you withdraw the money in December, make sure to pay the bill before Jan. 1. Similarly, if you wait to pay the bill in January, you should also withdraw the money after Jan. 1.

“If the timing is off, you risk owing tax because it’s considered a nonqualified withdrawal,” according to Fidelity.

Do 529 plans have withdrawal deadlines?

No. You can keep funds in a 529 plan indefinitely. If the account’s beneficiary doesn’t need all of the money for college — perhaps because of scholarships — the money can be used to pay for graduate school. Or the beneficiary can be changed to a sibling or another family member so the funds can be used to cover their college costs.

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Trump Executive Order: The New Eviction Moratorium

I have a roommate. How do the rules work for us?

The order does not deal with roommates directly, but the officials clarified that the income cap was $99,000 per roommate. As for who should pay what if just one person can’t pay in full, the specifics may depend on the terms of the lease, any written agreement between you and your roommate, and applicable state or local law.

I’m in a pretty bad way. Can I stretch the truth some?

You shouldn’t. The order makes a point of noting that the declaration “is sworn testimony, meaning that you can be prosecuted, go to jail or pay a fine if you lie, mislead or omit important information.”

What do I do with the declarations once they are done?

Email, send or hand them to the landlord in a way that allows you to get proof that the landlord received them. That way, there will be no question as to whether you did what you were supposed to do. Make sure you keep a copy for yourself.

Then what?

Keep paying as much as you can. Otherwise, you risk failing the eligibility test, which says you should be trying to make partial payments to the best of your ability.

Can the landlord still evict me for reasons other than nonpayment?

Yes. All the usual rules about criminal behavior or disruptions or destruction of property still apply. And it’s possible that a landlord will look hard for some other reason to start the eviction process, so it’s wise to follow every term of the lease, as well as any other building or property rule.

Amy Woolard, a lawyer and policy coordinator for the Legal Aid Justice Center in Charlottesville, Va., warned of one issue that she and her colleagues frequently see cited in eviction cases: people not on the lease who are living at the property. This could be an issue if you’re hosting guests — like a family member who has already been evicted elsewhere.

Will interest or penalties accrue if I don’t pay the rent in full?

The order does not prevent landlords from charging fees, penalties or interest. Nor does it place any restrictions on how high they can go. Check your lease to see if there are any provisions about how this may work.

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Pictures of Themselves: The 2020 College Essays on Money

Green double treble crochet stitches take me back to the smell of wet pine needles in the spring, laughter from my sisters climbing high on tree limbs, the curve of mountain roads. Green is the forest of my childhood, sheltering my first home. I taste the smoke from our old wood stove and see the oil lanterns flickering in and out. The cabin in the woods where my sister was born, water from the river that she took her first bath in.

Green fades into blue as squares meet, treetops brush the sky. I see myself, young and spinning across a playground with my classmates. I am at my one-room schoolhouse, holding hands with the two other children in my grade and lying with our backs on grass, looking up at the never-ending sky. We whisper dreams of becoming doctors, actors, artists.

I see the blue of California oceans as I leave for high school, finding my home away from home. Pine trees replaced by palm trees and sand between my toes. I recall beach cleanups and surfing trips, touching shy sea anemones in tide pools. Blue paint on signs for women’s marches and the sound of people beside me who want to be heard. We demand equality.

Purple is for my mother. It’s her favorite color. It reminds me of her strength and determination. I feel her calloused hands from work on the farm, work in the field, and chemical burns from cleaning jobs. I smell her earthy clothes as she studies at the kitchen table, determined to finish her homework so that she can finally graduate college after decades of trying. I see the violet sky at dawn; when the sun rises so does she. Mother up at twilight to start her day, breath released in freezing clouds as she milks the goats and feeds the chickens, never disappointing the hungry mouths that depend on her. Each day, I recall the things she has given up for my sake. Her sacrifice and desire for me to succeed encourage me to be better and work harder. Yet, I desire more. I do not want to live like her, I want better.

Red stitches are passionate outbursts. Angry shouts from Dad as he returns in the middle of the night, breath sour from drinking. Tears of happiness after receiving his first chip for a year of sobriety. Screams echoing from my biological father’s mouth as he hurls threats that sting like arrows as his disease makes him chase his family away. Scarlet stitches of fear during our six months without a roof over our heads after he forced us from our home. Pain in my sister’s eyes after she begged for help from friends with deaf ears. Promises that we will keep her safe, and check-in calls after I leave home.

Twist, bend, through the loop. Repeat.

Each stitch is a part of me. I rarely relive these aspects of my upbringing, but I call on them when I need to be reminded of my strength. When I completed the blanket, I cried. I was proud. I made this. This is me.

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