How Americans are Saving for Retirement

Recent estimates indicate that the Social Security Trust Fund will run out of its surplus in 2034. Once this occurs, program payouts are expected to be worth only about 77 percent of current benefits. Unfortunately, one-third of retirees rely on social security payments for at least 90 percent of their retirement income. With social security payouts likely headed for significant reduction, contributing to self-directed retirement accounts is more crucial than ever. Just how are Americans doing when it comes to saving for their future?

How America Saves
According to a TransAmerica Center survey, the typical American expects to retire at 67 but actually ends up retiring five years earlier than anticipated.
A shortened career means less time for earning and saving, as well as more time spent withdrawing from accounts. This further emphasizes how saving for retirement is even more crucial than some Americans might assume.

 

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

12 Common Tax Errors to Avoid

Filing taxes can be a tedious process. If you plan to do it yourself, either online or with an old-fashioned pen and paper, it can be all too easy to make mistakes. If you aren’t familiar enough with the tax code to take advantages of available tax breaks, you could lose money. Clerical errors and math mistakes can lead to tax audits, late fees and even jail time for tax fraud. Avoid the following common mistakes to ensure that you get through tax season unscathed. 

1.    Choosing the wrong filing status: Choosing the correct filing status is important because tax brackets, deductions and credits vary for each status. You may fare better filing separately even if you’re married, so make sure to calculate both scenarios before choosing a status. You should also consider filing as Head of Household if you’re single and have a dependent living with you. Your filing status is based on your status as of Dec. 31 of the filing year. 

2.    Not claiming all available deductions and credits: You could end up with a smaller refund or a larger tax liability than necessary if you fail to take advantage of the tax breaks available to you. Do your research and consider getting help from a tax preparer or software to make sure you’re not missing anything in your return.

3.    Not claiming all dependents: You probably won’t forget to claim your children as dependents, but did you know you could claim your parents, too? Anyone you support financially (adult children, elderly parents or other relatives) more than they support themselves, may be claimed as a dependent as long as they meet the requirements. Even if your parents don’t live with you, you may be able to claim them.

4.    Forgetting to claim carryover items: Some tax credits must be taken over the course of several years if they exceed certain thresholds. Common examples include charitable donations, capital losses and business write-offs. If you weren’t able to claim the entire credit in years past, make sure you’re claiming it this year.

5.    Neglecting to calculate the AMT: The Alternative Minimum Tax is a parallel tax code with its own set of rules. Taxpayers are expected to calculate their tax burden two ways, once under the regular tax code and once under the AMT’s rules. Whichever outcome is higher is the tax they owe. Many taxpayers don’t calculate their taxes under the AMT because they assume they aren’t eligible, but the number of people required to file under the AMT is increasing. If you pick the wrong tax code, the IRS could come looking for the remaining balance.

6.    Claiming the wrong credits and deductions: Make sure you actually qualify for the credits and deductions you claim. If the IRS catches on, you could face a tax audit, recalculation of your tax burden, or in extreme cases—jail time for tax evasion.

7.    Not including all sources of income: If you worked at more than one job during the year, you should have a Form W-2 for each job. You should also include applicable Form 1099 for other income sources. Missing forms or leaving out income can lead to tax audits or a delayed refund. If you inadvertently leave something out of your return, you can file a Form 1040X Amended Return.

8.    Math errors: It’s easy to make math mistakes when you’re doing your taxes by hand and flipping back and forth between forms. Double-check your math before filing, because a mistake could lose you money or get you in trouble with the IRS.

9.    Direct deposit mistakes: You can now elect to receive your tax refunds via direct deposit to your checking or saving accounts. This election can help you save money and speed the process along, but it’s also another opportunity for error. If you input the wrong routing number, your return could go to someone else or be sent back to the IRS.

10.    Forgetting to include your social security number: You must include your correct social security number in order to file a return. Failing to do so can hold up your return and subject you to late filing fees. You must also include your spouse’s social security number if you file jointly, as well as the numbers of any dependents you claim.

11.    Forgetting to sign and date your return: Your return is not valid if you don’t sign and date it. Failing to do so could also subject you to late fees and delayed refunds. To remedy this, the IRS will send out a signature card for you to sign. Speed up the process by double-checking that your signatures are present.

12.    Not including your payment: If you owe the IRS money, make sure to include what you owe when you file. If you forget, you may end up owing interest and late fees even though you had the return filed on time.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Year-End Financial Checklist

YEAR END FINANCIAL CHECKLIST

As we near the end of the year, it’s time to look back at what’s happened and how it will affect your financial future. Check off these important items so that you can start the new year’s finances with peace of mind.

INCOME TAX
Review your tax withholdings.
Have you had a major life change (employment change, marriage/divorce, a new child) that affects your income tax? Check to make sure your tax withholdings have been properly adjusted. Having low withholdings can lead to tax penalties, while having too high of withholdings prevents you from accessing your money until your tax return is filed.

Estimate your AGI.
Determine your adjusted gross income (AGI) with the help of your tax advisor. Your AGI will help determine your tax bracket, which you’ll need for investment and retirement planning.

Estimate your AMT.
Determine whether you will be subject to the Alternative Minimum Tax (AMT) and if there are ways to mitigate your AMT liability.

INVESTMENTS
Assure that your investment portfolios align with your long-term plan.
If you don’t have a plan or have questions about the alignment, contact your GuideStream Financial advisor. 

Systematically review your portfolios and rebalance when appropriate.
As a client of GuideStream Financial, we handle this step for you. We systematically review each portfolio and periodically rebalance to make any necessary adjustments. We just completed a rebalance in early November. 

RETIREMENT ACCOUNTS
If you are retired, make sure you’ve taken all necessary required minimum distributions (RMDs).
RMDs may be one of the most important items to review when going over your finances at the end of the year. Standard IRAs require these distributions be taken annually after the year you turn 70 ½; standard 401(k)s require them annually after you retire or turn 70 ½ (whichever is earlier). Failure to take an RMD will trigger a 50 percent excise tax on the value of the RMD.

Max contributions to an IRA and employer retirement plan for the year.
Both IRAs and 401(k)s have annual contribution limits. If you find you have excess savings and have not reached your annual limit, it may be a good idea to make additional contributions. Similarly, you may also consider making greater monthly contributions to your accounts next year, spreading out the cost of contribution. The deadline for IRA contributions is usually April 15 of the following year; 401(k) deadlines may be restricted to the calendar year, depending on your employer.

Consider converting a traditional IRA to a Roth IRA.
Did you have a good tax year? It may be an opportune time to convert a portion (or all) of your traditional IRA to a Roth IRA and pay your taxes at a lower rate. It is important to understand, however, that Roth accounts have contribution limits placed on them, so keeping a traditional IRA might be beneficial. Before making any changes, consider seeking the help of a professional   accountant who can help you with the conversion and calculate your new tax liability.

GIVING
Donate to charity.
In additional to the joy received by assisting causes your care about, you can lower taxable income by 50 or 30 percent with a gift to a public charity or by 30 or 20 percent with a gift to a private foundation. If your gift exceeds these limits, you can roll over the excess deduction for up to five years.

Reduce your estate through gifts.
You are permitted to give up to $14,000 ($28,000 for married couples) a year per recipient as an untaxed gift. Gifts above this value will consume part of your lifetime gift/estate tax exemption amount ($5,430,000 in 2015). If a gift directly funds education tuition or pays for qualified medical expenses, it will go untaxed no matter what the value.

FAMILY FUNDING
Check your flexible savings account (FSA).
The government only permits a $500 annual rollover in an FSA; any excess funds disappear if unused by the end of the year. If you have extra money in your FSA, you may want to schedule necessary medical or dental procedures before the end of the year.

Check your health savings account (HSA).
HSA funds don’t disappear at the end of each year like with an FSA; however, many with few medical needs discover money accumulating in their HSAs much faster than they are using it. Consider reducing your contributions to your HSA if your account has reached a comfortable amount and you know of better uses for your money.

Consider contributions to a 529 plan to fund your children’s/grandchildren’s education. 529 Plans allow for you to make contributions to a tax-free account that may be used to pay for qualifying secondary education expenses. (Investors should consider investment objectives, risks, charges and expenses associated with 529 plans before using them. Information about 529 plans is available in their issuers’ official statements.)

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2015 Advicent Solutions. All rights reserved.

HOW TO KNOW YOU’RE INVESTED IN THE RIGHT PORTFOLIO

From time to time we come across lists and articles on investing. And we’ve taken a few of the items we’ve seen over the years and written a little commentary based on how we serve you.

A year from now, you plan to own similar investments.

We believe ‘winning’ in the market begins with understanding ‘why’ you are allocated as you are.  Timing and changing strategies rarely produce the long term results investors need to fund their retirements.  Sticking with an allocation that is rebalanced and invested with purpose is the best way to ‘Win’ in retirement.

You’re so well-diversified that you always own at least one disappointing investment.

This is probably one of the hardest lessons in investing and represents the value in diversification.  A properly diversified portfolio is always going to have some asset classes (i.e. investments) out of favor with others being the bright spots.  The key is to own them both since timing them consistently is impossible.

When the stock market is volatile, or even decreasing, you are not uncomfortable.

You realize that the stock market is volatile and the temporary declines of 14% inter-year and greater than 20% every 5 years are normal. That’s precisely why stocks return more over the long term than other less volatile investments.

For every dollar you’ve saved, you have an eventual use in mind — and you are invested accordingly.

Dollars that you have saved, but aren’t needed for many years in the future, should be invested accordingly.  The dollars needed soon should be in less volatile (i.e. lower return) investments.  However, don’t shortchange your resources the ability to outpace inflation when they are needed far into the future.

You can remember the last time you rebalanced.

Well, you might not be able to recall if you have, but the good news is that as a client of GuideStream Financial, you have your portfolio(s) rebalanced at least annually.  We help you stay true to your long term investment and retirement objectives.

You never say to yourself, “Wow, I didn’t expect that.”

This is our goal.  Through preparation and education, you understand that year to year, your portfolio will fluctuate depending on contributions, withdrawals and returns – but that in the end, you have a good working knowledge of how your cash flow will work over time.  We know you don’t like surprises and neither do we.  Some years, things may be fruitful and other years they may not be. What’s most important is that we both know the long term goals and that is where we focus.

We appreciate your continued trust and are honored to assist you on your stewardship journey. 

The Importance of Having A Will

According to a 2014 survey, 51 percent of Americans age 55-64 (and 62 percent of Americans age 45-54) don’t have a will. The reasons for not maintaining a will can range from a lack of urgency to a paralyzing fear of death. Not only is having a will necessary, the effects of dying without having a will—called dying “intestate”—may be worse than you expect.

The Dangers of Dying Intestate
Estate Shrinkage
It is normal for estates to lose some of their value to final costs, such as burial/funeral expenses and outstanding debts. However, lengthy court procedures and legal fees attributed to resolving inheritance disbursement can quickly erode a large part of an estate’s net worth. Wills are created for the benefit of survivors; not having one reduces the amount that passes to the heirs.

Family Disputes and Disagreements
Disagreements regarding an estate can easily cause rifts in families. Arguments over who deserves specific heirlooms or property can be exacerbated when the wishes of the decedent are not directly known. In extreme circumstances, these kinds of disputes can last for decades, making a will essential—especially when families are large or relationships are strained.

Drafting a Will
Inexpensive and Quick Process
Creating a will is not expensive, with some estimates putting the cost at just a few hundred dollars if done through a lawyer. Additionally, there are legal websites that allow individuals to draft their own wills at a fraction of that cost. Whichever method is used, creating a will typically takes less time to complete than most people think.

Benefits of a Will
Control over Assets
The decedent may have specific desires regarding which of their family members get their possessions. Instead of the distribution of assets being decided by another family member or possibly the legal system, having a will allows the decedent to fully control where all assets will be distributed.

Choose Executor of Will
If there is no will, and subsequently no executor named, the individual that is chosen by the probate court may not act according to the decedent’s desires. Choosing the executor of a will ensures that the individual that the decedent thinks will best serve his or her wishes will be in charge of key decisions, handling conflicts and proper care of 
the estate. 

Custody of Children
If the decedent has children, but has not named a new guardian in a will, the courts will decide who gets custody of their children. Although judges consider living situations and familial relations while trying to act in the best interest of children, they can’t possibly know every detail about each family’s unique situation and there is no guarantee that a court-appointed guardian will be the same person the decedent’s would have wanted.

Now is the Time
Peace of Mind
Thinking about death may be frightening, but the thought of leaving confusion, lack of clarity and potential disputes behind can be even more unsettling. Creating a will allows individuals to know that, when they pass away, all of their wishes will be honored and their loved ones will be free from the burden of figuring out the details of an estate.

Keep it Updated
If you already have a will, consider revisiting and, if necessary, updating it. There may have been financial, legal or personal life changes that are not yet reflected by the current version of your will. Not having a will can create confusion, but having an outdated will that gives rights to a former spouse or estranged family members can be disastrous for intended heirs.
 

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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

Financial Planning: Not Just for Men!

Financial Planning: Not Just for Men!

-by Debra Lyon, Caitlin Koppelman, and Lori Pelham-

Lisa is 35. She’s a mother to 2 beautiful children and a recent divorcee. She just returned to part time work last year when her youngest started school. Up until now, she’s largely left the management of family finances to her husband. Now that he’s her ex-husband, she’s faced with limited financial knowledge, heaped on top of an already stressful balance between work and family.

Lisa needs an advisor who knows her needs; someone she can trust completely. Someone who can clearly communicate financial principles to help her not only succeed, but grow in her financial literacy. In short, she needs a coach who can teach her and help her look out for her family’s financial future.

Susan is 72 and recently widowed. Her children are grown, and she’s pleased to say that she devoted her life to raising them well. She hasn’t worked since before the kids were born, and she’s always been thankful for her husband’s careful attention to their family finances. Now that he’s gone, she’s not sure who to turn to. She knows the basics of paying bills – her husband shared that much with her – but what about taxes? Long-term care needs? How does her husband’s death affect their estate plan?

­­­­Susan needs an advisor who recognizes her situation and knows the unique needs that come with it. The ideal advisor for Susan would be able to look at the whole picture of her financial situation – appreciate and honor what her husband has put in place – and help Susan move forward toward the future with confidence.

These are just two examples of women and their unique financial needs. Even if you’re currently married and/or part of a dual-income household, as a woman you have specific financial thoughts and convictions that may be different from your husband’s. While you’re working together toward a shared future, it’s important you continue to take an active role in the management of family finances.

Women are earning more and spending more than ever. They control more dollars in the US economy today than in any other time in history. Any financial advisor worth their fee should recognize this fact and (more importantly!) recognize the unique needs of the women in his/her client base.

Find yourself a financial coach. Maybe you already have one, but you don’t usually go to the annual review meetings with your spouse. We encourage you to go: build a relationship with your advisor. If you have shared finances, that coach should be looking out for you, too.

If you’re on your own, like Lisa or Susan, seek out the counsel of an advisor. If it helps, look for a woman whose professional opinion you trust. Even if her personal situation is different from yours, you still have some major things in common.

Don’t leave your financial future to chance. Find an advisor you can trust, a coach who can help you navigate the twists and turns of life. That relationship will prove fruitful now and in the future.  

 

Keeping Up With the Joneses

People like to fit in; it’s one of the simplest laws of human nature. Although we value the things that make us unique, most of us are careful to not let them make us social outsiders. There is strength in numbers, and conformity reassures us that we are making the right decisions.

Unfortunately, comparing ourselves to others can lead to real problems. Our egos can become sensitive—even irrational—when trying to protect the public image of our wealth and status. If left unchecked, the fear of falling behind our peers can destroy our financial security. 

Meet the Neighbors
In a paper published by the Federal Reserve Bank of Philadelphia, economists tested and analyzed the social behavior of “keeping up with the Joneses” and the impact it could have on personal finances.

In their study, economists used six-digit postal codes to divide Canadian cities into micro-neighborhoods (13 households on average). They then observed financial changes in the neighborhoods after one of the households had won a lottery prize.

Whereas many researchers have documented the Sudden Wealth Syndrome of lottery winners (many of whom end up in financial ruin), this study instead focused on the winners’ closest neighbors. The researchers wanted to know how people responded when someone else suddenly had more money to spend. 

The results were clear: for every 1,000 Canadian dollar increase in the size of the lottery prize, the number of bankruptcy filings among close neighbors increased 2.4 percent in the three years following the lottery win (the base rate was .46 bankruptcies per neighborhood). This effect was greater in low-income neighborhoods where prize values were higher relative to average incomes.

What happened? When the asset sheets of the bankrupt neighbors were reviewed, researchers found that the houses had increased their “conspicuous consumption,” 

spending more of their money on visible signs of wealth (rather than investments that go unseen). Accordingly, the ratio of visible to invisible assets rose with the size of the lottery winnings, suggesting that individuals were willing to spend more when their “Joneses” had won more.

Irrational Groupthink

While the study may simply confirm what many might have suspected, the irrationality of the situation is striking. Winning a lottery is not a reward or promotion—it says nothing about a person’s value or rank. Why would neighbors, who know the wealth was won by luck, compare themselves to a situation they can’t possibly copy? Furthermore, why try to emulate the neighborhood’s one winner, when “fitting in” should mean behaving like all the other non-winning households?

The problem is that wealth and status are relative each person. Everyone has his or her own “Joneses.” When one house receives a windfall of cash and begins spending, it can set off a chain reaction. Our egos would rather let us spend too much than risk falling behind.

This arms race mentality is why the housing bubble of the last decade became so severe. It wasn’t just the opportunity to make money off real estate; it was the visibility of the changing wealth. Every day, people watched their neighbors buy and improve properties, knowing that they would have to do the same just to maintain the status quo.

Forgetting About the Joneses

A little social pressure isn’t necessarily a bad thing. It often provides a nudge towards positive action and helps us make good choices. But when it comes to money habits, trying to match (or exceed) those around you can lead to serious problems. Everyone’s financial situation is unique, and each person defines success differently. As difficult as it is, you need to shut out the social noise and ignore what others do with their money. After all, you’re trying to accomplish your financial goals—not theirs.

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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

Annuities As a Potential Part of a Retirement Plan

by Kirk A. Hoffman

A three legged stool analogy is often used for planning and saving for retirement.  The three legs represent personal savings, employer provided benefits, and government benefits.  For public school employees, 403(b) plans are used for individual savings.  School districts pay into 403(b) plans and/or the state pension program to provide an employer benefit.  Social Security provides the government benefit.

One of many tools available for the personal savings portion of a goal focused financial plan is an annuity.  Annuities have two phases, the accumulation phase and the pay-out phase.  Annuities can be part of a 403(b) plan to accept and accumulate contributions.  The accumulation phase is pretty straight forward.  Contributions go in on a tax deferred basis and taxes on earnings are deferred.  More questions arise once a plan participant reaches retirement and the pay-out phase begins.

There are several options available at the pay-out phase:

Interest/earnings only.

Under this option, the participant withdraws only the interest and earnings on the account.  The principal balance is not accessed.  This can be done on a monthly, quarterly, semi-annual, or annual basis.  Taxation on the principal is deferred until death.  (Required minimum distributions at age 70 ½ may require some principal distribution).

Systematic withdrawal based on a percentage or dollar amount.

Under this option, the participant establishes a regular withdrawal percentage or dollar amount.  The plan participant could outlive the withdrawals depending on the withdrawal rate and earnings.

Guaranteed life income.

The real power of an annuity is that it can provide guaranteed life income.  Under this option, the annuity is set up to pay out, like the participant’s pension and social security, monthly income for life.  Just like with the pension, there are various guarantees that can be selected:

Life only – payments cease at death

Life with a period certain (5, 10, 20 years) – payments for the longer of life or the

guaranteed number of years.

Joint and Survivor – based on two lives, payments cease at the second death

Joint and Survivor with period certain (5, 10, 20 years) – payments for the longer of

life of the two individuals or the guaranteed number of years.

The monthly payout is affected by the selected guarantees.  The more guarantees, the lower the monthly payment.

There is no better tool to create another guaranteed income stream to go along with a pension and Social Security than an annuity.  It works well if you are in good health and you have a history of longevity.  You cannot outlive the income.  It removes you from the markets so you are not subject to volatility which provides peace of mind for risk adverse individuals.

Every investment tool has positives and negatives.  Some negatives of annuitizing are that you give up access to the principal and potential higher earnings that could be realized from other investments.  These are significant factors to consider.

A professional advisor can assist in determining if creating another guaranteed income stream with an annuity is a good fit for your particular situation and if it will contribute to accomplishing the goals defined in you financial plan.

Worse Than Taxes

Protecting Yourself from Tax Scams
Tax season is perhaps the most widely hated time of the year. It’s annoying and, for many, expensive. But despite its unpopularity, some people are determined to make it even worse: tax scammers.

Wherever there is money, there is someone willing to steal it. Tax season provides thieves with several opportunities to fleece people who are just trying to do their civic duty. Fortunately, being able to recognize the signs of a swindle can offer a lot of protection. Here are some of the common tax scams thieves like to use:

Stolen Refund
The Scam: A thief steals taxpayers’ information, files their tax returns before them and pockets the refunds. When the victims go to file their taxes, the IRS informs them that their taxes have already been filed, causing complications and delays on their real returns.

Defense: This scam is difficult to block because taxpayers don’t know it’s happening until it’s too late (though the IRS has greatly increased its efforts to detect and stop fake returns). Personal information stolen digitally is the thieves’ greatest asset. Be sure to protect your computer from viruses and delete any unwanted emails that request personal information or ask you to update your IRS e-file account.

Opportunistic Preparers
The Scam: A dishonest tax service skims refund money or personal information after preparing clients’ taxes. Refund skimming has become particularly easy to disguise because many tax preparers allow you to pay service fees directly from your refund. While convenient, this process can obscure refund values and make it easier for preparers to charge undisclosed fees. Aggressive scammers will actually falsify your tax information to secure a bigger refund while putting you at risk of tax fraud.

Defense: If you have someone else prepare your taxes, make sure they are trustworthy and reputable. Although many quality services allow you to pay with your refund, it is best to pay fees upfront when using a new tax service. This will reveal the true cost of filing and whether the service is offering competitive rates. Always copy and review your tax return before it’s submitted; you are legally responsible for your return, even if you did not prepare it.

Tax Extortion
The Scam: Rather than intercepting tax returns, some ambitious scammers actually impersonate IRS agents and try to collect additional taxes. After calling an individual and identifying themselves with fake names and fake government ID numbers, the scammers demand extra taxes be paid immediately to a specific bank account or P.O. box. These scams often target recent immigrants who are unfamiliar with U.S. tax procedure.

Defense: If you receive an unexpected call from the IRS, hang up. The IRS never calls anyone without first mailing a letter to resolve the issue. Also, the IRS does not demand immediate payment or require payment in a certain form (many scams use wire-transfers or prepaid debit cards). Scammers may also reveal themselves by using threats, hostile language and follow-up calls from someone claiming to be the police—things the real IRS never does.

For additional information on tax scams, review the IRS consumer alerts webpage at: https://www.irs.gov/uac/Tax-Scams-Consumer-Alerts.

What to Do If Your Tax Refund is Stolen
Despite the best efforts of both taxpayers and the IRS, some tax scams are successful. If you believe you’ve been scammed, it’s important to act quickly to minimize the damage. Although some scams might only delay your return, others could indicate serious identity theft. It may not always be possible to get back money lost in a scam, but protecting your financial accounts can keep things from getting much worse.

If you suspect your identity has been stolen, follow the government’s official instructions found here: https://www.usa.gov/identity-theft.
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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

“Phishing” Fraud: How to Avoid Getting Fried by Phoney Phishermen

“Phishing” involves the use of fraudulent emails and copy-cat websites to trick you into revealing valuable personal information — such as account numbers for banking, securities, mortgage, or credit accounts, your social security numbers, and the login IDs and passwords you use when accessing online financial services providers. The fraudsters who collect this information then use it to steal your money or your identity or both. 

When fraudsters go on “phishing” expeditions, they lure their targets into a false sense of security by hijacking the familiar, trusted logos of established, legitimate companies. A typical phishing scam starts with a fraudster sending out millions of emails that appear to come from a high-profile financial services provider or a respected Internet auction house. 

The email will usually ask you to provide valuable information about yourself or to “verify” information that you previously provided when you established your online account. To maximize the chances that a recipient will respond, the fraudster might employ any or all of the following tactics:

How to Protect Yourself from Phishing

The best way you can protect yourself from phony phishers is to understand what legitimate financial service providers and respectable online auction houses will and will not do. Most importantly, legitimate entities will not ask you to provide or verify sensitive information through a non-secure means, such as email. 

Follow these five simple steps to protect yourself from phishers:

What to Do if You Run into Trouble

Always act quickly when you come face to face with a potential fraud, especially if you’ve lost money or believe your identity has been stolen.

  • Names of Real Companies — Rather than create from scratch a phony company, the fraudster might use a legitimate company’s name and incorporate the look and feel of its website (including the color scheme and graphics) into the phishy email.
  • “From” an Actual Employee — The “from” line or the text of the message (or both) might contain the names of real people who actually work for the company. That way, if you contacted the company to confirm whether “Jane Doe” truly is “VP of Client Services,” you’d get a positive response and feel assured.
  • URLs that “Look Right” — The email might include a convenient link to a seemingly legitimate website where you can enter the information the fraudster wants to steal. But in reality the website will be a quickly cobbled copy-cat — a “spoofed” website that looks for all the world like the real thing. In some cases, the link might lead to select pages of a legitimate website — such as the real company’s actual privacy policy or legal disclaimer.
     
  • Urgent Messages — Many fraudsters use fear to trigger a response, and phishers are no different. In common phishing scams, the emails warn that failure to respond will result in your no longer having access to your account. Other emails might claim that the company has detected suspicious activity in your account or that it is implementing new privacy software or identity theft solutions.
     
  • Pick Up the Phone to Verify — Do not respond to any emails that request personal or financial information, especially ones that use pressure tactics or prey on fear. If you have reason to believe that a financial institution actually does need personal information from you, pick up the phone and call the company yourself — using the number in your rolodex, not the one the email provides!
     
  • Do Your Own Typing — Rather than merely clicking on the link provided in the email, type the URL into your web browser yourself (or use a bookmark you previously created). Even though a URL in an email may look like the real deal, fraudsters can mask the true destination.
     
  • Beef Up Your Security — Personal firewalls and security software packages (with anti-virus, anti-spam, and spyware detection features) are a must-have for those who engage in online financial transactions. Make sure your computer has the latest security patches, and make sure that you conduct your financial transactions only on a secure web page using encryption. You can tell if a page is secure in a couple of ways. Look for a closed padlock in the status bar, and see that the URL starts with “https” instead of just “http.”
     
  • Read Your Statements — Don’t toss aside your monthly account statements! Read them thoroughly as soon as they arrive to make sure that all transactions shown are ones that you actually made, and check to see whether all of the transactions that you thought you made appear as well. Be sure that the company has current contact information for you, including your mailing address and email address.
     
  • Spot the Sharks — Visit the website of the Anti-Phishing Working Group atwww.antiphishing.org for a list of current phishing attacks and the latest news in the fight to prevent phishing. There you’ll find more information about phishing and links to helpful resources.
     
  • Phishy Emails — If a phishing scam rolls into your email box, be sure to tell the company right away. You can also report the scam to the FBI’s Internet Fraud Complaint Center at www.ic3.gov. If the email purports to come from the Securities and Exchange Commission, alert the SEC by submitting a tip online at https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml.
     
  • Identity Theft — If you think that your personal information has been stolen, visit the Federal Trade Commission’s feature on Identity Theft at www.consumer.ftc.gov/features/feature-0014-identity-theft for information on how to control the damage.
     
  • Securities Scams — Before you do business with any investment-related firm or individual, do your own independent research to check out their background and confirm whether they are legitimate. For step-by-step tips and links to helpful websites, please read Check Out Brokers and Advisers and SIPC Exposes Phony “Look-Alike” Web Site. Report investment-related scams to the SEC using our online Complaint Center.

    Article from U.S. Securities and Exchange Commission

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