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Which Financial Records Should You Keep and for How Long?

December 13, 2016

By Marcus Winbush, CFP® — CEO, True North Capital Alliance

Most of us agree that it’s important to have a systematic way of organizing and storing our important financial records. But it’s one of those to-dos that’s easy to postpone until we get around to it.

Recently, one of my business associates applied for a loan to refinance her home. She was surprised by the stack of documents her mortgage broker needed to keep the process moving and lock in the best interest rate. She had to furnish proof of income (2 years), bank statements (3 months), proof of home insurance and property tax payments, and other pertinent records. Fortunately, my associate had organized her personal financial records so that both paper and electronic records were safe and readily accessible. Thus, she completed the refinance smoothly and quickly.

Now it’s your turn. How complete and accessible are your financial records? How quickly can you access essential financial records when you need them? The time you spend organizing now means you will be better prepared for next tax season; for financial/estate planning; and for recovering in case of urgent situations such as flood, fire, or theft.

The end of the year is a great time to review your files, purge those that are outdated, and get organized. Let’s explore a few suggestions about which records you should keep and how long to keep them.

Tax Records

The IRS recommends that taxpayers keep electronic or paper copies of tax returns and supporting documents a minimum of three years. Considering the possibilities below, we recommend you keep tax returns and related documents up to seven years:

  • If you discover a mistake on your return, you have three years to file an amended return.
  • The IRS has three years from the date of your filing to audit your return. If an audit reveals a substantial error, it may be expanded to include additional years, but usually not more than six.
  • The IRS has six years to challenge your return if they think you failed to report 25 percent or more of your gross income.

The IRS also recommends that you keep records that show proof of health insurance along with other tax-related records for at least three years.

Bank Records

If you have hardcopy bank records, save cancelled checks and deposit receipts until your monthly bank statement is reconciled. Keep monthly bank statements at least one year—longer if they provide supporting documentation for your tax records such as verification of income, business expenses, home improvements, and mortgage payments as described above.

Retirement Plan and Investment Records

Review monthly and quarterly 401(k), IRA, or pension statements for accuracy. Keep quarterly statements until you receive a year-end statement; then you can discard the quarterly reports. Keep your annual reports until the accounts are closed.

For stock purchases and sales, keep the certificates and proof of purchase until you sell the investments so you can properly establish your cost basis. At the time of sale, the transaction will be reported as part of your tax filing records.

Vital Personal Records

Documents in this category should be kept at least six years or permanently.

Vital RecordsKeep ...
Mortgage, property title, deedUp to seven years after the sale of the property per IRS rule.

  • Keep records of real estate commissions and legal fees associated with the purchase.
  • Keep records of capital improvements such as remodeling and upgrades. These costs can be added to the original purchase price to establish cost basis when you sell.

Health care directive/living willPermanently.

Provide your health care directive to your primary health care provider, and keep a copy in a safe place where your agent can locate it.

Life insurance policyAs long as you own the policy.
Long-term care insurance policyPermanently.
Social security cards, birth certificates, marriage certificates, divorce decree, military discharge, passportsPermanently.
Vehicle titlesAs long as you own the vehicle.
Will, power of attorneyPermanently.

Keep your will should be kept in a safe place where it is readily accessible. Make sure your executor knows where your will is stored and can access it when needed.

Review your will and power of attorney periodically to be sure they continue to reflect your preferences.

Where to store your records

If you store financial statements on your computer, be sure to back up your computer files regularly and keepe your backup copy in a secure location. Let a family member or trusted person know how to access vital information on your behalf if necessary.

Organize your paper files in a way that seems convenient and logical for you, and review them periodically to keep the files up-to-date. To protect your identity, shred documents that contain personal identification information.

With a few exceptions, store critical documents in an electronic vault, a safe deposit box, or a fireproof safe in your home with a few exceptions. In the event of death, safe deposit boxes may be sealed; therefore, originals of your will, power of attorney, and life insurance should be stored in an alternate secure location. You may, of course, choose to keep copies in your safe deposit box.

Finally, create a letter of instruction outlining where your financial records are located and listing the key contacts in case of an emergency; you may choose to create a more detailed letter of instruction as part of your estate plan.


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

All expressions of opinion are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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Stronger Economy Makes Fed Rate Increase Almost Certain

December 6, 2016

By Marcus Winbush, CFP® — CEO, True North Capital Alliance

With the 2016 presidential election behind us and a steady flow of good economic news, the long-awaited increase in the Federal Funds rate seems imminent. Although the Federal Open Market Committee (FOMC) decided against raising rates at their November policy meeting, Chair Yellen signaled that the time for an increase is fast approaching. The policy committee expressed confidence in the economy and stressed that “the case for an increase in the target rate had continued to strengthen and that an increase might be appropriate relatively soon.”

The FOMC declined to make the move in November preferring “to wait for some further evidence of continued progress toward its objectives” of maximum employment and price stability. Along with most economists and analysts, we believe that the Fed has good reason to make the move in the very near future—likely at its next policy meeting on December 13-14.

Strengthening Employment

The employment picture continues to improve this year with the labor market gaining an average of 180,000 jobs per month through October. The good news is that job gains continued to keep pace in November with 178,000 nonfarm payroll jobs added. Gains in November came primarily in professional and business services and health care; employment in construction also continued its recent upward trend.

The unemployment picture continues to improve as well. The November jobs report released by the Bureau of Labor Statistics confirms unemployment at 4.6 percent, which is the lowest level since August 2007.

Beneath the headline numbers, several indicators continue to bear watching. Unemployment showed broad improvement across various workers; however, unemployment for African Americans (8.1 percent) and Hispanics (5.7 percent) continues higher than the national headline number. At 62.7 percent, labor-force participation rate has shown little change this year, and involuntary part-time employment remains elevated when compared with historic norms. On the positive side, the number of involuntary part-time employees is down 416,000 over the year.

Continued Economic Growth

Gross domestic product (GDP) rose at an annual rate around 1 percent through the first half of this year. According to the U.S. Commerce department, real GDP increased at an annual rate of 3.2 percent in the third quarter. In her November 17th testimony before the U.S. Joint Economic Committee, Fed Chair Yellen noted that this upward trend was driven by several factors including moderate gains in consumer spending, solid growth in real disposable income, and more upbeat consumer confidence. This trend clearly signals strengthening economic growth.

Rising Inflation

Inflation continues to run slightly below the Fed’s target rate of 2 percent. The most recent report shows the U.S. inflation rate running at 1.6% through October 2016. In her Congressional testimony, Chair Yellen expressed optimism that economic growth would continue at a moderate pace, resulting in further strengthening labor market and a return to inflation in the 2 percent range.

All Signals Point to an Increase at the December FOMC Meeting

The Fed seems to have gotten its wish as stated in its November 1-2 meeting minutes calling for “further evidence” that the U.S. economy is continuing to make solid progress. The latest jobs report and other economic indicators such as inflation, strength of the U.S. Dollar, and bond yields continue to confirm a strengthening economy.

In her testimony before the Joint Economic Committee, Chair Yellen acknowledged the importance of timely rate increases: “Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting… policy goals.” Thus, most economists and analysts are fully convinced that the long wait is over and that the Fed will raise rates at its December meeting.

We concur and expect a rate increase of at least 0.25 percent over the current federal funds rate, which hasn’t changed since December 2015.


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

Past performance is not a guarantee of future results.

All expressions of opinion are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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Income Tax Savings: What Can You Do Now?

December 1, 2016

By Marcus Winbush, CFP® — CEO, True North Capital Alliance

With only a month left in 2016, there is still time to consider moves that may help you save on next year’s taxes. Not all the options described in this post will be applicable to your financial situation but, even if you find just one nugget here, it can be worth the effort.

Consider a Roth Conversion

If you are concerned about rising taxes in the future or if you simply want to diversify your taxable income in retirement, consider the benefits of opening a Roth IRA. You pay ordinary income tax on the money you put into a Roth IRA; however, those funds grow tax-deferred and can be accessed in the future tax-free.

You can convert all or part of a traditional IRA to a Roth IRA. Generally, the best time to consider doing a Roth Conversion is when your taxable income is down. The key is not to push yourself into a higher tax-bracket as this could affect taxation on your social security income or potentially increase your Medicare costs.

Take the required minimum distribution from your IRA

You cannot keep retirement funds in your account indefinitely. Generally, you must start taking withdrawals from your traditional IRA, 401k, 403b, or 457 plan when you reach age 70½. To avoid a major tax liability, you must take at least the required minimum distribution each year.

From the year when you turn 70 ½, you have until April 1st of the following year to take your initial required minimum distribution (RMD). After the first year of RMD, you must take your required minimum distribution by December 31st each year. The required amount starts at about 3% and increases each year.

Although you must take your RMD, you do not have to spend the money. You may choose, for instance, to take your RMD and put it into a taxable brokerage account. Note that Roth IRAs are an exception to this rule; they do not require withdrawals until after the owner’s death.

Maximize your charitable donations

If you itemize deductions on your tax return, year-end is good time to donate to your favorite charities. Your generosity helps nonprofit organizations and foundations, and it also reduces your taxable income for the year.

Charitable donations are commonly made as cash contributions, but they may also be gifts of real estate, motor vehicles, appreciated securities, clothing, and other assets or services. If you plan to make a sizable contribution, for instance, consider donating appreciated stock instead of selling the stock to make a cash donation. With this option, you can claim the full market value of the asset as of the date you make the donation without having to pay capital gains tax on the asset. Donations of property that you have owned for more than a year are treated in a similar manner.

Another option is to consider making a charitable contribution using donor-advised funds. For example, let’s say you want to make a charitable contribution this year, but you haven’t decided where you want the money to go. You can put the money in a donor-advised fund and choose the specific charity to receive your donation later. Money placed in a donor-advised fund is tax-deductible at the time it goes into the fund, not when the funds are sent to the charity. These funds also have investment options. So, if you want to accumulate funds for a bigger donation, you can allow the funds to earn market returns until you are ready to distribute the proceeds to the charities you choose.

Keep receipts for all donations no matter how small. IRS rules require that all charitable donations be supported with appropriate documentation.

Maximize retirement plan contributions

If you have a traditional IRA or employer-sponsored retirement plan such as a 401k, 403b, or 457, consider increasing your contributions up to the maximum allowed. In 2016, you can contribute up to $5,500 ($6,500 if 50 or older) to traditional and Roth IRAs. If you have a 401k, 403b, or 457 plan, you can contribute up to $18,000 ($24,000 if 50 or older).

By maxing out your retirement plan contributions, you get the best of both worlds: lower taxable income in the near-term and a larger nest egg invested for long-term growth.

Conclusion

Planning the best tax-savings strategy requires expertise and a thorough understanding of your specific needs. The moves discussed in the post are but the tip of the iceberg in terms of possible strategies. Therefore, it’s a good idea to consult with a trusted financial advisor who can answer your questions and help you determine which moves are best suited for your financial goals.

If you have immediate questions, feel free to contact me (marcus@truenorthcap.com).


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Past performance is not a guarantee of future results.

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Thanksgiving and Gratefulness

November 23, 2016

We Americans are culturally hardwired to work hard and drive toward new goals and accomplishments. As a financial planner, I spend most of my days focused on planning for the future. Especially in this season of the year, however, I cherish the opportunity to focus on being thankful for the blessings we have here and now.

Many psychologists and spiritual leaders point to the benefits of living every day in a spirit of thanksgiving and gratitude. It is in that spirit that I want to express our sincere appreciation for each of you. I am especially grateful for the opportunity to share a part of your lives and help you accomplish your dreams and goals.

I wish all of you a very Happy Thanksgiving and hope that you can embark on the New Year with a daily focus on thankfulness and gratefulness.

Warmest Regards,

Marcus Winbush

CFP® — CEO, True North Capital Alliance

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Planning Ahead: Making Basic Health Care and Estate Decisions Now

November 21, 2016

By Marcus Winbush, CFP® — CEO, True North Capital Alliance

According to a 2016 survey of consumers conducted by the Harris poll1)“Rocket Lawyers’ Annual Make-a-Will Month Survey Reveals Strong Need to Educate Consumers on Estate Planning,” August 2, 2016, www.marketwired.comcom/press-release/, 64 percent of Americans do not have a will; 55 percent of those surveyed said they just haven’t gotten around to it yet. Similar studies reveal that a substantial number of people don’t consider having a will to be an urgent need, and others don’t think they need a will at all. Behind this survey data is the uncomfortable truth that most of us simply do not like to talk about issues related to our mortality.

Unfortunately, this attitude can leave individuals and families ill-prepared to cope in the face of a sudden major illness or an accident or the death of a loved one. Without the proper legal documents, your family could be left to guess about your healthcare wishes, and they may lack authority to make decisions on your behalf. In most cases, if a person dies without a will, the state’s inheritance laws will control how assets are distributed and how quickly. And there can be profound effects if young children are involved.

Basic estate planning can help you and your loved ones avoid the pitfalls and ensure that your wishes are honored.

Start with a Will

A will gives instructions about how you want your assets distributed to your heirs upon your death. Start the process by taking stock of your financial situation and thinking through your wishes.

  • List all your assets and liabilities. Consider working with a trusted financial advisor to create a comprehensive financial statement and weigh any tax planning issues. Some assets, such as life insurance and IRAs are handled outside the will and are transferred directly to your beneficiaries.
  • Consider your options: Who do you trust to be the guardian for your minor children? Is that person willing to serve in this way? Who do you trust to be your personal representative to execute your will? The executor will be responsible for managing your estate, including paying final expenses and bills as wells as distributing your assets. Be sure the person you designate is willing to serve and understands his or her role.

A trusted attorney can provide valuable assistance in drafting your will so that it addresses your specific needs. Your will must be signed and witnessed by at least two people. A will remains in effect until you change, revoke, or cancel it. Be sure to review your will from time to time to be sure it continues to reflect your wishes.

Your will should be kept in a safe place where it is readily accessible. Make sure your executor knows where the will is stored and can access it when needed.

Create a Health Care Directive

A Health Care Directive is a written document used to guide health care decisions when a person is unable to do so. Under Minnesota law, the Health Care Directive combines the general function of what was previously called a “Living Will” or a “Durable Power of Attorney for Health Care.”

In a Health Care Directive, you name the person (i.e., agent) you want to make health care decisions for you. Optionally, you can also include written instructions about your care. To create a Health Care Directive, you may use the Minnesota Health Care Directive Form, or you can write your own directive as long it conforms to requirements established by State law.

You are not required to have an attorney draft your health care directive; however, you should consult with a trusted attorney if you think your circumstances warrant a consultation. Share copies of your health care directive with people who need to know: family, your physician to include in your medical record, and the person you named as your agent.

Your Health Care Directive should be on file with your primary health care provider and a copy should be kept in a safe place where your agent can locate it.

Consider Creating a Durable Power of Attorney

A power of attorney is used to authorize another person (i.e., an agent) to act on your behalf. You can establish a general power of attorney, authorizing your agent to conduct all your financial affairs, or you can authorize limited power of attorney. You want to choose someone you trust and who also has the necessary money management skills.

A durable power of attorney can be set up to take effect immediately or only if you are incapacitated. You can give your agent as much or as little power as you want. In the document, you outline the specific financial and business responsibilities you are authorizing.

A power of attorney does not require that a licensed attorney prepare the document; however, you may consult with a trusted attorney if you think your circumstances warrant a consultation. The Office of the Minnesota Attorney General provides more in-depth discussion of various aspects of a power of attorney and the standard form that satisfies the Minnesota statutes.

Conclusion

Planning ahead and creating a will, a health care directive, and a power of attorney ensures that you have at least a basic estate plan in place. Depending on the complexity of your estate, you may need to consider using additional estate planning instruments. If you have questions about estate planning, please feel free to contact me (marcus@truenorthcap.com).


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

All expressions of opinion are subject to change. This content is intended for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

References   [ + ]

1. “Rocket Lawyers’ Annual Make-a-Will Month Survey Reveals Strong Need to Educate Consumers on Estate Planning,” August 2, 2016, www.marketwired.comcom/press-release/
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