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
It is an insurance policy that can contractually be converted into another type of insurance policy at the same insurance company. The conversion privileges are stated in the policy and the exact policies that it can be converted into will be stated by the contract and insurance company.
Typically, convertible insurance deals with a level term insurance policy that can be converted into a permanent/cash value policy that may be some form of whole life or universal life. The contract will state how long that convertible options can be done (as example a 10 year level term policy may be convertible for all 10 years, but not after age 70, as example). One of the benefits of the convertibility is that although it gets converted at the age you convert it, you convert it at the same health rating as to when you applied for the policy. That is especially important if you are approaching the end of a conversion privilidage and you are not health.
That is one of the reasons that Term insurance is not just a commodity that you choose to lowest cost premium. If there is any possiblity that you could convert the policy, you want to know the conversion options before you choose the term insarunce policy/carrier.
If you have a cash value policy (whole life, universal life, etc.) that has cash value accumulated, you most likely can take a loan from the insurance policy. This can not be done with term insurance.
The cost and ramifications of the loan is included in the insurance contract/policy that you received. Before you take any loans, read the policy and call the insurance company and get guidance on how the loan will work, how much the interest will be and what your options will be. They can run an in-force illustration to show you the effect on the policy given many assumpesions like:
1) Interest rate for the loan,
2) How will it effect future dividends, growth or policy performance,
3) How it will effect the death benefit (or will you be putting your death benefit at risk.
I life insurance loan is typically tax free (unless it was set up as a Modified Endowment Contract - this is a tax term, but important to know if it is a MEC), but if there is a gain in the policy and if the loan causes the policy to lapse in the future, the gain may be realized on your tax return as ordinary income.
Some policies were designed to be very flexible for loans and some were not - be careful when taking loans from policies especially when the death benefit is important to your family or business.
Roth IRAs are a GREAT "tax bucket" to help you save for retirement. They will grow both with additional annual deposits, Roth Converstion (from traditional IRAs) or by growth of your underlying Investments (these can be stocks, bonds, mutual funds, ETFs, real estate and sometimes even private deals). I reserve my Roth IRA personally for some of my higher growth investment ideas.
One of the things that I like about the growth of a Roth IRA is that all the growth will be tax-free when you take it out in retirement. If you compare that to other TAXABLE sources like pensions, Traditional IRA/401k withdrawals, Social Security and other investment income, it may be the only tax free source of income that you will have in retirement. This is very important especially if you believe that taxes will be higher when you retire and you would like a "bucket" of funds available tax free. It is also not subject to the ACA/Obamacare 3.8% Net Investment Income Tax.
One of the biggest issues with Roth IRAs is that not everyone is eligible as their income is above the annual income limits (approx $133k if single and $194k if married). To "get around" that, you may want to look into doing Roth Coversions - or even a "Back Door Roth Contribution".
Also, many make mistakes when using Roth IRAs - here is a piece I contributed to that may help you avoid these mistakes:
It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)
You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.
If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.
How do I qualify for this tax break?
There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:
- Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.
- Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
- Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.
If you're married and want to use the $500,000 exclusion:
- You must file a joint return.
- At least one spouse must meet the ownership requirement, and both you and your spouse must have lived in the house for two of the five years leading up to the sale.
Even if you don't meet all of these requirements, there are special rules that may allow you to claim either the full exclusion or a partial exclusion:
- If you acquire ownership of a home as part of a divorce settlement, you can count the time the place was owned by your former spouse as time you owned the home for purposes of passing the two-out-of-five-years test.
- To meet the use requirement, you are allowed to count short temporary absences as time lived in the home, even if you rented the home to others during these absences. If you or your spouse is granted use of a home as part of a divorce or separation agreement, the spouse who doesn't live in the home can still count the days of use that the other spouse lives in that home. This can come into play if one spouse moves out of the house, but continues to own part or all of it until it is sold.
- If either spouse dies and the surviving spouse has not remarried prior to the date the home is sold, the surviving spouse can count the period the deceased spouse owned and used the property toward the ownership-and-use test.
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.