Financial Planning Questions

[Yardley CPA]

Hello on this beautiful fall day from the suburbs of Philadelphia.

I have two clients who have asked me financial planning questions. I am the first to admit, I am not a financial planner but would like to provide them with my suggestions. Prior to doing that I would appreciate your thoughts on these questions. Here they are:

The first set of questions come from a MFJ couple with two young children (3 and 5).

I have a question for you that our financial advisor recommended running this by you. My parents willed all the money made from selling of their house to our children for their education . My aunt, the executriux,wants to close out the estate account this month. There is$ 200,000.00 left for the kids. We were hoping to set up (2)- 529 accounts with $60,000 for each child for college. Then an $80,000 SEI managed strategy account(for flexibility) - possible private high school. All of the inheritance taxes have already been paid .Are there any concerns if I would inherit the money initially and then use an" accelerated gift allowance" for up to 5yrs. to go into the 529 plans- 1 time allotment for each child. Can I do that?. What are the tax implications for inheriting $ 200,000.00?. Please let me know what your thoughts are about all of this?

The second set of questions come from a MFJ couple in their 60's...

• 1) This year we sold two houses that Alicia inherited from her mothers estate. One was in her trust and one was not. They were both in her estate. The condo in FL was purchased by her parents for $ 88,000 and we sold it for $ 48,000. Her mother put $ 40,000 in improvements into the condo. Can we claim a loss on the sale? We are wondering what our tax liability is with respect to both houses?
• 2) We paid a good deal of tax on Alicia's mothers estate even though it was in a trust. We would like you to review our taxes an see if you agree with what was calculated in 2012.
• 3) I have a 401 K where I work. We would like your ideas on what could be done with the money since I am 60 years old and can take the money out. We wonder if there is a better way for us to invest.
• 4) We are partners in a rental property. We are paying half the mortgage and taking half the interest and tax payment as credit on our taxes even though our names are not on the mortgage. They are on the deed. We would like to discuss your ideas on how we are handling this arrangement and if we should make a change.

I appreciate your thoughts on this.

[Guest Taxed]

I get asked your Q.3 a lot from middle aged taxpayers who are staring at retirement date and wondering if they could do better if they took the money out of their 401k plan and invest it themselves.

It is a tricky question because it depends a lot on what investment options are available within the 401k plan. Most large companies will have 401k plans managed by large investment or insurance company that offers a large menu of investment choices from stable value to aggressive funds and everything in between. Companies like Fidelity and Prudential have a site where your client can do modelling based on his risk tolerance and the options available under the plan for projections. I always recommend that they do that first before deciding to cash out and invest in gold or silver.

One client of mine who ignored my suggestion and purchased Gold at the top of the market has not stopped crying.

[MsTabbyKats]

Just a note:

A few years ago (2007) I "was drafted" by a financial organization to become a broker. I forget their name, but they only dealt with 'tax people" because we deal with people's finances.

I took the tests...etc....passed with flying colors...but I only used "my knowledge" (and not having to pay fees) for my own purposes.

I never once gave advice to anyone (except on the most passive situations...like "is it a good idea to contribute to a 401-K?"....because I felt that I really didn't know enough, and if the client "lost money" (even if only on paper)....I would be "held responsible" (and lose the client). Then came 2008-2009 and the recession. I avoided catastrophe!

So, my point is, since you asked for our thoughts....unless you are really confident that you are qualified to advise, it might not be a good idea to get involved.

When someone asks me now, I refer them to Fidelity because they have offices here....and the client can go sit down with "a person".

ETA: Anything legal....I tell them to consult with their legal adviser. (Just as brokers tell clients to consult with their tax advisers.)

[Yardley CPA]

MsTabbyKats...I agree with you. I don't know enough to fully advise. I would like to advise on the tax aspects of the questions though and that is where I am seeking feedback.

[MsTabbyKats]

MsTabbyKats...I agree with you. I don't know enough to fully advise. I would like to advise on the tax aspects of the questions though and that is where I am seeking feedback.

Yeah...on that I agree you should.

[Guest Taxed]

MsTabbykats were you recruited by a company from Texas called HD Vest? I just got a letter from them asking me to join and go to a conference? What does it cost to take that test? Did you pay first? Are you still with them.

[MsTabbyKats]

MsTabbykats were you recruited by a company from Texas called HD Vest? I just got a letter from them asking me to join and go to a conference? What does it cost to take that test? Did you pay first? Are you still with them.

Yes...that's it!

I'll pm you later today with my experience.

[taxxcpa]

H D Vest was taken over by Wells Fargo. I went to several seminars when Herb Vest was putting them on. He provided free CPE for attending and the only fees were those with the licensing agency for taking the test. I got a license, but never used it since it was for selling high-load funds.

I believe there are some expenses involved if you go through Wells Fargo's version of the H D Vest program.

[Guest Taxed]

Here is what I fear. I recommend some investment and it tanks then I have a really upset client going to HRB to get their taxes done!

Better to stay away in my opinion from this risk.

[SaraEA]

"My parents willed all the money made from selling of their house to our children for their education .... Are there any concerns if I would inherit the money initially and then use an" accelerated gift allowance" for up to 5yrs. to go into the 529 plans- 1 time allotment for each child."

Which is it? The children inherit the money or the parent? If the children get it and the parent is their trustee, the parent can direct money to 529s in the children's names. If the parent inherits it, then the gifting rules come into play.

As for inherited houses, costs have nothing to do with it. The FMV on date of death is the basis (except for the one in trust if it was irrevocable). If the house was sold within six months or so after death, the selling price is considered the FMV--no loss allowed. If sold longer than that, it depends on how the house was used between the dates of death and sale.

I repeat what I said in another thread regarding financial advice. Ask your E&O carrier what your liability is. They will surely say, "DON'T DO IT!" Any advice you give can and will be held against you. Stick to giving tax advice, which is your area of expertise.