Archive for Financial Planning

Expert Spotlight: Tony Sutphin on why you should complete the FAFSA even if you don’t think you qualify for college financial aid

Financial Planning, Yeske Buie Millennialon January 4th, 2013No Comments

Tony Sutphin is the CEO of not-for-profit and has worked in the financial aid community for many years. He is passionate about helping families understand that they do not make too much money to be eligible for financial aid. Find out why in the following Q&A.


“Do I make too much money to quality for financial aid funding for my college bound student?” The short answer is no. As a College Financial Aid counselor, I have met hundreds of parents who mistakenly believe that “they just make too much money to be eligible for financial aid.” This is a misunderstanding of the process and all families need to complete the Free Application for Federal Student Aid (FAFSA) to qualify for loans, grants and most scholarships- both merit and need based.

What is the FAFSA and how is it used? All financial aid reviews at colleges start with the Free Application for Federal Student Aid (FAFSA) This is a federally offered financial aid review that allows schools to determine not only financial need but also assess data elements for non-need scholarships and merit aid . This data is used to help determine state and county of birth, major academic choice selections and household sizes, just to name a few data elements reviewed. The FAFSA data is also used for review college federal loan eligibility, where the current interest is only 6.8% for students and 7.9% for parent loans offering many deferment options. The FAFSA is also reviewed for participation in the work study program.

I am concerned about confidentiality in regards to my family and FAFSA information. Is my personal information kept confidential? Yes. All information submitted to the Office of Financial Aid is protected under the Family Educational Rights and Privacy Act of 1974 (FERPA) and is kept in the highest confidence. All files are kept in a safe and secure area accessible only to employees of the Office. Information is released to third parties only upon receipt of a written release from the parent/student. All student and office employees sign confidentiality agreements to this effect and are trained to hold all data as private and confidential.

How does the FAFSA assist our family for scholarships? We have no eligibility for non-need based scholarships and are looking only for merit based scholarships? Many scholarship programs at colleges are awarded based upon donor set criteria and specific criteria are reviewed yearly with the FAFSA data and normally a school specific online scholarship application. It is important to note that the FAFSA and the scholarship application have to be renewed each academic year. Note that all schools have set on- time filing deadlines and meeting those deadlines is critical to getting the best loans, scholarships and other types of aid each year. College’s deadlines are posted each year on websites and in newsprint each academic year as established. To be eligible, your family needs to complete the FAFSA and any school scholarship application. Most merit and academic based awards are now also pulling data from the FASFA as well to help make their academic selections.

If I have completed the FAFSA, how does our college of choice use this data for awarding assistance to our family? The FAFSA allows a college bound student to list up to four colleges for consideration. The process of review is set into motion the moment that a student applies and gets offered admissions to a college. It is only at that time that a college can pull your financial aid data as reported and begin a review for aid to be offered to a family, both need and non-need, so a financial decision can be made for the family.  This process is online at . Colleges then share the FAFSA data each year with academic departments and the Donor Relations Office to help match students with specific scholarships.

Should our family invest in one of the paid scholarship search companies to get the best scholarships that we can? No. Be cautious of websites and internet programs that offer a “fee” to complete the FAFSA form. While such sites invariably make grand promises of grants and scholarships, many are scams and prey upon families who want only to make the process easier. Colleges offer counselors and assistance through the FAFSA process and it is better to establish your relationship with a contact at your desired schools or a nonprofit contact offering services for free.

What if the FAFSA does not give the college a true picture of our current financial status after filing? Completing the FAFSA each year also allows families who have experienced unusual circumstances that drastically change the family’s financial picture to share that with schools. Examples of such circumstances include: loss of a job, death of a parent, separation or divorce, unexpected medical hardships, and changes in family size to name a few reconsideration options. Drastic changes in a family as mentioned above can allow a family to appeal for special professional judgment from their college to ask that financial aid criterion be reviewed again based upon these documented changes to the individual college.

Parents want the best education for their students. While you take great care in planning your stocks and bonds and portfolios, you all need to take a new look at how you are planning for college financial aid. This starts with completing the FAFSA each year for college. This also means being engaged in the financial aid process with your college bound student. It is time to rethink the financial aid process for you and your family – you do not make too much money to be considered.

Tony has served on numerous lender and student advisory committees and works with families on a “pro bono” basis to assist them as they work toward financial aid for their college bound student. He is passionate about financial aid and helping make this opportunity affordable to anyone that dreams of a higher education. He can be contacted at


What Happened To The Fiscal Cliff?

Financial Planningon January 4th, 2013No Comments

There has been no negotiation reached on how to deal with the nation’s borrowing limit and the deadline for mandatory spending cuts has been extended for two months. However, a significant amount of what relates to individual taxpayers has been addressed in the American Taxpayer Relief Act of 2012 that President Obama signed into law on January 2, 2013. So what does the new law mean for taxpayers? Laura Saunders from the Wall Street Journal gives a great summary to answer this on the WSJ’s blog.

For an even quicker review, here is our brief breakdown:

Top Eight Things to Know about the American Taxpayer Relief Act of 2012

  1. Marginal Tax Brackets – The top tax rate for individuals has risen to 39.6% from 35% on taxable income of $400,000 (single), $450,000 (married filing jointly).
  2. Long-Term Capital Gain and Qualified Dividend Rate – Dividends and capital gains will continue to be taxed at the same rate under the new law.  Taxpayers subject to the 39.6% tax bracket, however, will pay 20% on all net long-term gains and qualified dividends, up from 15% in 2012.
  3. AMT – The Alternative Minimum Tax (AMT) exemption amount has been established at $50,600 (single), $78,750 (married filing jointly) for 2012 and will be permanently indexed for inflation in subsequent years as will the phase outs. The act also allows nonrefundable personal credits to count against the AMT.
  4. 2012 Payroll Tax Cut – The temporary two-percentage-point cut in the employee’s portion of Social Security has expired. The rate is back to 6.2% of wages up to $113,700.
  5. Personal Exemptions – The Personal Exemption Phaseout has been reinstated for filers with an adjusted gross income of $250,000 (single), $300,000 (married filing jointly).
  6. Itemized Deductions – The “Pease” provision has been permanently reinstated, which is a complex limitation on all itemized deductions for taxpayers above the thresholds.
  7. Estate and Gift Taxes – The exemption amount will stay at the current rate of $5.12 million per individual for 2012 and will continue to be indexed for inflation each year, but the top tax rate on amounts above the exemption will rise to 40% for 2013. The estate and gift tax will stay “unified” so the entire exemption can be used at any time. Also, the “portability” rules are permanent, meaning spouses can transfer any unused portion of their exemption to the surviving spouse.
  8. Conversion to Roth 401(k)s – Before the act, existing funds in 401(k), 403(b), or 457(b) governmental plans could only be converted to Roth 401(k)s if the participant separated from service, retired, or reached age 59 ½. Now, plan participants can convert at any time.



Tax Planning for the Fiscal Cliff: The Strategic Perspective

Financial Planningon December 27th, 20121 Comment

We recently posted an analysis of the tradeoffs involved with realizing embedded capital gains in 2012 before presumed higher rates kick in starting January 1 (Cliffhanger: The Fiscal Cliff and Year-End Planning), in which we focused largely on the tradeoff between keeping more capital invested and eventually having gains taxed at a higher rate.  We want to now return to the topic with more emphasis on the strategic dimension. As always, the numbers can only take you so far when making decisions in the face of uncertainty so we’ve summarized some of the “key drivers” below:

  1. A low-turnover portfolio is going to release gains very slowly over very many years. Depending on the tax rate you assume, the break-even point is anywhere from 3 to 9 years and THAT assumes that you completely liquidate the portfolio at the end.
  2. It goes without saying that beneficial lot accounting (which we use) slows that gain release even more than would be the case with average cost accounting.
  3. The proposed higher rates for cap gains, as well as the new Medicare tax, apply only to gains above some threshold.  We don’t yet know what the threshold will be for cap gains, though it looks like it might end up as high as $500,000, the number Warren Buffet suggested in his recent NY Times piece – as you may recall, President Obama offered to move the threshold up to $400,000 before talks with Speaker Boehner broke down. Even wealthier individuals often have Adjusted Gross Income (AGI) below $250,000 and certainly below $500,000, especially retired ones (less likely, perhaps, with those who derive most of their spending from IRAs, but capital gains rates are a moot point for them anyway).
  4. Given a worst case scenario of complete expiration of the Bush tax cuts for everyone, followed by gridlock in Washington, realizing all gains today would mean that you’re grabbing a 15% rate on current embedded gains but giving up the chance to have gains over the next 5 years taxed at 18% versus 20% (assuming you only ever liquidate share lots with 5-year gains).
  5. At the most fundamental level, we don’t believe that our current political environment supports making all-or-nothing kinds of decisions.  From a purely strategic standpoint, you have to properly weigh the uncertainties.  Whatever happens in the next five days or the weeks following, there’s a good chance that we’ll have comprehensive tax reform in 2013/2014 and who knows what rates will look like or how smart a sell-it-all-now strategy will look in hindsight.
  6. In conclusion, we believe that if any positive case can be made for holding off, the enormous uncertainty surrounding the emerging tax landscape favors a wait-and-see strategy.

Of course, there are several scenarios in which selling now is unambiguously indicated.  In any situation where assets are going to be sold within the next year or two, they should be sold now. There are no probable scenarios that have rates falling in the future and a number of them where rates may rise even for those with more modest incomes.  However, for timing horizons beyond the next few years, we believe the uncertainties favor a more cautious approach to realizing gains.

The Yeske Buie Team

Slippery slope: budget negotiations, the markets, and you

Economy and Investing, Financial Planningon December 21st, 2012No Comments

We’re sure that you’re sick and tired of hearing about the fiscal cliff at this point, and we don’t blame you.  The looming tax increases and spending cuts have spawned no end of “cliffhangers” and “Cliff Notes” describing the impending doomsday if Congress and the White House can’t agree to an alternative.  We think the more accurate description in all of this has been the recharacterization of the fiscal cliff as a fiscal slope.  The impact of the tax increases and spending cuts will emerge gradually and won’t have much tangible effect in the beginning. The reality is that our politicians actually have more time to deal with this than the New Year’s Eve deadline would suggest. If a compromise solution is crafted in January or February, the impact on the “real economy” will be minimal.  Having said that, however, we must concede that the stock market may well have a more dramatic reaction. Unlike the the real economy, the market doesn’t live day-by-day in the present but discounts the future and is extremely sensitive to this wispy thing called “sentiment”. So the markets may well swoon (since we’re talking about “cliffhangers”, let’s have a Perils of Pauline image to go with it!) if Washington takes us over the Cliff in the coming weeks.  This too shall pass, so don’t allow it to spoil the good cheer that should fill the holiday season and new year celebrations.

As always, our best advice is to . . .

Keep Calm and Carry On

Dave Yeske

Money Savvy Pig featured in The Wall Street Journal

Articles of Interest, Financial Planningon December 14th, 2012No Comments

The Money Savvy Pig was cited as one of five gifts to encourage good financial education/management in an article in the WSJ’s Personal Finance section entitled, “Gifts for the Financially Inclined”. In the article, journalist Simon Constable talks about the story behind the Money Savvy Pig…

When Susan Beacham taught her first-grade daughter about money, she aimed to get beyond the simple arithmetic needed when spending cash at the store. Instead, she wanted to impart the idea that money needed to be allocated for various purposes. So she made a piggy bank out of four clear plastic cups.

“Children need to know what they are saving for,” she says. “They need to be reminded that in addition to investing and saving there is donating.”

The home-made bank eventually morphed into the Money Savvy Pig—a transparent plastic piggy bank with four slots, one each for spending (for immediate needs), saving (for a car maybe), investing (for college) and donating (because it’s the right thing to do).

At Yeske Buie, we like to think of ourselves as “financial planning evangelists” and this starts as early as possible. To encourage financial education right from the beginning, we recently started mailing the Money Savvy Pigs to clients with kids and/or grandkids under age 10. In addition, we mail a Cash Cache to kids over age 10. The Cash Cache is a personal finance binder that includes a mini Live Big® map (with quick tips to Save First, Spend Wisely, and Be Smart), an introduction to financial management pamphlet, pouches to Save/Invest/Spend/Donate, and sheets to track financial goals. Once they finish college, we send the “The Wall Street Journal’s Guide to Starting Your Financial Life” – a comprehensive guide to managing your money as you make the transition to being on your own.

The Money Savvy Pigs were also featured on the WSJ Lunch Break TV show .

TheLiveBigWay Digest – Cliffhanger: The Fiscal Cliff and Year-End Planning

Economy and Investing, Financial Planning, TheLiveBigWay® Digeston November 30th, 2012No Comments

We’ve all heard more than enough about the Fiscal Cliff that looms at year’s end and the ongoing negotiations between the White House and Congress aimed at avoiding it. As you might imagine, we’ve expended a great deal of time and energy analyzing the various scenarios in this cliffhanger with an eye toward identifying whether any year-end moves are called for on your part.  Herein we offer our take on the situation.

To Sell or Not to Sell?
Focusing first on the possibility of higher tax rates, the biggest question we’ve wrestled with is this: if capital gains rates are going to rise to 20% or more on January 1, should we sell all of your investments that have embedded gains now in order to take advantage of the current 15% rate?  A related consideration is the arrival of the 3.8% Medicare Tax on investment income in 2013. So, does it make sense to sell now and grab that low, 15% rate?

We think not. Here’s why:

Under normal circumstances, embedded gains are “realized” rather slowly in our average portfolio, generally over many years.  If we were to realize all embedded gains at once, the portfolio going forward would be smaller by an amount equal to 15% of those realized gains. If we’re in a rising market (which we are more often than not), that’s capital that is not earning a gain. There is some break-even point beyond which it is better to have deferred paying the capital gains tax, even if you end up paying it at a higher rate.

And I’m sure you won’t be surprised to hear that we’ve run the numbers.

And what a lot of numbers there were! For starters, the underlying capital gains rate will go to 20% for everyone if the current law is allowed to expire. If the President has his way, this will only apply to those taxpayers earning more than $250,000*. Under all circumstances, those earning more than $250,000 will be subject to the new 3.8% Medicare Tax on investment income, but only for that portion of their income over $250,000.  Likewise under the President’s proposal for regular capital gains, you only pay the higher rate on the lesser of your actual capital gains or the amount by which your income exceeds $250,000. To complicate things even more, allowing the current law to expire without replacing it puts us back under the 1997 law, which contained a special capital gains rate of 18% for assets acquired after 2001 and held for at least five years.

In the end, we had to consider the possibility of 15%, 18%, 18.8%, 20%, and 23.8% rates, and that assumes negotiators don’t conjur yet further possibilities! If you further assume a 7% rate of return and the complete liquidation of your portfolio on some future date (this latter assumption is extreme, of course), the number of years it takes in order to be better off for having NOT realized all of your gains this year are as follows:

Cap Gain Rate Breakeven Year
18.0% 3
18.8% 4
20.0% 5
23.8% 9

Again, these calculations assume the complete liquidation of your portfolio in the specified year, which is extremely unlikely.  The bottom line is that it does not appear to make sense to sell your positions and realize gains this year unless you know that you will otherwise have to sell everything next year or soon thereafter. We believe that scenario would be the sole instance where selling now makes sense.

We hope this little journey along the edge of the Cliff was enlightening.  We’ll have more to say in the coming weeks about other implications of the year-end precipice.

The Yeske Buie Team

*we’ve made some simplifying assumptions here; for a more detailed summary, we recommend the Tax Foundation’s analysis (
Dave Yeske

TheLiveBigWay Digest – Simpson Bowles edition

Economy and Investing, Financial Planning, TheLiveBigWay® Digeston November 16th, 2012No Comments

We’ve all heard about the Simpson Bowles Commission (technically, the National Commission on Fiscal Responsibility and Reform), which was created by President Obama in early 2010 and delivered its final report on December 1 of that same year. Neither Congress nor the White House embraced the findings of the commission, but that hasn’t kept Alan Simpson, former Republican senator, and Erskine Bowles, chief of staff under Bill Clinton, from hitting the lecture circuit with a message of reality, rationality, and reform. Elissa had the chance to hear them live earlier today while attending (and speaking at) the Schwab IMPACT conference in Chicago. She was duly impressed by the clarity of their non-partisan prescription for dealing with some of the fiscal imbalances in the US economy.

Asked by an audience member what it will take to overcome the stalemate in Washington, Simpson replied simply, “Pressure.” Simpson and Bowles expressed the hope that the financial advisors in the audience would, among other things, encourage their clients to bring pressure to bear on both sides of the partisan divide to compromise and adopt a sustainable solution for the sake of the country. This message is our attempt to do just that. The first thing you can do is visit their website ( and sign a petition urging Congress to make the hard decisions that the situation demands.

As reported in Advisor One by Jamie Green, there are five major areas that must be addressed:

Bowles listed the five biggest budget problems, many of them “third rails,” as Simpson acknowledged that the U.S. faced and must take action on:

1) Healthcare spending: “We spend more than any other country but we don’t get the outcomes” we should on that investment in terms of actual health.

2) Defense: “We spend more today than the next 17 top countries combined.” Perhaps the biggest round of applause came when Bowles proclaimed: “America can’t afford to be the world’s cop.”

3) Taxes: Bowles got another round of applause when he listed the third big problem the country faces budget-wise, “the most inefficient, globally anticompetitive tax code that can be imagined.” The Bowles-Simpson proposal: “Let’s get rid of all this backdoor tax spending,” much of it in the form of deductions, that he said costs the Treasury $1.1 trillion. In exchange he called for reducing individual income tax rates and the corporate tax rate.

4) Social Security: Bowles said jokingly that “President Roosevelt was too smart” in setting up a Social Security system that started paying benefits at age 65 when average life expectancy was 62. “Let’s make Social Security sustainably solvent so it will actually be there when we need it.”

5) Compound interest: By this Bowles means the compounding of our debt that will be an albatross for the country. Referring to his decision to partner with Simpson in his fiscal crusade, Bowles said, “I began this thinking I was doing it for my grandchildren, and then for my children, but we’ve got to do it for ourselves, here, today.”

While we would take issue with Bowles’ point about Social Security (the life expectancy AT BIRTH was 62 when Social Security was created, it was longer for those who lived long enough to qualify for benefits), his underlying point is valid: people are living longer than the system was built to accommodate. Advisor One’s Green, meanwhile, ends his report with Messieurs Simpson and Bowles in deadly earnest about the need to get past the talking points and the politics of the matter:

“We do math, not myth,” Simpson said, and warned that the country’s disability insurance fund will be used up in four years. He saved his deepest criticism, and got the loudest applause, when he suggested that raising some taxes would be necessary to fix the nation’s budget problems. Referring to Grover Norquist, the conservative Republican guru who has successfully received pledges from lawmakers and candidates not to raise taxes under any circumstances, Simpson turned deadly serious. What we need in this country, he said, is “patriots, not panderers.”

He finished by voicing his disgust over the fact that “compromise has become a dirty word.” Citing the Declaration of Independence, the Constitution and the Missouri Compromise, Simpson said that “this country has always been run by compromise.”

We hope that anyone who isn’t familiar with the details of the Simpson Bowles plan will take this opportunity to learn more and make your voice heard.

Dave Yeske

Financial Planning Wonk – Internal Rate of Return (IRR) v Time-Weighted Return (TWR)

Economy and Investing, Financial Planningon October 31st, 2012No Comments

Your Client Private Page® currently has two types of returns displayed at the bottom of the Comparative Performance Review report. Here is how to differentiate between the two:

Internal Rate of Return (IRR) Time-Weighted Return (TWR)
This rate of return is also known as the “Dollar-Weighted” rate and it measures the performance of your portfolio based on how much is invested at any one time. For example, if you had a modest sum invested during the first month and then made a deposit that doubled the size of your account at the beginning of the second month, the second month’s return would carry twice as much weight as the first month’s in the calculation of your overall return. The IRR is more reflective of the actual dollar gains earned in your account. The Time-Weighted Return is calculated as if there was a constant one-dollar investment in your account. In doing so, it ignores the effects of deposits and withdrawals that you may make. Unlike the IRR example to the left, the TWR would ignore the deposit made at the beginning of month two and give equal weight to the returns earned in each of the two months.
The Internal Rate of Return tells you how well you are personally doing. The Time-Weighted Rate of Return tells you how well the overall investment strategy is doing.

Emergency Preparedness 101: Zombie Apocalypse

Financial Planningon October 31st, 2012No Comments

“There are all kinds of emergencies out there that we can prepare for. Take a zombie apocalypse for example. That’s right, I said z-o-m-b-i-e a-p-o-c-a-l-y-p-s-e. You may laugh now, but when it happens you’ll be happy you read this, and hey, maybe you’ll even learn a thing or two about how to prepare for a real emergency.” -Quote from the CDC’s blog

The Centers for Disease Control and Prevention (CDC) has creatively used the pop culture phenomenon of a “Zombie Apocalypse” to highlight the importance of preparing for a variety of emergencies/natural disasters. After all, if you’re prepared for a zombie invasion, you’re prepared for just about anything! We had decided to share this with you several weeks ago, tying the CDC’s Zombie Apocalypse theme to arrival of Halloween, and only wish we’d rolled it out a week earlier in light of the devastation wrought by Hurricane Sandy. For those of you who have been affected by Sandy, you should note that many organizations are making special accommodations to help you.  Most banks and credit card companies are increasing credit limits, extending payments on loans, and refunding overdraft and other fees incurred during the storm.  The State of Virginia, meanwhile, is extending deadlines for expiring licenses, permits and other official documents, and has extended absentee voting hours to 8:00 PM on Thursday and Friday.

For those of us fortunate enough to be out of Sandy’s path, here are some tips for what to do to prepare for a zombie attack or a similar emergency:

1. Put together an emergency kit
Zombies notoriously congregate around sources of sustenance and the places humans go to for supplies.  You will need to stock up on these essentials to last you through the first several days until relief arrives and/or you are able to get to a safe location or evacuation center. Some of the items that should go in your kit include:
• Water (1 gallon per person per day)
• Food (build a supply of non-perishable items)
• Medications (stock up on over-the-counter items and/or get your prescription filled in advance)
• Tools and Supplies (matches, duct tape, batteries, utility knife, flashlight, etc.)
• Sanitation and Hygiene (soap, towels, small wash bowl)• Clothing and Bedding (change of clothes, blankets, sleeping bags)
• Important Documents (a copy of your driver’s license, passport, birth certificate)
• First Aid Supplies (band aids, medical tape, gauze, etc.)

2. Come up with an emergency plan
Zombies come in droves so it is essential to have a set plan BEFORE their arrival.  In the same way, once disaster strikes you should already have a plan in place for what you and your family will do.
• Identify the types of emergencies that could impact your area
• Pick a meeting place for your family to regroup right outside your home and one place outside your neighborhood in case you are not able to return home right away
• Identify your emergency contacts (local organizations, out-of-state contact who can let the rest of your family know you are okay)
• Plan your evacuation route (determine your safe location and plan out multiple routes to get there)

3. Contact the following organizations for more information.
For those of you already in the midst of Sandy’s path, below are resources for what to do and who can help:
Your local American Red Cross chapter
Your state and local health departments
CDC Website

Cliffs Notes version of Obamacare

Articles of Interest, Financial Planningon August 31st, 2012No Comments

Since we’re spending so much time talking about “cliffs”, we thought we’d introduce you to our friend Carolyn McClanahan, MD/CFP, physician and financial planner. Carolyn, who writes for Forbes, has made herself an expert on all aspects of the Affordable Care Act and shares her “Cliffs Notes” version in this video.  Well worth 14 minutes of your time!


Affordable Health Care Act – Carolyn McClanahan’s Cliffs Notes Version from Carolyn McClanahan on Vimeo.


“Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? Your playing small does not serve the world. There is nothing enlightened about shrinking so that others won't feel insecure around you. We are all meant to shine. And as we let our own light shine, we unconsciously give others permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.” ~Marianne Williamson