Archives for December 2017

New Tax Bill: Pay State and Property Taxes By End of 2017

taxpaidThe new tax bill that takes effect in 2018 raises the standard deduction and caps certain itemized deductions. Therefore, if you will itemize your deduction in 2017, you may want to grab whatever you can this year to get the full value of those deductions. (This assumes you are not subject to AMT.) Here’s a brief summary of your options.

  • State and Local Income Taxes. You can’t prepay 2018 state taxes in 2017. However, you should pay all your 2017 taxes in 2017. Specifically, if you make estimated quarterly tax payments, you should makes your 4th Quarter state/local payment by December 31, 2017 rather than wait until the deadline which is usually close to the federal deadline of January 18, 2018.
  • Property Taxes. You can’t prepay 2018 property taxes in 2017. However, if you have property taxes based on 2017 assessments (partial or whole), you should make those payments by December 31, 2017. Basically, have you received a bill already? Pay it now. Some counties are actually trying to make things easier for you. See these NYT and WaPo articles for details. Things can get complicated if you usually pay via mortgage escrow.
  • Charitable contributions. On a related note, you may want to make your charitable contributions by the end of 2017, as you may not be able to deduct your donations if you will fall under the standard deduction in 2018.

More: IRS Advisory, NY Times, National Law Review

My Money Blog Portfolio Asset Allocation, 2017 Year-End Update

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Here is a year-end update on my investment portfolio holdings for 2017. This is my last-minute checkup in case I need to rebalance to make another other tax-related moves. This includes tax-deferred 401k/403b/IRAs and taxable brokerage holdings, but excludes things like our primary home, cash reserves, and a few other side investments. The goal of this portfolio is to create enough income to cover our regular household expenses.

Actual Asset Allocation and Holdings

I use both Personal Capital and a custom Google Spreadsheet to track my investment holdings. The Personal Capital financial tracking app (my review, join free here) automatically logs into my accounts, tracks my balances, calculates my performance, and gives me a rough asset allocation. I still use my custom Rebalancing Spreadsheet (instructions, download free here) in order to see exactly where I need to direct new investments to rebalance back towards my target asset allocation.

Here is my portfolio performance for the year and rough asset allocation (real estate is under alternatives), according to Personal Capital:

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Here is my more specific asset allocation, according to my custom spreadsheet:

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Stock Holdings
Vanguard Total Stock Market Fund (VTI, VTSMX, VTSAX)
Vanguard Total International Stock Market Fund (VXUS, VGTSX, VTIAX)
WisdomTree SmallCap Dividend ETF (DES)
WisdomTree Emerging Markets SmallCap Dividend ETF (DGS)
Vanguard Small Value ETF (VBR)
Vanguard Emerging Markets ETF (VWO)
Vanguard REIT Index Fund (VNQ, VGSIX, VGSLX)

Bond Holdings
Vanguard Limited-Term Tax-Exempt Fund (VMLTX, VMLUX)
Vanguard Intermediate-Term Tax-Exempt Fund (VWITX, VWIUX)
Vanguard High-Yield Tax-Exempt Fund (VWAHX, VWALX)
Vanguard Inflation-Protected Securities Fund (VIPSX, VAIPX)
iShares Barclays TIPS Bond ETF (TIP)
Individual TIPS securities
U.S. Savings Bonds (Series I)

Target Asset Allocation. Our overall goal is to include asset classes that will provide long-term returns above inflation, distribute income via dividends and interest, and finally offer some historical tendencies to balance each other out. I don’t hold commodities futures or gold (or bitcoin) as they don’t provide any income and I don’t believe they’ll outpace inflation significantly. I also try to imagine each asset class doing poorly for a long time, and only hold the ones where I think I can maintain faith.

Stocks Breakdown

  • 38% US Total Market
  • 7% US Small-Cap Value
  • 38% International Total Market
  • 7% Emerging Markets
  • 10% US Real Estate (REIT)

Bonds Breakdown

  • 50% High-quality, Intermediate-Term Bonds
  • 50% US Treasury Inflation-Protected Bonds

I have settled into a long-term target ratio is 67% stocks and 33% bonds (2:1 ratio) within our investment strategy of buy, hold, and rebalance. With a self-managed, simple portfolio of low-cost funds, we minimize management fees, commissions, and income taxes.

Performance, details, and commentary. According to Personal Capital, my portfolio has gained 15.08% overall in 2017 (with a few days left to go). In the same time period, the S&P 500 has gained 19.73% (excludes dividends) and the US Aggregate bond index has gained 3.53%. For the first time in a while, my sizable allocation to developed international and emerging markets stocks has boosted my overall return.

My stock/bond split is currently at 70% stocks/30% bonds due to the continued stock bull market. I continue to invest new money on a monthly basis in order to maintain the target ratios. Once a quarter, I also reinvest any accumulated dividends and interest. I don’t use automatic dividend reinvestment. This way, I can usually avoid creating any taxable transactions unless markets are really volatile.

For both simplicity and cost reasons, I am no longer buying DES/DGS and will be phasing them out whenever there are tax-loss harvesting opportunities. New money is going into the more “vanilla” Vanguard versions: Vanguard Small Value ETF (VBR) and Vanguard Emerging Markets ETF (VWO).

I’m still somewhat underweight in TIPS and REITs mostly due to limited tax-deferred space as I don’t want to hold them in a taxable account. My taxable muni bonds are split roughly evenly between the three Vanguard muni funds with an average duration of 4.5 years. I may start switching back to US Treasuries if my income tax rate changes signficantly.

529 Plans Will Allow Private School K-12 Tax-Free Withdrawals

529Starting in 2018, qualified educational expenses for 529 plans will include up to $10,000 a year in tuition and expenses for primary and secondary school expenses (public, private, or religious). Previously, you could only use it towards qualified college expenses. There were also some related changes to ABLE accounts for individuals with special needs – listed here.

Put simply, you can now pay for up to $10k a year of private K-12 school through a 529 plan. If this impacts you, you may consider making a 529 contribution now before December 31st, 2017 as you are allowed annual contributions of $14,000 per person ($28,000 per couple) while still avoiding gift taxes. You would then be able to make contributions in both 2017 and 2018.

Front-loading a 529 early and with a lot of money. The NY Times lays out a scenario where a wealthy family puts in $200,000 at birth (not sure why they use this amount as it would exceed annual gift tax limits even with front-loading) and then uses the money to pay for K-12 private school. This could theoretically save a wealthy family $30,000 in taxes.

If you have that kind of money, it may be worthwhile to explore front-loading, but be careful as their example assumes a reliable 6% return every single year. In the real world, investment returns can be quite volatile, and if you make a $10,000 withdrawal every year, you run the risk of depleting your account entirely before college. Other possible options are to start funding a 529 even before your child’s birth to start accumulating those future tax-free capital gains.

Using the 529 as a just-in-time passthrough. Around 30 states offer a in-state tax benefit on 529 plans. If you are paying for a private school anyway, you may be able to save some money by simply using the 529 as a passthrough account. Contribute to 529, grab the tax benefit, and then immediately withdraw (starting in 2018) to pay for K-12 tuition. Some states like Montana and Wisconsin specifically disallow this in-and-out practice, but most do not (although they could start).

Things can still change. This Reuters article points out that states may change their own laws in response. They could add minimum holding periods, cap their deductions, or add income restrictions. I am also curious as to what, if any public school “expenses” are technically eligible.

Personally, I don’t think this will change my 529 usage plans significantly. My state does not offer a tax benefit, so there is little benefit to the passthrough option. Maybe if short-term rates go up high someday and you can earn 5% in a bank account, it might become worth the effort to park some money in there temporarily. The other primary benefit is federal tax-free investment gains, and it takes a while for that compounding action to accumulate. If I get lucky and my balance gets really big, I could perhaps see taking some money out before college if they end up in private high school. Realistically though, I doubt my balances will greatly exceed four years of college tuition (times three kids!).

Blue Cash Preferred from American Express Review: 6% Cash Back on Groceries

Blue Cash Preferred w ButtonThe Blue Cash Preferred® Card from American Express is a cash back rewards card with a unique feature that still hasn’t been copied by competitors: 6% cash back at US stand-alone supermarkets on up to $6,000 per year in purchases. If you spend $500 average per month on supermarkets, that alone will earn you $360 every year in rewards. Highlights:

  • $200 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 6% Cash Back at US stand-alone supermarkets up to $6,000 per year in purchases (then 1%).
  • 3% Cash Back on gasoline at at US stand-alone gas stations
  • 3% Cash Back at select major US department stores
  • 1% cash back on all other purchases.
  • Intro APR: 0% for 12 months on purchases and balance transfers, then a variable rate, currently 14.24% to 25.24%.
  • $95 annual fee.

For more information about this card and to apply online, visit CardRatings.com.

Tracking and last-minute holiday shopping. Every December, I personally use this card to buy gift cards at standalone grocery to use up the annual limit and get 6% back. My local Safeway has an entire wall of options, but I usually go with Amazon, Apple iTunes, or Starbucks. You can easily track how much you’ve spent on groceries on your online account. Just go to “Statements & Activity” > Chart logo (Graph and Filter your Transactions), and then click on “Merchandise and Supplies”. Adjust dates as necessary. Screenshot:

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Supermarkets details. “US stand-alone supermarkets” means that superstores, convenience stores and warehouse clubs are not considered supermarkets. This means no Super Wal-Mart, no Super Target, no Costco. Examples of merchants that count (and this is not a complete list!!) are Safeway, Meijer, Vons, Whole Foods, Winn-Dixie, and online supermarkets such as FreshDirect.

Gasoline details. “US stand-alone gas stations” means that superstores, supermarkets, and warehouse clubs that sell gasoline are not considered gas stations. This means no Target, no Costco, no Sam’s Club. Examples of merchants that count (and this is not a complete list!!) are Exxon, Mobil, Hess, Shell, Gulf, Murphy USA, Murphy Express.

Major US Department stores details. These are the only stores that qualify:

• Bealls
• Belk
• Bloomingdale’s
• Bon Ton Stores
• Boscov’s
• Century 21 Department Stores
• Dillard’s
• J.C. Penney (JCP)
• Kohl’s
• Lord & Taylor
• Macy’s
• Neiman Marcus
• Nordstrom
• Saks Fifth Avenue
• Sears
• Stein Mart

Annual fee. The card has a $95 annual fee, so you’ll want to utilize that 6% cash back on groceries to maximize your value. If you spend the max cap of $500 a month at supermarkets, at 6% back that would net you $360 cash back in a year vs. $60 at 1% cash back. Note that spending $31 per week at supermarkets at 6% cash back will result in over $95 Reward Dollars per year to cover the annual fee.

If you don’t like the idea of paying an annual fee, the Blue Cash Everyday Card from American Express offers 3% at U.S. supermarkets on up to $6,000 per year in purchases with no annual fee. It currently offers a $150 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.

Cash back is officially given in the form of Reward Dollars that can be redeemed as a statement credit, gift cards, and merchandise. Statement credit are as good as cash, so I just stick with that.

Bottom line. The Blue Cash Preferred® Card from American Express has a top feature of 6% cash back at US supermarkets, along with 3% cash back at gas stations and select major department stores. I treat this card like one of my 5% cash back cards, except there are no rotating categories or activation to worry about. Supermarket purchases all go straight on this card, while I try to remember it as well for my occasional department store purchase. Then in December, I use up the rest of the $6,000 annual spending limit on gift cards for holiday presents.

For more information about this card and to apply online, visit CardRatings.com.

“Disclaimer: This content is not provided or commissioned by the issuer. Opinions expressed here are author’s alone, not those of the issuer, and have not been reviewed, approved or otherwise endorsed by the issuer. This site may be compensated through the issuer’s Affiliate Program.”

Healthcare Flexible Spending Accounts: Last-Minute FSA Eligible Ideas

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Updated. Here’s my annual reminder to get back all the money you put into your Healthcare Flexible Spending Accounts (and other such accounts) before the end of the year. First, here are some possible exceptions:

  • Some plans allow a grace period until March 15th of the following year as opposed to a December 31st deadline to use your 2017 funds, but it may only apply to claims and not late purchases. Check with your employer.
  • Some plans allow participants to carry over up to $500 in unused FSA funds into next year. Check with your employer.

What are FSA-eligible expenses? Here are the large, well-organized lists:

Quick tip. Certain over-the-counter (OTC) items such as cough medicines, pain relievers, acid controllers, and diaper rash ointment require a prescription for reimbursement. In addition to the written prescription for the OTC medicine, you should obtain a detailed receipt that includes the following:

  • Date of service or purchase
  • Name or description of the item
  • Amount of purchase

Last-minute FSA-eligible items. If you didn’t exhaust your funds with insurance copays or deductibles, here are eligible items that you can still buy over-the-counter without a prescription. Examples included are the best-sellers in each category at Amazon.

Finally, only your FSA administrator can provide you with the exact guidelines for reimbursement according to your plan. I learned this the hard way when our FSA administrator switched one year from in-house to Conexis. Wow, Conexis was a pain in the butt. So many hurdles and rejections without good explanations. I had to submit some claims three times before finally getting approved. If you count the time wasted, I probably lost money by participating in the FSA at all. The other employees in the company must have also complained so much that the very next year, FSA reimbursement was again managed in-house.

Infographic: 529 State Tax Deduction Value Comparison Map 2017

Amongst the many things to consider at years-end is a contribution to a 529 college savings account. (I just made my contribution for kid #3.) In addition to the federal tax-free growth towards qualified college expenses, more than 30 out of 50 states offer some level of tax deductions for 529 contributions. Some require you to contribute to the official in-state plan, while others let you contribute to any plan.

SavingForCollege.com offers a visual comparison of these state tax benefits in the following infographic. They assume a couple filing jointly with a $100,000 taxable income and contributing $100/month for each of two children. The darker the blue, the bigger the benefit.

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This may not apply exactly to your situation, but it can still provide you a quick take as to whether you should investigate further. They do have a calculator that churns out specific numbers, but unfortunately you must pay for a premium subscription. Here are some related posts:

Last-Minute Gifts: Amazon Gift Card Discounts including Starbucks, Whole Foods, Boston Market, Hotels.com, Free Holiday Tins, Etc.

Look for Amazon to offer up lots of discounted gift cards and/or bonus stuff with gift cards for procrastinators, most guaranteed to arrive by Christmas. Click, click, done. Some of these deals are good enough for self-gifting.

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Up to 20% off Various Retailer Gift Cards. These go in and out of stock and the retailers vary. They had Whole Foods but that sold out quickly (may go in and out, waitlist was available for me). Right now I see Boston Market, Coldstone, Hotels.com, and Famous Footwear.

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Get $5 Amazon promo credit if you buy $50 in Starbucks gift cards. Applies to digital gift cards only. Use promo code COFFEE. You should see details under “Special offers and product promotions”.

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Free Snowflake Gift Tin with Amazon Gift Card. Make your gift card stand out and feel more substantial with a free tin. Also available in Snowman tin, Santa tin, Holiday Pop-Up box, and red ornament tin.

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Free Limited Edition Gund Teddy Bear with Amazon Gift Card. Posted about this earlier, looks like the minimum is still $100 for now.

I’ll keep updating this post as I’m sure Amazon will roll out some more deals later.

MMB Ultimate Interest Rate Chaser Calculator

calc150Thinking about moving your cash to a different bank account with a higher interest rate? It’s been a while, but the short-term rates on online savings accounts are going up. Don’t get paid nothing by your megabank. Use this handy calculator to find out how much more money you could earn by switching, which you then can weigh against the time and effort required.

My Money Blog Ultimate Rate Chaser Calculator

How much money are you going to move? (no commas) $
Enter the interest rate (APR) currently being earned:   %
Enter the new interest rate (APR):   %
How many days of lost interest will you have?   day(s)
The approximate number of days you must keep your money at the new rate to break even money-wise is:   days
Assuming the rate difference remains the same,
in 1 month you’ll have earned an extra (estimated):
  
After 6 months, you’ll have earned an extra (estimated):   

Notes

  1. This calculator is based on a rate-chasing breakeven time formula developed previously which takes into account the “days of lost interest”, or the time in between transfers where the money is not earning interest in either account.
  2. Although you will get a very similar answer either way (especially for low interest rates), note that it asks for APR, not APY. I also made a APY to APR calculator if you only have APY and want to be exact.
  3. Usually, there can be between 0-3 days of lost interest when going from one bank to another. This depends on the policies of either bank and also which bank initiates the transfer. This value can significantly affect the break-even time.
  4. The 6-month value (182 days) isn’t simply 6 times the 1-month value (30 days), as the calculator takes into account the time needed first to “break-even”.
  5. Another factor to consider is how likely the current rate difference will persist. Interest rates on savings accounts can change at any time, whereas certificates offer a fixed rate over the guaranteed period.

Last updated 12/14/17.

Gyft Promo Code: $5 off $50 Lowe’s Gift Gard

gyft0Gyft just sent me an e-mail that you can get $5 off a $50 Lowe’s gift card with promo code holiDIY, good for existing customers. Offer ends 12/25/17 at 11:59pm ET or while supplies last. The terms say that the promo code can be redeemed 5 times per household/account while supplies last. So technically this could be $25 off $250 in Lowe’s gift cards.

You could stack this promo with this 11% off Lowe’s mail-in rebate (may need to scroll down to 2nd page). This rebate offer is only valid at specific Lowe’s locations (scroll down to last page).

Here are some other gift card deals from Gyft:

  • Get $5 off a $40 Chef’d Gift Card with promo code CHEFHAT. Offer ends 12/31/17 at 11:59pm ET or while supplies last. Promo code can be redeemed 2 times per household/account while supplies last.
  • Buy a $25 Domino’s Gift Card and get an extra $5 card with promo code PIECEFUL. Offer ends 12/31/17 at 11:59pm ET or while supplies last. Promo code can be redeemed 2 times per household/account while supplies last.

Good News: Here’s How the World Has Improved Over the Past 25 and 50 Years

Bad news seems to come at us from all angles, but sometimes we need to step back and point out the good news. Here is a chart of how the the worldwide level of hunger, poverty, illiteracy, child poverty, and pollution has fallen over the last 25 years. Via @dinapomeranz and @johanknorberg.

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Here are some specific stats comparing changes in the last 50 years (1966 to 2016). Via HumanProgress.org. These are worldwide numbers. See specific numbers for your own country and age at Your Life in Numbers.

  • In 1966, average life expectancy was only 56 years. Today it’s 72. That’s an increase of 29 percent.
  • Out of every 1,000 infants born, 113 died before their first birthday. Today, only 32 die. That’s a reduction of 72 percent.
  • Median income per person rose from around $6,000 to around $16,000, or by 167 percent – and that’s adjusted for inflation and purchasing power.
  • The food supply rose from about 2,300 calories per person per day to over 2,800 calories, an increase of 22 percent, thus reducing hunger.
  • The length of schooling that a person could typically expect to receive was 3.9 years. Today, it’s 8.4 years – a 115 percent increase.
  • The world has become less authoritarian, with the level of democracy rising from -0.97 to 4.23 on a scale from -10 to 10. That’s an improvement of 5.2 points.

There are many forces behind these trends, but perhaps it will inspire people to keep trying to improve their world or to support others financially who are dedicating their lives to improve the world.

progressbookJohan Norberg wrote Progress: Ten Reasons to Look Forward to the Future, which was a 2017 Book of the Year for The Economist and the Observer. I haven’t read it, but it seems like a well-researched book with hard evidence on why we should be more optimistic.

Our world seems to be collapsing. The daily news cycle reports the deterioration: divisive politics across the Western world, racism, poverty, war, inequality, hunger. While politicians, journalists and activists from all sides talk about the damage done, Johan Norberg offers an illuminating and heartening analysis of just how far we have come in tackling the greatest problems facing humanity. In the face of fear-mongering, darkness and division, the facts are unequivocal: the golden age is now.

Amazon Coupon Code: $5 off $15+ of Print Books

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New book coupon code. Amazon has $5 off $15+ of print book purchases with promo code BOOKGIFT17. Can be one book or multiple. Offer expires at 11:59pm Pacific 12/14/17. Must be sold by Amazon.com.

tribeferrisHere are some popular recent books that are on my reading list:

Here are some suggestions for those looking to gift a financially-related book:

This would also be a good coupon to discount a cookbook gift or a bunch of under-$3 children’s books in the same cart.

Emerging Markets ETF Comparison: Vanguard, iShares Core, and Schwab

The Vanguard Blog has an article Is price everything for ETFs? that reminds us that while low costs may be the most important factor in ETF selection, it is not the only factor. When there are multiple ETFs covering similar asset classes, the DIY investor should dig a bit deeper to get the complete picture.

For example, here is a comparison chart of the Vanguard Emerging Markets ETF (VWO), iShares Core MSCI Emerging Markets ETF (IEMG), and the Schwab Emerging Markets Equity ETF (SCHE). If you compare only with expense ratio, they are all pretty much the same with Schwab being the cheapest by a thin margin.

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What’s actually inside? Underneath the ETF wrapper, you’ll see that VWO holds a larger number of companies and the average market cap is smaller at $15 billion. This means that Vanguard’s ETF holds many more of the smaller companies, if that additional diversification interests you. iShares still holds South Korean stocks, whereas Vanguard and Schwab has South Korea as a developed market.

Trade commissions. Transaction costs affect your personal return. You can trade Vanguard ETFs for free with an account direct at Vanguard.com. You can trade Schwab ETFs for free with an account direct at Schwab.com. iShares doesn’t have their own self-directed brokerage arm, but you can trade many iShares ETFs for free at Fidelity.com. You could also go through a broker that offers free trades on everything like Robinhood (no minimum) or Merrill Edge ($50,000+ in assets).

Average bid/ask spread. In addition to commissions, there is also a buy/sell gap where you can lose money. This is less important for gradual buy-and-hold investors, but you still want this gap to be as small as possible. The article doesn’t share this information, but you can look it up at sites like ETF.com, where the respective 45-day historical bid/ask spreads were VWO (0.02%), IEMG (0.02%), and SCHE (0.04%). Schwab has the lowest assets under management and lowest daily volume, making their bid/ask spread wider by a thin margin.