An Estate Plan for Your Digital Assets? Yes, You Need One.

Digital Assets

We’re all aware of the importance of having legal documents in place, such as a will or trust and advance directive. While your intentions for personal assets like grandma’s engagement ring or your childhood baseball card collection may be clearly spelled out, most people have given little thought to the legacy of their digital assets. 

The good news is that it doesn’t have to be complicated, and there are some easy steps you can take today to get started.

 

Your digital asset footprint is significantly larger than you think. 

Between email and social media accounts, subscription services such as Netflix, Hulu, and Prime, and cloud storage for photos, files, and digital music, most people have a meaningful digital presence. It’s estimated that the average person has over 100 online accounts and that number will only continue to grow. 

With the increasing popularity of online billpay and paperless statements, our finances leave less of a “paper trail” than ever before, meaning that ensuring family members or executors have the ability to access accounts and pay bills is critically important.

 

Writing down your passwords isn’t enough. 

Perhaps you’ve diligently tracked your online presence with a list of accounts and their associated usernames and passwords.

Aside from the obvious safety concerns and challenges keeping up with sites that require frequent password changes, providing someone with this information doesn’t grant them legal authority to access your digital assets.

In fact, they are likely violating most sites’ Terms of Service Agreements, which typically do not allow a transfer of ownership or use once the original user has died. It’s even possible that heirs could be found guilty of “hacking” a loved one’s account, despite the most honest intentions.  

 

Enter RUFADAA…

Adopted by 46 states, the Revised Uniform Fiduciary Access to Digital Assets Act provides guidance on how a person’s digital assets may be accessed upon their passing.

RUFADAA grants an executor the same access to digital assets as the decedent had during life and is intended to allow an array of privileges, including access to photos, emails, contacts, and the ability to delete or modify social media accounts and pay final expenses. 

RUFADAA establishes a hierarchy of three “tiers” for how a person’s digital assets may be accessed after death.   

 

Tier 1: Online Tools

Some platforms allow users to designate instructions as to how their accounts should be handled in the instance of incapacity or death – essentially a digital “power of attorney” that can be changed or revoked at any time. 

Facebook’s Legacy Contact, Google’s Inactive Account Manager, and Apple’s iOS Legacy Contact take mere minutes to set up.

If you’re an iPhone user, you can set up a Digital Legacy Contact by going to “Settings,” tapping on your Apple ID profile at the top of the page, selecting “Password and Security,” then “Legacy Contact.” From there, select a Legacy Contact who can access your phone in the case of your death.

We’re also big proponents of everyone adopting a secure password manager like LastPass or 1Password. Both enable you to share designated passwords with family members in a secure fashion.  

We encourage you to take these easy steps now and see if similar designations are available on other platforms you use.

 

Tier 2: Legal Documents

If you have not made any designations directly with an online provider, or the option to do so is unavailable, an attorney can help you incorporate digital planning into your will, trust, or power of attorney.

You can provide detailed instructions as to what access should or should not be granted to an executor or surviving family member in the event there are certain accounts, photos, or emails you wish to share or remain private. 

Some people opt to designate a “digital fiduciary,” separate from your executor or personal representative, who will be solely responsible for the management of your digital assets. This person should be provided a copy of the document designating them as such and have the tech savvy necessary to navigate the role. 

It is important to know that designations made through online tools, such as those listed in Tier 1, supersede destinations made in legal documents, so make sure you keep both updated as your desires and life circumstances change. 

 

Tier 3: Terms of Service Agreements

We’ve all become accustomed to scrolling through the “fine print” every online provider inevitably requires and clicking “I agree.”

Unless you’re an attorney or glutton for punishment, most people fail to understand what they are agreeing to in these Terms of Service, especially in the case of death. It’s not uncommon for some providers to stipulate that a user’s account is immediately terminated upon death, meaning it’s especially important to make sure legacy instructions are made directly with the provider (Tier 1) or clearly spelled out in your estate planning documents (Tier 2). 

 

Estate Planning for Modern Times

With so much of our lives spent online these days and important assets moving beyond just the tangible, it’s critical to have a plan in place. The good news is that it doesn’t have to be difficult or expensive to start.

If you have questions about your unique situation or want help getting a plan in place, reach out. We’re here to help.  

 

Should You Buy or Lease Your Next Car? Five Questions to Help You Decide

Buy or lease a new car

The average age of a vehicle on American roads reached a new record of 12.2 years in 2021. Advances in quality and technology may be partly responsible for people hanging on to their vehicles longer than ever before. Shortages in new and used cars, combined with record high prices at the car lot, may also be partly to blame. 

Computer chip shortages and supply chain disruption have caused new car prices to soar 26% from where they were pre-pandemic, leaving dealerships with low inventory on the lot and little reason to offer generous incentives to new car buyers. 

Perhaps your current vehicle is older and you’re worried about future expensive repairs. Or, maybe record prices at the gas pump have you ready to make the switch to electric. Navigating today’s vehicle market takes a bit more thought and planning to make the right decision for your personal circumstances. 

There are advantages and disadvantages to leasing vs. buying, and the variables to consider aren’t just financial. 

Here are five questions to ask yourself before you hit the car lot.

1.  Do you prefer a new car every few years? 

If having the latest and greatest technology, newest safety features, or even that new car smell is important to you, leasing may be your best option. The typical lease lasts two to four years, giving you the opportunity to switch to a newer model at the end of your lease term. Many people like the short-term commitment of leases, the warranty and repair coverage, and the use of a vehicle in its highest stage of depreciation. 

2.  Do you drive a significant number of miles each year? 

The typical lease allows for a limited number of miles for the car to be driven each year, usually in the neighborhood of 8,000 to 10,000. If you have a long commute or your ideal vacation involves long stretches of open road, strict lease mileage limits could lead to expensive per-mile overage and wear-and-tear fees. Purchasing the vehicle is the better option if you have any concerns about how much you might drive.

3.  Are you trying to minimize your monthly payment? 

A common reason for leasing a vehicle is a lower monthly payment than one would typically have if the same vehicle was financed, especially in the case of luxury cars. In our current hot vehicle climate, however, many automakers are no longer offering generous lease incentives. The monthly cost to lease versus finance is now more comparable, if not more expensive in some cases. 

4.  Are you a business owner? 

The financials of leasing versus buying are potentially different if you need a vehicle for business use. You may be able to deduct certain leasing and operating costs, in addition to minimizing upfront purchase costs. Again, it’s important to be mindful of the amount of use a leased vehicle would receive in the course of your business activities and whether you risk exceeding annual mileage limits.

5.  How important is flexibility and control to you? 

Lease terms have strict parameters about what you can and cannot do with your “rented” vehicle. Making any modifications to the vehicle, using the car in a rideshare like Uber or Lyft, or even driving across the border to Mexico are strictly prohibited. Terminating a lease early can also come with high costs and penalties. Buying provides complete control over how long you own the vehicle, discretion on how it’s used and customized, and the value you receive when you ultimately sell or trade-in the car down the road. 

Before heading out to the car dealership, it’s important to give some thought to how you plan on using your new vehicle, your current and future circumstances, and how much control you wish to have. The decision between leasing versus buying is not just one of finances. 

If you need help making an important decision in your life, reach out to us at Uplevel. We’re here to help.

3 Strategies for Sustainable Investing

strategies for sustainable investing

As climate change disasters such as wildfires, floods, and intensifying storms seem to be increasingly common, many people are looking for a way to encourage companies to enact positive change, while casting a “vote” against the worst offenders. Enter the world of sustainable investing options, which have steadily grown in popularity over the last decade.

According to Barron’s, U.S. ESG mutual fund and ETF assets have soared to a record $400 billion in 2021, up 33% from the year before. Despite this strong growth, the overall market share is still small, at just 1.4% of total U.S. mutual fund and ETF assets. 

With the huge market potential, it’s hard to know where to start. Here are three things we have incorporated in building a sustainable investment option for Uplevel clients. 

 

Prioritize and Focus  

There is no one true, universal definition of ethical investing. This is why it can be so confusing to understand and interpret. There are still many gray areas. 

Environmental, Social and Governance (ESG) investing is a framework you can use within ethical investing to evaluate investments and put your money to work with companies that strive to make the world a better place. In addition to financial factors, ESG investing also considers non-financial factors to measure an investment or company’s sustainability.

Here are some of the things each category may incorporate:

 

Environmental

Social

Governance

  • Carbon emissions
  • Air and water pollution
  • Deforestation
  • Green energy initiatives
  • Waste management
  • Water usage
  • Company gender parity
  • Diversity and inclusion efforts
  • Company sexual harassment policies
  • Human rights and fair labor practices
  • Diversity of board members
  • Executive pay
  • Internal corruption
  • Lobbying
  • Transparent accounting practices

ESG investing relies on independent ratings that assess a company’s behavior and policies in these various categories. Currently, there is no standardized approach to these measurements. ESG metrics are also not part of a company’s mandatory financial reporting, although many companies are voluntarily making disclosures or creating standalone sustainability reports. 

Designing a sustainable portfolio for Uplevel clients starts with values. We let our clients, prospective clients and combined 35+ years of experience guide us in defining the sustainable problem we are trying to solve: Climate change. Without this focus, it’s hard to have transparent reporting and results. 

“If I had only one hour to save the world, I would spend fifty-five minutes defining the problem, and only five minutes finding the solution.” Likely said by a Yale professor but often attributed to Einstein. 

Given our location in Portland, Oregon, it’s common to have clients who are interested in a sustainable way to invest. What we like about focusing within the “E” bucket and climate change specifically, is that we can rely on science to identify and pinpoint the primary contributor to climate change–greenhouse gas emissions. Also, the data on greenhouse gas emissions are widely available for public companies. 

 

Look Under the Hood  

It’s imperative to look beyond ESG branding when evaluating the viability and quality of various funds. Worth mentioning again is the absence of a universally accepted definition of sustainable investing, which gives way to broad interpretations and approaches to ESG investing. The components of ESG considered in an investment strategy, variables by which they are measured, and the method of incorporation can lead to a range of investment outcomes. 

Put another way, a company’s ESG rating is very subjective and there is often a lack of focus on what’s actually being measured. Even the ratings providers themselves can’t seem to agree with one another. The OECD assessed different rating providers and found ESG scores to vary widely.

From the graph below, we can see the variability of ratings. Take Johnson & Johnson, which is given a score in the low 40s by one provider and 90 by another. Not only is this significant difference hard to decipher, but it  raises important questions about reliance on any one rating and can lead investors to wonder if they are having the impact they think they are.  


 

 

 

 

 

 

 

 

 

Source: The OECD

 

Rather than rely on generic, and heavily opinion-based ESG ratings for building our clients’ sustainable portfolios, we turn instead to assessing the availability, quality and objectivity of data and transparent reporting. 

In our analysis, we found Dimensional Fund Advisors’ (DFA) approach to be the most robust. Their sustainability strategies are designed to have a clear focus on climate change. 

The process begins by screening out the worst emitters of greenhouse gasses–including “in the air” and “in the ground” emissions–from the portfolio. DFA utilizes carbon emissions data and scales it by a company’s sales to determine how much carbon is emitted to produce a dollar of sales. This carbon emissions intensity represents 85% of the score. 

DFA is mindful to not exclude certain sectors, as they all need to decarbonize. Instead, they go sector by sector and overweight the companies that are the most sustainable, and underweight the companies that are the least. This is important, as removing sectors entirely is shortsided. It takes the entire economy to run the world, and removing components would decrease the diversity of the fund.

Eventually, kicking out sectors could also leave you with an overweight of large cap technology companies. Their practices are to exclude or reweight, but not concentrate. The remaining 15% of the score screens out companies for other considerations, including palm oil, child labor, factory farming, etc. 

 

Set and Manage Expectations 

While it’s important to note there currently isn’t a known or evidenced based return premium for investing in a sustainable fashion, it also doesn’t need to cause underperformance. The evidence shows we can still own high-quality investments with returns similar to a non-ESG fund, provided we do it right and stick to sound investment principles like diversification, lost cost, low turnover, etc. 

Over 13 years, this type of sustainable approach has had very similar performance to a more traditional DFA portfolio. As the data provided by DFA below demonstrates, returns of their US Sustainability Core 1 Portfolio have been remarkably similar to their “traditional” US Core Equity 1 Portfolio going back to 2008, illustrating that investing sustainably doesn’t have to mean sacrificing long-term performance. 

Source: Dimensional Fund Advisors

We also make sure clients understand that it’s imperfect to compare “traditional” portfolio performance to “sustainable” investment performance by using the same indices as benchmarks. By intentionally screening out the worst offenders from our sustainable portfolio, there will be periods of time when the portfolio deviates from the market by design.  

For example, in the first quarter of 2022, the energy sector did remarkably well. Oil prices spiked to record highs due to supply chain issues and geopolitical events. Exxon Mobil Corp stock, the biggest public energy company in the world, was up over 30% year to date. At the same time, big tech companies were approaching a market correction. Given the underweight of energy companies relative to technology companies in an Uplevel sustainable portfolio, it has faced some headwinds so far this year. 

Regardless, we believe long-term sustainable investors have many reasons to be optimistic about the future. Seven out of the ten largest pension funds in the world invest in sustainable funds, which will continue to pressure big corporations to make positive changes.

Additionally, the Securities and Exchange Commission just proposed new rule changes requiring companies to report their greenhouse gas emissions and details of how climate change is affecting their businesses. We’re confident markets will work better with more standardized information, and the new SEC disclosure should help drive better outcomes. 

While it’s not always easy, our message remains consistent—much of investing requires taking the good with the bad. Remaining focused and disciplined, regardless of ESG strategy, is what leads towards future rewards in the long run. 

Do you need help understanding sustainable investment options? Reach out to us at Upevel. We’re here to help. 

 

Is Your Concentrated Stock Holding Worth the Risk?

concentrated stock holding

 

Earlier this month, stock of Facebook’s parent company Meta dropped a whopping 26%, its biggest one-day decline ever. Mark Zuckerberg, Meta’s chief executive, saw his personal “paper wealth” decline by a staggering $31 billion, more than the entire market capitalization of companies like Twitter ($30 billion) and Delta Airlines ($26 billion). 

Even after this precipitous drop in wealth, he’s still the tenth richest person in the world and it’s unlikely he’s had to make any concessions to his lifestyle. Still, he provides a valuable lesson for us all. 

At Uplevel Wealth, we’ve encountered our fair share of clients whose wealth is heavily concentrated in a single company’s stock. If you find yourself in the same position, here are three things you should consider.

 

1. What’s the Risk?

Investing in a one company’s stock is tremendously risky, as you are concentrating your wealth in the future success of a single company or industry. It can be challenging to see this risk, especially when a company’s stock has performed well recently.

The stock market’s past is littered with former “heros” turned “zeros” – Enron and WorldCom being two of the most famous. While these calamitous crashes garner lots of attention, a more common risk of a concentrated holding is poor performance for a prolonged period of time. 

Henrik Bessembinder, a professor at Arizona State University, looked at stock market performance going back to 1926. His research found that only 86 stocks, or 4% of companies were responsible for half the stock market’s wealth creation over 90 years. 

The other 96%? Their performance was no better than 1-month Treasury Bills, a government-backed investment whose return is only slightly higher than cash. 

As seen in the recent Meta example, individual stocks can also be incredibly volatile, losing significant value over a single earnings report, change in government regulation, or company scandal. 

This volatility is especially dangerous for investors who rely on their portfolios for income, expenses like college tuition or a home purchase, or are making future life decisions based on their current net worth. 

High volatility greatly increases the risk that stock will need to be sold at some point in the future when its price is depressed, and that the value is not there when it’s needed most. 

 

2. How Much is Too Much?

Common rules of thumb suggest limiting a single stock position to no more than 10 or 20% of your investable assets, but the “right” amount is very specific to your unique circumstances.

Like many clients we encounter, a concentrated stock position has often been amassed while working as an employee for the company in question. Stock options, RSU grants, and discounted employee stock purchase plans are common compensation vehicles and can quickly grow to a sizable portion of your net worth. 

Employees also have to be mindful of their own “human capital” investment and the degree to which it, too, is tied to your current employer. This may further reduce the stock exposure you should prudently have.

Rather than relying on one-size-fits-all percentages, we instead evaluate the amount of a single stock position, if any, that makes sense for our clients’ unique circumstances. If the future performance of the stock holding in question is sizable enough to sway the success or failure of a client’s future plans and goals, we often advise a significant reduction. 

For someone like Mark Zuckerberg, his astronomical wealth affords him the ability to assume greater stock risk without threatening financial ruin – a position most of us aren’t lucky enough to find ourselves in.

 

3. What’s the Best Way to Start?

Reducing a concentrated stock position can present its challenges, both on a financial and emotional level. 

One of the main hesitations of selling stock, presuming it has appreciated considerably, is the potential tax bill for doing so. Though long term capital gains rates are at historic lows, with the top Federal rate at 23.8% and state rates varying, many investors see taxes as the primary obstacle to diversification. 

In reality, however, reducing the inherent risks of holding a concentrated position should far outweigh the tax implications of selling. Afterall, isn’t it better to pay taxes because of investment gains rather than no taxes because of losses? 

It’s also common for investors to have emotional ties to their stock holding. Perhaps you have been an employee of the company for many years and have great confidence in its future direction. Or, you were gifted the stock by a beloved family member and feel a sense of duty to keep it. 

While both are understandable from an emotional perspective, mixing emotions and investing rarely turns out well. Recognizing this, or working with a competent advisor who can help you work through your hesitation, provides the best probability of financial success.

From a mechanics perspective, the fastest way to reduce the risk and volatility associated with a large stock holding is to sell it all at once. As discussed above, this can often be impractical. 

At Uplevel, we work with our clients to create a plan for diversification. Whether that means spreading gains over several tax years, picking monthly or quarterly dates to sell a specified amount, or setting price targets at which trades will execute, creating a disciplined plan is key.   

 

Protect Your Wealth

While concentrated stock holdings can be a great way to build wealth, diversification is the best way to maintain it. 

Do you need help creating a plan for your concentrated stock position? Reach out to us at Upevel. We’re here to help. 

 

What to Do if Your Identity is Compromised

According to Consumer Affairs, the U.S. experienced a 311% increase in identity theft victims from 2019 to 2020. This is partly due to the number of people working from home. Working on your own devices and away from corporate networks can provide an easier and more lucrative path for attackers. 

To minimize the damage, here are 7 steps to take if you find yourself a victim of identity theft. 

  1. Freeze your credit 

Initiate a credit freeze at all three credit bureaus, including Experian, TransUnion and Equifax as soon as possible. It’s free to do so and you can lift the freeze at any time or for just a specific time period, which is helpful if you are applying for new credit. 

It’s also a good idea to add a credit freeze for your children, as minor identity theft can go undetected for years. A good overview and steps to do so can be found here, as the process is a bit more involved and can’t be done online.   

  1. Place a fraud alert on your credit reports 

In addition to a credit freeze, you can also place a fraud alert on your credit report by contacting any one of the three credit bureaus above. The credit bureau you contact has to inform the other two and place an alert on your credit report. This alert is active for one year. It will require creditors to verify identity before opening new credit, whereas a credit freeze is meant to keep new credit from being opened. 

  1. Report your identity theft to the Federal Trade Commission (FTC)

Identifytheft.gov is a free resource for reporting and recovering from identity theft. You input your information and type of theft and they create a personalized plan for you, including pre-filled letters and forms. Your Identity Theft Report also acts as proof that your identity was stolen. 

  1. Review your credit report for suspicious activity 

Once your personal information has been compromised, it can easily be circulated and sold on the dark web. This means identity theft often isn’t a one time occurrence, and could easily happen again, so it’s important to remain vigilant. 

By law, you are entitled to at least one free credit report from each of the three agencies annually. During the pandemic you can request a free weekly credit report. An easy way to do so is by utilizing annualcreditreport.com

Once obtained, look for any accounts you may not recognize. If you find any fraudulent information, reach out to the three credit bureaus to have it removed. The FTC has a sample letter you can reference to draft your request. Make sure to include a copy of your Identity Theft Report from step three.   

  1. Review all your accounts for unauthorized charges and notify companies of your stolen identity 

Early detection is key to lessening the headaches of identity theft, so it’s important to act fast. 

In addition to the Fair Credit Billing Act, which limits the liability for unauthorized credit card charges to $50, most credit cards have policies and protections in place for cardholders who are victims of identity theft.

ATM or debit cards fall under a different act which isn’t as forgiving, giving consumers as little as two business days to report unauthorized charges before the max loss limit increases. 

Moving forward, you can set an approval limit for all credit card charges. You would then be notified of any charges beyond the amount you set, requiring you to approve them via email or text. The notifications will tell you the retailer, address and the dollar amount, which can prove helpful in the event of future fraudulent charges.  

It also wouldn’t hurt to be proactive and reach out to other accounts, like your health insurance company, to make sure they are aware of the fraud in case someone attempts to use your policy. 

At Uplevel, we monitor our clients’ Charles Schwab accounts daily for any unusual activity. Schwab also doesn’t provide account information or allow any funds to be sent to third parties without client signatures and verbal confirmations. 

  1. Tighten security on your accounts 

Change your passwords and consider using a password manager like LastPass or 1Password that auto generates strong passwords for you. At the very least, refrain from using easy to guess passwords like your birthday. Don’t use the same password for multiple sites.   

It’s also a good idea to set up two-factor authentication across all your various accounts, including your email. This will require a password and another method of verification via a code sent to you by email or text in order to access an account. 

  1. Make sure your software is always kept up to date 

According to an Apple specialist, the first few days after a software update is released can be the most critical. This is when a vulnerability has been identified and most people haven’t updated their software yet, hence providing an opportunity to hackers.

Recovering from identity theft is possible, it just takes time, a good amount of legwork, and patience. We’re here to help.  

Three Tips for Surviving Stock Market Volatility

As we close out the year, you’ve probably noticed that the stock market’s been on a bit of a wild ride. Markets dropped sharply on Black Friday as news of the omicron variant emerged and have continued to seesaw as markets try to decipher how this new development will impact travel, consumer spending, interest rates, and more. 

These swings have caught many investors off guard after 18 months of strong market returns. If you’re one of them, read on for three tips to survive stock market volatility:

 

1. Worrying is normal. Most of us have complex emotions surrounding money and investing, and it’s especially common to feel concern when the money we’ve worked so hard to earn and save may be at risk. Our brain’s “fight or flight” reaction, which served us well in the days of animal predators, often leads to panic when the news appears bad or our investment portfolio takes a downturn. 

Instead of the sabre-toothed tiger, many investors fall prey to common behavioral biases like loss aversion and anchoring, two phenomena popularized by economist and Nobel Prize winner Richard Thaler. His study of loss aversion showed that people feel the pain of losses twice as acutely as the pleasure of wins, meaning a day in which your portfolio falls two percent, for example, likely feels much more traumatic than the happiness experienced on a day in which your portfolio rises by the same amount. 

Another common cognitive bias is the concept of anchoring, which occurs when we have a particular value or number in mind. Perhaps you reached a milestone in the balance of your investment portfolio, only to see it slip backwards during this most recent volatility. That decline may feel like a “loss,” even though your portfolio is still likely higher than it was a year ago. 

The temptation to react in stressful times and “do something” is a very human behavior. The best thing we can do as investors is remind ourselves that choosing to “do nothing” and sticking with the long-term plan is also taking action.

 

2. Have a little perspective. While we all enjoy seeing positive returns and growing portfolios, the less pleasant reality of investing is that markets are volatile in the short term. 

It’s not uncommon to experience a market correction, which is a decline from a previous peak of 10%, or a bear market, which is a decline of 20%, in any given year. In fact, even years with positive stock market returns experience intra-year declines. Looking back at the past 20 years, the US stock market had positive returns in 16 of those years, despite intra-year declines ranging from 3% to 49%. 

US Market Intra-Year Declines vs. Calendar Year Returns, January 2001 – December 2020

 

US Market Intra-Year Declines vs. Calendar Year Returns

Chart courtesy Dimensional Fund Advisors. January 2001–December 2020, in US dollars. Data is calculated off rounded daily returns. US Market is represented by the Russell 3000 Index. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year.

 

While we don’t know how 2021 will end, investors have enjoyed another year of strong returns, despite recent volatility. US stocks, represented by the Russell 3000 Index, have returned over 24% year to date, well above historical averages. International stocks, represented by the MSCI All Country World Index Ex-US haven’t fared quite as well, but have still enjoyed returns north of 7% year to date. 

As unpleasant as volatility can be, it’s a normal part of investing. Having a long-term focus and a little perspective can help us all get through the inevitable tumbles along the way.

 

3. Take a look at how your portfolio is allocated. If stock market volatility is causing you to lose sleep, perhaps that’s a sign it’s time to revisit your asset allocation, or mix between stocks and bonds.

A healthy allocation towards stocks is needed for most long-term investors, especially to keep pace with inflation like we’re seeing today. Stocks also experience greater volatility than safe government bonds like US Treasurys. If fluctuations in your portfolio are a cause of great concern, that may be a sign that a permanent shift to a more conservative portfolio is due. 

The right asset allocation is unique to each investor and depends on a number of factors. At Uplevel Wealth, we like to say that choosing the mix between stocks and bonds is as much art as science. While ensuring our clients have enough growth via stocks to achieve their future goals, equally important is creating a portfolio mix they can stick with in good times and bad. 

Having a comfortable cushion of cash for emergencies or access to low interest rate funds like a home equity line of credit (HELOC) is also a vital part of a healthy investment plan. As mentioned earlier, market volatility is nothing unusual. What investors should avoid is being forced to sell investments for cash needs at the same time markets are struggling. 

Lastly, do your best to tune out the noise. Whether it’s the news, social media, or your brother-in-law at the holiday get together, remember that nothing grabs our attention like scary headlines. If you find yourself worrying about recent volatility, a good first step is to take a much-needed break from the “noise.” Read a book, take a walk, or turn on some cheerful holiday music. 

Or, give us a call at Uplevel. We’re here to help.

 

 

 

Five Ways to Uplevel Your End-of-Year Finances

End of Year To-Do's

Visit any Costco or Target (two of our favorites!) and you’ll see that fall is officially over and the holiday season is upon us. Not to despair, however. With a solid nine weeks left in 2021, now’s a great time to run through some important “to-do’s” and finish the year with your finances in good order.

To keep things easy, we broke it into our top five categories:

 

Be Mindful of Deadlines Ahead

With only a few pay periods remaining in 2021, make sure you’re on track to maximize your retirement plan contributions, especially if your employer offers a match. You can contribute up to $19,500 this calendar year to a 401(k) or 403(b), plus an additional $6,500 if you’re over age 50. 

If you want to increase contributions before the December 31st deadline, reach out to your HR department or payroll provider ASAP. It’s also a great opportunity to get next year’s contributions set up, as the maximum contribution amount jumps to $20,500 in 2022, for a total of $27,000 if you’re over 50. 

 

Use It or Lose It

A Flexible Spending Account (FSA) or Dependent Care FSA allows you to save pre-tax dollars throughout the year and use those funds to reimburse yourself for out-of-pocket expenses like copays, prescriptions, or child care expenses. While these accounts are a great way to save on taxes, typical FSA accounts have a “use it or lose it” provision whereby the balance in the account needs to be depleted by the end of the year. 

Employers do have the discretion to offer wiggle room and allow for some money to be carried over, usually $550. Due to the pandemic, the government is giving employers even more leeway, allowing for deadline extensions and larger balance carryforwards, including up to the total balance in an FSA. 

Be sure to find out what deadlines and limits apply to your plan, as you may want to contribute less money next year if you can carry-over an existing balance. If not, now’s the time to use up remaining funds and schedule doctor visits or stock up on FSA-eligible items, a handy list of which can be found here

 

Tax Planning Isn’t Just for April

While impending tax changes have been rumored since President Biden took office (check out our past blog posts on proposed tax changes) nothing has officially passed as of this post. Despite the uncertainty, it’s still a good idea to take a look at your income and deductions in 2021 and how they might compare to 2022 and beyond. 

If you were part of 2021’s Great Resignation and left your job, a Roth conversion in a lower-income year could be of great benefit. Conversely, if you were fortunate enough to receive a significant windfall, such as Restricted Stock Units (RSUs) vesting, other stock options, or a large bonus, make sure you are paying enough in estimated tax payments to avoid penalties come tax time. 

 

Double Check Your Portfolio

Though stocks have been on a winning streak for the last year or more, it’s worth taking a peek at your portfolio to see if any holdings are currently at a loss. Those investments can be sold and their losses used to offset capital gains realized this tax year or carried forward to a future tax year until depleted. 

If you don’t already have capital gains, you can offset up to $3,000 in ordinary income with realized capital losses. A word of caution however – be sure to familiarize yourself with wash sale rules before repurchasing a security sold at a loss, or you may find yourself in a bit of hot water with the IRS.

 

Make a Difference

Helping friends and family or supporting beloved charitable organizations can happen any time during the year, but there are some timing considerations if you’re looking to maximize your giving. 

This year, you can give up to $15,000 to another individual without making a dent in your lifetime estate and gift exclusion. If you are married and file jointly, that amount doubles to $30,000. Limits for 2022 have yet to be announced, but there is speculation that this amount will increase to $16,000 for single tax filers and $32,000 for married couples. 

Giving to charities has its own set of financial benefits and strategies vary depending on your circumstances. If you find a bit of excess cash in your bank account, here are a few options to consider:

  • Cash donations – Congress extended a provision of the CARES Act that gives single taxpayers a deduction of up to $300 for cash donations to some charities and $600 for married filing jointly. This applies even if you claim the standard deduction.
  • Strategic Donations – In addition to outright cash contributions, there are other options available such as donating appreciated stock, funding a donor advised fund, or a qualified charitable distribution (for those ages 70.5 or older). We can help determine which option is best for you. 

 

Reach Out

In the coming weeks, as you trade Pumpkin Spice Lattes for Peppermint Mochas, don’t forget to take a few moments to check-in on your financial position to make sure you’re taking full advantage of all the options available to you. We’re here to help.

 

Cryptocurrencies – Four Things To Know Before You Invest  

Cryptocurrency

Cryptocurrencies have made a lot of headlines recently, from minting overnight millionaires to Elon Musk’s tweets about bitcoin. Many people are left to wonder if — and how — they should be thinking about crypto.

The comedian John Oliver offers one way to think about it: “Everything you don’t understand about money combined with everything you don’t understand about computers.”

With over 4,000 types of cryptocurrencies in circulation, it’s hard to know where to start. We wish all of our clients knew these four things……….

Our article continues in Business Insider, where it was originally published.

Biden’s Tax Proposal: What Does It Mean For You?  

On September 13th, Democrats on the House Ways and Means Committee released their highly anticipated, and speculated, proposed tax changes. It’s unclear how they will ultimately shake out, as Democrats need almost every vote they have to advance the changes. Regardless, the proposed measures are quite different from what many anticipated.  

It’s also not out of the question for additional provisions to make their way in, like an expanded deduction for state and local taxes (SALT). While the current version of the bill may not be in final form, many of its features are likely to become law, set to go into effect in the new year. 

While the proposed changes are vast, we’ve narrowed the focus here to four main areas, which are most applicable to Uplevel clients. 

 

Higher Ordinary Income Tax & Capital Gains Rate

The highest tax brackets are changing… again. In 2018, the top federal rate income tax rate was reduced to 37%. Rates are  now potentially reverting back to former top rates of 39.6%, which would be ‘permanently’ reinstated beginning in 2022. 

That’s not all. The highest tax brackets will also be substantially compressed – meaning you hit higher tax rates at much lower incomes. Those earning $400,000 to $450,000, depending on filing status,will see the largest average increase in tax liability of 4.6%, as today’s 35% bracket becomes 2022’s 39.6% bracket.  

Those affected by the new rate will also see fewer deductions in the tax code today than previously, making their effective tax rate higher. It also appears that all ordinary income brackets are indexed for inflation, except the top brackets of $400,000 for single filers and $450,000 for married filing joint. 

The top long term capital gains rate is also set to increase 5%, from today’s 20% to a new 25%, again impacting lower income thresholds of $400,000 for single filers and $450,000 for married filing joint. The cherry on top would still be the 3.8% Medicare surcharge that some filers are already accustomed to. 

The proposed long term capital gains rate changes leaves little room for planning, as Congress isn’t waiting until the start of the new year. Rather, increased rates would be retroactive to September 14, 2021. If you sold appreciated securities prior to this date, the top rate would be 20%. A day later, you’ll pay an additional 5%. It’s also likely that year-end capital gains distributions from mutual funds and ETFs will be taxed under the new rates.

You may be thinking what we’re thinking – thank goodness we’re not tax planning software coders right now. 

What strategies, if any, can you employ if these bumps apply to you? High earners may want to accelerate ordinary income in 2021, prior to the rates increasing. The folks that would most likely benefit the most from this strategy fall into the compressed brackets, where they would move from 35% to 39.6% in 2022, instead of 35% to 37% in 2021. 

Additionally, high earners who are charitably inclined could consider postponing charitable donations to next year, when the associated tax deduction would be more beneficial.

 

Elimination of Backdoor Roths

A previously little-known strategy high income earners have used for years is likely on the chopping block, beginning in the new year. 

Earners who exceed income limitations for contributing directly to a Roth IRA have an alternative route: open a traditional IRA, make a $6,000 contribution (if under age 50), and convert it to a Roth IRA shortly thereafter. In doing so, there is likely little tax on the conversion, and it allows the money to grow tax free in a Roth. 

There’s more. In what’s often referred to as a “mega-backdoor” conversion, participants in 401(k) plans that allow after-tax contributions have been able to sock away as much as $58,000 a year into a 401(k) and then convert a good portion to a tax-free Roth account. 

Not anymore. The legislation would prohibit conversions of after-tax dollars in retirement accounts, including IRAs and 401(k)s. 

The upshot? If it’s been a part of your financial plan to date, then do it while you still can. A word of caution: it can get tricky, so it’s best to work with a planner or tax professional.  

 

Estate Tax Exemption 

Roughly four years ago, the estate and gift tax exemption was doubled and indexed for inflation, bumping this year’s exemption to $11.7 million. The proposed bill reduces the exemption back to about $6 million for 2022, again indexed for inflation. The top estate tax rate remains at 40%. 

What hasn’t found its way into the bill yet is an elimination of the step-up in basis at death, benefiting people well below the 1 percent. Think of grandma or grandpa passing away, leaving you with a home they bought for $100,000 that’s now worth $1,000,000. Without a step-up in basis, you could be looking at hundreds of thousands of dollars subject to capital gains tax.  

Estate planners have been busy helping affected clients use this year’s $11.7 million exemption to give money to heirs without fear it will be clawed back, as well as addressing additional proposals to clamp down on various types of grantor trusts

Before rushing to make drastic changes to your estate plan or irrevocable gifts to family members before rules potentially change, it’s important to ask yourself if these moves align with your long term intentions or are worth the increased complexity and cost.

 

Extension of Child Tax Credit 

Under proposed legislation, the current expanded Child Tax Credit is extended through 2025. 

For many families, these prepayments could trigger additional tax owed come next spring. They are based on your most recent tax return, which for many is 2020. If your income has risen this year or you have other applicable changes, you may have to pay back some or all of the prepayments. 

 

Uplevel Can Help

While much still remains unclear, chances are likely lower tax rates, in addition to some popular tax loopholes, are coming to an end. Uplevel can help you navigate the new rules and work with your tax and estate planning professionals to make adjustments to your plans. 

We’ve already gotten to work, proactively contacting clients who are affected. We’re here to help. 

3 Ways to Uplevel Your College Planning

THERE’S NO SINGLE, right way to legally crack the college admissions and financial aid systems. It’s up to teenagers and their parents to do the necessary work.

Still, it helps to have a tour guide—which is what you get with The Price You Pay for College, the new book from New York Times financial journalist Ron Lieber. Lieber’s book discusses why college costs so much, digs into the allure of elite schools, uncovers hacks that may not really be hacks, and talks about how to plan and pay for college. Here are three key ideas that I took away from the book:

1. Families need to talk. Teenagers and their parents should discuss money, core values and priorities. That’ll help students identify what they want from their college experience.

Sprinkled throughout Lieber’s book are thought-provoking questions. For example, what’s your definition of success? What is college for? Is it about learning? Building connections? A means to a job? If a college education is a means to a job, at what price? What can the family afford? Where will the necessary money come from?

If the value of a college education to your family is a job, you might wonder just how important an elite school is for obtaining a more coveted position. Lieber’s research suggests it’s not as critical as you may imagine, with alumni from top schools obtaining between 13% and 58% of prestigious jobs, depending on the occupation. What’s apparent is the benefit of the doubt accorded to applicants who have the most selective schools on their resume. Certain gatekeepers have a vested interest in continually building and promoting their own networks, which can often start with their alma mater.

Lieber doesn’t pretend to have a formula that calculates the actual value of any given college experience. Instead, he encourages us to reflect on how our feelings influence such an important and expensive decision. In his decades of reporting, Lieber “has never come across a consumer decision that inspires more confusion and emotion than this one.”

2. The devil is in the details. Once you outline what you’re looking for from the college experience, start digging for data. Lieber’s book offers resources to help uncover the data that does exist. One problem: The numbers aren’t standardized across schools and aren’t always easy to come by or interpret. For example, mental health is becoming more top of mind for many families, with nearly a quarter of new undergraduates now classified as disabled, largely due to a mental health diagnosis such as depression or anxiety. Campus resources may be very important to these families, so it’s worth determining how long it takes to schedule an appointment for counseling, who the providers are and what type of support organizations are available.

The clearer you are on what success means for your child and family, and what value a college offers, the more you can cut through the clutter and eliminate details that aren’t a priority. In a decision that’s anything but easy, the more noise you can eliminate, the better.

3. The game has changed. It’s probably not that surprising—and yet still alarming—to learn that consultants play a big role behind the scenes. They help colleges to find students, to determine what to charge them and to prod families to follow through. Discounts to attract students are often offered in the form of merit aid.

It’s tough to understand the financial aid system, let alone predict how much merit aid you’ll receive—assuming, of course, you get in. Merit aid doesn’t consider your financial situation, like need-based financial aid does, so it’s entirely possible for wealthier families to be offered discounts, provided the student has what the college is looking for. Colleges use algorithms to predict what kind of discount is needed to get a particular student to say “yes.” This is all guided by consultants, who “help schools leverage information about your family to optimize your discount,” Lieber writes.

He gives us valuable hints about how to uncover more about merit aid than the basic information listed on a school’s website, and it starts with a school’s Common Data Set. The easiest way to find this information is by Googling “common data set” and a college’s name. Among other items, look for the number of people who received merit aid, despite no financial need, and the range of test scores for admitted students. If your student’s scores rank high for a particular college, there’s a greater chance of merit aid. Schools claim their award-giving process is based on more than test scores and other data, and it likely is. Still, checking the numbers gives families a shot at determining how a college’s algorithm is likely to rank their prospective student.

Want to talk more about your specific situation? Reach out to us today.

This article first appeared in HumbleDollar.