STA Wealth Management, LLC
Partner and Executive VP of Financial Planning
Scott Bishop is a Partner and is Exec. Vice President of Financial Planning at STA Wealth, a Houston based RIA Firm. In this role, Scott guides clients through the process of identifying and realizing their personal financial planning goals while working with them to help develop, implement and monitor strategies to help assure the long-term coordination of their overall financial, retirement, business planning.
Scott is also the host of STA's radio show, "Financial Planning Fridays" on The STA Money Hour, on 950AM KPRC Radio in Houston at 12pm Central where he frequently discusses tax and financial planning topics and hosts interviews of industry experts.
Scott graduated from the University of Texas at Austin with a Bachelor of Business Administration in Accounting and received his Master of Business Administration from the University of St. Thomas.
Currently, Scott is a CFP® and a CPA and also holds a PFS® designation. Scott has been active as a member of the American Institute of Certified Public Accountants (AICPA), the Texas Society of Certified Public Accountants (TSCPA) and its Houston CPA Society as a member of its Board of Directors. He has also been recognized for excellence by being named the Young CPA of the Year for 2002-2003 by the Houston CPA Society, one of the largest and most prominent CPA chapters in the United States.
In addition, Scott has both authored and has been interviewed for numerous articles in financial related publications and websites such as the Wall Street Journal, MarketWatch, CNBC, USA Today, Washington Post, The New York Times, Investopedia, Houston Chronicle, Investment News, Kiplinger, The AICPA Tax Section, BankRate.com, the Houston Business Journal and the CPA Forum. Scott is also a member of the Houston Business and Estate Planning Council.
BBA - Accounting, University of Texas at Austin
MBA - Finance, University of St. Thomas
Assets Under Management:
AUM information provide is for the firm STA Wealth Management, LLC of which Scott Bishop is a partner/shareholder. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC (“STA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. STA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request.
IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
STA Wealth Planning Process - Scott Bishop
I think that it is always a great time to hire a financial advisor when you are making important decisions as I laid out in my article on Planning Through Life's Stages to Avoid Money Worries. But it is even MORE important (if not necessary) to do it during, or hopefully before, a bear market. It is during a bear market that most people throw their investment "discipline" and financial plan out the window due to the market fear and "go to cash". That it is why it is so beneficial to have a financial advisor and financial plan to help assure that you stick to the discipline when your "gut" tells you to change...typically as the WORST Time. I have a few articles on CNBC that discuss both:
- Afraid of retiring into a bear market? Tips to hedge bets
It is also important to have a good conversation with and interview a fianncial advisor to make sure that they have good experience, have clients that have worked with them through a "bear market" (they have experence in bear markets) and that they don't fall into the fimilar traps and mistakes that many financial planners do wrong.
Transactions totally within a Roth or Traditional IRA will not incur gains or losses...or any taxable event (other than UBTI issues) until money is withdrawn. As withdrawals from Roth IRAs are TAX FREE, wash Sales are not relevent for transactions entirely within a Roth IRA (or 401k).
A wash sale occurs when an individual sells or trades a security at a loss (in a taxable account), and within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so.
A wash sale also results if an individual sells a security and a loss and it is repurchased in any other account that is owned by the taxpayer, their spouse or even a company/entity by the individual buys a substantially equivalent security. So if you sold a security at a loss in a taxable brokerage account and then re-purchased a "substantial identical" security in another account (even a Roth IRA), you will be subject to wash sale rules.
When you have a wash sale, the loss is then disallowed (via Schedule D on your tax return) and the basis on that sold stock reverts to what it was before the sale.
The tax issues that come up with Unrelated Business Taxable Income (see UBTI discussed above) typically happen when your Investemnets are in a self-directed IRA and you hold non-traditional/non-publically traded securities or securities that utilize vehicles like futures contracts.
Very smart planning (well above average) by thinking of all the issues, investments vs. taxes owed vs. long-term RMD (Required Minimum Distributions) vs. Tax-Bracket Planning (as I talked about in my R.I.T.E. Planning article).
I would NOT take it out lump sum amount as that will push you into higher tax brackets...but I would consider FULLY utilizing the15% tax bracket or even Teh 25% tax brackets (but not higher...to see your rate, check the previous link). That can be done by taking the RMD + an amount that would only put your estimated income into the 15% or 25% income tax brackets. For those not familiar, your taxes are bracketed where you pay the higher rate only on the income that falls in the bracket (it does NOT go back to the first dollar at the higher bracket).
This strategy of taking some more now protects you also from paying higher taxes later if you have a higher income and/or if they raise taxes in the future. If congress passes new tax laws in 2017 or 2018 to reduce taxes, this strategy will be even more valuable as those lower rates will most likely be temporary (as were the lower brackets under President Reagan in the 1980s).
As for the investment strategy, it mostly depends on whether you will be SPENDING the distributions or just re-investing them after you take them out of your IRA.
If you spend them, then I would keep the expected distributions for the coming 2 years realatively conservative (money market and/or shorter term bonds). If you are going to re-invest them, then even if you sell out into a down market, you can re-buy in the after-tax account (a brokerage account you could set up to move the distribution into...at the same custodian if you like them to make things easier) and the market risk is less important.
Also, now that you have inherited a very nice sum, perhaps it is time to start looking a t your overall financial plan. Check out my series of four articles in Investopedia called "Planing Through LIfe's Stages to Avoid Money Worries".
HOW TO GET RID OF PMI?
To avoid or remove PMI, or private mortgage insurance, you must have at least 20 percent equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80 percent of the home's original appraised value. When the balance drops to 78 percent, the mortgage servicer is required to eliminate PMI. If you bought a house with a down payment of less than 20 percent, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20 percent equity. Private mortgage insurance is expensive, and you can remove it after you have met some conditions. Although you can cancel private mortgage insurance, you cannot cancel Federal Housing Administration insurance. You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.
CAN YOU CANCEL YOUR PMI SOONER?
Here are steps you can take to cancel mortgage insurance sooner or strengthen your negotiating position:
- Refinance: If your home value has increased enough, the new lender won't require mortgage insurance.
- Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20 percent equity threshold. An appraisal generally costs $450 to $600. Before spending the money on an appraisal, ask the lender if this tactic will work in the specific case of your loan.
- Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
- Remodel: Add a room or a pool to increase your home's market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.
CAN YOU REFINANCE TO GET OUT OF PMI?
When mortgage rates are low, as they are now, refinancing can allow you not only to get rid of PMI, but to reduce your monthly interest payments. It's a double-whammy of savings. The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. For example, if you bought your house four years ago with a 10 percent down payment, and the home's value has gone up 15 percent over that time, you now owe less than 80 percent of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for PMI. Many loans have a "seasoning requirement" that requires you to wait at least two years before you can refinance to get rid of PMI. So if your loan is less than 2 years old, you can ask for a PMI-canceling refi, but you're not guaranteed to get approval.
WHAT IS PRIVATE MORTGAGE INSRUANCE PMI NEEDED?
Mortgage insurance reimburses the lender if you default on your home loan. You, the borrower, pay the premiums. When sold by a company, it's known as private mortgage insurance, or PMI. The Federal Housing Administration, a government agency, sells mortgage insurance, too.
DO YOU KNOW YOUR RIGHTS?
By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel mortgage insurance. Mortgage servicers must give borrowers an annual statement that shows whom to call for information about canceling mortgage insurance.
WHAT ARE THE OTHER REQUIREMENTS TO CANCEL PMI?
According to the Consumer Financial Protection Bureau, you have to meet certain requirements to remove PMI:
- You must request PMI cancellation in writing.
- You have to be current on your payments and have a good payment history.
- You might have to prove that you don't have any other liens on the home (for example, a home equity loan or home equity line of credit).
- You might have to get an appraisal to demonstrate that your loan balance isn't more than 80 percent of the home's current value.
HIGHER-RISK PROPERTIES (LIKE RENTAL/INESTMENT PROPERTIES)
Lenders can impose stricter rules for high-risk borrowers. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop mortgage insurance. Lenders may require a higher equity percentage if the property has been converted to rental use.
BASICS FOR FIRST TIME HOME-BUYERS
FINANCING BASICS FOR FIRST TIME HOMEBUYERS
Many people who are considering buying their first home can be overwhelmed by the myriad of financing options available. Fortunately, by taking the time to research the basics of property financing, homeowners can save a significant amount of time and money. Having some knowledge of the specific market where the property is located and whether it provides incentives to lenders may mean added financial perks for buyers. Buyers should also take a look at their own finances to ensure they are getting the mortgage that best suits their needs.
If this is for a funeral or "mortuary" pre-payment plan you purchased, the answer would be yes. However, in my experience the income you receive should not be very material and would have a minimal effect on your taxes...especially if your only income is Social Security. It should also NOT be enough to push your Adjusted Gross Income higher to the point where your Social Security would be Subject to Taxes.
For those not aware of what a "Mortuary Irrevocable Trust" is, they are funeral trusts that allow people to pay funeral expenses in advance, and that can spare your survivors a lot of difficult decisions while grieving. I have even seen some nursing homes even require a funeral trust as a condition of admission. But if the trustees aren’t reputable (beware high pressure salesmen) or the information isn’t current, these trusts can bring bereaved families more grief.
The Internal Revenue Service defines a funeral trust as “a ‘pooled income fund’ set up by a funeral home or cemetery to which a person transfers property to cover future funeral and burial costs.” They’re often referred to as “pre-need programs.”