Rowling & Associates
When not working or sleeping, Sheryl enjoys broadening her perspective through travel and the arts. She frequently attends concerts of all types, movies, plays and art exhibits. Sheryl is a “forever-amateur” glass blower who delights in the process and creation of original pieces. A believer in giving back to the community, Sheryl also serves as Treasurer of Jewish Family Service of San Diego.
Some things you might not know about Sheryl:
Sheryl likes to relax as a passenger on the family sailboat “Mutual Fun” while her husband, Captain Bill, does all the work. Of course, it’s even better when joined by their crew of two: sons Joe (string teacher at La Jolla Country Day School) and Jeff (real estate agent and entrepreneur).
Since 1979, Sheryl has been providing fee-only tax and financial planning advice. She is the principal of Rowling & Associates with professional credentials including Certified Public Accountant and Personal Financial Specialist.
Understanding the importance of setting goals and following through, Sheryl works closely with clients on an ongoing basis to ensure that their objectives can be achieved.
Active in her field, Sheryl has been named one of the nation’s top 250 financial advisors by Worth magazine and has been included as one of Accounting Today’s Top 100 Most Influential People in Accounting.
Finally, have you ever seen Sheryl’s car license plate? It says “LV42NS.” According to Sheryl, this has a double meaning: “Love Fortunes” and “Live for Tunes.”
In 2006, Sheryl’s book, Tax and Wealth Strategies for Family Businesses, was published by CCH. She regularly writes columns for the San Diego Jewish World, Advisors4Advisors, and InvestmentNews. Sheryl is often quoted in both local and national publications.
A frequent speaker, Sheryl presented at the Jewish Community Foundation’s Women’s Financial Forum and has spoken on numerous other occasions to professional groups and community organizations.
Previously, Sheryl managed tax departments at Arthur Young & Company and two multi-million dollar corporations. She holds an M.B.A. in finance and a B.S. in accounting from San Diego State University.
BA, Business, San Diego State University
In certain circumstances, you might want to consider a Charitable Remainder Trust. You would need to make sure there is no mortgage (or have a qualified "seasoned" mortgage). You can contribute up to 100% of the property to the CRT BEFORE a sales agreement is entered into. You would get a tax deduction for part of the contribution and would receive income for life. Because capital gain taxes would not be triggered, this can sometimes work out to be more beneficial than an outright sale. For example, let's say your property is worth $1 million. If you sell it, after federal and state capital gain & recapture taxes, say your net proceeds would be $700,000. Based on a "safe" withdrawal rate of 4-5%, you could draw $28,000 to $35,000 per year. On the other hand, let's say you contribute 60% to a CRT. Your tax deduction could be $300,000, essentially offsetting tax on the remaining 30% that you retain. If you select a 7% withdrawal rate, you would get $42,000 per year from the CRT plus you would have $400,000 in cash. Please note that this is a very rough example. A CRT may or may not be right for you, but it certainly is worth considering!
I am definitely not a fan of annuities - especially in your case. There are much better tax - savvy ways to save. For more info, please read my info below.
First, an annuity is an insurance contract – the purchaser gives the insurance company money and the company promises to pay a stream of payments starting now (an immediate annuity) or in the future (a deferred annuity). With most immediate annuities, the monthly payment will be paid for the rest of the client’s life (or a fixed period of years). With most deferred annuities, the ultimate payout depends on how the annuity’s investments have performed.
If you are able to ask questions before signing the dotted line, you can counter the salesman’s various pitches as follows:
“Your investment is insured against loss.” The annuity has built-in insurance that will pay your heirs what you originally put into the contract if you die before taking out your money. Truth is, this insurance is practically worthless (because over time your investments should certainly be worth at least what you put in!) and it’s expensive.
“Your money will be there when you need it.” Ask the salesman about surrender charges. The annuity that he’s selling will penalize you for pulling your own money out early. The penalties can be as much as seven to ten percent and “early” can mean anything less than seven to ten years!
“You don’t pay me any commission.” Sure you do – indirectly! The insurance company will pay your salesman three to eight percent of what you invest. Of course, the insurance company has to be paid back somehow; they get repaid through surrender charges and high fees.
“Your money is safe.” Your money is only as safe as the insurance company issuing the annuity and the annuity’s underlying investments.
“You’ll get big tax savings.” It’s true that you don’t pay tax on income earned inside the annuity. However, as soon as you start taking money out, you’ll pay taxes – at the highest rates. The income portion of each payment you receive will be taxed as ordinary income. Outside of an annuity, you could get capital gains rates. Unfortunately, in an annuity, all of your gains come out as ordinary income. Also, investments held outside an annuity pass to your heirs income tax-free (stepped-up to fair market value). With an annuity, your heirs pay tax at ordinary income rates on the entire gain.
“The annuity offers superior investment options.” With most annuities, your investment options are extremely limited. You’ll be stuck with choosing from a few “captive” high-cost mutual funds.
In addition to dispelling the usual arguments, be sure to be aware of a few other points.
- Just because someone manning a desk in a bank’s office recommends an annuity does not mean the bank is recommending an annuity. That person is earning a commission and the principal is not FDIC insured.
- An annuity should not be purchased within a tax-deferred account, such as an IRA. There is no benefit to paying the extra costs and fees of a tax-deferred annuity when the IRA is already tax-deferred!
- You should beware of an insurance person’s recommendation to roll an old annuity into a new one. You might incur a surrender charge and can start the clock ticking on a new surrender charge.
The answer depends on your tax situation and your personal preferences. If you are in a fairly high tax bracket and itemize deductions, your mortgage cost is less than 3.5 percent. For example, if your tax bracket is 28 percent and you itemize deductions, your net mortgage cost is only 2.52 percent. In general, investments should generate more than that. Thus, you're better off investing the money and keeping the mortgage. Even if you are in a low tax bracket or don't itemize, 3.5 percent might still be less than your long-term investment return.
On the other hand, many people have a goal of paying off their mortgage. As a financial advisor, it's not my place to dictate goals. If you would feel better owning your home free and clear, then go for it!
Of course, you might want to use some of that money to increase 401(k) contributions, make charitable donations or fund college savings with a 529 plan.
You are looking at two separate transactions here: a sale of your home and a purchase of a rental property. If you have lived in and owned your home for at least two of the last five years, you can exclude up to $250,000 of gain if you're single and up to $500,000 of gain if you are married. So, as long as your gain is not in excess of the exclusion amount, you will pay no tax on the sale. When you own a rental property, you will pay tax on the net income: rental income minus all related expenses (including interest, property taxes and depreciation). Just be aware that there are limitations on deducting a loss if the net is negative.