Advanced Child Tax Credit - July - August 2021 - Trusted Since - Smedley Financial
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Money Moxie
July – August 2021
®
Advanced Child Tax Credit
Since
Trusted
SMEDLEY FINANCIAL SERVICES, INC.® 1982
Executive Message
Do you have an Advanced Plan?
One thing that differentiates us from the competition is that we are financial planners. However, saying we are
financial planners doesn’t really describe how we approach financial planning, as we do so completely different
from most advisors.
To us, financial planning isn’t just a decision of where to invest your money. We dig much deeper and create
an Advanced Financial Plan that includes 6 key areas: wealth enhancement, wealth protection, wealth transfer
(estate planning), tax planning, charitable gifting, and life goals.
This comprehensive plan helps our clients know we are addressing all the areas of their financial life, including
their needs for security, independence, and freedom. It helps answers questions like these:
(1) How do I grow my assets without taking too much risk?
(2) How do I know if I have enough for retirement?
(3) Have I protected my loved ones?
(4) How do I pass on my assets to my heirs without enabling or controlling them?
(5) How can my money help me find fulfillment and purpose?
As you can see, there is much more to financial planning than just deciding how to invest your assets, which is
why we call it Private Wealth Management. If you would like to review your Advanced Financial Plan or have
one created for you, please reach out to us to make an appointment with your Private Wealth Manager.
Mikal B. Aune, CFP®
VP of Wealth Management
Advanced Child Tax Credit
By Jordan R. Hadfield, CFP®
If you have dependents, you may have of benefits. Using the benefit now will
received some money from the IRS reduce your benefit later.
recently. This money is part of the
Advanced Child Tax Credit, designed Individuals with qualifying dependents
to help taxpayers support their families. have an opportunity to claim a tax
The first of six payments was sent on credit when filing taxes. This credit is
July 15th; the second is scheduled for a reduction of tax liability and is fully
August 13th. refundable in 2021.
It is important to understand that these Those who have received an advance of
payments are very different from the the credit will not have the entire credit
economic impact payments sent earlier. available to them when filing in 2022.
The Advanced Child Tax Credit is not a They should be financially prepared
stimulus payment but a partial advance for a higher tax liability (or lower tax
return) than in years past.
Market Viewpoint
Why Runaway Inflation
Really May Be Temporary
By James R. Derrick Jr., CFA®
The value of used cars in the United States jumped
by over 10% in June. This alone drove a third of all
inflation, which has risen to 5.3%. We have not seen
numbers much higher than that since the 1980s.
The number one rule of economics is that prices should
be determined where supply equals demand. We see this
holding true in 2021. Demand is up. Supply is down.
And so, prices are rising.
After discussing the frightening details in my last
article, I want to present the opposite view: the runaway
inflation of 2021 is only temporary.
Demand: Thanks to unprecedented government relief,
demand for goods is high. Consumer behavior is also
beginning to normalize as people eat out and travel more.
This can be seen in the graphic below from the Capital
Group. However, as stimulus money slows down, any
excess demand in pockets of the U.S. economy should
return to normal.
earlier, has now fallen, giving up most of those gains. In
my opinion, used cars and home prices are unlikely to
collapse this year, but they cannot keep going up at the
current rates. They will likely level off.
Concerns over rising prices may persist for a few more
months, especially as rents finally rise. However, we
may also begin to see some signs of stable prices. This
would be a welcomed sign for most investors.
Supply: U.S. manufacturers, like the car and truck Jerome Powell and the Federal Reserve are not worried.
makers, did not anticipate rising demand. Instead of They have the tools to deal with inflation, but they still
ramping up production in March of 2020, they cut back. don’t see it as anything but temporary. It’s unusual for
These supply shortages are to blame for inflation. One by the Fed to ignore rising prices. This fact may be the very
one, companies will boost output. reason why rising prices persist.
Based on these economic basics of supply and demand, The good news for us as investors is that regardless of
it seems very possible that inflation will return to recent where inflation goes, we also have some tools to help us
averages of around 2%. Lumber, which rose over 400% navigate the uncertain future.
*Research by SFS. Data from the Federal Reserve Bank of St Louis. Investing involves risk, including the potential loss of principal. The S&P 500 index is widely
considered to represent the overall U.S. stock market. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does
not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at
any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.
July – August 2021 3
Financial Fit
By Jordan R. Hadfield, CFP®
Private Mortgage Insurance, or PMI, is a type of when calculating LTV. This means many homeowners
insurance that a borrower is sometimes required to satisfy the insurance requirements yet continue to pay
purchase to qualify for a home mortgage. Lenders often premiums due to an outdated valuation.
require PMI when a homebuyer makes a down payment
of less than 20% of the home’s purchase price. A PMI Lenders do not have a problem with homeowners paying
policy protects the lender’s investment when default for insurance that they do not need. Some homeowners
occurs. It does not protect the homeowner. pay thousands of dollars over several years for
unrequired mortgage insurance.
There are different types of PMI. The most common
is Borrower-Paid Mortgage Insurance (BPMI), which If you are paying for PMI and believe you have more
is found with conventional mortgage loans. BPMI than 20% equity in your home, you should contact your
premiums are wrapped directly into the monthly lender and ask that the policy be canceled. It may save
mortgage payment, which sometimes makes their cost, you a significant amount every month that could instead
or even their existence, difficult to recognize. go towards the principal. If you have questions about
PMI, termination requirements, or your loan to value,
BPMI is usually required if the loan-to-value (LTV) is please let us know. We would love to help you do away
above 80%. Once the LTV falls below 80%, the BPMI with an unnecessary insurance expense.
policy should be canceled by the lender. Unfortunately,
lenders do not consider the appreciation of the property
4 Money Moxie®
Retirement Ready
The Year of the Roth
By Mikal B. Aune, CFP®
If you haven’t considered Roth contributions or To contribute to your Roth 401(k), you have to change
conversions before, this year might be the time to your payroll deductions. If you haven’t been doing this
consider it. Because of our astronomical national debt, already, you can make the switch now. Just increase
taxes are likely to rise and soon. your contribution rate to make sure you maximize your
401(k) contribution for the year.
For now, the proposed tax plans would only increase
taxes on those with incomes over $400,000. However, To do a Roth conversion, you must have existing money
that limit may be reduced in subsequent years to be in a traditional IRA or traditional 401(k). Some 401(k)
much lower, impacting more people. providers won’t allow you to do this, so check with the
401(k) provider. In a traditional IRA, you can fill out a
If you are making more than $400,000, you may want form to convert money into a Roth. Keep in mind that if
to seriously think about contributing or converting you are under age 59 ½, you will need to pay the taxes
assets into a Roth. If you make less than $400,000, you out of pocket. If you are over age 59 ½, you can have
may still want to seriously consider it. The question is the taxes withheld from the money you convert. Consult
whether you want to choose to pay taxes now or decide with your Private Wealth Manager and your accountant
to pay them later. While no one knows the future of tax to determine how much you should convert.
rates, some proactive planning may be in order.
The only reason to not contribute or convert into a Roth
The benefit of the Roth IRA is that once taxes are is if you think you will be in a lower tax bracket shortly.
paid, the investment grows TAX-FREE, as long as you For example, if you are near retirement and your income
live. Your children can even inherit the Roth tax-free. will drop significantly, you may not want to contribute or
Also, you never have to take a Required Minimum convert into a Roth.
Distribution (RMD) once you hit age 72 on money
within a ROTH IRA. Hands down, this is the best tax If your income isn’t high, Roth conversion can still be
protection vehicle available. a great option. I still worry that tax rates will go up for
most people in the future. You just can’t tax the rich
If you are making more than $400,000, your marginal enough to pay for all of our national debt. For example,
income tax rate right now is 32-37% federally. Your if you are in the 12% tax bracket now (i.e., taxable
income tax rate has a high probability of going up to income below $40,525 for Single or below $81,050 for
39.6%. In addition, your itemized deductions might be Married Filing Jointly), likely, you will never be in a
capped, making more of your income subject to that lower tax bracket again. You may want to choose to pay
higher rate. It is also possible that your payroll taxes for 12% now so you can avoid paying a higher rate later,
Social Security go up. All of these changes will most which could quickly go back to 15%, if not higher.
likely take effect in 2022, meaning this is the year to
realize taxes at a lower rate. Like all good things, there are restrictions and
limitations. If you are considering trying to save yourself
To get more money into a Roth, you only have two future taxes, please consult with your Private Wealth
options if you make more than $400,000: You can Manager to see if getting more money into a Roth is the
either contribute more to your Roth 401(k) or do a Roth right thing for you.
conversion. You can’t make contributions to a regular
Roth because you have surpassed the income phaseout
limits.
July – August 2021 5
About Us
Lori Taylor
We are pleased to welcome Lori to the Smedley Financial Wealth Management Team.
Lori joins us with a strong background in financial planning. While living in Idaho
Falls, Idaho, she helped clients focus on building financial plans that centered on their
personal values and goals.
To complete her master’s degree, Lori spent time researching and published her thesis
on United States Retirement. She focused on the issues facing seniors as they prepare
for and transition into retirement.
Lori spends a portion of her time as an adjunct professor in the CFP® program at the
University of Utah, teaching the curriculum required to take the Certified Financial
PlannerTM exam.
Lori’s unique experience and background make her a perfect fit to work with our
valued clients. In fact, after just a short time, we feel like she has been a member of our
team for years. We know you will have the same experience as you get to know her.
As you can see by the pictures, Lori loves spending time with her family and exploring
nature. Together with her husband Joe, Lori has five children and five grandchildren.
She loves to hike, backpack, golf, knit, read, and most rewarding, play with her
grandchildren.
6 Money Moxie®
Wealthy Ways
Proposed Changes for Estate Planning
By Lori Taylor, CFP®
Estate Taxes when people pass away. This bill is far from becoming
Over the past several years, estate tax laws have changed law and will most likely not be passed this year but
dramatically. In 2017, under the Tax Cuts and Jobs could cause havoc for those who inherit property in the
Act, the amount of the exemption for taxable estates future.
doubled from $5 million
to $10 million, indexed Inherited assets have
to inflation. In 2021, the generally gained in
exemption is $11.7 million value since the deceased
per person or $23.4 million purchased them. Under
for a married couple. At current laws, inheritors are
these levels, most estates allowed a step-up in basis to
do not need to worry about the value of the property at
estate taxes. the death of the owner.
However, there is current Basis is a key concept to
legislation sponsored by understand. Let’s say your
Senator Bernie Sanders parents bought a home for
entitled “For the 99.5 $100,000 several decades
Percent Act” to reduce ago and you inherit the
the gift tax exemption home at their passing. If you
to $1 million and the estate and GST exemptions to now sell that home for $500,000, capital gain on the
$3.5 million (individual)/$7 million (married couple). property is $400,000 ($500,000 - $100,000). Currently,
Lowering this exemption will require many more though, you are given a step-up in basis at death to fair
individuals and couples to pay estate taxes. In addition, market value. Your capital gain may be zero if you sell
the estate and gift tax rates would increase, and gift and the home right away. If you wait several years to sell
estate tax brackets would be introduced. Currently, these the home, your capital gain is equal to your selling price
taxes are assessed at a flat rate of 40%. Proposed gift and minus the fair market value of the home at your parents’
estate tax brackets are: passing. Step-up in basis can save heirs paying large
capital gains taxes.
Estate Over But Not Over Rate
$3,500,000 $10,000,000 45% The two key components of Biden’s tax reform include
raising the top end of the capital gains rate to 39.6%
$10,000,000 $50,000,000 50%
(from 20%) and nixing stepped-up basis. The bill does
$50,000,000 $1,000,000,000 55% include an exemption of $1 million for individuals and
$1,000,000,000 65% $2 million for married couples, which would protect
average Americans from capital gains taxes up to these
Annual Exclusion amounts.
The current annual exclusion for gift tax allows each
donor to make gifts annually of up to $15,000 to an If you think your estate will exceed $3,500,000
unlimited number of recipients free of gift tax. The (single)/$7,000,000 (married), please don’t hesitate to
Sanders plan would reduce the annual exclusion to any get in touch with our office for additional planning. You
single recipient to $10,000 with an aggregate limit to all may also want to contact your congressman if you do
recipients in a year to $20,000. not agree with these proposals.
Step-Up In Basis Proposal
Biden’s American Families Plan includes a proposal to
change the way capital gains taxes are paid on estates
July – August 2021 7
Your SFS Team
Smedley Financial Services, Inc.®
is an independent registered investment advisory firm. We work for our clients. Our
wealth managers have the flexibility to implement our financial plans, retirement plans, and income distribution plans
using the strategies that work towards each client’s needs and goals. We work with individuals, businesses, and family
estates. We provide financial solutions for your life.
Wealth Accumulation Family Protection Retirement
•Managed Accounts •Term Insurance •Social Security Maximization Strategies
•Indexed Investing •Whole Life Insurance •Medicare Supplement
•Mutual Funds •Universal Life Insurance •Guaranteed Income (Annuities)
•Exchange Traded Funds (ETFs) •Variable Universal Life Insurance •Lifetime Income Planning
•Stocks and Bonds
•Alternative Investments
Disability (Injury) Elder Care Employers and Self Employed
•Short-Term Disability Insurance •Long-Term Care Insurance •Health Insurance
•Long-Term Disability Insurance •Hybrid LTC •401(k) Plans
Roger M. Smedley, CFP® Sharla J. Jessop, CFP® James R. Derrick Jr., BFATM, CFA® . Mikal B. Aune, CFP®
CEO President & Vice President & Vice President of
Founded 1981 Private Wealth Consultant Chief Investment Strategist Wealth Management
Joined 1994 Joined 2000 Joined 2006
Shane P. Thomas Jordan R. Hadfield, CFP® Lori Taylor, CFP® Lynette S. Watts Nashaela Lyons
IT Specialist & Private Wealth Consultant Private Wealth Consultant Client Service Specialist Client Service Specialist
Advisor Relations Joined 2018 Joined 2021 Joined 2000 Joined 2013
Joined 2003
......................................................................................................................................................................................
Smedley Financial Services, Inc.®, a registered investment advisory firm since 1982
102 South 200 East, Suite 100 P.O. Box 4133 Salt Lake City, Utah 84110-4133
801-355-8888 800-748-4788
info@SmedleyFinancial.com
SmedleyFinancial.com
......................................................................................................................................................................................
Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Smedley Financial Services, Inc.®
Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, representatives.
Smedley Financial Services, Inc.® and Securities America, Inc. are separate entities.
Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is
subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and federally registered CFP (with
flame design) in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
MONEY MOXIE® is published by Smedley Financial Services, Inc.® Copyright 2021 Smedley Financial Services, Inc.® All rights reserved.
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