Net Unrealized Appreciation – NUA – 2018 occurs when an individual has invested in company stock within a retirement plan, such as a 401(k). NUA also refers to as a lump-sum distribution involving company stock. The NUA rules are different for 2018 because the tax rates changed.
Why is it Important?
An eligible taxpayer can save a significant amount of taxes by distributing appreciated stock to a taxable account.
Who is Eligible?
A person who separates from service by way of disability, or retirement if older than 59.5.
Please explain further in depth.
Under the typical NUA scenario, a person retiring from their company will have a 401(k) that holds their company’s stock. For example, you worked at FPL or HEICO Corporation for many year. During that time, you or the company acquired company stock in the retirement plan and its appreciated quite a bit. You will have to consider doing an NUA transaction within 1 tax year following the year you retire. For example, if you retire on November 30, 2018, you have until the close of 2019 to do an NUA.
You have three options.
(1) You can do nothing and keep your money at the 401(k) as long as they will do business with you.
(2) Take a lump-sum distribution from the 401(k) and roll the entire balance into a Rollover IRA, not taking advantage of the NUA.
(3) Make a lump-sum distribution from your 401(k). Distribute the shares of the company stock into a taxable brokerage account, and roll over the rest into a Rollover IRA.
If you take advantage of the NUA, you will immediately owe ordinary income tax on the original cost basis of the shares. The cost basis is what you paid for it, presumably long ago. Tax is due on the appreciated aspect of the stock when you sell it. The NUA constitutes the difference between the cost basis and the fair market value. the FMV is the exchange traded price, in many cases. If you later sell the company stock, any gain will be taxed as a long term capital gain.
NUA TIP: If there is any after-tax money accumulated in the 401k, then a portion of these monies could be used to reduce the amount of the cost basis, which will lower the tax bill.
What happens to the stock after the NUA Transfer is complete?
The stock carries its cost basis from the 401k. However, when the taxpayer sells, he or she realizes a gain on the appreciation of the stock above the cost basis. Upon sale or liquidation of the stock, long-term capital gains apply to the sale proceeds at long-term capital gains rates.
NUANCE: The gain on the stock on the date of transfer is treated as long-term capital gain. The law deems it long-term. However, any subsequent appreciation of the stock above its fair market value on the date of transfer is treated as a short-term capital gain until 1 year passes from the date of the lump-sum distribution.
EXAMPLE: Assume a taxpayer distributes NUA stock on April 17, 2019. The stock had a cost basis of $10 and a fair market value of $22. Assume a tax rate of 37%. In 2019, the taxpayer owes ordinary income tax on the stock basis. The tax due is $3.70. The difference between the cost basis and the FMV is $12. This is the NUA. Assume the stock later appreciated to $23. Assume the Taxpayer sold it on April 23, 2019. In such a case, the taxpayer would also owe long-term capital gains taxes on the $12 appreciation, and short-term capital gains taxes on the difference between the $22 FMV on the date of distribution and the $23 sale price. The gain is not subject to the Additional Medicare tax. The custodians report the NUA on Form 1099-R and the subsequent sale on Form 1099-B.
When is an NUA ideal?
The NUA becomes attractive when you hold highly appreciated company stock in your 401k.
There are many IRS rules that govern a former 401k participants eligibility to use of the NUA transfer. It is important to consider these rules before making the decision to take advantage of the NUA transfer election.
#Euro Zone # Switzerland # Geneva # Rome # Economic Crisis # Paris # London # Swiss Franc
By Alexander Tecle Geneva, Switzerland
A Tale of Two Euros!!
While visiting Europe this week! I’ve met with numerous client’s expressing the same concerns. Why has the EU monetary unit weakened against the USD? Why are the Eurozone equity markets drastically underperforming the US Equity Markets? Why are Euro Zone interest rates so low and the U.S. much higher? It seems like their family businesses are doing better, but why isn’t it reflected in the growth of their personal net worth? My explanation is to them is a that Eurozone business confidence has slowed since the onset of the Trade War between U.S. and the rest of the world. Paradoxically, the same headlines of the Trade War has caused widespread jubilation and growth momentum within the U.S. markets. In fact, the spread between the growth rates in the U.S. and the Eurozone are the largest since 2014. Add to this fact that Europe has seen unprecedented risks to the stability of their banking system due in part by the collapse of the Turkish Lira and to the added strain on Turkish companies to pay back Euro denominated Turkish debt. The contagion was most recently a concern to the stability of Italian banks since many of them were thought to have held Turkish debt on their balance sheets. This created a huge spike in the yields of Italian debt to 3.01%, which also means that prices of Italian debt have fallen. To put things into perspective, the only country with a higher debt yield is Greece, which has since recovered from one of the worst and longest recession to hit a Eurozone country in history and is yielding 4.49% on their 10-yr bond. Conversely, the German 10-yr bond is yields are slightly positive yields around 35bps or .35% and the Swiss 10-yr bond is yielding -14 bps or -.14 %. Many of my clients hold some of their liquid assets in both UK. And Swiss depository institutions, which invest into their respective governments debt. On the flipside of the coin, Italy’s unemployment rate rose to 10.9% from 10.7% in June. Among people aged less than 25 years, the jobless rate rose to 32.6% from 32.2%. I was in Rome and saw it myself. High rates of youth unemployment have fueled a rise in support for the antiestablishment parties that comprise the new government. The eurozone economy entered 2018 on a high, having racked up its most rapid expansion in a decade during 2017. However, growth slowed sharply in the first three months of this year. The key risks to the economic stability of the Eurozone are a continued divergence between of economic growth of Eurozone countries and the United States, continued unravelling of Brexit, Labor Relation issues in France and Germany, and the NeverEnding Story of the Italian Debt Crisis! My last answer and recommendation to my clients was to divest and diversify more of their family’s wealth into a broadly diversified basket of U.S. equities and Bonds and away from their perils of the Eurozone economic outcome. Don’t keep all of your eggs in one continent!
After 10 Years of living a sedentary life style as a financial advisor in corporate firm, I decided to make a change. During this time, I tried to work out, but no matter how hard I worked out, I never saw permanent results that lasted. I tried numerous diets, but nothing that stuck and that I enjoyed. I decided to everything in my life that contributed to this unhealthy lifestyle had to change. I quit my job, became an independent financial advisor, and committed to a rigorous work out regimen. However, these changes didn’t come full circle until I decided to commit to the ketogenic diet. The Ketogenic Diet was designed specifically for me to reduce the amount of my caloric intake, cut out all carbs from my diet, and only eat meals of fats and proteins, which would trick my body into burning fat. The diet combined with a cardio-boxing workout routine was my plan to lose 25 pounds of fat and increase my muscle definition. My goal was to reduce my body fat percentage from 23% to 13%. I retained the advice and services of a nutritionist, my primary care doctor, and personal trainer. I had Dexascan and various blood tests performed to measure my exact body fat percentage and saw a nutritionist to build my ketogenic diet plan. I even bought a specialized meal plan and made sure that I didn’t deviate from my diet and workout plan. While I was in the middle of my plan, I realized that the principles and discipline were the same those that I advocated to my clients to adhere to while investing their life savings.
As I did in the beginning, I accessed where I was with my body fat percentage and took precise and scientific measurements of the current state of my health. With my clients, before I make an investment recommendation, I always organize a financial plan, which accesses their current finances and future goals. Once I had a good understanding of my health and fitness welfare, I created a set of goals and gave myself deadlines and actionable steps to follow to reduce my body percentage and increase my muscle tone and definition. In the same light, once I have a clear understanding of my client’s financial goal and resources, I create a timeframe and a recommendation of the allocation of resources needed to accomplish these goals. (retirement, education, vacation, or legacy goals) I make an assessment of their current investments and isolate key factors of risk that might prevent the client from accomplishing their goals within the selected timeframe. After the assessment is made, I make a recommendation of changes needed to be made to my client’s investment accounts and I create an investment plan, that through stress testing, ensures that my clients will meet their goals successfully. After addressing any issues that my clients my have with the proposed plan and changes to their investments and savings habits, I implement the planned changes. Through various applications and monitoring devices my team of health and fitness professionals continued to monitor my progress and checked in for adjustments to ensure optimal results. Similarly, I create a plan to monitor and rebalance the portfolio within regular intervals to ensure that my clients financial plan is on track to reaching their goals. This process is akin to visiting my nutritionist, primary care doctors, and revisiting my workout plan with my trainer regularly. Before long, my body fat percentage was around 13% and my need for such a drastic change in my diet was no longer the priority and my diet was shifted to regular carbohydrate and protein rations to account for fuel my muscle growth and gain. My entire team of health and wellness professional worked in unison to make the necessary changes to account for the change in my goals and to make sure my fitness and well being were being coordinated with care and precision.
Lesson’s to Be Learned!
1. Everybody should have a team of professionals helping to assess their current circumstance and to help them create a plan to accomplish their goals.
2. Everybody must have actionable steps necessary to accomplish their goals and to benchmark their progress while completing these steps with their team of professionals.
3. Once the goal is accomplished, everybody should maintain the relationship with their team to shift from meeting the goal to maintaining and controlling the circumstance to avoid from digressing away from the results attained by accomplishing the goal.
August 27, 2018 — Brickell, Miami, Florida
What is the difference between a broker and an investment advisor? Compensation. Brokers are compensated as a commission on sale. Advisors are compensated for assets under management. The advisor is compensated to retain and grow assets, not lose them. Brokers are compensated to sell.
What’s an independent advisor? An independent advisor never receives a commission for placing a trade. They’re simply not licensed for that. They act as a fiduciary. While it’s legal to be a broker and an investment advisor, the incentive to make a commission (broker) may be stronger than the incentive to act solely as a fiduciary.
Independent also means that the advisor may recommend securities that are not sponsored by the custodian because they are not in the client’s best interest.
You have the right to inquire whether your financial representative is an advisor or broker, or both. Consider all investment decisions wisely.
Today were going to be speaking about restricted stock units – RSUs. Restricted stock units are restricted primarily because the employer wants to maintain the employees’ long-term incentive to stay employed. Restricted stock units are restricted from sale to encourage the employee to continue working at the company. When a restricted stock unit becomes unrestricted it is included to the employee is income. RSUs are taxed as ordinary income on your annual income tax return (IRS Form 1040) at the time the time restriction expires. And if you then sell the stock, any gain is either taxed as a short-term or long-term capital gain. If your company stock appreciates in value gains become taxable when you sell the stock. The way that you will know whether you have a short term or long term capital gain is based on the holding period from the date you take possession. Thank you very much and we hope you enjoy this video from anthem advisers. Watch our video on Restricted Stock Units.
Many market commentators have declared today, August 22, 2018, as the mark of the longest running Bull Market in History!
There is much debate about when exactly the market started its ascent after the Financial Crisis in 2008. Many have stated that tying the bull market run to the bottom of the market on March 9th, 2009 is incorrect and the proper way to measure the start of a bull market is to start from the date at which the market breaches its previous high level. The date of this occurrence would have been February 19th, 2013, which is the date that the S&P 500 surpassed its October 2007 high. Other market analyst argue that the definition of a bull market is arbitrarily decided by market technicians as a period of uninterrupted growth of 20% and are never interrupted by a 20% fall.
These ideas of bull and bear market reflect a consensus of confidence for either a stronger or weaker outlook in the market. There are many articles that dive into the minutiae of discounting intra-day volatility and adding credence to the implications of monetary policy intervention softening the true impact of global geopolitical shocks. I have read numerous articles that attempt to reduce much of the merit of the current “Bull Market Run” because the global economic recovery was spurred on by unprecedented help from the global central banks and we have yet to see a prolonged period of unaided global growth.
Whatever your position, there is very little dispute about the fact that global corporate revenue and profits continue to reach new record levels every day and that general global business sentiment has reached peak levels not seen since before the Financial Crisis of 2008. Nobody knows how much further we have till the bull market ends and we see prolonged value contraction in stock market. After any prolonged period of market growth, it is never a bad idea to start protecting your gains and to be cautiously optimistic about the future. If you would like any assessment on how to start protecting your portfolio, and if necessary how to handle the tax implications of such moves, we are ready and willing to assist all that are in need. Happy August 22nd, 2018 to Us All!!
August 22nd, 2018— Brickell, Miami, Florida
#FOMO #Cryptocurrency #diversify
By Alexander Tecle.
FOMO!!! The Other Side of Fear of Missing Out!
After a couple of calls with Crypto investors today, I have come to realize that the fear of missing out in investing is a two-way street. Many investors bought cryptocurrencies in 2017 during their meteoric rise and realized much of their losses while the asset class plummeted in a wave of unmatched historic volatility. Few of the late investors held on to their crypto holdings during the great crash starting in Dec 2017. The media dubbed the craze FOMO (Fear of Missing Out) of the insanely high returns realized by the early investors.
Within a few weeks of the market decline, the late investors were out and were traumatized. However, after speaking to some of the early investors in crypto, I realize that there is a different type of FOMO. After an 60-80% decline from the top of the market, some of the early investors are still holding their Cryptocurrency investments and still have gains from their original purchase price.
However, their FOMO is of a different kind! They are holding their investments in Cryptocurrency in the hopes of the world returning back to the craze of the crypto markets that they experienced in 2017. They are holding on to the hope that the cryptocurrency market will never revert below their initial purchase (which is extremely low) and that the demand for crypto currency investments will come back to its insanely high level (Pre-Crash), which will allow them to take the opportunity to cash out of the crypto market, an action that they didn’t take before the crash.
Many of these early investor haven’t even considered the fact that the crypto market could continue it’s decent to being worthless. Their FOMO is one of only considering the obscene profits that they failed to take and would hope that the of the world will buy back in one more time to allow them to take their forgotten profits. I was of one of the late investors and I can tell you with all certainty that you shouldn’t hold your breath for me to buy back into the crypto market. As far as everybody else!! FOMO!!!
In a world of low bond yields, we often hear from investors that they are using stock screeners to look for high-dividend paying stocks. While high quality bond yields are ranging from 2.46%-3.86%, investors are still seeking high dividend paying stocks yielding 5.00% and up. Above 5%, they encounter assets with high income yields such as Master Limited Partnerships MLP’s and Business Development Companies BDCs.
We have found that investors, hungry for higher yield, do not dissect the true nature of the distributions from these companies. Distributions from these types of high income payouts can consist of either dividend payouts of retained earnings or return of capital dividends. A dividend is a taxable distribution of a portion of a company’s earnings, decided by the board of directors, paid to its shareholders. A capital distribution is typically not taxable for shareholders, as it is viewed as a return of the capital that investors paid in.
Capital distributions are not a preferred form of dividend. They often indicate a company is struggling to generate earnings and free cash flow. Investors should be wary of abnormally high dividend yields and should dissect the true nature of the payout–dividend or capital distribution. If an investor is head strong about seeking higher yielding investments, without considering the nature of the payout, they could be investing into an unhealthy company. No good can come from investing in a business with a high distribution payout when the the company is headed to bankruptcy.
Invest. It’s important to invest in an informed manner. Ensure that you understand your holdings and that they are right for you.
August 20, 2018 — Coconut Grove, Florida
By Alexander Tecle; Topic: Business Cycles
Why is it important to understand the business cycle? Business cycles have been a key to our economy and can be traced back to the 1800’s. A cycle is wave- like rise and fall of economic activity. This touches every aspect of the economy to include employment, production, sales, profits, wages, and credit. Consumer durables and capital goods are cyclical in nature and fluctuate directly with the business cycle. It is usually irregular in intensity and longevity. It is fueled by forces with the economy and by external forces such as war, scientific discoveries, and political movements.
The four phases of the business cycle are: Expansion, Peak, Contraction/Recession, Trough
The characteristics of each phase of the business cycle are:
(1) Expansion (Moving toward Peak). In general, things are improving! Characterized by: Improving Gross Domestic Product, Rising Interest Rates, Rising Inflation, Unemployment, Decreasing Expansion of Credit Into the Economy.
(2) Peak (Moving toward Contraction). The height of the cycle has been reached. Characterized by: GDP at highest, Inflation and interest rates at highest, Unemployment at lowest.
(3) Contraction/ Recession (Moving toward Trough). Things are on their way back down. Characterized by: GDP slowing, Inflation and interest rates start to decline, Unemployment starts increasing.
(4) Trough: GDP at lowest level, Inflation and interest rates at lowest level, Unemployment at its highest
In Conclusion, it is imperative to understand where we are in the business cycle because certain types of assets perform differently in each part of the cycle. Therefore, there are different types of assets that you can hold that can perform and protect your assets in depending upon the part of the economic cycle we are in. You can create an investment strategy based upon the economic cycle. See an article by Fidelity. For more information on the economic cycle see this article by Morningstar.
Being a successful investor requires, time, experience, good research, and constant analysis of multiple markets. The problem most people have is a lack of time. You are working, spending time with your family, or just enjoying the time away from work that you do have. These factors are why so many people cannot maximize the potential of their investments. At the law office of Charles Zimmer, our investment management attorneys are constantly and consistently evaluating new investment opportunities such as cryptocurrencies, analyzing the stock and bond markets, and researching new companies to maximize our client’s investments.
Timing is Everything
In the U.S., millions of stocks are traded each day, and each day there are people who do well and people who lose money. The key to yielding profits consistently throughout the year is timing, because most investments hinge on the ability to know when to sell a security and when to buy a security. You need to analyze stocks, the company’s and traders that sell them, review the stock’s performance metrics, and analyze new regulations. Each of these factors affects your bottom line and the trading price of your stocks or bonds.
Diversifying your portfolio offers you protection from a certain amount of risk, but when your portfolio is managed daily, weekly, or monthly, you can take diversity to the next level. Frequently diversifying your daily trades and investments allows you to take advantage of daily changes in the market, selling when securities are priced high, and buying when stocks are undervalued.
Evaluate New Investments
In May of 2012, Facebook launched its initial public offering (IPO) at $38 a share. In the beginning, most people were sceptical that Facebook could go on to be a profitable company. As of May of 2018, shares of Facebook’s stock have been trading at up to $144 per share. Initially, no one could have anticipated that Facebook would transform into the corporate giant it has become today.
The story of Facebook’s success demonstrates an important investment lesson. Investors always need to analyze new investment opportunities. If you would have invested in 1,000 shares with FB in 2012, you would have tripled your money today. New companies enter the market every day. Each company should be evaluated based on a number of factors including the financial strength of the company including an analysis of its balance sheets, the business model of the company, and the potential the company has to make money in the future.
Don’t Confine Your Investments to the U.S. Markets
A lot of markets outside of the United States have potential, including the European and Asian markets. However, it is important to exercise caution and to research foreign companies thoroughly. Most people do not invest in these markets, because of the time difference in trading hours. For example, to actively trade in Japanese stock markets you have to be trading from 8 P.M. to 2 A.M. eastern time. However, an experienced investment manager knows that, regardless of the time of day, these markets have untapped potential and thus, should be incorporated into a client’s portfolio.
Our investment management attorneys are dedicated to ensuring that our clients succeed financially. Each day our investment team will evaluate new companies, actively manage your portfolio, and ensure that you are constantly yielding profits from diverse markets. So call our office today to speak with an investment attorney that works for you.
An Asset Protection Attorney Dedicated to Protecting You.
It is important to plan financially for both good times and bad times. Asset protection is a plan for the times in our life that we would prefer to forget, such as being sued by a creditor or individual. Certain assets are protected from creditors—your retirement savings or home, for example—but due to the laws in place that protect creditors and prohibit certain asset protection practices after a certain period of time, proper asset protection practices need to be carried out by an experienced asset protection attorney with an in-depth understanding of both tax law and civil law.
Certain assets are exempt from garnishment or forced sale by creditors. Exempt assets are defined differently in each state’s respective laws. One of the goals of asset protection is to transfer assets to the exempt category within the limits of the law. In Florida, some of the most common exempt assets are homes; cars; retirement plan, like IRAs or Roth IRAs; life insurance policies; and annuity contracts.
The importance of asset protection strategies is demonstrated by nonexempt assets. All property that does not fall under an exemption can be used by a creditor to satisfy a debt. This includes assets that are not in your possession or are located in another state.
Asset Protection Trusts
The laws of certain states provide some legal mechanisms to protect assets. One of these mechanisms is an asset protection trust (APT). Only certain states have statutes allowing asset protection trusts and each state defines the types of assets that can be placed in these trusts. However, asset protection trusts are an effective way to protect certain assets that might otherwise be nonexempt assets under Florida law.
When you are considering utilizing an asset protection trust, it is important that you work with an asset protection attorney that is knowledgeable about the different states that allow these trusts, the benefits and drawbacks of placing property into an APT, and what types of assets are eligible to be placed in a APT.
Start Protecting Your Assets as Soon as Possible.
An effective asset protection strategy is implemented well in advance of a claim on assets being filed. If you even suspect that a claim could arise, it is important that you begin the asset protection process as soon as possible.
Each state has laws that prohibit the transfer of nonexempt assets to purposely avoid claims by creditors or diminish claims brought by creditors. In Florida Statute 726.105(1)(a), one type of transfer that could be considered fraudulent is a transfer made “With actual intent to hinder, delay, or defraud any creditor of the debtor”. Creditors have several options they can explore as remedies against fraudulent transfers including seeking judicial relief that would prohibit the transfer to occur and obtaining a lien or judgement against the asset to satisfy the debt.
However, a lot of asset protection techniques hinge on the actual knowledge that you could have a potential debt. So implementing a strategy as soon as possible is an effective approach to protecting your assets.
Our attorneys have years of practice in the intricacies of asset protection techniques. If you suspect that you could be exposed to potential claims by creditors or lawsuits, call our office to receive a consultation that will protect you in the future.