Business owners, if you offer a company 401(k), you should know the difference between 3(21) and 3(38) fiduciary services.

Marcos A. Segrera, CFP®
Financial Advisor

In today’s evolving legal, regulatory, and litigation environments, it is vital for qualified retirement plan fiduciaries to understand their roles and responsibilities. The additional time and money needed to cover fiduciary duty may be hard to come by for business owners, who likely prefer to spend those resources growing their businesses rather than learning and worrying about the nuances of a corporate retirement plan. As lawsuits targeting 401(k) plan sponsors proliferate, the need and demand for investment fiduciary services has grown.

The services fall into two distinct levels: 3(21) and 3(38). These numbers refer to specific sections of the Employment Retirement Income Security Act (ERISA) of 1974. The goal of this post is to address the differences and benefits of 3(21) and 3(38) fiduciary services and highlight some of the common areas in which 401(k) lawsuits fall.

To begin, you should be familiar with two fiduciary terms: plan sponsor and plan fiduciary.

The plan sponsor is the company that provides the plan, including 401(k), profit sharing, cash balance, etc., for the benefit of the owners and employees. By default, the company is also a plan fiduciary.

The plan fiduciary is any individual with discretionary authority or responsibility for the administration of the plan, anyone who provides investment advice to the plan for compensation, or anyone who has any authority or responsibility to do so. These individuals are therefore subject to fiduciary responsibilities. Plan fiduciaries include plan trustees, plan administrators, and members of a plan’s investment committee. Business owners are often listed as a trustee, administrator, etc.; therefore, they are plan fiduciaries.

We find three main areas of concern where plan participants and the Department of Labor (DOL), which regulates ERISA plans, brings forth a lawsuit:

  1. Inappropriate investment choices
  2. Excessive fees
  3. Self-dealing

Both 3(21) and 3(38) fiduciary services can help mitigate these issues.

With regard to investment choices, ERISA does not specify which investments are appropriate or inappropriate. Often, the finding for or against a plan’s fiduciaries does not hinge as much on results—i.e., whether investment returns were too low or fees were too high—but whether a prudent process was followed and documented as well as whether the decisions made were in the participants’ best interests. The plan fiduciaries need to demonstrate that the final menu of investment options was determined using prudent decision-making that has been consistent over time. Issues can also arise when plan fiduciaries include the employer’s own stock within the plan investments.

Outside the obvious, ERISA does not specify much when it comes to fees, but it has been the major source of lawsuits during the recent surge in litigation. Again, the emphasis is on showing that a prudent process was used to select investment options and ensuring that the plan pays no more than reasonable fees for needed services. For example, ensuring that your plan offers institutional share classes of mutual funds versus the more expensive retail share class is a simple way to improve investment costs. However, many plan fiduciaries find themselves with retail share classes in their menu of options when an equivalent institutional share class is available. It is important to consistently review your current menu against what is available for your plan. In addition, the costs of plan operation, including third-party administrators, record-keepers, etc., fall under the duty to control plan costs to those reasonable and necessary.

Self-dealing refers to an instance in which the plan fiduciary acts in their own best interests rather than serving the plan and its participants. Self-dealing only accounts for a small share of total lawsuits. Most violations arise from actions taken by very large companies that include proprietary investment products in their plans. Companies are not prohibited from having proprietary products included in their 401(k)s, but issues arise when a plan fiduciary encourages participants to invest in those products. Self-dealing also plays a role in determining which expenses can be paid by the plan, i.e., essentially by the employees, versus being paid directly by the employer. The DOL divides fees into two categories: administrative expenses that are payable from plan assets and settlor expenses that cannot be paid by plan assets.

For more information regarding the causes and consequences of 401(k) lawsuits, you can refer to this study by the Center for Retirement Research.

How can 3(21) and 3(38) fiduciary services support plan fiduciaries? They help by allowing the plan fiduciaries to share in the investment liability—3(21)—or delegate the liability—3(38).

A 3(21) advisor-fiduciary is a co-fiduciary role that provides counsel and guidance. An advisor provides investment advice to the plan sponsor with respect to the investment options available on the 401(k) menu. The advisor only makes recommendations for which it has no legal responsibility because a 3(21) fiduciary has no ERISA-defined “discretion.” The plan fiduciaries retain the discretion to accept or reject the advice. Since the plan fiduciaries are co-decision makers they hold co-responsibility, and generally “the buck stops” with the plan fiduciaries. The investment advisor shares in the liability but does not assume the full liability pertaining to investment decisions. The 3(21) services add a level of investment expertise for an employer and may cost less – than a 3(38) fiduciary, but it does not remove ultimate liability from the plan fiduciaries, including the business owner.

A 3(38) advisor-fiduciary manages the investments on a discretionary basis and holds responsibility for selecting, monitoring, and replacing investments. The plan sponsor enjoys less liability in this relationship because the fiduciary risk is delegated to the advisor. The plan fiduciaries retain the responsibility of selecting and monitoring the advisor. Under ERISA, as long as the plan fiduciaries prudently monitor the investment manager, the plan sponsor will not be liable for the acts and omissions of the investment manager. These services may cost more than the 3(21) services, but they obviously provide greater protection for plan fiduciaries.

Do you know if your company-sponsored retirement plan has 3(21) or 3(38) fiduciary services in place? Unfortunately, many business owners and plan fiduciaries do not know the answer to this question, and they may assume they have a 3(38) relationship by hiring a firm to run the plan; however, simply hiring an advisor does not mean they provide 3(38) services. If you don’t know, now is the time to have a conversation with your plan provider or plan investment advisor. For most employers, the additional plan cost is well worth the protections they provide.

Feel free to contact Marcos A. Segrera with any questions by phone 305.448.8882 ext. 212 or email: 


For more information on financial planning visit our website at

The Family Information Organizer

Josh Mungavin

Josh Mungavin CFP®, CRC® Principal, Wealth Manager

“There is in the act of preparing, the moment you start caring.” —Winston Churchill

A longtime friend named Dana called me one day because she needed help. Her father had just passed away and she didn’t know what to do. Although I’ve helped clients’ children through similar situations many times, something occurred to me as I saw her left lost and alone with a scattered paper trail and no instructions to help her through: Having all essential information in one place makes a challenging time easier and leaves a legacy of respect and security. This book was created to help your family members navigate loss while also making sure you have everything you need in times of emergency or natural disaster. Receiving this book gives you a good reason to begin gathering your information now, rather than wait for a crisis to act.

Before helping Dana, I had taken our firm’s emergency planning benefit for granted because we have records of family finances at our fingertips. Our clients get an elevated level of care because we work with the professionals in their lives and have made the investment in tools, employees, and education necessary to create an objective and tailored plan to manage risks, simplify financial lives, maintain wealth, and provide for heirs. Most people don’t have that level of care, and while this is not a replacement for services we provide, it is our attempt to help our clients and those who don’t have the support we offer. This book was created to help you take care of your family through emergencies by having all essential information in one place (extra pages, which can be duplicated, are at the back of the document to provide enough space for all of your information).

For the book as a fillable PDF visit the following link: 

For the free eBook click one of the following links:



Feel free to contact Josh Mungavin with any questions by phone 305.448.8882 ext. 219 or email: 

For more information on financial planning visit our website at



NewsLetter Vol. 11, No. 7 – December 2018

Harold Evensky CFP® , AIF®

Dear Reader:



For active managers. From the S&P DOW Jones SPIVA Scorecard:

Overall performance of active equity funds relative to their respective benchmarks over the medium term also improved, although the majority still underperformed their benchmarks. Over the five-year period, 76.49% of large-cap managers, 81.74% of mid-cap managers, and 92.90% of small-cap managers lagged their respective benchmarks. Similarly, over the 15-year investment horizon, 92.43% of large-cap managers, 95.13% of mid-cap managers, and 97.70% of small-cap managers failed to outperform on a relative basis.



In billions of notes, how much cash was in circulation in 2017?

$1        12.1

$2        1.2

$5        3.0

$10      2.0

$20      9.1

$50      1.7

$100    12.5

$100 bills as a percentage of total cash: 78%

There are 36 $100 bills in circulation for every man, woman, and child in the United States.

Where are the $100 bills?

  • $80 billion in domestic depository institutions
  • $453 billion with domestic businesses and individuals
  • $1.07 trillion held abroad!



From Deena’s office:

Great Minds Discuss Ideas

Average Minds Discuss Events

Small Minds Discuss People



Some basic but wise advice from The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk, by Taylor Larimore, via my friend Alex:

  1. A 100% stock portfolio can be dangerous.
  2. Believing a broker is your friend can be dangerous.
  3. Avoid the lure of individual stocks.
  4. Past performance does not forecast future performance.
  5. Investment newsletters are a waste of money, and market-timing doesn’t work.
  6. Past performance does not forecast future performance (some advice requires repeating).
  7. Avoid expensive stockbrokers and their hidden fees.
  8. Buying high and selling low is a losing strategy.

The Boglehead Philosophy

  1. Develop a workable plan.
  2. Invest early and often.
  3. Never bear too much or too little risk.
  4. Diversify.
  5. Never try to time the market.
  6. Use index funds when possible.
  7. Keep costs low.
  8. Minimize taxes.
  9. Invest with simplicity.
  10. Stay the course.



Most dairy farmers don’t bottle and sell directly to grocery stores. They work with regional dairy plants, which act as middlemen. You can see what dairy bottled your milk. Just grab a gallon and look at the code!

Here’s what to do:

  • Find the secret code—usually located near the expiration date. It looks like: 01-12345 or 01-02.
  • Pull up Where Is My Milk From ( and type in the code to see where your milk was bottled.



The title above is not mine; it is the heading of an article by Evan Simonoff, my friend and the editor of Financial Advisor magazine. It seems Cramer’s poor performance isn’t his fault but everyone else’s (although readers of my Newsletter will know I don’t necessarily disagree with Evan’s characterization of Mr. Cramer). From the article:

One doesn’t have to be Isaac Newton to realize that when a security goes vertical like some tech and credit card stocks have for almost this entire, extended bull market, they can also go the other way. Momentum stocks have been experiencing some tough times over the last five weeks. After 10 years of sensational performance, many think they were due for a major correction.

But Jim Cramer of Mad Money fame penned a piece Thursday in which he seems convinced that some of his favorite stocks, notably Amazon, Visa and Mastercard, are trading like “Mexican jumping beans” all because of evil “voyeuristic ETFs” that are “completely hidden.”

So which ETF is the most serious culprit ruining Cramer’s life? It is iShares Edge MSCI USA Momentum Factor ETF (MTUM). Incidentally, I suspect Cramer’s mood is not in a better state this week with the Dow down more than 600 points.

Apparently, MTUM is one of several “totally abusive ETFs out there that really do unlevel the playing field and make a mockery of the whole business,” he wrote.

So who is he calling morons and doofuses? It’s the “moron managers flitting all over the place, the kind Warren Buffett calls out as expensive doofuses,” who are constantly engaging in the risk-on, risk-off trades that always appear to poop on Cramer’s parade. And their current instrument is MTUM.

MTUM may be one of many vehicles raining on the parade, but it’s likely there are many other far more powerful algorithmic strategies making momentum investors miserable. In recent weeks, wizards like AQR’s Cliff Asness have sent apologies to investors talking about their underwhelming investment performance in recent weeks [see “Hope Springs Eternal” later in the Newsletter].



From CBS News:

Tough Retirement Realities for Baby Boomers

The vast majority of older working Americans don’t have sufficient savings to retire full-time at age 65 with their pre-retirement standard of living. That’s one of the sobering conclusions from the recent Sightlines report issued by the Stanford Center on Longevity (SCL).

As a result, the report noted, workers approaching retirement will either need to work beyond age 65, reduce their standard of living, or do some combination of the two. This should cause some soul-searching among older workers, their families, and their employers…According to the SCL report, almost one-third (30 percent) of them have saved nothing toward retirement.



From my friend Leon:

  • More people live in New York City than in 40 of the 50 states.
  • The word “Pennsylvania” is misspelled on the Liberty Bell.
  • There is enough water in Lake Superior to cover all of North and South America in one foot of water.
  • In 1872, Russia sold Alaska to the United States for about 2 cents per acre [about $25 at 5%].
  • It would take you more than 400 years to spend a night in all of Las Vegas’s hotel rooms.
  • There is enough concrete in the Hoover Dam to build a two-lane highway from San Francisco to New York City.
  • Kansas produces enough wheat each year to feed everyone in the world for about two weeks.
  • The Library of Congress contains approximately 838 miles of bookshelves—long enough to stretch from Houston to Chicago.
  • The entire Denver International Airport is twice the size of Manhattan.
  • A highway in Lancaster, California, plays the “William Tell Overture” as you drive over it, thanks to some well-placed grooves in the road.
  • The total length of Idaho’s rivers could stretch across the United states about 40 times.
  • The one-woman town of Monowi, Nebraska, is the only officially incorporated municipality with a population of 1. The sole 83-year-old resident is the city’s mayor, librarian, and bartender.
  • The number of bourbon barrels in Kentucky outnumbers the state’s population by more than two million.



An excellent interview with Dan Berkowitz, an investment analyst with Vanguard Investment Strategy Group:

“Active or passive? What investors and advisors need to consider”

You often hear that actively managed funds tend to outperform in bear markets. Is that true, and can you speak to some of the misconceptions around fund performance?

Dan Berkowitz: Yes, this one has come up increasingly so, given where equity and fixed income valuations are these days. It’s a natural question. And it’s a common assumption that active managers as a group provide a better degree of downside protection in poorly performing market environments, or bear market environments, whether through a greater allocation to cash or through portfolio management skill. And there certainly are strategies in the active and index universe that are designed to provide a degree of downside protection.

But when we look at active managers again as a group, we just don’t see that they provide, at a high level, a degree of downside protection.



From my BFF Patti—the first one is her theme song:

  • A true Southerner knows you don’t scream obscenities at little old ladies who drive 30 MPH on the freeway. You just say, “Bless her sweet little heart.”
  • There is no magazine named “Northern Living” for good reason. There ain’t nobody interested in moving up there, so nobody would buy the magazine!
  • Southerners know everybody’s first name: Honey, Darlin’, Shugah.
  • Only a Southerner knows the difference between a hissie fit and a conniption fit, and that you don’t “HAVE” them, you “PITCH” them.
  • Only a Southerner can show or point out to you the general direction of “yonder.”
  • Only a Southerner knows exactly how long “directly” is, as in: “Going to town, be back directly.”
  • Only Southerners grow up knowing the difference between “right near” and “a right far piece.” They also know that “just down the road” can be 1 mile or 20.
  • Only a Southerner both knows and understands the difference between a redneck, a good ol’ boy, and po’ white trash.
  • And to those of you who are still having a hard time understanding all this Southern stuff, bless your hearts, I hear they’re fixin’ to have classes on Southernness as a second language!

Now, Shugah, send this to someone who was raised in the South or wish they had a ‘been! If you’re a Northern transplant, bless your heart—fake it. We know you got here as fast as you could.



Some recent market prognostications:

March 2013

Welcome, 2016: The Coming End of the 16-Year Bear Market

Two well-regarded forecasters, the Leuthold Group and Jeremy Grantham of GMO, both see low single digit returns from stocks over the next 7 years from current levels.

Could still be, but we’re 5¾ years into the 7 years, and the annual total return has been 14%. To meet an annualized 6% return, the market loss will have to annualize at –14% until March 2020.

December 2013

Dow is up more than 5% five consecutive years now. A sixth such year has not happened before in history. A 5-year bull trend only occurred once before, in the 1990s, and was followed by 3 down years. Russell 2k rallies of similar size and duration to 2013’s (excluding accelerations from major bear lows) are shown below. In each case all the gains were given back the following year…

To sum up, from a pure statistical perspective, removing any notion of the bigger picture, the probability for 2014 is at best a flat year for equities with a significant drawdown on the way, and at worst a significant down year. Stats are just a guide, but we see united predictions across a range of measures, drawn together at the top of the page.

Yet the bullish momentum of the market and “this time is different” thinking (Fed trumps all, equities need revaluing due to suppressed bonds and cash yields) are making for widespread complacency about (and dismissal of) the parallels…

Whilst we should not overly rely on any one indicator or discipline, it’s the collective case that gives me such conviction on the short side (disclosure: short stock indices).

S&P total annual return (dividends reinvested) 2014 … 15.9%


February 2014

The Bear Market of 2014–2017 Is Starting. Why, How & When (Revisited)

As markets opened up on January 2, 2014, everyone was excited. After all, what was not to like? The stage was set for the bull market to continue, or so everyone thought.

How little did they know. What they didn’t (and still don’t) know is that the bull market topped out just two days earlier, on December 31, 2013, at 16,588 on the DOW (mathematical top, the actual top will come later in the year), ushering in the final stage of the Cyclical Bear Market that will take us into the final 2017 bottom.

S&P total annual return (dividends reinvested) from 2014 to the end of 2017 … 15.9%

February 2015

Opinion: 7 danger signs of stocks’ coming bear market

Protect your portfolio now before the downturn begins

With the US stock market trying to surpass its all-time highs, many investors still don’t see the problem. After all, if the market is going up, why worry? Lately, many bulls feel invincible.

The problem is that if you wait until a bear market is formally announced, you will have lost a chunk of your paper profits. The key is to slowly take money off the table now. You may also protect your stock portfolio using hedging strategies, such as buying options.

S&P total annual return (dividends reinvested) to October 2018 … 11.5%

January 2017

Despite Trump euphoria, Wall Street’s 2017 forecast is the most bearish annual outlook in 12 years

S&P total annual return (dividends reinvested) 2017 … 20.9%

And how about other gurus?

USA Today April 2007

From an interview with Steve Ballmer, CEO of Microsoft

“There’s no chance that the iPhone is going to get any significant market share. No chance,” said Ballmer. “It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.”

iPhone Sales in billions

2007 – 1.39

2012 – 125

2017 – 216.8



From my friend Leon:

Here are some statistics for the year 1910:

  • The average life expectancy for men was 47 years.
  • Fuel for this car was sold in drugstores only.
  • Only 14 percent of homes had a bathtub.
  • Only 8 percent of homes had a telephone.
  • There were only 8,000 cars and only 144 miles of paved roads.
  • The maximum speed limit in most cities was 10 mph.
  • The tallest structure in the world was the Eiffel Tower!
  • The average US wage in 1910 was 22 cents per hour, and the average US worker made between $200 and $400 per year.
  • A competent accountant could expect to earn $2000 per year, a dentist $2,500 per year, a veterinarian between $1,500 and $4,000 per year, and a mechanical engineer about $5,000 per year.
  • More than 95 percent of all births took place at home.
  • Ninety percent of all doctors did not have a college education. Instead, they attended so-called medical schools, many of which were condemned in the press and the government as ”substandard.“
  • Sugar cost 4 cents a pound; eggs were 14 cents a dozen; coffee was 15 cents a pound.
  • Most women only washed their hair once a month and used Borax or egg yolks for shampoo.
  • Canada passed a law that prohibited poor people from entering into their country for any reason.
  • The population of Las Vegas, Nevada, was only 30!
  • Crossword puzzles and iced tea hadn’t been invented yet.
  • Two out of every 10 adults couldn’t read or write, and only 6 percent of all Americans had graduated from high school.
  • Marijuana, heroin, and morphine were all available over the counter at the local corner drugstore. Back then, pharmacists said, “Heroin clears the complexion, gives buoyancy to the mind, regulates the stomach and bowels, and is, in fact, a perfect guardian of health.”
  • There were about 230 reported murders in the entire United States!


From my friend Peter:

If they raise the minimum wage to $1.00, nobody will be able to hire outside help at the store.

When I first started driving, who would have thought gas would someday cost 25 cents a gallon. I’m leaving the car in the garage.

Did you see where some baseball player just signed a contract for $50,000 a year just to play ball? It wouldn’t surprise me if someday they’ll be making more than the president.

The fast food restaurant is convenient for a quick meal, but I seriously doubt they will ever catch on.

No one can afford to be sick anymore. At $15.00 a day in the hospital, it’s too rich for my blood.


From YouTube Pun Based Humor:


You probably need to be an academic to have ever heard about SSRN, but “it’s an open-access online preprint community providing valuable services to leading academic schools and government institutions…SSRN is instrumental as a starting point for PhD students, professors, and institutional faculty to post early-stage research, prior to publication in academic journals.”

SSRN’s eLibrary provides 828,739 research papers from 406,723 researchers across 30 disciplines.

“Congratulations, Harold. You are currently in the top 10% of Authors on SSRN by all-time downloads.”



These organizations topped the Chronicle’s new cash-support ranking.

1 United Way Worldwide $3,260,274,867
2 Salvation Army $1,467,750,000
3 ALSAC/St. Jude Children’s Hospital $1,314,189,700
4 Harvard University $1,283,739,766
5 Mayo Clinic $1,140,619,378
6 Stanford University $1,110,664,853
7 Boys & Girls Clubs of America $909,035,450
8 Compassion International $819,417,089
9 Cornell University $743,502,739
10 Lutheran Services in America $731,566,533


From Financial Advisor magazine:

AQR Quant Genius Apologizes to Clients over Performance

Wall Street’s quant wizards often argue that many of their math-driven strategies are designed for the long-term. But they’ve rarely had to shout this loud.

Global equities posted the worst run in six years in “Red October,” and it tore through the investing styles that slice and dice assets based on traits like momentum and growth. Most factor funds, as they are known, fell in concert with stocks. That not only capped an already miserable year, it threw into doubt their diversification benefits—forcing advocates onto the defensive.

Cue Cliff Asness, godfather of quant investing and co-founder of the firm which helped popularize factors, AQR Capital Management. In a 23-page, 17,000-word blog post in October he acknowledged the strategies AQR favors have had “tough times,” predicted no miracle bounce back, but argued that evidence and common sense dictate they will ultimately prevail.

Cliff is one of the smartest and most professional money managers I know, and his honest, thoughtful response to his funds’ performance is a reflection of his quality. Although I’m a skeptic, we continue to follow his work.



If you have a few minutes to kill, here is a link to an interview I did at the Financial Planning Annual Convention:



From my friend Bill G.:

One of my favorite authors, Upton Sinclair, is credited with saying, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Kind of reminds me of regulators and politicians.



An excellent summary by Michael Kitces of Mark Hulbert’s excellent review of Fama and French’s excellent article “Volatility Lessons” in the Financial Analysts Journal.

It’s generally understood that markets can be volatile in the short-term, and that it’s necessary to evaluate an investment strategy (or the performance of an investment manager or financial advisor) over an extended period of time in order to really judge their efficacy. However, in a recent paper by Eugene Fama and Kenneth French in the Financial Analysts Journal, it turns out that even over 10-year periods—generally viewed as “long-term” by most advisors and clients making evaluations of investment results—stock market volatility is great enough that there’s still a material risk that a superior strategy or factor will underperform. For instance, their analysis suggests that otherwise-long-term-outperforming value strategies still lag in 9% of randomly created 10-year investment horizons using historical data…implying that the underperformance of value over the past decade is still well within the range of normal statistical noise (and not necessarily a signal that value investing itself has lost its value). Similarly, given their even-higher volatility, there is a 24% chance that small-caps will underperform over a 10-year cycle (even when assuming their historical return premium is persisting) and a 16% chance that stocks will underperform Treasuries (even if their historical equity risk premium remains valid). On the one hand, the important implication of the research is that even 10 years is not necessarily long enough to determine if a manager (or a factor) has lost its ability to outperform. On the other hand, when the researchers also find that even over 20 years, there’s an 8% chance that equities will underperform Treasuries despite the equity risk premium…



Keep your eye on China…

From my friend Peter:



From my friend Judy:

The following questions were set in last year’s GED examination. These are genuine answers (from 16-year-olds)…and they WILL breed.

Question Answers
Name the four seasons. Salt, pepper, mustard and vinegar.
What causes the tides in the ocean? The tides are a fight between the earth and the moon. All water tends to flow towards the moon because there is no water on the moon, and nature abhors a vacuum. I forget where the sun joins the fight.
What guarantees may a mortgage company insist on? If you are buying a house they will insist that you are well-endowed.
In a democratic society, how important are elections? Very important. Sex can only happen when a male gets an election.
What are steroids? Things for keeping carpets still on the stairs
Name a major disease associated with cigarettes. Premature death
How can you delay milk turning sour? Keep it in the cow (simple but brilliant).
How are the main 20 parts of the body categorized (e.g., the abdomen)? The body is consisted into 3 parts—the brainium, the borax and the abdominal cavity. The brainium contains the brain, the borax contains the heart and lungs and the abdominal cavity contains the five bowels: A, E, I, O, U.
What is a terminal illness? When you are sick at the airport.
What does the word ‘benign’ mean? Benign is what you will be after you be eight.
What is a turbine? Something an Arab or Shreik wears on his head




Two headlines a few hours apart:

Apple Beats Q4 Expectations with Best September Quarter Ever

Apple Stock Falls on Light Sales Guidance for Holiday Quarter



States to live in according to USA Today:

BEST (Top 5)

#1 – Massachusetts

#2 – New Hampshire

#3 – Connecticut

#4 – Colorado

#5 – Minnesota


WORST (Bottom 5)

#50 – Mississippi

#49 – West Virginia

#48 – Louisiana (at least my home state wasn’t #50)

#47 – Alabama

#46 – Kentucky



#33 – Texas

#28 – Florida

Obviously weather wasn’t a major factor.



Student loan debt is now a crisis, says U.S. Department of Education Secretary Betsy DeVos.

The Latest Student Loan Debt Statistics

Personal finance website Make Lemonade says that the student loan debt is now the second highest consumer debt category—second only to mortgages and higher than credit card debt.

According to Make Lemonade, there are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt. The average student in the Class of 2016 has $37,172 in student loan debt. The average student in the Class of 2017 has almost $40,000 in student loan debt.

“Our higher-ed system is the envy of the world, but if we as a country do not make important policy changes in the way we distribute, administer and manage federal student loans, the program on which so many students rely will be in serious jeopardy,” DeVos said, according to her remarks released by the Education Department.



From my friend Alex:


Thanks to my partner Josh, the electronic version of my book, Hello Harold, is now free on Amazon.

Here’s the story:

Welcome to Hello Harold (that’s me, Harold Evensky). I’ve been a practicing financial planner for over three decades; financial planning is my avocation as well as my vocation. I’ve had the privilege of participating in the growth of my profession, serving on the national Board of the International Association for Financial Planning, as Chair of the Certified Financial Planning Board, the International Certified Financial Planning Board of Standards, as well as on advisory boards for Charles Schwab and TIAA-CREF.

In those three decades plus, I’ve seen a great many changes, not only in the markets but also in how investors—and their advisors—respond to them. Some of those responses make very little sense. Financial planning is a powerful tool that can help you develop and maintain the quality of life you want. Unfortunately, there’s a ton of noise and nonsense foisted on investors that can undermine their financial success.

Maybe you’re one of the many unlucky folks who’ve tried using a broker or financial advisor and wound up with one of the few less than ethical ones who had you invest in easy-answer funds that did more for the advisor’s bottom line than yours. Maybe you decided to go it alone. Unfortunately, investing is not a simple task, and without a grasp of the fundamentals, many investors wind up making costly mistakes. Although there are innumerable books—many of them very good—designed to help you invest wisely, many are too long, too technical, too boring, too commercial, or too simplistic to hold the reader’s attention.

So it’s my turn. I decided my book would be just right—not too long, not too short, not too technical, not too simplistic, not commercial, and, most important, fun to read. Hello Harold gives you the foundation you need to navigate the markets and plan your financial future. I take you along with me on phone calls and meetings, conferences and classrooms, and let you eavesdrop on my thoughts, conversations, and brainstorming sessions with clients, colleagues, and students. I introduce you to actionable concepts that will make you a far better investor, with a sound plan for your future. You may even have some fun along the way.

Unlike with most books, don’t feel obligated to move from page one through to the end. Each chapter stands on its own, so you can skip and jump to your heart’s content, chasing subjects you find of interest in any order that appeals to you. No matter where you land, whether it’s cash flow or market timing or taxes or any of a myriad of essential topics, you’re likely to find something you hadn’t considered before in quite that way. Each chapter is designed to give you insights that will improve your financial bottom line and your chances of achieving your financial goals.



I’ll close with a few pieces of advice.

  • Don’t get seasick; don’t pay attention to the daily financial pornography. It’s noise, not news.
  • Plan for the long term, not the last 10 minutes.
  • If the world doesn’t come to an end and you plan an investment intelligently for the long term (that’s what we do for our clients), your financial life will be solid. If the world really comes to an end, you won’t care.

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.

Harold Evensky


Evensky & Katz / Foldes Financial Wealth Management

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 6 – October 2018

NewsLetter Vol. 11, No. 5 – September 2018

IRS Increases 2019 Retirement Plan Contribution Limits

David Garcia

David L. Garcia, CPA, CFP®, ADPA® Principal, Wealth Manager

Every October, the IRS considers whether, due to inflation, the limits for retirement account contributions should be increased. For several years now, a low inflationary environment has meant increases have been scarce. At times, there was even fear that contributions may be reduced due to negative inflation. The Federal Reserve has increased interest rates seven times since December 2016, so that is no longer a concern.

Below we have listed the new contribution limits for various retirement account types.

  • IRAs. The contribution limit for IRAs and after tax Roths has increased from $5,500 in 2018 to $6,000 in 2019. Note, the catch-up contribution for individuals over 50 remains the same in 2019 at $1,000. Therefore, an individual over 50 can make a maximum contribution of $7,000.
  • 401(k), 403(b), Federal Thrift Savings Plans, and most 457 plans. The IRS has increased the annual contribution limit for these plans from $18,500 in 2018 to $19,000 in 2019. The increase also applies to after-tax 401(k) or Roth 401(k) contributions. Like IRAs, the catch-up contribution for employees over the age of 50 stays the same for 2019 at $6,000. Therefore, an employee over 50 can make a maximum employee deferral of $25,000.
  • SEP IRAs. Self-employed individuals’ contribution limit on SEP IRAs increased from $55,000 in 2018 to $56,000 in 2019. Contribution amounts are calculated based on a percentage of compensation. The compensation limit increased from $275,000 in 2018 to $280,000 in 2019.
  • Phase-outs for deductible IRA and Roth IRA contributions. For a married couple filing a joint return, where the spouse making the IRA contribution is not covered by an employer plan but is married to someone who is covered, the deduction is phased out between AGI of $193,000–$203,000. If you are the spouse participating in an employer plan, the deduction is phased out between AGI of $103,000 to $123,000. For a married couple filing a joint return, your ability to contribute to a Roth IRA phases out between AGI of $193,000 to $203,000. For folks who make too much to contribute to a Roth, opening a nondeductible IRA and performing a Roth conversion may be an option.

Not everyone may be able to max out their retirement contributions. However, even if you contribute less than the maximum, it is one of the best things you can do for your financial future. This is especially true for those with employers who provide 401(k) matching. This is where employers match employee contributions up to a certain percentage. It’s basically free money. According to research data, only 48% of workers participate in employer-sponsored plans for retirement.[1]  Among millennials, participation is even lower, at only 31%.[2]  The key is starting as soon as possible and taking advantage of the incentives for saving for retirement.

Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email:

[1] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data

[2] Pew analysis of 2012 Census Bureau Survey of Income and program Participation data

Employee Benefits: Quality of Life

The following is a chapter from Employee Benefits: How to Make the Most of Your Stock, Insurance, Retirement, and Executive Benefits by Josh Mungavin CFP®, CRC® and Edited by Chris Boren & Tristan Whittingham.

Employee Benefits - cover


Quality of Life


Time-off/Sabbatical Policy

Time off for sabbaticals may be paid or unpaid depending on the employer, the duration of service, and the type of service (i.e., full or part time). Taking a sabbatical can be beneficial both in the short and long term for both the employee and the employer. The employee can return to work with an overall sense of well-being, having recharged their batteries and stepped away from the day-to-day grind of working, allowing them to come back with long-term positive changes to thinking and creativity. While an employee is typically more inclined to check in with work during a vacation, a sabbatical may provide the employee the ability to “check out” of the office for one to three months. This also gives the organization time to make sure the other employees have been properly cross-trained to ensure that the organization would be stable if they lose any employee.


Planning for a sabbatical should begin far in advance by cross-training the other people in your department. This can be a learning experience for everyone involved, leading to a stronger organization overall. The people who are cross-trained to fill in for the employee while the employee is on sabbatical can become more effective and responsible by the time the sabbatical taker returns because they can see the organization from a different viewpoint and gain wider experience working within the organization. Employees may find creative ways to grow the business that they would not have otherwise been inspired to pursue had they not spent time away from the company seeing things from the outside or from a different cultural viewpoint. Ideally, no team should be so dependent on any one person that everything falls apart if that person leaves, and a sabbatical is an easy way to test that.

The sabbatical also gives the individual a chance to view themselves and the world around them from a new direction, take on a new project, volunteer for something they care about, do research, write a book, learn a new language, pick up a hobby, reconnect with friends, work on a passion project, explore new ideas, travel, improve their health, spend time on their retirement or estate planning, take care of their family, or learn something new. All these activities lead to a better mental state upon the employee’s return to work and their ability to concentrate on the work in front of them since they have already taken care of the personal things that they had either put off or that were weighing them down during the work day. An employee coming back from a sabbatical often feels rejuvenated, like they have a new job, and no longer shows signs of burnout, returning with renewed focus on their work and sense of purpose.

A sabbatical can also be a great time for employees not on sabbatical to step forward and act in the role of the person on sabbatical by gaining valuable experience and showing management that they have the ability to step into that role if that position becomes available. Extra work taken on during a coworker’s sabbatical should be seen as an opportunity to be trained in a new area and to achieve expanded potential within an organization.

It may be wise to consider taking a sabbatical before leaving a company since your desire to leave the company may be a sign of burnout rather than an issue with the company. Used properly, the sabbatical can not only change your life but also provide valuable insight for your firm and a renewed sense of vigor to push through to the next level of your career.


A sabbatical is not like a typical vacation in that you only need to spend a short period preparing the office for a vacation. The planning for a sabbatical should start a year or years beforehand so cross-training is thoroughly done and everything is thought through and planned far in advance of the sabbatical. Always be thoughtful when scheduling and coordinating your sabbatical so you do not wind up with multiple people out of the office, placing stress on the employer and employees who remain to cover multiple shifts rather than just yours.

If your sabbatical is thoroughly prepared for, you may find that rather than coming back to a desk full of work, you come back to employees who are more self-reliant and accustomed to solving problems, having taken care of everything in your absence. If things are handled well during your absence, you can see that you don’t need to micromanage people and rely more heavily on your coworkers and subordinates. On the other hand, if you come back and things have fallen through the cracks that were an employee’s responsibility, you can get further insight into that employee’s capabilities and shine a light on their work in their current position, ultimately affecting their further employment or promotion opportunities in the future.

Some employers will allow you to combine your leave with your paid time off, whereas some will not. In general, paid time off and sabbatical policies are based on an employee’s tenure with the employer. Make sure you know what will happen to your health benefits while you are on leave so you know if you will need to pay for health benefits, if your employer will pay for the health benefits, and whether FSA or dependent care accounts will stay in place. You’ll need to know if your job will be available upon your return and if there is there a penalty for failure to return to work (either monetary or through a complication in benefits).

Before taking a sabbatical, it’s important to make sure you are financially ready and secure to cover your living expenses for the time you are away if it is not a paid sabbatical. It may be possible to split your sabbatical in two or combine the sabbatical with PTO to extend the time you can be gone. You will also need to note the effect the sabbatical has on all your benefits, including health benefits; retirement savings (including 401(k) contributions and matches or pension years of service in your pension calculation as taking an unpaid sabbatical during the last three years of employment if your pension is based off your last three years of salary can cause significant long-term detrimental effects); and insurance coverage, such as life insurance and disability insurance.

It’s also important to know whether you can take a paid job during your sabbatical since your company may limit you to not taking paid positions; if you are allowed to take a paid position, you may be restricted from working at a competitor’s firm. In addition, note that it is important to know whether anything you produce during your sabbatical will be considered your employer’s intellectual property.

Paid Time Off, Vacation, and Sick Leave

Paid time off (PTO) can be a specific number of days per year after a certain number of years of service, or you can be given a certain number of PTO hours per hours worked as a credit towards the number of hours in a bank you can use. Most PTO expires at the end of a certain period, but occasionally employers will allow you to roll PTO over from year to year. There may even be an opportunity to sell your PTO days back to your employer at certain periods, such as banking PTO days throughout your career and selling back a large block of them to your employer before retirement.

PTO vs. Vacation and Sick Days

Employers generally have vesting periods for employees to start PTO so employees can’t take PTO immediately; for example, you may have to wait 60 days or a year. There may be PTO or vacation and sick days, with sick days requiring that you actually be sick. Employers have recently been moving to PTO days rather than a combination of vacation days and sick days, which has sometimes come to the advantage or disadvantage of employees. It is often the case that the combined number of sick days and vacation days are greater than the number of PTO days given under new policies, but there is more flexibility in PTO days for healthy employees. Some states or cities may require that a certain amount of paid sick leave be given per year, so you may find that you have a combination of PTO and a minimal amount of sick leave as prescribed by law. It might be a good idea to look at work-from-home options if you are sick and you must work because of a lack of remaining PTO or a desire to not lose a vacation day.

One major concern with the change to PTO banks is that it encourages people to come to work sick rather than losing out on a day of vacation, which may be a good reason to work from home if you have the ability to do so. There are also issues with employees trying to use all their PTO near the end of the year so they don’t leave any days on the table, in turn leaving the employer with far too few employees to cover the employer’s needs near the end of the year. This makes it very important to make sure your days off are scheduled well in advance and thought through so your employer is not put in a bind.

How to Get the Most out of PTO

You can make your PTO days go further by strategically combining them with three-day weekends throughout the year rather than taking random weeks off. You may find that by combining your PTO days with three-day weekends, you can fit in an extra week of vacation or have a few spare days over the course of the year to either stay home or to use for sick days. Some employers will allow you to combine your leave with your PTO, whereas some will not.


Flextime allows employees to have flexible schedules where they can customize their work hours within a certain range of hours and days. Flextime can come in the form of compressed work weeks, flexible daily hours, or telecommuting, and it provides the flexibility to meet family needs, personal obligations, and responsibilities. Some options can save you money and stress, such as shaving time off your commute to work by shifting your commute from rush hours to times when traffic is not as heavy. It can help you avoid burnout, allow you to work when you feel the most productive, or give you control over your working environment if you work from home. It may also decrease childcare costs if parents can stagger their work times to reduce or eliminate childcare.


Some employees who thrive in an office environment may be disadvantaged by people working flexible schedules or working remotely. To remedy this, some employers require employees to keep core days or hours so there are at least some days or times when everyone is in the office to coordinate and collaborate. For instance, an employer that requires core hours may require the employee to be in the office from noon until 3 pm everyday so the office benefits from coordinated efforts and people working together for at least a few hours out of the day while allowing employee flexibility.

It’s also important for people who choose to work at home to make sure to check in and show progress to those who choose to go into the office; it can be easy for office colleagues to perceive that those working remotely aren’t working if there aren’t tangible outcomes from the remote work.

Flextime Options

Some employees may be given unlimited or limited ability to work from home or telecommute while working remotely since many jobs do not require a person to be in the office to be productive. Some employers may allow compressed work weeks, e.g., working longer hours four days out of the week and taking the fifth day off, working shorter hours four days a week and having one long day to make up for the difference, or working shorter hours six days a week.

Some employers allow employees to work from alternating locations; in other words, the employee may work from the office for four days a week and then work from home or a remote location on the fifth day. If used properly, any flextime arrangement can lead to a significant increase in quality of life and the ability to be more productive since you can take advantage of working on things when you are most creative and productive. You can also coordinate things in your personal life that need to be coordinated while helping prevent burnout. Make sure you stay active in communication and collaboration as much as possible if you are working under a flex arrangement so you are not seen as taking advantage of the benefit and as a productive member of the team.

Work from Home

Some people work best in an office environment, while others work best and stay most productive working from home. So, it is important for you to know which camp you fall into before committing to working from home or the office. For the right people, working from home can increase productivity and decrease stress.


For employees who work best in quiet, stable environments, working from home can reduce the amount of distractions faced because people do not come into their offices to disturb them while they are concentrating. At the same time, you cannot stop by a coworker’s office to coordinate on an assignment as easily, so it’s important to set up proper systems to collaborate while maintaining a distraction-free work environment. Working remotely may allow you to avoid office politics that you would otherwise be pulled into. Often, workers will need large chunks of uninterrupted time to really make progress on a project, which they can get through working remotely, but it’s important to set up times during the day to check in on the people in the office and others working remotely. Introverts may find even more significant benefits from working from home because of the solitude it provides. Make sure to stay in touch with the office to not only keep up with changes in important information but also show you are working and engaged.

The lack of time spent commuting can save dozens of hours every week that can be put to better use in both your personal life and your work life if used appropriately. Some people use a combination of working from home and flextime to bifurcate their work day so they can wake up early, get started on work while they’re most productive, take a midday nap or work out, and then come back to work having had some time away and some physical exercise so their minds are working at full capacity. Even something as simple as taking a walk around your neighborhood or through a local nature trail can be incredibly valuable over the course of the day since it provides a mental reset.

You may be able to save money by making your meals at home rather than eating out and by having more casual attire rather than the normal wardrobe expenses and trips to the dry cleaner. In addition, you may be able to work in a newer, more comfortable environment. Working remotely can also allow you to spend time with your family and pets that you otherwise might not have; things like working from an aging parent’s home can be incredibly valuable to you now and in the future since that is time you can’t get back, which may give you fond memories of your parent you might not otherwise get to have.

What to Be Aware Of

Make sure that if you work from home to decrease stress levels that you are not “always on” when you normally wouldn’t be; otherwise, you risk compounding your stress and ending up burned out. It’s too easy to let the desire to make sure people know you are doing well at your job while working remotely take over your personal life if there is no dividing line between work and home, which can cause you to overwork yourself so you’re not seen as a slacker.

Dependent Daycare Expenses

Your employer may have a dependent care assistance program, which could allow you to allocate up to $5,000 per year (unless you file married filing separately in which case you can allocate up to $2,500 per year) for child-care expenses pre-tax. This money can generally be used for a nanny or daycare.

Rules and Limitations

While these tax-benefited savings are generally used to take care of dependents while a legal guardian is at work, it can also be used for children of any age who are physically or mentally incapable of self-care or adult daycare for senior citizen dependents who live with you. The person for whose benefit the funds are spent must be claimed as a dependent on your federal tax return. The funds can’t be used for summer camps, other than day camps, or for long-term care for parents living elsewhere. A dependent care FSA is federally limited to $5,000 per year per household.17 An FSA for dependent care is not fully funded at the beginning of the plan year by the employer, unlike medical FSAs. Unused amounts for dependent care also cannot be carried over, unlike some healthcare FSAs may allow.

The money allowed to be put in a dependent care FSA can be further limited if one of the spouses is not working and the non-earning spouse is not disabled or a full-time student.18 This can cause some very odd issues. For instance, if a single person elects to withhold the full $5,000 for childcare expenses and gets married to a non-working spouse before having filed claims for any of the money, the $5,000 would be forfeited because the newly married person can no longer take advantage of the dependent care FSA since the spouse is not employed; however, the $5,000 put into the plan would also be taxable. Thus, you would get no benefits and still have to pay taxes on the $5,000 you never received.


Your employer may provide housing to employees; thus, it is important to know whether the housing is provided in a manner that will cause you to have to pay taxes so you are prepared at tax time. You may be exempt from paying all or part of the taxes on employer-provided housing if it’s provided for the convenience of your employer, it’s a temporary work location, or it’s lodging furnished by an educational institution.


If you are provided with housing by your employer, you should ask for documentation containing a description of your responsibilities, a description of the lodging being furnished, the reasons why the lodging is required for you to perform your duties, a listing of taxable and non-taxable utilities, and services provided (such as phone, internet, housekeeping, and landscaping services). In addition, any events you have at the house connected with the business should be recorded in case of an audit. You should be very clear as to which utilities you will need to cover for the house. Furthermore, there are some very complex rules covering what is taxable and what is not, so make sure you understand what your tax liability will be after speaking to your CPA. If the employer owns or rents the home, it is also important to note who is allowed to occupy the property, if any pets are allowed, what rules are imposed on staying at the property, if smoking is allowed, if there are any quiet hours, if the employer can come in and inspect the property, any upkeep required for the property, and who is required to pay for utilities.

Potential Costs and Assistance

Housing assistance can come via specific dollar amounts for down-payment assistance or housing education programs and credit counseling. The employer may also provide closing-cost grants, deferred loans, mortgage guarantees, shared-appreciation mortgages, or donated or discounted land and buildings for development or redevelopment. Some states may also offer to match a certain amount of funds given to the employee by the employer for house down payments or closing costs. If you are staying in a home your employer owns or leases, make sure you know whether you are a tenant or under license. It may be easier for your employer to kick you out if you are under license if something happens at work and you are laid off, which creates a significant increase in insecurity.

Student Loan Repayment

Optimal Use
Your employer may offer to make payments on your student loans. In such cases, it may be wise to think about not paying off any student loan amounts your employer might pay off for you if you plan on staying with the company so no money is left on the table. There may be a period that you have to wait before you start collecting contributions, such as working at the employer for one year before they start repaying loans, and there will likely be a cap (either per year or over the course of your career) on what they will repay on your behalf.

If you know you are taking a job with a company that offers student loan repayments after you graduate, it may be wise to think about taking on a certain amount of college debt even if you otherwise wouldn’t have to in order not to leave money on the table.

29. Studen Loan Repayment 1

General Considerations

Do not let student loan repayment be a driving factor in which job you accept because many benefits can add up to a more beneficial pay package over the course of your career. In other words, like every other benefit, it’s wise to look at the combined benefits package rather than any benefit in isolation before choosing a job and negotiating for any missing benefits in the best benefit package offered to you before accepting a job. You want to look at the whole picture, including pay and the benefit package, rather than one benefit in particular, even if there is an emotional pull towards one benefit.

Special Considerations

  • Remember that any payments to you are currently considered income, so you’ll have to pay taxes on the benefit.
  • Note that there is the potential to deduct student loan interest from your taxes while your employer pays your student loan off for you.
  • Some employers will offer to match student loan payments up to a certain amount with non-taxable contributions to retirement accounts rather than paying off the student loan directly, so you get a tax benefit from the employer benefit.
  • Some employers will offer monthly payments while others will offer lump sums, so it’s important to understand the design of the plan.
  • Some will require you to have received your degree within a certain period before employment; for instance, you may have had to receive the degree within last two to three years to be eligible for student loan repayment.
  • Some employers will pay a certain amount per year with no cap, and some will make a certain payment amount per year with a lifetime cap.
  • Keep in mind that if you paid off your debt, you may not be able to get retroactive benefits for debt that no longer exist.
  • An employer may require you to refinance the student loan with a certain company. If they do, make sure the forgiveness terms, interest rate, and any loan servicing fees don’t change the loan. Otherwise, be comfortable with how they will change the terms of the loan and consider converting only some of your student loans so you get the max employer benefit but keep the other preferable terms of your currently existing loan.

Financial Advisor Fee Payment

The best form of this benefit is when the employer gives you a stipend to use to hire a financial advisor of your choosing. This ideal scenario is not universally used since your employer may also decide to contract with a single firm (which can create a false sense of security because you believe the information comes through or comes blessed by an employer). The employer may pay the upfront planning costs and depend on you to pay any ongoing costs, or they may pay a certain amount yearly for your benefit. This benefit can be provided on a one-on-one basis, through in-depth in-person workshops, or over the phone and computer consultations.

Potential Risks

Given what I do for a living, one would assume that I would be unabashedly for this benefit. However, it may come with strings attached that you need to be aware of. Sometimes, the person coming in to the company to give financial advice has volunteered to give the advice for free. This costs the employer nothing, and the advisor typically expects to make their money from commissions and other charges to the employee. A large red flag appears when you sit down with someone and within an hour, you end up with a recommendation to buy something that could affect the rest of your life. If that happens, you’re likely talking to a salesperson and not an advisor. A skilled, experienced advisor working on a team of very competent people can take tens of hours to create and truly understand your financial plan and how everything fits together. So, even the best, most well-intentioned advisor can only do so much during a one-hour phone call.

It is important to learn from the advisor your employer may provide to you, but always remember that you shouldn’t take for granted that the advisor has been vetted by the employer. It may be that the employer simply chose the person or company in charge of some of the company’s other benefits. Similarly, even though your employer is paying for the financial planner to come in and talk to you, it doesn’t mean that the advisor actually has your best interests in mind or that they won’t try to sell you something to line their, or their firm’s, pockets. This threat is ever present, making it important for you to make educated decisions about any options presented to you.

As with the college benefit, something that is free is not always without cost. This means bad advice, even if it’s free, can be very expensive in the long run. It is important to be very careful to evaluate the person with whom you are speaking. You may be routed to an individual in a call center reading off a script who has little financial knowledge. A good way to make sure you are dealing with somebody who is at least minimally competent is to make sure they have the Certified Financial Planner® designation. This designation does not speak to how good somebody is at financial planning but simply shows that they are minimally competent at performing financial planning.

Key Considerations and Regulations

Other financial advice can typically be found in the 401(k) education provided by the employer; you should take advantage of this information. There is a general legal requirement that as a fiduciary, a 401(k) educator must have your best interests in mind, whereas a financial planner or advisor who is not acting as a fiduciary is not obligated to have your best interests in mind but instead the best interests of their firm. That said, when working with your 401(k) or any other financial matter, it is always to your benefit to use an advisor who is a fiduciary. It’s important to have an ongoing engagement with the person who knows you and your financial plan due to the complexity and in-depth thought involved in financial planning. Oftentimes, an internet or call-in service is largely devoid of value outside very basic questions and financial education.

Some companies will pay you or give you health insurance premium discounts for participating in financial wellness activities or education, so it is always worth researching what is available to you.

Relocation Assistance

Employer-provided relocation services may be provided as a lump sum or a direct reimbursement, or your company may provide paid moving services with a company with which they have contracted. The moving benefit generally covers the movement of household goods and people; it can sometimes include scouting trips so a new employee can visit the new location with their family and decide where they would like to live while they are beginning to assimilate to the new community. It may also include retention bonuses to employees if they stay with the new company or stay with the old company that’s relocating them for a specific time frame. The employer may also provide trailing-spouse assistance for a spouse who stays behind while the employee sets up their new life in a new location. Housing benefits may come in the way of loss-on-sale benefits, quick-sale bonuses, and other incentives to help employees sell their homes and buy new homes.

Here is a general list of relocation expenses that may be reimbursable by your employer:

  • Travel
  • Hotels
  • Flights
  • Meals
  • Transportation costs
  • Household goods
  • Automobile relocation
  • Storage options
  • Miscellaneous cash allowances
  • Home search expenses
  • Real estate commissions
  • Temporary housing costs
  • Early lease cancellation
  • Home sale or purchase costs
  • Rental deposits
  • Home sale marketing
  • Physical move packing
  • Cost of turning off and on utilities
  • Cancelation fees to any clubs
  • Reinstatement fees to any clubs

*This list is by no means comprehensive. If you think that an expense might be reimbursable, ask your employer. It’s better to ask and be told “no” than not to ask and find out later you left money on the table.

Potential Advantages

It is almost always a good idea to use any rental or temporary housing available to you in a new city so you can make sure you are comfortable living in the area of town you plan to live in. The ability to rent a place for a few weeks or a month while you keep everything in storage at your employer’s expense and search for a place you are happy with is of substantial value, and you should utilize it if it all possible.

Potential Risks

Generally speaking, if the moving benefit is in the form of a lump sum or the reimbursement is given directly to you, it will likely have to be counted as income for tax purposes; this means you will have to deduct moving expenses from your taxes. If the money is paid directly to a third party, however, it may be excluded from work income. Make sure to work with your new company and your accountant to make sure you get the best after-tax benefit possible before beginning your move.

Key Considerations and Regulations

If a relocation package isn’t brought up during salary negotiations, it’s your responsibility to start the conversation; otherwise, you may not get an offer for relocation, especially if you have already signed a contract with the employer. Before negotiating, know what you’ll need, including any special assistance for services; any special moving needs, including boats and paintings; and the sale and subsequent purchase of a house. You’ll also want to know about how much your move will cost for each of the components so you have a baseline on which to negotiate. Make sure that when you are moving and you have a relocation package you know what it covers. Some may or may not cover packing or unpacking items; moving the car or second car; or moving exercise equipment, paintings, boats, and other items you may choose not to relocate given the personal cost to you if it’s not covered under the relocation agreement. Make sure you keep track of all expenses and keep all receipts in case you must justify anything to the IRS or your employer.

It is important to know when to expect the reimbursement if you are being reimbursed for travel services or any of the other housing allowances. You don’t want to depend on being reimbursed immediately and find out that reimbursement takes a number of years after vesting with the new employer before you receive any money. Following your move, your employer may provide relocation benefits in amounts paid incrementally rather than a lump sum.

It is always wise to get a quote from a moving company after they’ve seen everything in your current home since phone estimates are notoriously inaccurate. Make sure to walk through your house while recording a video of all your things on your phone so you have some documentation in case something is broken during the move. Finally, always make sure you deal with a licensed, bonded moving agency.

Legal Plan

An employer may offer a group legal plan that provides access to a network of attorneys who have agreed to provide legal services at discounted rates. This may or may not be a benefit to you.

Here is a short list of different services lawyers may provide:

  • Informational and advice consultation;
  • Review and creation of legal documentation; and
  • Litigation and negotiation representation.

Potential Advantages

It is worth looking at the value of the plan, especially if you do not already have estate documents including your healthcare power of attorney, durable power of attorney, and will at the very minimum. These are essential documents in any financial plan, and the ability to obtain such documents at a discounted rate can be invaluable.

Potential Risks

It is always recommended to have an attorney draw up these documents rather than using online form templates to create your own. As is so often the case, we do not know what we do not know. Trying to draw up your own estate plan leads you into very deep waters that very talented people have made careers of understanding. The cost for estate documents can be high, but the consequences can be exponentially higher.

Volunteer and Gift Matching

Volunteer and gift matching are excellent benefits that add value to employees, employers, and the community at large. With volunteer matching, your employer will usually donate money to an organization for which you volunteer for every hour you spend volunteering. With gift matching, your employer will match the money you donate to a cause you care about. For both of these benefits, your employer may set matching percentages up to a certain limit.

The types of volunteering work that qualify under volunteer matching can include all types of projects, from hands-on projects in the community to pro bono work in the area of your expertise. This can be personally rewarding for you and give you leadership experience, the chance to form connections with colleagues in your corporation, or the opportunity to mingle with people in varying industries outside the corporation. This leads to marketing for the firm and the ability to establish your personal brand.

Potential Benefits

Volunteering can provide a way for you to develop skills that are beneficial for your job and increase your value in the eyes of your employer. It also involves giving to a cause that you care about while your employer contributes to the same cause. This is a win–win for everyone involved: the cause, your employer, and you. Your employer gets a more well-rounded employee who gives back to the community in a meaningful way while potentially bringing in new business and garnering goodwill from the community that knows the employer is sponsoring the employee helping the cause. This brings about healthier communities that reap the rewards of employees and employers combining forces for the good of society.

Some companies not only match cash contributions but also contributions of securities to charitable organizations. This means there are additional benefits if you have highly appreciated stock you would like to donate to a charity. You get the tax benefit from gifting highly appreciated stock instead of cash, and there’s a match benefit from the employer so that in after-tax terms, you give much less but the charity gets significantly more. You may also think about gifting directly from an IRA account if you are over 70.5 years old since such gifts can be counted toward your required minimum distribution; you not only get to give money to a charity and have your employer match it but also avoid paying taxes on the part of the required minimum distribution that went directly from the IRA to the charity.

Potential Risks

It is important to be cognizant of any conflicts of interest in using this benefit. In cases in which money is given to private foundations or donor-advised funds, gifts that provide benefits to you or your family (including advertisements) may be out of line with the intent of the program, leading to more than a few raised eyebrows within the organization. This type of conflict of interest may have consequences up to, and including, termination, possible civil or criminal liability, and a demand to return the matching gift amount from either the charity or from you, the employee.

Key Considerations and Regulations

To get the gift-matching benefit, an employee may be able to simply provide receipts; some cases may require a payroll deduction to have the company match dollars given. Some companies only match contributions to certain charities and limit the program to certain employees. This makes it very important to know how much can be paid out and the process for getting that amount paid out. You may need to keep documentation along the way or ask your HR department for approval of the charity before the gift is given. There is no reason to leave money on the table by not following the stipulations of the program, thus leaving the charity with less than they would have gotten if you had followed the program’s rules. Gifts may have to be made during certain periods, and you may have to follow up with the organization you have given money to and confirm that the matching gift from your employer was made and received. It’s also important to make the distinction that employer matching is not a deductible charitable contribution for the employee.

With respect to volunteer matching, an employee may need to show volunteer hours logged to get the company to provide gifts matching the hours volunteered.

Tuition Reimbursement or Assistance

Your employer may pay for continuing education, part of your college tuition, or some tuition and college-related expenses for your family members. It’s important to know what type of education your employer will pay for, and it’s generally worth not leaving free money on the table when you can spend some of your employer’s money to further your own education, either through college or continuing education courses. Some tuition reimbursement assistance programs will help pay for GEDs or language classes, while others require you to only take courses in your particular field or classes the employer deems useful for its purposes.

Potential Advantages

Some employers also choose to reimburse for expenses associated with higher education. These reimbursements can include books and an internet connection as long as one of your courses is online or has some internet component. This opens availability for someone who has an interest in learning, maybe about a specific course or subject they feel will increase their value in the job market, but who don’t necessarily want to complete a degree program to gain the education they desire, and free internet or subsidized internet.  In the right situation, you can actually make money by agreeing to take college courses that you get an A in because the value of the internet subsidy, and any other costs covered by the employer, are paid for while you increase your value as an employee. To extend the time during which you receive these additional education-related subsidies, it may make sense to think about taking one course at a time rather than several courses simultaneously if the employer will cover the full cost plus additional fringe benefits. This is recommended even if you aren’t interested in furthering your education but are interested in having a certain number of subsidies from your employer.

Potential Risks

Some employers have teamed up with certain colleges, which can be a good or bad thing. The employer may have contracted, for a discount, with a for-profit school that is otherwise suffering for students and needs to attract the business. This could be troublesome since even after the discount, you may not get the value you are paying for. It is also important to consider that getting a discount on something worthless is far worse than paying for something that’s worthwhile at full price. Think about the end goal of taking the courses: can you receive another degree through the college that will be of value, and if not, are the courses transferable? If the answer is no to both those questions, then it may be worth considering paying full price elsewhere to achieve your goals.

It is possible that all the discounts on college tuition you receive are a reduction from the university expenses and not actually a contribution from your employer. An employer may give a scholarship of a certain level of discount after factoring in any financial aid available. This means, you may use up some of your lifetime financial aid benefits by pursuing the employer-sponsored education plan, get a small discount on an education that is otherwise nearly worthless, and be unable to use the same benefits for the education you actually want. As stated earlier, a discount on something that is overpriced to begin with or that has no value is not a discount—it’s a sales tactic.

Some of the discounted or free college education programs available to you might include online courses only. These can have value in terms of training you, but they may lack the value a normal college brings in terms of interactivity, such as getting to spend time with other people in your industry and growing your network, which can become a substantial asset over time.

There will almost always be an annual dollar cap on employer-provided educational assistance. In 2017, the IRS allowed your employer to reimburse you for or pay directly for any educational assistance up to a maximum of $5,250.19 Anything over that cap would be counted as income and taxed as ordinary income. This is an important distinction to keep in mind when it’s time to file your tax return.

Key Considerations and Regulations

It’s important to account for the cost of tuition and associated fees when deciding how to take advantage of this benefit since your employer may put a limit, either annually or per credit hour, on any courses taken.

Your employer may also require that you clear the specific course through HR so your program of study matches the employer’s needs for you as an employee. You will likely be required to receive at least a certain grade point average in the courses you are reimbursed for, and you may find that there is a depreciating reimbursement depending on your grade (e.g., as being paid out at a higher rate than Cs and so on).

It’s also important to know before taking a course when you will be reimbursed since your employer may not reimburse you until you have met a certain number of stipulations or certain vesting. You may also be required to provide proof of enrollment and your grade point average for all completed courses.

The amount of reimbursement you’re eligible for may depend on the length of time you’ve been with the company, and there may be a cap on the number of classes you can take at a time or overall throughout your entire career. Keep in mind that some of these programs require you to remain with the company for a set period; otherwise, you may be required to pay your employer back for any tuition reimbursement received.

Employee Assistance Programs

Employee assistance programs are meant to assist you with personal or work-related problems. They may offer confidential assessments, short-term counseling referrals, and follow-up services for those in your household. These programs generally provide short-term counseling and refer you to an outside resource. You may have only a few sessions or quite a number of sessions to take advantage of over the course of the year. The sessions can be either by phone or in person depending on your company.

Counseling sessions can be for any of the following issues:

  • Substance abuse
  • Occupational stress
  • Emotional distress
  • Major life events (accidents/death)
  • Healthcare concerns
  • Financial concerns
  • Legal concerns
  • Family issues
  • Personal relationship issues
  • Work concerns
  • Aging parent concerns
  • Marital trouble
  • Divorce conflicts
  • Depression
  • Weight loss
  • Mediation
  • Conflict resolution
  • Domestic violence
  • Workplace violence
  • Personal emergencies

*This list is by no means comprehensive. If you believe an issue is worthy of assistance, ask your HR representative for guidance and clarification.

There is a wide array of services offered by employee assistance programs and at your disposal. These benefits are generally also only given to family members covered by an employee’s health insurance, but they may also cover other household members.

Potential Advantages

These programs are a great way to discuss grief and concerns regarding personal and workplace issues. They can help you with guidance and communication through difficult situations, such as mergers, layoffs, or when employees die on the job. In certain cases, employers may provide leave for victims of domestic or sexual violence. These programs may also work with management and supervisors to plan ahead for situations such as organizational changes, legal considerations, emergency planning in response to traumatic events, and support for disaster and emergency preparedness.

These programs can also help you find childcare resources and even resources for elder care assistance for parents and other family members. Some programs can find information about schools or colleges and connect you with nannies, childcare centers, and summer camps. Counselors can help find in-home caregivers, help navigate Medicare and Medicaid services, and provide support while you deal with emotional and other stressors associated with being a caregiver. You may also be able to ask them about the best assisted-living facilities or nursing homes in your area, and they may be able to make a call on your behalf to narrow the field of choices based on what you’re looking for.

You can turn to financial counseling through these programs for ideas on budgeting, credit problems, foreclosure, bankruptcy, credit card debt, or any other financial issues that may bother you. They will in turn provide you with a base level of financial education and refer you to a good source for follow-up if necessary.

Employee assistance programs may also provide support for veterans’ issues for people returning to the workplace as well as unique issues that may surface during a veteran’s career both at work and home, including dealing with post-traumatic stress or readjusting to civilian life.

Key Considerations and Regulations

These programs are generally confidential; employers may request reports from the people who run these programs to see how much the service is being used and for what purpose, but they’re only allowed to get aggregate information that doesn’t identify any individuals using the service. However, when the counseling is mandatory due to disciplinary problems, the supervisor or HR representative may be told whether the employee is attending required sessions, and they may inquire about the employee’s progress. Otherwise, these programs are usually run by a third party that is federally bound not to release any individual information about services used.

Keep in mind that the service may have certain hours of availability, although many have 24-hour hotlines so the systems can be used whenever you’d like. This way you can call from home so you’re not worried about calling from a work phone.

Adoption Assistance

Employer adoption assistance programs can provide information, financial assistance, and parental leave. Informational assistance can include:

  • Referral to licensed adoption agencies
  • Support groups
  • Access to adoption specialists
    • A specialist will walk you through the adoption process, answer any questions you may have, and help with special situations such as special-needs adoptions and non-domestic adoptions. These services can all be done either in person or over the phone.

Financial assistance can include a lump sum payment for an adoption fee and partial reimbursement to employees for expenses associated with the adoption. Financial assistance can cover costs related to the following:

  • Public agency fees
  • Private agency fees
  • Court costs
  • Legal adoption fees
  • Medical costs
  • Temporary foster care charges
  • Transportation costs
  • Pregnancy costs for birth mother
  • Counseling costs
  • Home study fees
  • Translation services
  • Travel and lodging
  • Immunization fees
  • Immigration fees
  • Lost wages for time taken off through the adoption phase

*This list is by no means comprehensive. If you believe an issue is worthy of assistance, ask your HR representative for guidance and clarification.

 Potential Advantages

Employers may offer flexible time off and flexible work schedules for a set period after an adoption. A new adopted parent can generally take up to 12 weeks of unpaid leave after the adoption of a child, and it can be very wise to take advantage of this time with your new child to get them acclimated to their new home. The programs may also provide some employee education about adoption and post-adoption resources. These benefits can prove to be invaluable resources for you as new parents.

Potential Risks

You may find that the benefits paid to you for adoption assistance are taxable as ordinary income. This makes it extremely important to account for this additional income in any tax withholding that takes place over the course of the year and when filing your taxes at the end of the year. Make sure to speak with your CPA about how this assistance may affect your taxes as well as whether the adoption tax credit is available to you.

The employer may just provide a lump sum payment for the adoption rather than covering certain fees. You may also find employers that cover certain expenses or a certain percentage of expenses. In other situations, employers may only give a total dollar amount regardless of actual expenses.

Considering all these different scenarios available for adoption assistance, it’s important to know beforehand what your employer will reimburse, what they will not reimburse, and the manner in which they go about covering the expenses. This also makes it important to keep track of everything, including receipts, as you work your way through the adoption process in case anything is called into question or is needed for tax purposes.

Key Considerations and Regulations

Your employer may require you to meet certain criteria, such as length of employment, full-time employment, or participation in the company-sponsored health plan to be eligible for the program. In some circumstances, the type of adoption can also affect the benefits (things like adopting a stepchild or an older child may not qualify you for adoption assistance, whereas adopting a child with special needs may give you enhanced assistance). In addition, remember that some employers may only pay for a single child adoption, whereas others may pay for you to adopt multiple children.

Your window to adopt may come across suddenly, and immediate action may be required. It’s important to look at all the details of your employer-sponsored plan once you think about adopting and get everything lined up so you can act on a moment’s notice.

Some qualified adoption assistance benefits may be excluded from the rules taxing fringe benefits. This makes it important to keep an itemized list of all expenses the company has reimbursed you for and those they have not reimbursed you for. This allows your CPA to take advantage of any and all exclusions to income that may be achievable through adoption benefits. Keep in mind that although these payments may be excluded from federal taxes, they may be included in Medicare, Social Security, or state taxes. The IRS may also cap the exclusion amount you’re allowed to exclude from your income for any adoption assistance given to you by your employer per year, and it may also phase out the deductions allowed depending on your income; so that high-income individuals may not get the same tax benefits associated with adoption assistance programs as lower or middle-income individuals.20

Family Caregiver, Maternal, and Paternal Leave

The Family and Medical Leave Act allows certain employees to take up to 12 weeks of unprotected, unpaid leave per year.21 This can be expanded upon by the state or the employer. The employer will continue to pay the employer-paid portion of your health premium (you may have to continue paying your portion of the premium during the leave). Upon returning from leave, you must be restored to the same job or an equivalent job. This means that, the leave does not guarantee that the actual job you held prior to going on leave will still be available and yours upon your return. However, you should get a job that is virtually identical in terms of pay, benefits, and other employment terms and conditions, including shift, location, and overtime. You should also be able to get any unconditional pay increases that occurred while you were on leave, such as cost-of-living increases.

The Family Medical Leave Act allows you to take time off at any time during your pregnancy or even after childbirth within one year of your child’s birth. You may be able to take leave as a mother before and after having or adopting a baby, which is called maternity or pregnancy leave. Paternity leave for fathers is less common but is available at some firms.

If enough leave is not provided by your employer, you may be able to negotiate for more leave or negotiate to work from home or on a flex schedule to better suit your adjustment to life with a new child.

Potential Advantages

Some employers may allow you to continue working part or full time while technically on leave so that only days taken off to deal with acute issues qualify as leave. This provides the benefit of shortening the amount of leave time you need to take to deal with an issue and/or lengthening the amount of time over the course of the year you can stay on leave and still be considered an employee with benefits.

In certain cases, some states require employers to provide paid leave rather than just unpaid leave. Similarly, any loans taken from a retirement account may be allowed to have repayment suspended during the leave. Some employers will also provide community services, counseling, respite care, legal and financial assistance, and caregiver support groups for those on leave dealing with associated issues that would require those services.

After the birth of your child, a short-term disability insurance policy may cover part or all of your salary for a certain period. It’s worth knowing what is covered in advance since some insurance companies may pay out for longer periods if you experience complications or have a C-section. Going on leave for a disability may also qualify you to begin pulling out any non-qualified deferred compensation money that has been put aside for your benefit to be paid at a later date.

Some states have short-term disability plans that pay for a certain period of maternity leave out of the office even if the employer does not carry any short-term disability insurance; so, it’s important to know what is offered through the state for maternity or short-term disability leave. You may have to file within a certain period to take advantage of anything offered by your state in this regard. The state may cap the benefits at a certain level per person or at a percentage of your ordinary income.

Potential Risks

It’s important to make sure you know whether your short or long-term disability policies will stay in place while you’re on leave, especially if you may need to go on disability after the leave. If you find that going on leave may cancel your short or long-term disability policies, it may be worthwhile to debate going directly on disability rather than using leave. Short-term disability policies may also require you to use your sick time or vacation days before you start receiving payouts. Under these circumstances, you may strategically use your sick time and vacation days before the birth so your short-term disability policy kicks in sooner. The policies may also require you to be physically absent from your workplace for a certain period before receiving benefits.

Keep in mind that any decision to work part time before or after the birth may affect your ability to collect short-term disability payments.  So, it is wise to know what your short-term policy covers (and under which conditions) before going to work part time or remotely for your employer during the time you take as maternity leave. It is also important to know whether you may have to pay back any of the short-term leave on maternity pay in the event that you do not return to work or quit within a certain period after returning to work.

Time spent on leave may or may not count towards vesting of benefits for defined benefit plans and may decrease the average pay you received over your years of service in pension benefit calculations. Deciding whether to take leave or retire (for in cases in which your final average pay may be lower if you take unpaid leave in one of your final years) may be necessary to make sure you receive the highest pension payment possible. You wouldn’t want to decrease the pension payments for the rest of your life because you took leave for the last three months of your career, which makes any calculation of your last three years of pay much lower than it would have been.

Keep in mind that you may lose any bonuses, incentive pay, or equity-based pay during your leave of absence, typically depending on the type of pay and your role in the firm. Being out on maternity or other leave may affect things like raises, bonuses, seniority, participation in your company’s 401(k) plan, vesting of the company’s matching contributions, or stock options. In addition, you may not be able to contribute to your 401(k) or FSA while you’re on leave.

Dependent care FSAs are not required to continue during leave, unlike standard FSAs. There may be a period during which you will have some coverage for dependent care but after which you will not be allowed to get any reimbursement for dependent care even if you put money into the account. This makes it very important to pre-plan this if possible.

Employers likewise keep FSAs in place during leave, but the coverage can lapse if you elect to cancel the coverage—during which time your employer is not required to make any reimbursements for expense claims. Even if you decide to discontinue coverage, the employer can keep the FSA coverage in place, and any amounts given to you during this period must be repaid by you whether you return to work after leave.

Some other potential risks to keep in mind include the following:

  • Sometimes, even an employee on leave can be laid off (e.g., due to downsizing or if the employee is a highly compensated employee who does not meet certain standards).
  • Employee assistance plans may or may not continue while on leave.
  • Any insurance acquired through work may or may not provide coverage for employees on leave. Make sure to inquire about the continuation of any life, health, dental, and vision plans and how you will continue to pay premiums for any available plans.
  • If the employer continues to pay your portion of insurance premiums during a leave period, you may be required to repay those sums after the leave has ended.

Key Considerations and Regulations

To be covered by federal regulations, you are required to work for your employer for at least one year and at least 1,250 hours over the previous 12 months (as long as the employer has at least 50 employees within 75 miles).22 You may be required to provide 30 days of advance notice when the leave is foreseeable. Under some circumstances, the employer may require you to use all PTO and sick leave as part of your unpaid leave.

Some other key considerations to keep in mind include the following:

  • Vacation may continue accruing while you are on leave, or you may be required to use all vacation days while you’re on leave as part of the time you’re away from the office.
  • Smaller employers and part-time employees are generally exempt from any leave policies required by the federal government; however, some may still be covered under state law, or the employer may opt to provide leave even though it is not legally required.
  • It’s important to know how the health benefit coverage works while you’re on leave so you can elect for money to be withheld to pay premiums from any checks you receive or prepay or write a check for coverage while you are gone.
  • Federal law does not cover the care of your father-in-law, mother-in-law, brother, sister, grandmother, grandfather, or adult child because “family” is defined a spouse, parent, or child under the age of 18, except relatives or other people who helped raise you or for a grown child who is severely disabled.

 Military Leave

An individual leaving on military leave may be entitled to pay increases they would have normally received had they stayed at the employer during the time of the leave, although there are some exceptions. They are also entitled to be reemployed in the same or a similar position and the same benefits upon returning to work (with some exceptions, including circumstances in which reemployment is impossible or unreasonable or in which reemployment would impose an undue hardship on the employer).

Potential Advantages

You are not required to use your vacation pay while on military leave like you may be required to for general leave. It may be worth thinking about using your vacation pay during the leave time to use optimal tax planning strategies and to provide additional income you may not otherwise realize if you do not return to your employer. For example, since pay while you’re deployed isn’t taxable, using your PTO first means you get paid tax free, and you can then take unpaid leave in another year to lower a second year’s taxes. This strategy is better than having to pay taxes for your PTO days and being in a higher tax bracket than necessary the following year. Any time when you are deployed and not paying taxes on ordinary income may also be a prime time to convert some of your retirement plan money into Roth IRA money.

Keep in mind that leave provided by the government is unpaid leave, so the employer may choose to provide some pay during your absence. Under certain cases, if you perform work for the employer while you are on military leave, you must be paid your full salary from the employer minus any military pay.  Unpaid leave is required in some amount for certain employees. However, some companies may opt to cover non-required employees during leave, have extended leave, or provide a combination of these two solutions.

While deployed, the military provides its own benefit of allowing you to put up to $10,000 into a savings account, giving you a guaranteed interest rate of around 10% during the deployment period. It is generally worthwhile to maximize your contributions to this plan.

As long as you continue your health coverage, the full amount of your FSA, minus any prior expenses for the year, must be available to you at all times during your leave period. However, if your coverage under the health plan terminates while you are on leave, you are no longer entitled to receive reimbursement for claims during the period in which the coverage was terminated.

Military members returning from military leave who have defined contribution retirement plans must be given three times the period of their leave of absence, as long as it’s not greater than five years, to make up for any contributions missed during the leave period.23 This can be very beneficial in terms of allowing the military personnel to overcontribute to a deductible 401(k) plan, thus lowering their taxes for the years following the return from deployment.

It’s worth keeping four other potential advantages in mind:

  • Your state may have greater protections than federal law, so it’s important to look at not only federal law but also what your state has passed to protect you before going on military leave.
  • For pension purposes, returning service members must be treated as if they have been continuously employed for purposes of participation vesting in accrual of benefits.
  • You may be able to take leave to care for yourself or certain family members (e.g., parents, relatives, or even non-relatives depending on your employer).

Potential Risks

It is important to know which work benefits will be put on hold and what will stay in place. Don’t assume that disability insurance, life insurance, or any other benefits will stay in place while you are on leave, whether you are receiving pay from the employer, working part time for the employer, or just on leave. It is important to talk to your HR department so you know in advance what benefits will stay and what will disappear while you are gone.

Generally, employers don’t have to pay the cost of health insurance if you’re on military leave unless you’re on leave for less than 31 days. For longer leaves, you may have COBRA rights, which may require you to pay the full cost of your participation in your employer’s health plan. If there are any lapses in paying any of the employer health insurance money due, you may find that even though your employer agreed to pay health insurance while you are on leave, your health insurance lapses and you are pushed onto a COBRA. So, it’s very important to keep up with all necessary payments because you may need to write checks for the coverage since you are not receiving paychecks from your employer, which would otherwise withhold pay and send medical insurance premiums to the insurer.

If you have an FSA, you may find yourself in a position in which the Heroes Earnings Assistance and Relief Act (HEART) of 2008 (H.R. 6081) waives the “use it or lose it” clause of the FSA program. It’s important to know whether you will need to spend down any of this money for any given period and what happens to this money if something happens to you during deployment so all contingencies can be planned for.

For dependent care reimbursement accounts, remember that you will have to maintain eligibility to use this money; otherwise, the money will no longer be available. For instance, if the spouse who is not deployed quits their job, the family may no longer be eligible for their dependent care reimbursement account.

Key Considerations and Regulations

Keep in mind that to get these military leave benefits, you must follow all applicable rules (including giving notice for the need to leave for military service). You must also be released from service under honorable conditions, and you must not exceed five years of military leave with any one employer (with some exceptions, such as annual training and monthly drills; these do not count against the cumulative total). The five-year limit does not include active duty training, annual training, involuntary recall to active duty, involuntary retention on active duty, voluntary or involuntary active duty in support of war, national emergencies, or certain operational missions.

There are also benefits for military caregivers. Military caregiver leave entitles an eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member to take up to 26 work weeks of leave in a 12-month period to care for a covered service member with a serious injury or illness.24

It’s important to note that you’ll have to report back to your civilian job in a timely manner and submit a timely application for employment. This timeliness depends on how long you were deployed for, so it’s important to keep track of all the rules and check off every box on your way back into civilian life.

Some other key considerations to keep in mind include the following:

  • Make sure you thoroughly read through anything your employer has you sign since you may be signing something that waives some of your legal entitlements.
  • You must report back to your civilian job by the appropriate deadline, which can range from eight hours to 90 days depending on the length of service.
  • Military leave coverage may vary for National Guard members performing state service rather than federal service for deployment.

Discounts and Special Programs

Large employers often create an employee perk program with vendors, and possibly with other companies, to give employees discounts on everything from travel and cars to event tickets and physical goods. It’s important to keep track of and know the criteria for the discounts you and your family can receive for goods and services from your employer and from other companies that have agreements with your employer. This can be a matter of using a special coupon code any time you go on to a certain website to buy a good or a service, downloading a form from the internet to order the good or service, or arranging for the purchase of the good or service through your HR department.

Your employer may also reimburse you for travel-related expenses or provide you with a company car; in such cases, free money should generally not be left on the table. If your employer does not provide for these expenses, they may still sponsor a qualified transportation plan that allows you to take up to $230 tax free per month out of your paycheck to pay for transit-related costs, including public transportation or even parking while at the office.

These discount and special programs have the potential to be extremely advantageous for employees. Knowing the benefits offered by your employer can lead to significant savings on things you would ordinarily spend money on.

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Employee Benefits: Highly Compensated Employees and Executive Benefits

The following is a chapter from Employee Benefits: How to Make the Most of Your Stock, Insurance, Retirement, and Executive Benefits by Josh Mungavin CFP®, CRC® and Edited by Chris Boren & Tristan Whittingham.

Employee Benefits - cover


Highly Compensated Employees and Executive Benefits


Deferred Compensation Plans

Deferred compensation is a written agreement between an employer and employee in which the employee voluntarily agrees to have part of their pay withheld by the company, invested on their behalf, and then given to the employee at a predefined time in the future. This allows the employee to potentially defer paying taxes on money earned until the employee is in a more preferable tax environment. Employees must pay taxes on deferred compensation at the time they are eligible to receive it and not when they draw it out.

You generally want to think about a nonqualified deferred compensation plan contribution as an unsecured loan between you as the employee and the employer, in which you lend your employer the amount of money based on the agreement that your employer will pay you that amount of money plus any earnings subject to the investment or a fixed stated rate of return at a certain point in time. Some employers may be worthy of this loan, while other employers are unlikely to pay it back; you must consider this reliability before you elect to contribute to a nonqualified deferred compensation plan.

Strategies and Timing

Deferred compensation can be significantly beneficial, especially when used in tandem with other employee benefits such as RSUs. The employee can sell the vested RSUs they would have to pay ordinary income tax on in that year anyway and live off the proceeds while deferring their regular wages in a retirement account, deferred compensation account, or other tax-deferred savings account.

The employee can also defer ordinary compensation (potentially until after they have left the employer) so they receive ordinary income during a period in which they might not receive any income, thus lowering the amount they are being taxed on during their working years. Although this can be very beneficial, it is not without risk, specifically employer-specific risk. This risk is realized when the employee participating in a deferred compensation plan is working for a company that declares bankruptcy or goes out of business. In this scenario, the employee is standing in line with other creditors of the business to collect on any portion of the deferred compensation plan they can during the bankruptcy proceedings.

You may also think about participating in the deferred compensation plan if you are on the border of receiving a financial aid award for children going to college, which can lower your income in the eyes of financial aid offices. This allows your children to potentially receive some financial aid that they might not otherwise receive. Furthermore, if you are involved or potentially involved in litigation, it may be worthwhile to put some of your assets into a deferred compensation plan since lawyers may be more focused on assets available now rather than money that will be available at some point in the future.

Typically, an employee chooses how much they would like to defer; any payout terms, including amounts in a period; or triggering event. When opting for the deferred compensation plan with little flexibility to change these options in the future, it is important to not only think about your current tax, income, and expense situation but also plan for the future to make sure you’ve done your best so it is unlikely that you will need to make any changes to the plan later.

It is also important to remember that the money is at risk any time it is held in the plan so you do not defer compensation for too long; the longer the money sits in the plan, the riskier it becomes. The deferred compensation amount also becomes larger, and what is known about your company now and for the next year may certainly change 10, 15, or 20 years down the road.

It’s generally recommended to make the maximum contributions to a retirement plan before thinking about enrolling in a nonqualified deferred compensation plan. There is a tax benefit to contributing to your retirement plan and the potential to take loans out of the retirement plan along with a potential match from your employer and protection from your employer’s bankruptcy. You generally have the ability to choose how much to defer from your salary bonuses and other forms of compensation every year, so some changes can be made.

Plan Portfolio and Risk

You may be able to guide the investment broadly in the deferred compensation plan, but you will generally be unable to make precise investments, such as choosing individual stocks to invest in, during the time it is invested for your benefit. However, you may be allowed to direct what percentage of your money goes into specific allocations of funds, such as how much goes into U.S. stocks vs. international stocks or into stocks vs. bonds.

Rather than allowing employees to invest money in the deferred compensation plan, some companies may pay a fixed or variable amount of interest on that deferred money, which may be a benefit in and of itself if you don’t need to live off the income. You may end up getting a higher percentage guaranteed return from the deferred compensation plan than you would expect to receive from a portfolio based on your risk profile (keeping in mind that putting the money in a deferred compensation plan certainly overexposes you to a single company by essentially accepting an IOU from your employer).

Tax Implications

When looking at your tax situation, it’s important to not only consider federal taxes and Medicare but also whether you plan to move from a high-tax state to one with low or no state income taxes or vice versa. In other words, if you move from a state like California, which has high income taxes, to one like Texas, which has no income taxes, you may be better off receiving the income while you live in Texas than while you live in California even if your federal tax rate remains the same. Likewise, if you plan on moving from Texas to California, it may be worth thinking about not participating in the deferred compensation plan even if your federal tax bracket will be lower in California. The difference between the lack of state taxes in Texas compared to the state taxes that will be due in California may push you into a higher overall tax bracket, meaning that it is worthwhile to receive the money while you are in a higher federal tax bracket while working in Texas—plus, you have the added benefit of not having to deal with the company-specific risk.

It is not necessarily the case that your tax rate will decrease during retirement even if the tax law stays the same since you may have Social Security earnings, required minimum distributions, and pensions, which could take you into a similar or higher tax rate than what you had during your working years. In that case, it may not be worthwhile to participate in a deferred compensation plan, especially given the company-specific risk you would be taking with both the deferred compensation plan and your earning power as an employed worker if your employer goes out of business.

As always, tax laws can and will change, and we may see income taxes rise in the future. This means that, even if you personally earn less money since it slowly comes through the deferred compensation payout at a lower rate than what you earned during your working years, that money may still be taxable in a higher bracket because the tax brackets have changed. As such, it is important to at least be aware of the risks faced by deferring compensation.

Remember that you may be able to receive a higher rate of return on the money if you can invest it in any way you want compared to the rate of return your employer’s investment options will provide you. This is very clearly a case of not letting the “tax tail wag the dog” and deciding whether it is worth accepting a lower rate of return for a lower tax bill or worth paying the taxes immediately and receiving the higher rate of return on your investments without being overexposed to individual company risk. The plan’s investment options may be limited to insurance options and fixed percentage return, or it may have limited investment options with high expenses.

Keep in mind that you will have to pay Social Security and Medicare taxes on any amount you choose to defer in the year in which it is deferred. This may mean that if you defer the money and your employer declares bankruptcy, you may not receive the money that was deferred, and you may have paid Social Security and Medicare taxes on that money in the past.

Plan Payout

As with everything that has a value for which it is possible to name a beneficiary, it is wise to speak with your HR department about naming a beneficiary on any deferred compensation plans just in case something happens to you while you are participating. The purpose of naming a beneficiary in this context is so your money will go directly to your beneficiaries rather than through probate.

Keep in mind that some circumstances can force you to realize the entirety of your deferred compensation plan payout earlier than you intended, pushing you into a higher-than-normal tax bracket. Such circumstances include being terminated from employment, passing away, or your company being acquired. This may force you to realize the entirety of your deferred compensation while you are still work. Hence, it is important to understand all the risks you face along with any potential changes to your employer before opting for a deferred compensation plan, even if doing so can be very profitable under the right circumstances.

When enrolling in the plan, it’s important to consider the distribution schedule your employer allows. Do they require you to take the payment as a lump sum distribution so your income is much higher for a single year than it would normally be, pushing you into a very high tax bracket when you would ordinarily not be in that tax bracket, or can you take money added over several years? Are you allowed to take money out of the plans before retirement, or do you have to wait until retirement? All these details should be laid out in the plan document, which will list the payment schedule and the event that will trigger the payments, every time the amount is deferred. Possible triggering events are a fixed date, a separation from service, a change in ownership or control of the company, disability, death, or an unforeseen emergency. This means that, it can be very important to monitor the health of the company you’re employed by so you know what may happen to your deferred compensation plan and then plan accordingly. You may find yourself in a position where you know the company finds itself on weak financial straits (which is not a triggering event) so you know you will be likely to have to attempt to get your deferred compensation through your employer’s bankruptcy proceedings if you stay with the company. With this knowledge, you can strategically retire or separate from service so you may be able to remove the deferred compensation from the plan before your employer goes bankrupt and not lose all or significant portion of your money.

Keep in mind that a nonqualified deferred compensation plan may also impose conditions on receiving the money, such as a non-compete agreement after retirement, so any decisions to change employer after separation from service can cause a claw back of the money in the nonqualified deferred compensation plan. Depending on how the deferred compensation program is written, you may end up forfeiting all or part of your deferred compensation by leaving the company early, which means you leave a substantial amount of money on the table.

Unlike a 401(k), you cannot take a loan from a nonqualified deferred compensation plan, and the funds are not accessible before the designated distribution event. In some cases, you may be able to change the election for when you will receive the deferred compensation. However, these changes must generally be made at least 12 months before the date on which the original payment is scheduled to begin, the election must delay the payment for at least five years from the previously scheduled payment date, and the election will not be effective until at least 12 months after it is made. This means that if you previously decided to retire at age 60 and you receive your nonqualified deferred compensation but decide to continue working until age 65, you may be able to extend the length of your nonqualified deferred compensation payout by the age of 59, 12 months before you turn 60 and are previously scheduled to receive the payout. So, you receive the payout at age 65 when you now intend to retire.

Capital Accounts

Capital accounts are the initial and subsequent contributions by partners to a partnership in the form of cash, assets, or profits as well as losses earned by the business and allocated to partners. The amount of money you get from liquidating your capital account does not necessarily equate to the reported balance of the account (whether prior to the business’s liquidation or the partner’s departure from the firm). Capital contributions can be variably based off a set amount of partner contribution tiers determined by years of service, the level of compensation, or the amount of equity you have in the firm.

Potential Advantages

Capital accounts can be very beneficial for employers and partners. The employer gets to show an asset on the books as long as it is kept in the books and not directly spent or distributed to partners with ownership shares. The company does not need to go to a bank for a loan when they can rely on partners for a loan. In addition, partners will often not closely look at the books—or not be allowed to look deeply into the books—before deciding whether the company is creditworthy. That being said, the interest rate given by the employer can be very enticing, and if the employer is stable, it can be very profitable for the partners who contribute to a capital account.

Like many things, this can be used for good or evil. The employer can get a loan cheaper from its worker than a bank, and the partner is less likely to have the ability to put the employer’s financials through a thorough underwriting process. It can be a win–win or a very one-sided affair, so it’s important to know whether you’re putting skin in the game or getting skinned.

Potential Risks

When contributing to a capital account, it is important to realize that in essence, you are giving an unsecured loan to your employer or partnership; thus, you are subject to the risk associated with loaning your company money. This is often seen as ownership in a partnership, but in reality, a number of capital accounts arrangements are calculated by way of a formula rather than as a true ownership in the partnership. This means your capital contributions may have a fixed valuation when you want to withdraw from the capital account, and they may earn a fixed interest rate or none at all while the money is held in the capital account (rather than giving you participation in the upside of the business’s growth). It’s not uncommon for the employee to receive a rate of interest tied to the return of some benchmark.

Your capital could be used to fund the short-term needs of the company or to shore up unsustainable distribution levels for partners. This may make the proposition look appealing in the short term, but it can have long-term consequences, similar to a Ponzi scheme held up by bringing in new partners’ capital and the ongoing operating cash flow of the business. In such a case, the capital account slowly destroys the firm for the benefit of a few people, and it’s a matter of getting your money out before the ship sinks.

Another important question to ask is whether the capital money being contributed is being used to run the business so no debt is taken on or if it is being wasted on bad decisions, expansions by management, or equity partner distributions that are higher than they should be. In other words, having funds in capital accounts can spur management to need to deploy the funds in investments, which in turn creates additional risk rather than shoring up the balance sheet.

Remember that the firm can find itself at a point where the equity partners making the decisions have the choice whether to continue an unsustainable path or to correct the path the firm is on. Under some circumstances, it may be in the best interests of the equity partners to continue on the destructive path and then jumping with their client base and starting over at a new firm. This may be substantially more lucrative to them than correcting the problems at the existing firm, which in turn makes the equity partnership look less valuable. Similarly, some partners in leadership positions have income levels that are well above what their book of business would be worth if they were to relocate, which means they can’t replace their income if they leave for another firm. This means the, the leaders at the firm may decide to continue the status quo to serve their best interests rather than serving the interests of the firm, and even if they wanted to, they be unable to change the firm’s business model due to the fiscal or political environment.  So, remember that while this may often be very beneficial, in some cases it is less risky and more profitable for a firm’s leadership to allow the firm to sink rather than save it. So, any capital accounts kept above the minimum account balance required by the firm should be well researched, thought out, and debated before any decision is made to contribute. It’s also important to note that the firm may have a model for calculating partners’ capital accounts upon departure, and the liquidation of a firm may not provide sufficient liquidity to pay out all partners’ capital accounts in full.

The economic environment is also an important factor to keep an eye on. Even a well-run firm can run into problems during a sharp downturn since the ability to get partner capital during a financial crisis can come when business is slow, banks aren’t lending to firms, and there is increased weakness in financials; this all happens at a time when the dollar opportunity cost is high for the partner who contributes and the employer that needs money to continue running the business. This can mean some partners become hesitant to throw good money after bad in a downturn so they decide to invest elsewhere, causing a larger-than-normal need for a business that was otherwise sustainable.

Key Considerations and Regulations

It is very important to know the terms that govern the return of your capital. It’s not uncommon for a firm to stretch out the period during which it will return capital to any departing partner. The firm may also have a period during which you will not be allowed a return of your capital if you take a job at a rival firm. You may also have a vesting period; during that time, if you leave or something happens to you, you may not get a return of capital even if you do not work for a competitor once you leave. It’s also important to know what happens to your capital account if you get let go.

Make sure you understand whether you have any equity interest in the firm as a partner or if you have explicitly waived your interest in the form of equity and agreed to essentially be a partner providing a cheap loan to the equity partners. In other words, is the value of becoming a partner worth the amount contributed since your money may be gone the moment it’s contributed?

When looking at the financials of a partnership, it’s important to consider that the liabilities encompass not only the direct liabilities we think of, like loans and capital contributions, but also things like leases on furnishings, equipment, and real property. All these can add up to a significant level of leverage across the firm.  This means, a company with no debt may still have a substantial financial risk.

It’s also important to know whether buying into the partnership will reduce your take-home pay and, if so, to account for that reduction in any decision of whether to be a partner in a firm that requires capital calls.

You may also find that high-ranking partners have special agreements to raise their flexibility in terms of partner capital, such as the ability to draw on non-interest-bearing loans, credit distributions against future draws, or guaranteed minimum distribution amounts.


To download the book – for free! – click the following links:

Barnes & Nobles

Feel free to contact Josh Mungavin with any questions by phone 1.800.448.5435 extension 219, or email:

Click here for the previous chapter: Insurance

For more information on financial planning visit our website at

NewsLetter Vol. 11, No. 6 – October 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:


Because I believe it’s so valuable that every one of my readers needs to download a copy. Prepared by Josh Mungavin, my partner and one of the best young planners in the country, it’s an invaluable resource (and the price [$0] couldn’t be better).

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.

Family Info Organizer

The Family Information Organizer is here to help you navigate loss while also making sure you have everything you need in times of emergency or natural disaster. With this book, you will:
• be motivated to gather all your essential information now, rather than when it’s too late.
• have all your important information in one place.
• have peace of mind in times of loss or emergency.
• be able to make sure your family knows everything they need to when you’re not around.
• be able to share this fantastic tool with your friends and family.

Don’t be caught unprepared; use The Family Information Organizer today!

Click here to download the book for free.


Lubbock is home to six award-winning wineries, and the High Plains grows 90 percent of wine grapes in the state of Texas. 


However, the Motley Fool piece on long-term care (sent to me by friend and LTC expert Bill Dyess) is quite useful.

Click here for Motley Fool article.


Morningstar columnist Mark Miller has written an informative article called “Safeguarding Your Wealth from the Effects of Cognitive Decline.” I must admit I’m a bit biased, because this was one of his tips:

Work with a fiduciary adviser. Avoid any financial adviser who is not a fiduciary—a legal definition that requires an adviser to put the best interest of a client ahead of all else. This point—and my argument for portfolio simplicity—is illustrated by an important story that appeared recently in the New York Times detailing abusive trading practices by a stock broker in the account of a couple well into their 80s that was being monitored by their daughter.

The fall of the Obama-era fiduciary rule for advisors may complicate the task of finding a trustworthy adviser. But there really is a simple way through the maze. If in doubt, ask anyone you are considering hiring to sign the fiduciary oath—a simple, legally enforceable contract created by the Committee for the Fiduciary Standard. By signing, the advisor promises to put the client’s interest first; to exercise skill, care and diligence; to not mislead you; and to avoid conflicts of interest. You can download the oath at  by clicking here.


How much money do Americans have in their 401(k)s? From CNBC:

20 to 29           $11,500

30 to 39           $42,700

40 to 49           $103,500

50 to 59           $174,200

60 to 69           $192,800

Click here for full article.


From my friend Ron:

Reaching the status of “millionaire” used to be a big deal. But with rising inflation, a higher cost of living in cities, and changing perceptions around wealth, the six zero milestone doesn’t mean as much anymore…there are over 16 million millionaires globally, and 4.3 million in the United States alone.

Individuals with net worth > $50,000,000

Asia                        35,880

Europe                    35,180

North America         44,000

Latin America            4,220

Middle East               4,740

Russia                      2,870

Australia                   1,850

Africa                        1,190

Click here for more.


Worldwide, there are 255,810 individuals with a net worth of at least $30 million. Here are the ten cities with the most super-rich residents:

Osaka                             2,730

Washington, D.C.          2,735

San Francisco                2,820

Chicago                          3,255

London                           3,830

Paris                               3,950

Los Angeles                   5,250

Tokyo                             6,785

New York                       8,865

Hong Kong                   10,010

Click here to read more.


My friend Peter shared with me this remarkable 11-minute video, narrated by Tom Hanks, about the amazing boatlift out of Manhattan on 9/11 that rescued about 500,000 people in about 9 hours. The video has been seen by 9 million people, but just in case you have not seen it, please watch it and remember we all have the ability to come together when we must.

To watch the video click here.

TOP 1%

Even more on the rich from USA Today:

 The United States is enjoying an era of unprecedented wealth and prosperity. Economic output and household incomes are at all-time highs, while unemployment is at its lowest level in well over a decade. However, the growth has not benefited all Americans equally, and in much of the country, wealth is becoming increasingly concentrated in the hands of a few.

From the end of World War II through the early 1970s, the average income growth of the bottom ninety-nine percent of earners roughly tripled the 34 percent growth rate among the wealthiest one percent.

Since, however, the strengthening of the middle class has ground nearly to a halt, while the wealth of the one percent has grown exponentially.

The average income for the top one percent spiked by 216.4 percent from 1973 to 2007, but it increased by just 15.4 percent for all other earners. From 2009 to 2015, the average income for the wealthiest Americans grew by 33.9 percent, more than triple the income growth of 10.3 percent among the remaining ninety-nine percent.

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To read more click here.


From an AARP survey: How frequently should an adult child call his or her mother?

Once a Day                                                     27%

Two or More Times a Week                           23%

Once a Week                                                  38%

Once a Month                                                 12%


From USA Today:

College Football’s 25 Highest-Paid Coaches

                 Name                                  School             Total Compensation

#1        Nick Saban                          Alabama                   $8,307,000

#2        Urban Meyer                        Ohio State                $7,600,000

#3        Jim Harbaugh                      Michigan                  $7,504,000

#4        Jimbo Fisher                        Texas A&M              $7,500,000

#5        Gus Malzahn                        Auburn                     $6,705,656

#25      Bobby Petrino                      Louisville                  $3,980,434

Just a tad more than professors make.


From my friend Michael:

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From ThinkAdvisor:

Cryptocurrencies are the ‘“mother of all scams,” and blockchain is “the most overhyped—and least useful—technology in human history: In practice it is nothing better than a glorified spreadsheet or database,” Nouriel Roubini, professor of economics at New York University’s Stern School of Business, told senators on Thursday.

Roubini, who famously predicted the 2008 credit and housing bust, testified before the Senate Banking Committee during a hearing on the cryptocurrency and blockchain ecosystem, that the “crypto bloodbath is in full view” and that “the new refuge of the crypto scoundrels is ‘blockchain.’”

Wonder what he really thinks.

To read more click here.


From the Wall Street Journal editorial board via my friend Knut:

Most Americans can’t pass the civics test required of immigrants

These days it’s popular to lament that immigrants are destroying America’s national identity, but maybe we’re getting it backward. When the Woodrow Wilson National Fellowship Foundation recently put questions from the U.S. Citizenship Test to American citizens, only one in three could pass the multiple choice test.

It’s embarrassing. According to the foundation, only 13% of Americans knew when the Constitution was ratified, and 60% didn’t know which countries the United States fought in World War II. Most couldn’t correctly identify the 13 original colonies, which at least is something of a teaser. But only 24% could identify something that Ben Franklin was famous for, and 37% thought it was for inventing the light bulb.

Even with a highly contested Supreme Court nomination now in play in the Senate, 57% of Americans couldn’t say how many Justices are on the Court. Older Americans did much better than younger Americans—only 19% of the under-45 crowd passed—which probably reflects the declining state of American public schools. None of this augurs well for the future of self-government.

We’ve always thought it important that immigrants must pass a test on the basics of American history and civics before they can be sworn in as citizens. Immigrants who are motivated to become citizens will take the time to learn. The real threat to American freedom is the failure of current citizens to learn even the most basic facts about U.S. history and government.


Parents Spend Twice as Much on Adult Kids Than Retirement, Survey Says:

Americans are contributing twice as much to their adult children as they are to retirement, according to a new study.

U.S. parents spend $500 billion annually supporting and giving to their adult children aged 18 to 34, double the amount they contribute each year to their retirement accounts, according to a new study conducted by Merrill Lynch in partnership with Age Wave.

While 79 percent of more than 2,500 American parents surveyed said that they give at least some financial support to their children, two-thirds of American parents report having sacrificed their own financial security for their children.

For full article click here.


Quite amazing, but for real. Use two fingers to negotiate.

Click here to view map.


From a presentation at Insiders Forum:

  • 1.3 million apps in the iTunes store
  • 323 days of video uploaded to YouTube every minute
  • 1.39 billion people on Facebook, making it the largest country on earth


Deena and Katie with our good friends Yvonne Racz Key, Artistic Director at Ballet Lubbock, and Maestro David Cho, Music Director of the Lubbock Symphony Orchestra.

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A note from Jim about a very useful “game” from the American Academy of Actuaries:

Click here for a link to the Social Security Game. It is a neat calculator that allows anyone to plug in their preferences for solving the SS shortfall. You quickly realize that we can make the system solvent and even increase the benefits. The choices were relatively painless when I first played the game 5 years ago, but they become increasingly difficult each year we delay taking action.

Here’s how the Academy describes the game. “While Social Security isn’t in danger of collapse, changes will be need to be made to pay full retire benefits after 2034. Everyone thinks it’s easy to solve Social Security’s financial problems, but can you? Play the game to explore options for Social Security reform and how changes will affect younger workers, retirees, and the program’s long-term health.”


10-2018_It's Been a Few Good Months_04

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Receiving the Frankel Fiduciary Prize for contributions to the preservation and advancement of fiduciary principles in public life. The prize is named after Professor Tamar Frankel of the Boston University School of Law.

Click here for video.

10-2018_It's Been a Few Good Months_06

Receiving the Committee for the Fiduciary Standard Fiduciary Award from my friend Patti Houlihan.

10-2018_It's Been a Few Good Months_07

Deena receives the Leadership Award bestowed at the Insider’s Forum, a conference that brings together the leading figures of the financial planning profession during a main stage presentation.

10-2018_It's Been a Few Good Months_08

10-2018_It's Been a Few Good Months_09

Named for P. Kemp Fain, Jr., this award is the pinnacle of recognition in the financial planning profession, honoring one exceptional individual who has made outstanding contributions to the financial planning profession. Fain was a pioneer in the financial planning profession, blazing trails in professional associations, the CFP®certification, and the profession at large. In keeping with Fain’s example, nominees for the award are individuals who have made significant contributions to the financial planning profession in the areas of service to society, academia, government, and professional activities.

Click here to watch video.


From the Wall Street Journal via my friend Monty:

The new venture, Aperture Investors LLC, builds on a concept he championed in his last months at AllianceBernstein: Money managers should only charge higher fees than exchange-traded funds when they beat the market. Armed with as much as $4 billion in money to manage from Italian insurer Assicurazioni Generali SpA, Aperture has hired two portfolio-management teams. One will invest in stocks and bonds from emerging markets and the other will buy or bet against corporate debt.

Aperture is putting more than its fees at stake. Employees will also be paid based on how they perform against the market.

Click here for full article.

Four “catches”:

  • When the manager beats the “market,” the fee can rise to 2+%.
  • What’s the “market”? Selection of the benchmark is an easy but insidious way to game the system.
  • If the managers don’t beat the “market,” the fund and managers still get paid. So much for identity of interest.
  • No element of “risk adjusted” return. If they’re having a lousy quarter, the managers have nothing to lose by going for broke and taking significant risk. If the portfolio tanks, they still get paid and the investors are left holding the bag.

Needless to say, I’m a skeptic when it comes to performance-based compensation. 


From my friend Judi, who collects quotes:

  • Discovery consists of seeing what everybody has seen and thinking what nobody has thought. (Albert Szent-Gyorgi)
  • Go confidently in the direction of your dreams. Live the life you have imagined. (Henry David Thoreau)
  • Success is moving from failure to failure with no loss of enthusiasm. (Winston Churchill)
  • Never doubt a small group of thoughtful, committed people can change the world. Indeed, it’s the only thing that ever has. (Margaret Mead)
  • Everybody can be great, because anybody can serve. You don’t have to have a college degree to serve. You don’t have to make subject and object agree to serve. You don’t have to know about Plato and Aristotle to serve. You don’t have to know Einstein’s Theory of Relativity to serve. You only need a heart full of grace; a soul generated by love. (Martin Luther King)
  • Life moves pretty fast. If you don’t stop and look around once and a while, you could miss it. (Ferris Bueller)

And a few of mine:

  • When all the experts and forecasters agree—something else is going to happen. (Bob Farrell, Merrill Lynch)
  • Investment survival has to be achieved in the short run, not on average over the long run. That’s why we must never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average. Investors have to make it through the low points. (Howard Marks)
  • Just as markets anticipate eight of the next five recessions, so too they can look forward to eight of the next five bull market recoveries. (Howard Marks)
  • Millions saw the apple fall, but Newton was the one who asked why. (Bernard Baruch)
  • I am proud to be paying taxes in the United States. The only thing is—I could be just as proud for half the money. (Arthur Godfrey)
  • People who complain about taxes can be divided into two classes: men and women. (anonymous)
  • There are two kinds of economists, those who don’t know and those who know they don’t know. (anonymous)
  • In theory, there is no difference between theory and practice. But, in practice, there is. (Jan La van de Snepscheut)
  • The better the meal, the lousier the deal. (Veteran Broker)


According to Prudential’s first-ever Financial Wellness Census, the nation is almost evenly split between people who are doing well financially (46 percent) and those who are struggling (54 percent). Roughly 30 percent of respondents have an inaccurate perception of their financial state, according to the report. 


It’s very exciting to see the future of our profession. These are two students of Dr. Sean Pfeiffer (my former teaching assistant) in the financial planning program at Edinboro University that I met at the Financial Planning Association Convention.

10-2018_Next Gen_10


From the Financial Times:

Retirement savers will need to educate themselves and take greater ownership of their fate…

Barbara Roper, a Colorado-based director of investor protection at the Consumer Federation of America, is disappointed that “we are back where we were.” The onus once again falls almost entirely on retirement investors to protect themselves, she says.

I would revise that to say “ALL investors.”

To repeat—time to be sure you use the Committee for the Fiduciary Standard “Putting Your Interest First” Oath.

Click here for Financial Times article.


From CNBC:

This bull market run has echoes of the late 1920s, Nobel Prize–winning economist Shiller says.”

Also from CNBC:

Recession risk is ‘below average’ for the next three years, Goldman says.

I think my friend Alex captured it best:

“Reminds me of what my one of my Chief Master Sergeants once told me: ‘Colonel, I feel strongly both ways!’”




Click here to read more.




From my friend Leon:



You are a participant in a race. You overtake the second person. What position are you in?



#1 ANSWER: If you answered that you are first, then you are absolutely wrong! If you overtake the second person and you take his place, you are in second place! Try to do better next time. Now answer the second question, but don’t take as much time as you took for the first question, OK?



If you overtake the last person, then you are…?



#2 ANSWER: If you answered that you are second to last, then you are…wrong again. Tell me, sunshine, how can you overtake the last person?




Very tricky arithmetic! Note: this must be done in your head only. Do not use paper and pencil or a calculator. Try it.


Take 1000 and add 40 to it. Now add another 1000 now add 30. Add another 1000. Now add 20. Now add another 1000. Now add 10. What is the total?


#3 Did you get 5000?

The correct answer is actually 4100. If you don’t believe it, check it with a calculator!

Today is definitely not your day, is it?


Maybe you’ll get the last question right…maybe.



Mary’s father has five daughters: 1. Nana, 2. Nene, 3. Nini, 4. Nono, and ???

What is the name of the fifth daughter?



#4 Did you answer Nunu? No, of course it isn’t! Her name is Mary! Read the question again!



A mute person goes into a shop and wants to buy a toothbrush. By imitating the action of brushing his teeth, he successfully expresses himself to the shopkeeper, and the purchase is done. Next, a blind man comes into the shop who wants to buy a pair of sunglasses; how does he indicate what he wants?


It’s really very simple: he opens his mouth and asks for them.

Does your employer actually pay you to think? If so, do not let them see your answers for this test! 


I know I’m biased, but that doesn’t mean it’s not true.

From Mary Beth Franklin’s excellent “ONRETIREMENT” column in Investment Advisor:

Widows get bad Social Security info—Agency gives wrong guidance 82% of the time, so survivors must prepare.

From a Merrill Lynch/Age Wave survey “Widowhood: The Loss Couples Rarely Plan for—and Should.”

More than three-quarters of the widows—78%—described becoming a widow as “their single most difficult and overwhelming life experience,” and 53% said they and their spouse did not have a plan for what would happen if one of them passed away.

Half of the widows experienced a decline in household income of 50% or more. At the same time, widows also faced the complex tax of juggling multiple incoming assets, including Social Security survivor benefits, life insurance, their spouse’s pensions, and retirement savings. For more than four in 10 women, widowhood is a trigger to begin working with a financial advisor, according to the survey.

Click here for full article.



Click here to see more.


I’ve been teaching my Wealth Management class for many years to be wary of the common rule of thumb that someone will need 70–80% of their prior expenses in retirement. Well, my former TA and now Professor Cagla shared with me a Wall Street Journal article, “How Much Money Will You Really Spend in Retirement? Probably a Lot More Than You Think,” by Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University, and Aline Holzwarth, a Principal of Dan Ariely’s Center for Advanced Hindsight at Duke:

It’s the question that plagues pretty much everybody as they look ahead: How much money will I need in retirement? Most likely, a lot more than you think…

The answer most people gave was about 70%. Did you also choose a percentage around 70%–80%? You’re not alone. In fact, we, too, thought that 70% sounded reasonable. But reasonable isn’t the same as right. So we asked the research participants how they arrived at this number. And we discovered that it wasn’t because they had truly analyzed it. It was because they recalled hearing it at some point—and they simply regurgitated it on demand. The 70%, in other words, is the conventional wisdom. And it’s wrong…

The results were startling: The percentage we came up with was 130%—meaning they’d have to save nearly double the amount they originally thought.


The U.S. Department of Education unveiled the My Student Aid app to help make the 2019–20 FAFSA (Free Application for Federal Student Aid) application process easier.

Click here for NPR article.


The active versus passive debate continues. From Kiplinger’s Personal Finance:

“John Rogers is a double anomaly. At a time when investors are increasingly turning to index funds, he picks individual stocks. And at a time when the markets prefer growth-oriented companies, he buys value-based shares…he launched Chicago-based Ariel Investments in 1983….The firm’s flagship public fund, Ariel Fund, opened three years later….Rogers became convinced in the 1980s that smaller companies that were less understood offered significant opportunities.” U.S. News ranked Ariel #11 out of 397 Mid-Cap Value funds.

I need to preface this with the observation that Mr. Rogers is one of the finest and most respected active managers in the country. I also share his value and small cap bias. Unfortunately, as reflected in the Morningstar data below comparing Ariel to a S&P Mid-Cap Value ETF, that does not ultimately translate to investment success.


Sharpe Ratio—A measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment.

Tax Cost Ratio—The Morningstar Tax Cost Ratio measures how much a fund’s annualized return is reduced by the taxes investors pay on distributions. For example, if a fund had a 2% tax cost ratio for the three-year time period, it means that on average each year, investors in that fund lost 2% of their assets to taxes.

Passive wins once again.


A last minute tip from my friend Alex:

Click here to view video.

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.



Harold Evensky


Evensky & Katz / Foldes Financial Wealth Management


Check out the link below for Harold’s previous NewsLetters:

NewsLetter Vol. 11, No. 5 – September 2018

NewsLetter Vol. 11, No. 4 – August 2018

Employee Benefits: Insurance

The following is a chapter from Employee Benefits: How to Make the Most of Your Stock, Insurance, Retirement, and Executive Benefits by Josh Mungavin CFP®, CRC® and Edited by Chris Boren & Tristan Whittingham.

Employee Benefits - cover




Health Insurance Options

Health insurance options change every year, so it’s important to look over new healthcare options every year. Think about how these options are presented to you, think of everything that will affect you and your family, and reanalyze the math you did the year before to make sure the plan you’re in, if still available, is the right plan rather than just staying in a plan that may no longer be right for you. You have to look beyond the premium. While a low-cost plan might be nice if you don’t expect anything to happen, remember that everyone is healthy until they’re not.

Optimal Use: Strategies and Analysis

You must look at copays (i.e., the fixed amount you pay for services), deductibles (i.e., the amount you pay before your insurance starts paying), coinsurance (i.e., the percentage of costs covered after you meet the deductible), and out-of-pocket maximums (i.e., the most you’ll have to pay before the insurance pays 100% of any remaining costs). Depending on your health that year, going with a lower premium might end up meaning you need to pay higher out-of-pocket expenses. Things to think about include new babies, newly diagnosed illnesses, or a recent marriage. You also want to know if you have dental and vision coverage and how long it has been since you’ve used either. It’s also important to look over which health plan will be most beneficial to you over the year and not let the “tax tail wag the dog” by looking at the tax and savings benefits of a Health Savings Account (HSA) and whether a plan without a high deductible will be more beneficial for you over the course of the year since taxes aren’t everything (HSAs are discussed in more detail in the next section).

Generally, plans cover preventative care such as annual physicals, gynecologist visits, mammograms, and immunizations at no cost, but that varies from plan to plan. Make sure that you can use the doctors you want to go to under the plan you choose and that you’re not limited to a doctor who works for an insurance company you may or may not be happy with when you already have an existing physician.

One way to compare a traditional healthcare plan and a high-deductible plan is as follows: take the annual premium, deductible, coinsurance after the deductible, out-of-pocket limit, any employer contributions to the HSA, and the tax break you get from the HSA to do a little math. The math works as follows: look at the cost of coverage if you need absolutely nothing over the course of the year. To do that for the traditional plan, use the annual premium as the total cost. To do that for the high-deductible plan, use the annual premium minus the tax benefit of fully maximizing the HSA plan if you plan to fully do so or the tax benefit of any amount contributed to the HSA plan.

17. Traditional plan Annual premium Total costSo, if the annual premium for the traditional plan is $1,000 a month, its yearly cost to you is $12,000 if you don’t need any medical care at all.

18. Traditional plan Annual Premium 1000 monthIn this case, if the high-deductible plan costs $500 per month, the yearly cost is $6,000 minus the tax benefit of the HSA deduction.

19. High-deductible plan Annual premium 500 monthIf you maximize the HSA as a family with the full $6,900 per year allowed and you are in the 20% tax bracket you get a tax benefit of $1,380 (Note that your personal tax rate makes a big difference, so one person’s decision may be completely different than another’s given the same circumstances and the same plan but different tax rates). From there, take the yearly cost of a high-deductible plan coverage of $6,000 and subtract the tax benefit of $1,380 for a total yearly cost of $4,620.

20. Maximizing the HSA as a family

If you do not need any medical care, subtract any employer HSA contributions for the year from your effective yearly number (for this example, we’ll use no money from the employer so the calculation is easy). The high-deductible plan coupled with the HSA also allows the benefit of tax-free growth on the investment of $6,900, which is a benefit you would see above and beyond the effective yearly premiums, being $7,380 less expensive (calculated as $12,000 traditional plan annual cost – $4,620 HDHP annual cost after adjusting for the HSA tax benefit, all as illustrated above).

Next, we’ll look at how much the plans would cost if you maxed out your coverage for the year. In this case, let’s say the traditional plan has an out-of-pocket maximum of $3,000 and the high-deductible plan has an out-of-pocket maximum of $10,000.

21. Traditional plan Out of Pocket maximum 3000For the traditional plan, add the $3,000 out-of-pocket maximum to the $12,000 yearly cost of premiums for a total insurance cost of $15,000 as a worst-case scenario.

22. 12000 premium yearly cost

For the high-deductible plan, add the $4,620 “effective” premium to the $10,000 out-of-pocket maximum for a worst-case scenario of $14,620.

23. 4260 Premium yearl costIn this case, taking the high-deductible plan would be something of a no-brainer. The math changes substantially if the cost for the yearly premium under the traditional plan is only $7,000. In this case, the worst-case scenario would be the $7,000 yearly premium plus the $3,000 maximum out-of-pocket for a total worst-case scenario of $10,000.

24. Traditional plan Yearly Premium 7000

You would then compare the traditional plan’s worst-case scenario of $10,000 to the high-deductible plan’s worst-case scenario of $14,620 to see a difference of $4,620 dollars in a worst-case scenario per year.

25. 14260 High deductible worst case

Now look at the difference between the $7,000 traditional yearly premium and the $4,620 effective high-deductible yearly premium, and you’ll come up with a difference of $2,380 per year of an effective premium difference.

26. 7000 Traditional yearly premium

Now you will calculate the number of years it will take you to break even by dividing the $4,620 difference in a worst-case scenario by the $2,380 per-year effective premium difference to come up with 1.9 years to break even.

27. 4260 Difference in worst case scenario

This means that as long as you don’t max out your insurance every other year, you are better off with a high-deductible healthcare plan even though you will max out the high-deductible healthcare plan in some years, making you worse off for that year. In this case, you will have saved money over the long run by going with the high-deductible healthcare plan as long as you can afford to pay for your medical costs in the years with high expenses. If you find that the break-even point is three, four, or five years, it may be worthwhile to look more closely at the traditional plan. If you expect to have regular healthcare treatment needs or plan to have some level of expenses every year, you may need to alter this calculation so the 1.9 years to break even becomes a little bit longer since you will have to pay everything out of pocket using the high-deductible healthcare plan, whereas you may have some help paying in the years with a moderate amount of healthcare costs with a traditional healthcare plan.

Generally, a high-deductible healthcare plan with an HSA will be more attractive to younger people in good health who aren’t expecting to have any children or major medical issues. The good news here is that if you make the wrong decision, it’s only the wrong decision for one year and you’re not locked in forever since you can move to the other plan at the end of the year. Furthermore, if you have any money in an HSA, you can keep that and use the HSA money whether you decide to use the high-deductible healthcare plan or a traditional healthcare plan the next year.

It’s important when working through a health insurance analysis to look over the health insurance options available through your spouse or domestic partner’s employer (if the employer covers domestic partners) to make sure you choose the best plans since you may want to split coverage or have both of you covered under one of the plans.

General Considerations

Will you have access to a flexible spending account (FSA) or an HSA? Both options allow you to set aside pre-tax dollars to cover future medical expenses, but there are differences between the two.

If you have the option of setting up an FSA with your insurance company, do so. Doing this allows you to use the money in the account for copays; however, remember that those funds are use-it-or-lose-it, so make sure you have a back-up plan for how to spend the money by the end of the year, such as new glasses or dental work.

Keep in mind that while HSA savings amounts are federally tax deductible, they may not be deductible for state tax purposes depending on what state you live in.

Health Savings Accounts

According to a 2018 study, the average couple who is 65 years old today will require an estimated $280,000 in today’s dollars for medical expenses in retirement, excluding long-term care.9 It is likely that the amount needed for those who are younger will be even higher. This is one reason, but not the only one, to fully fund an HSA every year in which you are eligible. In fact, I think an HSA is one of the most powerful savings tools currently available, especially if it is used optimally.

Specifically, an HSA is a tax-advantaged account created for individuals covered under high-deductible health plans (HDHP) to save for medical expenses those plans do not cover.10

Optimal Use of an HSA

In 2017, only 18% of the money that went into HSA accounts stayed invested until the end of the year. This means most people use HSA money to pay off current bills. Putting only enough money in an HSA to cover your current year’s medical bills is a straightforward way to get a tax break for your non-deductible medical bills for the year, but I think there’s a better way.11

A large portion of the long-term benefits of an HSA comes from the tax-free growth of the account through the years. This means that the longer you invest in the HSA, the higher your likely lifetime benefit. To get the most value from the HSA investment vehicle, fund the HSA with the most you can every year but hold off on using the funds (absent an emergency) until late in life. Retirement healthcare expenses should be one of the first uses of HSA funds. In addition to regular out-of-pocket medical expenses, you can generally use HSA funds to pay for premiums for long-term care (with the qualifying amount based on age), health insurance continuation coverage (i.e., COBRA), health insurance while receiving unemployment, and Medicare if you’re over age 65 (not including Medigap).

Receipts for medical expenses that were not deducted through the years should be saved along the way. There is currently no deadline for self-reimbursements, so if you have paid out of pocket, have not deducted the expense on your taxes, and have the records, you can theoretically reimburse yourself for years’ worth of expenses if you need extra money and do not have anywhere else to withdraw from or if you have more money in your HSA than you will need for lifetime health expenses.

Furthermore, if you find yourself with sufficient funds to fully reimburse yourself for all past medical expenses and cover all future medical costs, you can consider taking distributions from the HSA for living expenses. While HSAs do not have any minimum distributions after age 70.5 like IRAs, you do have the option to use the funds for anything, paying only taxes with penalties after age 65.

If the HSA account is severely overfunded and there is charitable intent, this may be the first account to turn to for charitable bequests by naming the charity of your choice as the beneficiary of your HSA. Otherwise, you may think about intentionally beginning to draw the account down slowly so taxes are spread out over the course of years. Unlike retirement accounts, HSA accounts are liquidated upon the death of the account owner, and all taxes are due as ordinary income in the year of death.  Meaning, a highly funded HSA could push you into a much higher tax bracket than normal.

Finally, remember that we are always subject to changes in tax law when you are planning a very long-term tax and investment strategy (as we plan the government laughs).

HSA Providers and Account Costs

There are quite a few HSA providers, but the expense breakdown usually follows a similar formula. The HSA provider has a banking side and an investment side. There is a $2.50 per-month fee if the banking side doesn’t maintain a balance over $5,000. This fee amounts to 0.6% of the $5,000, which I believe the investments will outperform over time. This means, it makes sense to pay the fee rather than keep the cash on the bank account side. There is also the underlying investment fund fee, which can be minimized by using the link to a brokerage firm (if the HSA provider has one) to invest in a much wider variety of funds available than under their standard list of investment options. This allows the account to be linked to an Evensky & Katz portfolio to make the most of tax-sheltering assets that would otherwise create a high percentage of tax liability in the portfolio. There would also be a $3 per-month fee if your investment account drops below $5,000, along with any number of fees attributable to things such as closing the account closure, ordering a checkbook, ordering a debit card, and so on.

It’s crucial to know how you plan on using the HSA account and make sure you have the best supplier for your needs based on fees and investment options.

Special Considerations

If the spouse is the beneficiary of the HSA, it will be treated as the spouse’s HSA after your death. If the spouse isn’t the beneficiary, however, the account stops being an HSA, and the fair market value minus any qualified medical expenses for the person who passed that are paid by the beneficiary within one year after the date of death become taxable to the beneficiary in the year in which the account owner dies.

One HSA rollover is allowed per year within 60 days of receipt, but the rollover is not limited in terms of the amount of money rolled over.12 This means you can briefly tap into HSA funds in an emergency as long as you can pay it back within 60 days. Any amount not rolled back into an HSA account will be taxed, and penalties could be charged.

If employers offer HSA funding through a cafeteria plan payroll deduction, it is generally not subject to FICA taxes that go to Social Security and Medicare, which generally amount to about 7.65% of the amount contributed by payroll deduction. This means that absent a better use of your employer cafeteria deduction amount, it can be even more profitable than usual to fund your HSA plan with as much of the cafeteria plan funds as possible.

A qualified HSA funding distribution from an IRA to your HSA can be made once during your life. It reduces the amount you can contribute to the HSA that year by the amount converted. This means, in a year in which you can’t afford to fully fund your HSA from your income and savings, you can fund it with IRA money. If you have saved up sufficient health receipts and you had the HSA open during the proper period, you may be able to reimburse yourself for past expenses with the current value of the account. The money must pass directly from the IRA trustee to the HSA, and it isn’t included in income or deductible. This can be done from a Roth, but that generally wouldn’t make sense since you would be putting money you have already paid taxes on into an account you may have to pay taxes on (if not used for medical expenses). The qualified funding distribution can’t be more than any amount you are entitled to contribute to an HSA that year. You must also remain a qualified individual for 12 months after this transaction takes place, which means your insurance or qualifying insurance must remain in place for 12 months after the money is moved.

This one-time funding of your HSA from your IRA can be beneficial for years in which you can’t fund an HSA, especially if you would otherwise need to tap into your IRA for living expenses (which would cause you to pay taxes and possibly a penalty). Depending on the situation, you may be able to fund the HSA with your IRA funds and then reimburse yourself for past medical expenses from the money now in your HSA, doing away with both the early withdrawal penalty and taxes associated with the withdrawal.

Some HSA Rules

  • HSA distributions prior to age 65 for people who are not disabled for non-healthcare qualified expenses are charged ordinary income tax plus a 20% penalty.
  • An HSA can be funded by an individual, an employer, or a combination of the two. You don’t have to use the employer-provided HSA provider unless your employer requires you to maintain an account with them to receive employer contributions. Once the employer contributions are received, they can generally be transferred to your preferred HSA provider (you can have multiple HSA accounts). Any contributions are tax deductible (even if the tax return does not itemize deductions) but keep in mind that the IRS does not see employer contributions as income, which means they are not taxed to begin with and so cannot be deducted.
  • Funding an HSA requires a high-deductible health plan, and the person for whom the account is titled can’t be claimed as a dependent on someone else’s tax return for the year. In 2018, a high-deductible health plan has a minimum annual in-network deductible of at least $1,350 for an individual or $2,700 for a family and a maximum annual in-network deductible of $6,650 for an individual or $13,300 for a family.13
  • Contributions are limited to a combined funding limit of $3,450 per year for an individual or $6,900 per year for a family in 2018, but remember that the funding levels cover total funding among all HSA accounts, including any Archer MSA accounts. Anyone over the age of 55 can contribute an additional $1,000 per year, which means an individual over 55 can contribute $4,450 and a family with two eligible spouses over 55 years old can contribute $8,900 for 2018.14
  • You (or your family) are eligible for the entire year if you are eligible on the first day of the last month of your tax year (which is December 1st for most taxpayers) even if your spouse has a non-high deductible health plan, as long as the non-HDHP doesn’t cover you. However, there may be some limitations to how much you can contribute, and you may be required to keep the health plan or other qualifying health plan for 12 months to ensure that the HSA contributions are not included in the next year’s income with a penalty.
  • There are other rules to determine eligibility. If you have any questions regarding your eligibility, you should speak with your financial advisor or accountant. Contributions to an HSA can be made until the tax filing deadline for the year, which is usually April 15 of the following year.
  • You do not have to be eligible to save in an HSA account or have a high-deductible healthcare plan to use previously saved HSA money for health expenses tax free. Any money you save in the HSA does not go away at the end of the year. HSA funds roll over and accumulate from year to year (unlike funds in FSAs) and remain in your account if you leave your employer (unlike company-owned Health Reimbursement Accounts).
  • You cannot use HSA money for health expenses that will be reimbursed by your health insurance and still have the HSA distributions count as qualified tax-free distributions. You also can’t deduct medical expenses you have used HSA funds to pay for. You must keep all pertinent records for any HSA distributions, including receipts and proof that the expenses weren’t paid for by a medical plan, reimbursed from another source, or taken as an itemized deduction in any year.
  • Qualified medical expenses are generally expenses your insurance would cover if your deductible had been met that were incurred after you qualified for and established your HSA.
  • You generally can’t use the account to pledge for a loan or buy goods and collectibles without risking the amount used being deemed as distributed for non-qualified medical expenses for the year and fully taxed with potential penalties (although there are some exceptions).
  • Any distributions the HSA owner takes by mistake having reasonably believed they were for a qualifying medical expense can avoid tax consequences by returning the funds to the HSA before April 15th of the year after they discover the mistake.
  • For employers, the amount contributed to employees’ HSAs aren’t generally subject to employment taxes, although there are non-discrimination rules stating that all employees in the same class must receive HSA contributions (if any employees receive HSA contributions) to avoid an excise tax of 35% on contributions. This may mean employers strategically classify full-time and part-time workers, individual and family participants, and employees who are or are not enrolled in high-deductible health plans.

Flexible Spending Account

FSAs allow you to put away money before taxes to pay for medical expenses. You may be able to set aside money every year to use pre-tax dollars for your insurance copays, deductibles, some drugs, and certain other healthcare costs. However, remember that an FSA is a use-it-or-lose-it arrangement, which means you generally must use all or the vast majority of the funds within a certain time frame, generally by the end of the year.

Medical FSAs put all the employee’s annual contributions in at the start of the plan year. The employee can elect to defer a certain amount of money, spend the account down, or leave the employer for another employer without actually saving the amount of money from their paycheck withholdings that they’ve spent on tax-free medical expenses.


If the plan allows the rollover of a certain amount of money, it is almost always recommended to fund the FSA with at least the amount you can roll over from one year to the next to take advantage of the tax savings as long as you have the excess cash flow to afford to do so. Keep in mind that this money may go away if there is a separation from service with your employer, so it can be very important to spend down an FSA before quitting or being terminated from your employer.

If you decide to use an FSA, make sure you know how you’ll spend any extra money at the end of the year, including getting an additional pair of glasses, having dental work you might not otherwise have done, or buying medical equipment you need or know you will need. If you find you are getting close to the end of your plan year and you have money left in the plan you will not spend, it is worthwhile to go on websites that cater to FSAs to see what you may need that is available rather than losing the money when the plan year ends.

Remember that there may also be requirements to apply for refunds or reimbursements from the plan, so the dates of those filings should be noted and followed strictly.


Employers can make contributions to your FSA, but they are not required to. FSAs are limited to $2,650 per year per employee; if you’re married, your spouse can also put up to $2,650 in an FSA with their employer.15 FSA funds can be used to pay for not only your medical expenses but also medical expenses for your spouse and dependents. The funds cannot be used to pay for insurance premiums. The funds can be used for over-the-counter medicines with a doctor’s prescription (although insulin is allowed without a doctor’s prescription). They may also cover the cost of medical equipment.

Money put into your FSA by your employer that is not deducted from your wages is generally not counted against the FSA funding limit for the year. This means that if your employer contributes $1,000 to your FSA, you are generally still allowed to contribute the full $2,650 per year to your FSA. An exception to this would be if your employer’s FSA contribution comes from your employee benefits cafeteria plan, in which case your employer benefits would reduce the amount you can put into your FSA to a combined $2,650. In addition, if you have multiple employers offering FSAs, you may elect to defer an amount up to the limit under each employer’s plan; this differs from HSAs and IRAs, which only allow the combined funding up to a certain limit no matter how many accounts or employers you have.

Depending on the FSA, you may be allowed a grace period of up to two and a half extra months to use the money in the account or a carryover to the next year of up to $500. Only one of these options can be offered, and plans aren’t required to offer either one.

Carrying over a certain amount of money does not reduce the participant’s maximum FSA contribution for the next plan year. So, someone who carries over $500 from one plan year to the next can still contribute the maximum for the next plan year so they can get reimbursed for more than just the plan maximum for the next year.

Rules and Tax Implications

Generally, the money put into an FSA is not only exempt from your regular taxes but also not subject to payroll taxes for Medicare, Social Security, and Medicaid. This leads to an even higher tax savings than many other ways of saving money in a tax-benefited savings vehicle.

People who have high-deductible health plans with HSAs they are eligible to fund are generally not allowed to also have FSAs, except for a limited-expense FSA, which is also called a limited-purpose FSA account. This type of FSA can be used to reimburse dental and vision expenses as well as potentially eligible medical expenses incurred after the health plan deductible is met; however, it is important to understand the details of how this works for your particular plan before thinking about funding it with anything above the amount that can be rolled over or that you know you will need during the plan year. You may be able to extend your ability to keep your FSA money after you are laid off if you continue health coverage under the company’s COBRA health insurance or another arrangement.

In addition, there may be multiple types of FSAs offered through your employer, such as health and dependent care, but generally speaking, the money cannot be transferred from one type of account to another.

Dental Insurance

The cost of all types of health coverage has been on the rise, and dental insurance is no exception. In fact, dental care is not only more expensive, but employers are now putting more of the costs of dental insurance on their employees.  This means it’s important to shop around before defaulting to your employer’s plan since you may find that an organization you belong to provides a plan that better fits your needs (e.g., professional organizations, AARP, and many other organizations offer group dental plans).

When comparing dental plans, it is important to not only look at cost but also make sure your dentist is considered in-network; if not, consider whether you are willing to switch to another dentist in the dental plan’s network. Dentists outside the plan may provide you with little to none of the plan benefits.

You may see dental plans list coverage with three numbers illustrating the percentage of particular services the plan will cover (100-80-50 plan). These numbers can be understood as follows:

  • 100: The plan covers 100% of preventative dental work, including regular check-ups and cleanings.
  • 80: The plan covers 80% of the cost for common dental procedures the plan covers. Common procedures include cavity fillings, braces, root canals, whitening, etc.
  • 50: The plan covers 50% of the cost for major dental procedures the plan covers. Major procedures include tooth crowning, tooth implants, procedures requiring sedation, etc.

Typically, plans will require you to pay a small deductible. They will cover a certain percentage of costs after the deductible has been met, depending on the category in which the procedure falls, up to a yearly cap, after which point you will have to pay all remaining costs.

Vision Insurance

Vision insurance commonly pays for the following:

  • Preventive care, including annual eye exams and check-ups;
  • Costs associated with contact lenses, lens frames, lenses, and lens protection methods;
  • Disposable contacts (typically an added coverage that costs more); and
  • Eye surgery discounts (typically an added coverage that costs more).

It’s important to note that it’s not uncommon for vision insurance providers to deny coverage for medical issues related to your vision. Should something come up during a check-up, your doctor will likely refer you to a specialist, the costs for which wouldn’t be covered by your vision insurance. The good news is that although vision insurance may not cover the cost of such medical issues, your health insurance would cover the costs more often than not.

Some important questions to ask yourself and your employer regarding your vision insurance include the following:

  • Does your vision insurance cover the costs of eye tests or exams you want or need?
  • Does your vision insurance cover the costs of glasses you want or need?
  • Does your vision insurance cover the costs of lenses you want or need?
  • Are you required to go to a low-cost chain store, or can you go to your private practice doctor?

Life Insurance/Accidental Death and Dismemberment

Life insurance offered through your employer is often a very good deal. Because the underwriting is done for the employer as a whole, it’s generally low cost; it may even be free. Signing up is easy since you are generally not required to undergo a physical exam to qualify, and it’s usually pretty inexpensive. The problem is that a person can often buy a limited amount of insurance through their employer’s plan, which may not be enough to cover the amount of life insurance you need.

How much life insurance is necessary?

Life insurance is looked at as an income replacement insurance plan in case someone passes away. To find the minimum amount of coverage you should have, figure out how much it would cost for your family to live without your income and replace that amount minus any growth on the assets you think they’ll receive. This involves thinking about things like additional childcare and someone to help around the house. It can help to figure out how much it costs for you to live currently and how much each partner earns, although the lifestyle costs may increase or decrease depending on the family dynamic.

As a very rough starting point, if you are the sole breadwinner, it is generally recommended to make sure your assets minus your house add up to at least roughly 20 times your yearly expenses (you should speak with your financial planner and insurance provider for a specific recommendation). If your assets do not add up to 20 times your yearly expenses, then the current amount of shortfall is a very easy way to gauge the least amount of life insurance you should purchase from your employer or other life insurance program if possible.

Change of Employment Status

Another important point to make about employer life insurance is that you may lose life insurance if you quit your job or get fired from your job. You may be unable to get private insurance, and your next employer may not offer insurance. Some employer-sponsored life insurance plans are portable, so you can take them with you if you leave the job, but it’s important to know what type of life insurance your employer offers so you can buy insurance on the open market if your employer does not provide enough or the right type of life insurance.

Short and Long-Term Disability Insurance

According to the Social Security Administration16 one in four people in their 20s working today will become disabled before retirement age. One way to hedge against a disability is via disability insurance, which gives you a portion of your pay if you can no longer work for a specific period. The cost of disability insurance through your employer is often very inexpensive, making it worth considering. A disability can be due to pregnancy, short-term illness, or long-term illness.

Strategies and Tax Implications

It is important to know how to structure the payments for your disability insurance. If you pay for disability insurance with FSA funds or other pre-tax dollars, you will have to pay taxes on the benefits if or when you use the disability insurance. If you pay for the disability insurance with after-tax dollars, the benefit will be tax free. Given that the disability insurance only covers a percentage of your pay, it’s generally advisable to use after-tax dollars to fund the benefits. Personal circumstances, such as an inability to fund with after-tax dollars or to gather funds to cover any shortfall between the cost of living and the after-tax value of your disability benefits in case of a disability, may change the calculation for which option is most beneficial to you.

If your employer pays for your coverage pre-tax, your benefits will be taxable.

28. Taxation of Employer Provided Disability Insurance

Critical Illness Insurance

Critical illness insurance pays out a lump sum if the employee gets cancer or another serious illness. The insurance may be part of a cafeteria plan in which you choose how much money goes to which benefits, you may have to pay for the insurance out of withholding from your paycheck, or your employer may pay for the coverage. Remember that the benefits generally will not be taxed if the employee pays the full premium with after-tax money, whereas the lump sum payments will be taxed if the employer pays the cost with pre-tax money.

Coverage and Cost

The policy can be small or can cover as much as a million dollars per issue. So, it’s important to know how much coverage you need in coordination with any long-term care and disability insurance should you contract a major illness. Different policies cover different things, including:

  • Heart attack
  • Cancer
  • Heart transplants
  • Coronary bypass surgery
  • Parkinson’s disease
  • Alzheimer’s
  • Amyotrophic lateral sclerosis
  • Loss of sight
  • Loss of speech
  • Loss of vision
  • Heart valve replacement
  • Angioplasty
  • Kidney failure
  • Major organ transplant
  • Stroke
  • Paralysis

Keep in mind that each of these illnesses must meet the specific definition of the illness from the insurer; some cancers, strokes, etc. that you think will qualify don’t in fact qualify for a payout or only qualify for a partial payment. Likewise, some policies may require you to see a specialist in the particular field of your illness to qualify as having the disease properly diagnosed. So, it is important to know what your insurance actually covers.

It is often wise to consider disability, long-term care, and life insurance as the first places for insurance coverage money to be placed before looking at critical illness insurance. Keep in mind that self-insuring runs the risk that you contract a critical illness early on in life (in which case the insurance would have paid a significant return). If you do need coverage, this type of insurance can be very beneficial since the lump sum can be used to pay for things that aren’t covered by insurance, such as:

  • Some of your pay while not working
  • Travel costs to specialists
  • Specialists not covered by insurance
  • Experimental treatments not covered
  • Replacement of spouse’s income while they care for you
  • Health insurance premiums while you’re not working
  • Time off work
  • Out-of-network doctors & hospitals
  • Rent & Utilities
  • Mortgage & real estate taxes
  • Credit card bills
  • School tuition
  • Food

Insurers may provide up to a certain amount through your employer without going through a medical exam; however, amounts over that limit will require a physical. It’s important to make sure a failed health exam will not preclude you from getting the employer’s group coverage with no underwriting. To ensure that you’re protected in this scenario, you want to max out the available employer group coverage without underwriting while going through the underwriting just in case you fail the health exam and can’t get anything above the group coverage if that strategy is possible. Whether you go through your employer or an open-market plan from an insurance broker, you don’t want them to find cancer during underwriting, thus disqualifying you for any coverage, when you could have taken advantage of the group coverage prior to having the physical and finding out about the medical ailment. The group coverage will often require you to answer a few questions before providing the coverage you want.

Generally speaking, it is better to prioritize life insurance and disability coverage and then look to critical illness insurance since it is narrower in scope and it can be expensive. Of course, this changes for very cheap or free coverage or if your family has a medical history of critical illnesses. It is important to consider this in the hierarchy of insurance needs and decide where to spend your dollars to get the most benefit in terms of coverage and the way things will affect your life. I recommend speaking to a financial planner and insurance agent before making any decisions. The coverage may include only you or cover your spouse or domestic partner, your children, or family, so is important to know who can be covered and make sure you have thought about an objective for the appropriate coverage.

What the insurance covers can be very specific, so it’s important to know all the terms of the contract. Are pre-existing conditions covered? Which types of cancers and heart attacks are covered? Are some treatment payouts only partially covered, such as certain treatments for heart issues or cancers? Can you get a one-time payout or can you receive payments multiple times for the same illness or different illnesses over time? Do the policies require that you be hospitalized or receive chemotherapy or radiation to qualify? Is there an age-related benefit deduction (i.e., as you grow older, will the benefits decrease)? Is the policy portable (i.e., what happens if you switch jobs, retire, get laid off, or get fired)?

Payout Policy

Some policies provide multiple cash payments, such as for someone who has a heart attack followed by a kidney transplant, so the insurance will make multiple payouts from the same policy. On the other hand, some policies will only give a single payout for the first of the two issues. In addition, some policies will grant a second payout for a second occurrence of the same event, such as the second occurrence of a heart attack, although the second payout may be lower.

You may find that different illnesses provide different payouts as a percentage of the full value of the coverage (i.e., some cancers may pay out 100% while other cancers pay out 25%; skin cancer pays out a flat rate far lower that is not tied to the total coverage amount). There may also be a requirement that a certain amount of bodily damage be done in addition to the disease diagnosis to qualify for a payment.

The coverage may also provide an additional stipend for certain treatments, transportation, or lodging in association with the covered illness. Likewise, lifestyle choices, such as drug use, flying small planes, alcohol abuse, being part of a war or riot, or self-inflicted injuries, or how the illness was acquired may change your coverage. Some insurers require you to live for a certain period after a diagnosis, so someone who has a heart attack but dies the next week may not be covered for a payout under the policy.


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Employee Benefits: Stock Benefits

The following is a chapter from Employee Benefits: How to Make the Most of Your Stock, Insurance, Retirement, and Executive Benefits by Josh Mungavin CFP®, CRC® and Edited by Chris Boren & Tristan Whittingham.

Employee Benefits - cover


Stock Benefits


Employee Stock Purchase Plan

Optimal Use: Strategies and Analysis

Employee stock benefit plans are generally beneficial for one of two reasons or a combination of both reasons. The most common benefit of an employee stock purchase plan is that your employer allows you to buy stock at a discount, (usually somewhere in the range of 5–15%) to the fair market value. The other primary way employee stock purchase plans can add value is that some plans provide a look-back period, allowing you to use a historical closing price of the stock. This price may be either the price of the stock offering date or the purchase date, whichever is lower.

This means that, if your employer offers a 15% discount to the share price and a look-back period benefit and the price of your stock has gone up by 10% over the period, you will get a 15% discount to the price at the beginning of the period. Then you can sell it for an immediate return on your investment.

12. Employee STock Purchase Plan

It is usually best to maximize your employer stock purchase plan to the extent that your financial plan allows. The employer will generally allow you to use up to a certain percentage of income towards your stock purchase plan, but you will always need to keep the contributions below the IRS-dictated $25,000 per year for qualified employer stock purchase programs.7 If you buy and sell the stock on the same day with the discount, you receive the percentage discount as additional compensation with little risk, even without a look-back period, so there is at least a locked-in benefit of additional income. If there is a look-back period, the stock has gone down over the period, and you buy the stock at its current price with only a discount, which again provides you the benefit of buying a stock more cheaply, you still make money if you immediately turn around and sell the stock. If there is a look-back period and the stock has gone up, you stand to gain significantly with the combination of the look-back period and the discount along with selling the stock immediately and just thinking about the gains as additional income or additional salary rather than a long-term investment in the company. In other words, it’s a win–win situation as long as the shares are bought and sold on the same day regardless of whether there’s a look-back period.

Special Considerations

While there may be some tax benefits to holding on to the stock you have purchased for a certain period, it’s generally best to sell the shares as soon as possible to diversify your investments. The discount to the stock price you must pay versus what the stock is worth will always be taxed at ordinary income rates. Shares held for at least two years from the first day of the offering period and at least one year from the purchase date are generally taxed at the lower long-term capital gains rates. It’s important to remember that while the tax benefits may seem appealing, the stock can easily decline enough to justify the diversification of the holdings over that time. Holding the stock past the first day on which you can sell it is essentially the same as buying the stock on the open market for its present value. As investments in individual companies, stocks come with unsystematic risk (i.e., risk that can’t be diversified), and so much of an employee’s net worth is tied up in the company based on their personal earning power through their job, incentive stock options, restricted stock options, deferred compensation, and employee stock purchase plan. It is generally best to sell employee purchase-plan stock as soon as you can because there’s no benefit above and beyond what one would get from going out into the open market to buy the stock for the employee who keeps the stock. There is a significant downside to the employee if the company suffers significantly or goes out of business.

General IRS Rules and Eligibility

  • Employee stock purchase plans usually have an upfront enrollment period during which you need to decide what percentage of your paycheck you would like to have deducted and used to buy employer stock at a discount. Depending on the company, this is generally done with after-tax money, and the qualified plans are limited to $25,000 in stock purchases per year.
  • The employer will generally have you sign up for a certain period, e.g., 12 or 18 months, and give a certain number of purchase periods (i.e., two or three six-month periods) during which your money will be put into an account. At the end of the period, the money you’ve saved will be used to buy employee stock at the discount offered by your employer’s plan.

Restricted Stock Units

Restricted stock units (RSUs) are issued to an employee through a vesting plan and distribution schedule after achieving required performance milestones or remaining with their employer for a particular amount of time.8 RSUs are different than incentive stock options in that the employer gives you units that represent stock for free, but you can’t touch the RSUs until you’ve met your company’s vesting. The RSUs are taxed when they vest. Some companies give you the ability to take the proceeds from a RSU in kind (meaning you receive shares either before taxes so you receive more shares but pay taxes out of pocket from outside money or after taxes have been withheld by the employer) or in cash (meaning the employer gives you the net value of the shares the units represent after taxes have been withheld). In either case, you may have the option to receive the proceeds before or after taxes. The employer may withhold taxes by selling enough shares to cover your tax liability and sending the proceeds of the shares to the government.

You may see private companies, such as Facebook, offer RSUs. This allows employees of a privately held company to participate in the stock valuation of the company during its pre-IPO days without having to meet some of the requirements of public companies or companies with more than a certain number of owners. It also ensures that shareholder rights, such as voting, don’t end up in the hands of people that the founders of the company don’t want to have an outsized say in the happenings of the company before it goes public.

Optimal Use: Strategies and Analysis

It is generally best to sell RSUs as soon as they’ve vested; otherwise, it’s the same thing as buying the stock on that day. Any gains that occur between vesting and the time of sale will be taxed as if the shares were purchased on the open market on the day they vested. Any time shares are held for less than 12 months, gains will be taxed at ordinary income rates. If they are held for over 12 months, the gains will be taxed at long-term gain rates. To vest in an RSU and keep the shares, you need to hold on to the shares for 12 months to get the long-term capital gains rate (only on any gains after the date they vest) potentially leaving you overexposed to your employer’s stock because your livelihood and the RSU portion of your portfolio are both in a single company. Selling shares immediately upon vesting means you pay only the ordinary income taxes that would be due anyway, you don’t pay any other taxes than you would otherwise have to, and you can properly diversify the money so you’re not overexposed to a single company for your work income and your investments. It’s generally a good idea to think of RSUs that become vested as a bonus paid out in cash.

The strategy may be different when dealing with private company RSUs than with public company RSUs because you may want to have some exposure to company stock before it goes public that you couldn’t otherwise buy on the open markets. So, you may decide to keep the shares. In such a case, you may decide to instruct your employer not to sell any of the shares to cover your tax liability but instead come up with the tax money out of pocket. You will still need to pay the taxes on the RSUs immediately, so you need to have enough cash on hand to do so. In doing so, you take on a significant risk in terms of the number of shares owned, the amount of cash spent paying for the taxes on the shares, and your time spent working for the company.

General Considerations

Keep in mind that there’s a difference between a restricted stock plan, in which you own the shares and your employer repurchases any vested shares upon termination, and RSUs, in which you do not own any shares until the units vest and you are given stock or the value of the stock at the time of vesting. The settlement can occur in either cash or company stock at the time of vesting for RSUs. As an owner of an RSU, you are not a shareholder in the company, you generally do not have shareholder rights, and you may be given cash rather than stock.

RSUs are generally more valuable than options because there is likely to be some value to the shares at the end of the vesting period. The shares can be sold for something, whereas incentive stock options may be at a strike price lower than the current stock price; this means it doesn’t make sense to exercise the stock option at the end of vesting, leading to a complete lack of value. This means that, if you’re given the choice between incentive stock options and an equivalent amount of RSUs, it’s generally best to choose RSUs because there’s likely to be some residual value unless the company goes completely out of business. If choosing between the two, you want to see a large amount of incentive stock options in comparison to the RSUs to make the incentive stock options a justifiable bet not only because you need to buy the stock option (so you only get the difference between the price you can exercise the stock option at and the current price) but also due to the volatility of the nature of the option itself. Keep in mind that if you can fill out a beneficiary form, it’s always worthwhile to do so just in case something happens before you have handled your vested RSUs.

Special Considerations

Because the stocks can’t be touched until you vest, it’s important to know your vesting schedule and what shares are on the line if you plan on changing jobs. That way, you don’t quit a job right before a large vesting period. In addition, you can bring up how many shares you’re leaving on the table and what level of compensation that relates to when negotiating a new job to give you a better angle for negotiating the salary that is comparable to your previous employer’s compensation package. It may be possible to negotiate a one-time upfront restricted stock offer from a new employer with a vesting schedule similar to or possibly longer than your existing employer’s RSUs but with a similar value so you are no worse off for leaving your current employer and joining a new employer.

If you receive restricted stock rather than RSUs, you can make what’s known as an 83(b) election with the IRS. The election tells the IRS to lock down the fair market value at the time the stock is granted so you owe income tax on the grant date between the fair market value of the grant and the amount paid for the grant. The election starts the clock earlier for capital gains purposes, so when you eventually sell your stock, the second round of taxes is paid on any gains in the stock price after the election but before the vest. This introduces a new, potentially huge risk. You have paid taxes on the pre-vested shares, which were granted, that you can’t get back if you leave the company, pass away, or get fired before they vest. If the stock declines in value after the taxes are paid at ordinary income tax rates, you can deduct the losses, but that may mean you have paid taxes at a higher rate than you can deduct the losses at.

General IRS Rules and Eligibility

Vesting can generally be either time or performance driven; for example, you may find a yearly vest of 25% of your grant for four years, once the company hits a predefined goal, or once you as an individual hit a preset goal. This can also be tied to the IPO of the company, which means the company can specify a period after the IPO during which employees cannot sell shares so the market is not flooded with shares of the stock. Some companies allow you to defer the settlement of RSUs for income tax purposes so you can choose to vest the RSUs in years with low earnings to be in a lower tax bracket when your shares vest. A change in timing on the vesting of your stock requires two conditions to be met:

  • The initial deferral election is made prior to the year in which the compensation is earned; and
  • Payments are made according to a fixed schedule or tied to an event, such as end of employment, disability, or death.

Stock Options

Incentive stock options and non-qualified stock options are relatively complex instruments that led me to debate whether to include them in this book. I believe this topic requires professional modeling and opinions along with a comprehensive knowledge of all the workings of an individual’s finances. I fear that as simple as I have tried to make this book read and as overly simplified as I have made the topic, I run the highest risk of giving the reader enough information to be dangerous but not enough to make a truly educated decision in this section; however, I would be remiss in excluding it. At the same time, I am concerned that not enough information can be given about stock options in such a brief book when the topic of stock option analysis could comprise an entire book and still be inconclusive. Bill Gates said,

When you win [with options], you win the lottery. And when you don’t win, you still want it. The fact is that the variation in the value of an option is just too great. I can imagine an employee going home at night and considering two wildly different possibilities with his compensation program. Either he can buy six summer homes or no summer homes. Either he can send his kids to college 50 times, or no times. The variation is huge; much greater than most employees have an appetite for. And so as soon as they saw that options could go both ways, we proposed an economic equivalent. So, what we do now is give shares, not options.

With this in mind, I will try to provide the easiest, most simplistic routes in which to judge incentive stock options with the caveat that you should not make decisions concerning these instruments without consulting a professional. This is all to say that including any of this information gives the reader a sense that they have enough information to decide, when in fact I believe the only reason to include this information is so the book doesn’t feel incomplete. Stock options are very complex and volatile, but they have a lot of value if used correctly with discretion and the best luck. While the upside is substantial, the downside is likewise substantial, and both should be considered when making any decisions concerning stock options.


Before we begin discussing stock option strategies and analysis, a grounding in some fundamentals on the topic is in order.

A stock option is the right to buy a specific number of shares at a preset price (i.e., the exercise or strike price) during a certain period. There is generally more upside potential in stock options than in restricted stock because of the inherent investment leverage in options contracts.

The strike price is what it costs you to exercise an option (i.e., to buy a share). It is commonly called an exercise price since you’re exercising the option to buy the share at a specified price.

The value of your options (i.e., the options value) is the market price minus the strike/exercise price along with an adjustment for time value that decreases as you get closer to the end of the option time period.

The option is in-the-money when the value of the option is greater than zero (i.e., when the strike price is less than its per share value). The option is out-of-the-money when its intrinsic value is zero (i.e., the price you can buy each share for with your option is higher than its current cost on the open market).

The time value is the premium paid over the current exercise value of an option because of the possibility that the option will increase in value before its expiration date. The time value of an option naturally decays as you get closer to the expiration date, reaching zero on the expiration date, but the option will almost always be worth more than its current exercise value prior to the expiration date.

Optimal Use: Strategies and Analysis

While a host of insights and variables should be considered, this section includes some of the most common ones and provides a framework you can use to conduct a preliminary analysis and determine how to begin pursuing a stock option strategy.

It is always very important to know when your options will vest so you can exercise and/or sell the options because missing that date can be very costly. The expiration date on the stock options are critically important because the time value of the option decreases as you get closer to the expiration date and the value of the options more closely approaches the value of the stock. Keeping this in mind, any time you exercise employee stock options before their expiration, you lose the remaining time value.

Any change in the market price of your stock can have a very large impact on your option value. Any time you have leverage on investments, not only your gains but also your losses are potentially magnified. So, while options have more potential upside than RSUs, they also have more downside, and they may expire worthless since the price you can buy the shares at may be higher than the market price. In addition, if you exercise your options and the price decreases, the money you spent to purchase the shares and the taxes you had to pay are already money out of pocket that you may not ever get back.

It almost never makes sense to allow an in-the-money stock option to expire without exercising it. As mentioned above, a stock option is considered in-the-money when the stock is trading above the original strike price (i.e., you can buy the stock through your option cheaper than you can buy it on the open market). It makes much more sense to exercise the in-the-money stock option and immediately sell the stocks acquired (in turn realizing the short-term gains) than it does to allow that money to slip through your hands by letting the options expire.

Keep in mind that while it’s easy to think of incentive stock options as stock, they are not stock since there is inherent upside and downside leverage in your incentive stock options; and so an analysis of the stock options and their value is essential before making any decisions. The analysis should include the in-the-money value, the cash-out value, and a Black-Scholes value at the very minimum. There are many other ways of looking at stock options, but these are the bare-bones minimum when looking at any stock options and determining which options would be primary candidates for exercise and diversification.

  •  The in-the-money value calculation is the difference between the current fair market value per share (i.e., the current stock price) and your exercise price multiplied by the number of options you have. This only applies to the number of shares you have vested; it does not count the number of unvested shares you have options in. You can calculate the cash-out value by subtracting the amount of taxes you would have to pay on your vested grants from the value of your vested grants so you get an after-tax value equal to your cash-out value on the grants.
  • The Black-Scholes method of evaluating the value of an option should be a section unto itself in this book. It allows a deconstruction of the in-the-money value and the time value. You must know the expiration date (i.e., the time until the option expires), the strike price (i.e., the price you can buy the stock at), an estimate for the volatility of the stock, and the risk-free rate of return. Note that an option with a high volatility is an option where the stock fluctuates substantially; it will have a greater time value than an option for a stock that does not fluctuate substantially or that has low volatility because the volatility of the stock reflects both the potential upside and downside of the stock. The option value is enhanced by the theoretical ability to earn above the risk-free rate of return without investing anything (i.e., the higher the risk-free rate of return, the higher the time value of the option). Almost the entire value of the Black-Scholes model lies in finding the time value of the option. The time value is important in determining when to exercise options because as the time value decreases the value of holding the options also drops. In-the-money options with low time values are generally good candidates to diversify. The Black-Scholes value is equal to the in-the-money value plus the time value. The time value of vested options is important because it measures the company-specific risk or general market-specific risk associated with continuing to hold the options.
  • The cash-out value is the amount of money you would receive by selling your stock options at their current value. This allows you to see how much money is put at risk by not exercising your currently vested stock options.

Once you compute the above values, it’s helpful to look at them in aggregate to see how leverage plays out in your stock options. This modeling does not give you a clear decision as to which stock options to exercise or provide a judgement with regard to exercising, but it at least lets you see the breakdown of where the value is coming from, how much is at risk due to time-value decay if the stock should remain flat, whether the market value of the options illustrates more or less volatility in the stock than you anticipate, and what the consequences of the stock going down might be so you can make a better informed decision.

13. Stock Price Graph

General Considerations

There are two general ways to exercise stock options: pay cash or net shares. With the pay-cash exercise, you pay for the entire value of the stock options to be exercised out of pocket. With the net shares approach, some of the shares you can buy are sold immediately to pay the taxes on the exercise for the remainder of the options. You own less shares after the exercise, but your tax has been paid based on the benefit of having the stock options.

Any time you elect to have all stock options purchased rather than a certain number exercised and sold and then the remainder purchased, you do have to pay out of pocket to buy the number of stocks you are allowed to buy at the specified rate.

It’s important not to delay exercising your stock options until the last-minute, waiting for your stock price to go up. If you miss the deadline, your options will expire worthless. These options are not stock; they are options to buy stock, and if you let the option lapse, you no longer have the benefit of buying the stock at your option at a cheaper cost than the list price. In addition, remember that if you retire, leave your company for a new job, or are laid off or fired, you may have no more than 90 days to exercise any stock options; therefore, it’s incredibly important to clarify what you can do with your stock options and what you need to do with your stock options before you leave a company or as soon as possible after you are let go.

As illustrated in the above chart, it’s also important to understand that incentive stock options have a leveraged nature. This means your incentive stock options are inherently more volatile or risky than the value of your employer stock, which can be a significant factor when you want to potentially decrease a single company-specific risk. The chart below shows that as the value of the stock increases, the value of the options dramatically increases; however, the value of the options is near zero below a certain point.

14. ISO Value CHart

Special Considerations

Incentive stock options are usually granted to employees, and they are not taxed at the grant date or the exercise date but only when the shares are sold. To qualify for favorable tax treatment, you must hold the shares two years from the grant date and one year from the exercise date.  That means, if you exercise after one year from the grant date, you need to hold the shares for an additional year to qualify for long-term capital gains rates; otherwise, you are taxed at ordinary income tax rates. This can lead to people “letting the tax tail wag the dog.”

15. Employee Stock Purchase Plan Special considerations

For some, this is a worthwhile gamble, but it would have devastating life consequences for others. It is important to know which position you are in and not take risks that would devastate your lifestyle for the hope of a little extra gain that may not have much of a meaningful effect on the rest of your life. Even though incentive stock options are generally not taxed when you exercise the option, the value of the discount your employer provides and the embedded gain may be subject to the Alternative Minimum Tax in any given year. So, it’s important to talk to your accountant to know the potential tax ramifications for exercising any incentive stock option.

General IRS Rules and Eligibility

If your company is acquired or if it merges, your vesting could be accelerated; this means, in some cases you might have the opportunity to immediately exercise your options, so it’s important for you to know your exercise options. It’s also important to check the terms of the merger or acquisition before acting so you know if the options you currently own in your company stock will be converted to options to acquire shares of the new company.

Unlike RSUs, stock options are not taxed until they are exercised, and if you exercise your option before the value of the options has increased and file an 83(b) election, you will not owe any taxes until the stocks are sold. If you exercise your options after the value increases but before they are liquid, then it is possible for you to owe an alternative minimum tax.  So, it’s crucial to consult a tax advisor before making that decision. Usually, you can’t sell or exercise your stock options before vesting unless your stock option plan allows early exercise. If you can exercise your options before vesting, you can make an 83(b) election. The 83(b) election starts the clock early for capital gains by notifying the IRS to lock down the fair market value at the time of exercise rather than vesting. You have 30 days from the early exercise date to file an 83(b) election.

Non-Qualified Stock Options

Non-qualified stock options require that taxes be paid upon exercise, whereas qualified incentive stock options are generally not taxed until the stock is sold. However, there may be an alternative minimum tax at the time of exercise, so it’s important to speak to your CPA to fully understand the tax implications. All options are taxed at the difference between the fair market value at sale and the fair market value of the purchase. Non-qualified stock options are taxed at ordinary income tax rates, which are substantially higher than the capital gains tax rates on which incentive stock options can be charged tax depending on the holding period of the stock purchased and sold.

Non-qualified stock options can be granted to employees and non-employees, and there are no restrictions on what the strike price can be; however, any strike price less than the current fair market value of the stock would be considered ordinary compensation and not capital gains. For example:

16. Non-Qualified Stock Options Example


To download the book – for free! – click the following links:

Barnes & Nobles

Feel free to contact Josh Mungavin with any questions by phone 1.800.448.5435 extension 219, or email:

Click here for the previous chapter: Retirement

For more information on financial planning visit our website at

NewsLetter Vol. 11, No. 5 – September 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:


Retirement isn’t the sort of thing you can just jump into. Rather, it requires thoughtful planning and a modest amount of basic knowledge. Unfortunately, Americans seem to be sorely lacking in this regard. GOBankingRates recently found that, shockingly, only 2 percent of respondents were able to pass a quiz on basic retirement knowledge.

Click here for full article.


From the Retirement Income Journal

If no action is taken, Social Security will be able to pay only 75 percent of its promised benefits after 2034. To solve that problem today, the government would have to raise payroll taxes (to about 15 percent from 12.4 percent), cut benefits across the board by 17 percent, or implement some combination of the two. It could also generate more revenue by raising the cap on the amount of earned income—currently the first $128,400—on which the payroll tax is levied.

Click here for full article.


CBS News

After more than a century behind bars, the beasts on boxes of animal crackers are roaming free.

Mondelez International, the parent company of Nabisco, has redesigned the packaging of its Barnum’s Animal Crackers after relenting to pressure from People for the Ethical Treatment of Animals

09-2018_Animal Crackers (1)

Click here for full article.


If you’re remotely in striking distance of qualifying for Medicare, my partner, Josh Mungavin, has a most excellent reference book. You’ll note the attractive price—$0—as Josh prepared this amazing effort as a public service and simply wants to make it available to as many people as possible.

09-2018_Medicare Book (2)

Click here to download it now.


Posse of top cops from 17 states dresses down SEC, demand same fiduciary standards for broker-dealers and RIAs and cite other ‘egregious’ deficiencies in proposed son of DOL rule

“… the state attorneys general’s remarks carry particular weight because of their regulatory powers and ability to sue the government if the rule falls short of its intended goals. Judging from their comments, they’re mad as hornets at the proposed measure.

The SEC’s proposed rule purports to impose a ‘best interest’ standard on broker-dealers while requiring additional disclosures; however, the proposed rule fails to require broker-dealers to act as fiduciaries for their clients, as is required of investment advisers—meaning retail investors are not assured unbiased advice from all their financial professionals,” the group asserted in a statement.

What’s more, “the proposed rule fails to ban even the most egregious of broker-dealer conflicts, like sales contests, which elevate the broker-dealer’s financial interest above that of the customer.”

Click here to read the full article.


Following up on the theme of retirement health care…

A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Health Care Costs in Retirement,  Fidelity® Analysis Shows 

A 65-year-old couple retiring this year will need $280,0001 to cover health care and medical expenses throughout retirement, according to Fidelity Investments’ 16th annual retiree health care cost estimate. This represents a 2 percent increase from 2017 and a 75 percent increase from Fidelity’s first estimate in 2002 of $160,000.

For individuals retiring this year, using the same assumptions and life expectancies used to calculate the estimate for a 65-year-old couple, a male will need $133,000 to cover health care costs in retirement while females will need $147,000, primarily due to the fact that women are expected to live longer than men.

09-2018_Graph on Retirement (3)

Click here for the full article.


Luxury Apartment Sales Plummet in New Your City

Sales of such properties costing $5 million or more fell 31 percent in the first half of the year, pushing sellers to cut asking prices.

Click here for the full article.


At least for me … 10 Highest-Paid Professions in America

From Investment News

  Median base salary
Software Architect $105,329
Nurse Practitioner $106,962
Software Engineering Manager $107,479
Physician Assistant $108,761
Software Development Manager $108,879
Corporate Counsel $115,580
Enterprise Architect $115,944
Pharmacist $127,120
Pharmacy Manager $146,412
Physician $195,842

Click here for the full article.


Trends in Financial Advisor Compensation from

  2004 2018
Fee Only 31% 52%
Commission Only 21% 3%
Combination 10% 28%


For Online Daters, Women Peak at 18 While Men Peak at 50, Study Finds. Oy.

From the New York Times

Click here for full article.


  • “The wise man, even when he holds his tongue, says more than the fool when he speaks.” Yiddish proverb
  • “What you don’t see with your eyes, don’t invent with your mouth.” Yiddish proverb
  • “A hero is someone who can keep his mouth shut when he is right.” Yiddish proverb
  • “Don’t be so humble—you are not that great.” Golda Meir (1898-1978) to a visiting diplomat
  • “Intellectuals solve problems; geniuses prevent them.” Albert Einstein
  • “You can’t control the wind, but you can adjust your sails.” Yiddish proverb
  • “I’m not afraid of dying—I just don’t want to be there when it happens!” Woody Allen
  • “Not everything that counts can be counted, and not everything that can be counted counts.” Albert Einstein
  • “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.” Albert Einstein


How long will $1 million last you in retirement? Report says it depends on the state


Mississippi: 25 years, 11 months, 30 days

Oklahoma:    24 years, 8 months, 24 days

Michigan:      24 years, 7 months, 14 days

Arkansas:     24 years, 7 months, 4 days

Alabama:      24 years, 7 months, 4 days

Hawaii:          11 years, 8 months, 20 days

California:     15 years, 5 months, 27 days

New York:    16 years, 3 months, 22 days

Alaska:          16 years, 8 months, 6 days

Maryland:     16 years, 8 months, 29 days

Click here for the full article.


From Financial Advisor magazine

Five Florida Brokers Sued By SEC In Alleged $1.2B Ponzi Scheme

Five unregistered Florida brokers are in hot water for funneling investors into a $1.2 billion Ponzi scheme. Woodbridge allegedly bilked 8,400 investors out of $1.2 billion in an elaborate Ponzi scheme in which high-pressure sales agents were used to prey on investors, who were told they would be repaid from high rates of interest on loans to third-party borrowers, the SEC said.

In reality, the borrowers were LLCs owned and controlled by Woodbridge’s leadership, according to the SEC, and investor funds were used to pay $64.5 million in commissions to sales agents … the five brokers were among the top revenue producers for Woodbridge, selling more than $243 million of its securities to more than 1,600 retail investors…

The SEC claims that the defendants told investors that the Woodbridge securities were “safe and secure” using various channels of communication. Klager pitched the investments via newspaper ads, while the Kornfelds allegedly solicited investments through seminars and a “conservative” retirement planning class taught via a Florida university and Costa recommended them on a radio program, the SEC said. Robbins allegedly used radio, television and internet marketing.

The moral is true: If it’s too good to be true, it’s not true.

Click here for full article.


From The Points Guy (@thepointsguy)

If you travel at all, I hope you have TSA PreCheck. If not, get it—it will save you tons of time and hassle at the security gate. What I didn’t realize is that if for some reason your known traveler number (KTN) doesn’t make it onto your reservation, your ticket may not reflect your qualification for PreCheck.

By streamlining security and cutting down on wait times, the program helps make travel a less stressful experience. However, it only does so when you actually use it, so we strongly encourage you to double-check your frequent flyer accounts and make sure your KTN is saved on your profile

Here’s how to do that for the major airlines in the US once you’ve logged into your account:


  • Visit Profile and tier status
  • Click on Traveler profiles
  • Click on Edit my information under International Travel Information
  • Enter your KTN, then click Save


  • Click on Your account
  • Click on Information and password
  • Enter your KTN, then click Save


  • Click on Go to My Delta
  • Click on View my profile
  • Find Basic Info, then click Open
  • Click Edit in the Secure Flight section
  • Enter your KTN, then click Save Changes


  • Click on the TrueBlue icon at the top right
  • Click on Profile
  • Click the pencil icon next to TSA PreCheck
  • Enter your KTN, then click Yes, Update


  • Click on My Account
  • Under My Preferences, click Edit
  • Enter your KTN, then click Save


  • Click on View account
  • Under Profile, click on Edit Traveler Information
  • Expand the KTN/Pass ID section, enter your KTN, then click Continue 



From my partner Brett

Are you getting a lot of spam email? Instead of clicking “unsubscribe” at the bottom of the email, which tells companies your email is legit and then you get even more spam email, use the Rules feature in Outlook.

  • Click on Rules, Create Rule
  • Go to Advanced Options
  • Click the checkbox that says “with “” in the subject or body” for Step 1
  • Below that, under Step 2, click on the blue link and type in the company name or some unique identifier (be careful not use to a word like JPMorgan or anything else that could inadvertently filter out good emails)
  • Click next and then click the checkbox “move a copy to a specified folder” for Step 1
  • Below that, under Step 2, click on the blue link and select Junk email
  • Click Finish


Two most excellent articles from one of my favorite practitioner authors, Larry Swedroe, from Advisor Perspective via Bob Veres’ most excellent newsletter.

The Danger in Private Real Estate Investments

“Should clients invest in private deals as an alternative to publicly-traded REITs? Swedroe examines the evidence, in the form of a private investment database compiled by Cambridge Associates. It contains historical performance of more than 2,000 fund managers, more than 7,300 funds, and the gross performance of more than 79,000 investments underlying venture capital, growth equity, buyout, subordinated capital, and private equity energy funds.

The database shows that for the 25-year period ending in 2017, private funds returned 7.6% a year, on average, while comparable REITs returned 10.9%. The private investments were also taking on much more risk, in the form of leverage above 50% of the value of the underlying properties. One research report summarized more than a dozen academic studies across various time periods, and all of them reached the same conclusion: REITs outperformed private deals.”

Click here for full article.

The Problem with Focusing on Expense Ratios

“The evidence is clear that investors are waking up to the fact that, while the past performance of actively managed mutual funds has no value as a predictor of future performanceexpense ratios dolower-cost funds persistently outperform higher-cost ones in the same asset class.

That has led many to choose passive strategies, such as indexing, when implementing investment plans because passive funds tend to have lower expense ratios. Within the broad category of passive investment strategies, index funds and ETFs tend to have the lowest expenses.

Most investors believe that all passively managed funds in the same asset class are virtual substitutes for one another (meaning they hold securities with the same risk/return characteristics). The result is that, when choosing the specific fund to use, their sole focus is on its expense ratio. That can be a mistake for a wide variety of reasons. The first is that expense ratios are not a mutual fund’s only expense.”

Click here for full article.


From my friend Dianna

At age 23, Tina Fey was working at a YMCA.
At age 23, Oprah was fired from her first reporting job.
At age 24, Stephen King was working as a janitor and living in a trailer.
At age 27, Vincent Van Gogh failed as a missionary and decided to go to art school.
At age 28, J.K. Rowling was a suicidal single parent living on welfare.
At age 30, Harrison Ford was a carpenter.
At age 30, Martha Stewart was a stockbroker.
At age 37, Ang Lee was a stay-at-home-dad working odd jobs.
Julia Child released her first cookbook at age 39, and got her own cooking show at age 51.
Vera Wang failed to make the Olympic figure skating team, didn’t get the editor-in-chief position at Vogue, and designed her first dress at age 40.
Stan Lee didn’t release his first big comic book until he was 40.
Alan Rickman gave up his graphic design career to pursue acting at age 42.
Samuel L. Jackson didn’t get his first movie role until he was 46.
Morgan Freeman landed his first major movie role at age 52.
Kathryn Bigelow only reached international success when she made “The Hurt Locker” at age 57.
Grandma Moses didn’t begin her painting career until age 76.
Louise Bourgeois didn’t become a famous artist until she was 78.
Whatever your dream is, it is not too late to achieve it. You aren’t a failure because you haven’t found fame and fortune by the age of 21. Hell, it’s okay if you don’t even know what your dream is yet. Even if you’re flipping burgers, waiting tables, or answering phones today, you never know where you’ll end up tomorrow.
Never tell yourself you’re too old to make it.
Never tell yourself you missed your chance.
Never tell yourself that you aren’t good enough.
You can do it. Whatever it is. 


From Morningstar’s optimistic review of active manager performance: Active vs. Passive Fund Management: Our Research on Performance

80% Fat-Free

“4 takeaways about active vs. passive fund management from our year-end 2017 report

  • S. stock pickers’ success rate increased sharply in 2017, as 43 percent of active managers categorized in one of the nine segments of the Morningstar Style BoxTMboth survived and outperformed their average passive peer. In 2016, just 26 percent of active managers achieved this feat.
  • The turnaround was most pronounced among small-cap managers. In 2016, the combined success rate of active managers in the small blend, small growth, and small value categories was 29 percent. In 2017, 48 percent of small-cap managers outstripped their average index-tracking counterparts.
  • Value managers saw some of the most meaningful increases in their short-term success rates. Active stock pickers in the large-, mid-, and small-cap value categories experienced year-over-year upticks in their trailing one-year success rates of 15.0, 20.2, and 34.2 percentage points, respectively. “

How I read these statistics:

20% Fat

57 percent of active managers underperformed their average passive peer.

52 percent of small-cap underperformed

For value managers, 85 percent of large-cap, 79.8 percent of mid-cap, and 65.8 percent of small-cap underperformed.

And that was the good news.

“Although 2017 marked a clear near-term improvement in active managers’ success rates, many of their long-term track records leave much to be desired. In general, actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons.

Click here for the full article.


Top Magician—Israel’s Got Talent

Click here to watch.


18 Kirkland Products You Should Buy at Costco

Tips from Kiplinger

Click here to see the slideshow.


Before I start this “story,” I want to emphasize that I am NOT recommending any of the investments discussed below and E&K has not and does not currently invest in any of them.

It’s a very popular theme today to critique mutual funds for being expensive closet indexers (and I agree) and to suggest that a far better solution is to search for managers who have a high “active share,” i.e., a high percentage of a portfolio that differs from the index (I’m a skeptic). What I teach my class is to be agnostic and do your own research. I recently came across a story about the Baron Fifth Avenue Growth Fund that seemed to make the case for such a manager.

The Art of High-Conviction Investing

Financial Advisor

For over seven years, the Baron Fifth Avenue Growth Fund was a fairly typical large-company growth vehicle with a diversified portfolio of over 100 stocks, lots of benchmark index companies, and so-so performance.

That changed pretty quickly when Alex Umansky, who had been a large-cap growth manager at Morgan Stanley for many years, assumed control in November 2011. Within a relatively short time he had whittled the fund down to fewer than 40 carefully chosen stocks and gave the best ideas ample room to run…

“The fund’s old portfolio was structured to guard against volatility,” says the 46-year-old Umansky. “I guard against over-diversification. If you have a portfolio of 100 names, you’re really just providing exposure to an asset class. We’re in the business of finding mispriced securities and adding alpha.”

Click here for full article.

MarketWatch also had a quite glowing story

Opinion: Baron Funds money manager goes all in to beat the stock market

09-2018_Market Watch Text (4)

Click here to read full article.

So I decided to look beyond the “story.”

Simply looking at a comparison of the fund performance to an appropriate investable index (iShares Russell 1000 Growth) since December 2011, when Mr. Umansky took over, didn’t seem to support the argument.

09-2018_Graph (5)

Next, I looked at what I consider to be the real test—risk-adjusted return. The basic measure for that is the Sharpe ratio, a number that according to Investopedia “ … is the average return earned in excess of the risk-free rate per unit of volatility or total risk.” What I found was that although Baron’s return did indeed beat the index by a percent or two, on a risk-adjusted basis, it lagged. Bottom line, Baron’s looks like a fine alternative if you’re looking for a mega large cap actively managed domestic stock fund, but iShares Russell 1000 Growth, at least today, looks a bit better. The moral: research and don’t just read—read between the lines.
09-2018_Volatility Measures (6)


SEC Chairman Calls for End of Sales Contests

“As the SEC goes over the public comments it received on its proposed Regulation Best Interest and holds roundtables to hear from investors, the commission’s chairman says some of the feedback has ‘resonated’ with him, according to a statement published on the regulator’s website. Namely, Jay Clayton is adamantly opposed to ‘high-pressure, product-based sales contests’ and wants them eliminated entirely, he says in the statement.

‘In these circumstances, I do not believe it is possible for an investment professional to say with credibility that the investment professional is not putting his or her own interests ahead of the interests of the customer,’ he says, referring to the sales contests.”

Click here for full article.


From the ICI Annual Mutual Fund Shareholder Tracking Survey as reported by ThinkAdvisor

09-2018_Tracking Survey(7)

Although 81 percent and 84 percent respectively reported a fund’s investment objective and risk profile were important considerations, only 36 percent said it was very important.

My ranking for Very Important would be:

  • Investment Objective and Risk Profile
  • Performance Compared to an Index
  • Fees and Expenses (already included in the “performance”)
  • Mutual Fund Rating Services wouldn’t even make the list

Click here for full article.


From my friend Dianne on Facebook

An English professor wrote these words on the blackboard and asked his students to punctuate it correctly:

“A woman without her man is nothing”

All of the males wrote:

“A woman, without her man, is nothing.”

All the females in the class wrote:

“A woman: without her, man is nothing.”

Punctuation Is Powerful!


SEC Chairman Jay Clayton’s statement on Cryptocurrencies and Initial Coin Offerings

“The world’s social media platforms and financial markets are abuzz about cryptocurrencies and ‘initial coin offerings’ (ICOs). There are tales of fortunes made and dreamed to be made. We are hearing the familiar refrain, ‘this time is different.’

The cryptocurrency and ICO markets have grown rapidly. These markets are local, national and international and include an ever-broadening range of products and participants. They also present investors and other market participants with many questions, some new and some old (but in a new form), including, to list just a few:

  • Is the product legal?  Is it subject to regulation, including rules designed to protect investors?  Does the product comply with those rules?
  • Is the offering legal?  Are those offering the product licensed to do so?
  • Are the trading markets fair?  Can prices on those markets be manipulated?  Can I sell when I want to?
  • Are there substantial risks of theft or loss, including from hacking?

The answers to these and other important questions often require an in-depth analysis, and the answers will differ depending on many factors.  This statement provides my general views on the cryptocurrency and ICO markets and is directed principally to two groups:

  • ‘Main Street’ investors, and
  • Market professionals—including, for example, broker-dealers, investment advisers, exchanges, lawyers and accountants—whose actions impact Main Street investors.

Considerations for Main Street Investors

A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation.

Investors should understand that to date no initial coin offerings have been registered with the SEC. The SEC also has not to date approved for listing and trading any exchange-traded products (such as ETFs) holding cryptocurrencies or other assets related to cryptocurrencies. If any person today tells you otherwise, be especially wary.”

Click here for full article.


After the Bitcoin Boom: Hard Lessons for Cryptocurrency Investors

Tony Yoo, a financial analyst in Los Angeles, invested more than $100,000 of his savings last fall. At their lowest point, his holdings dropped almost 70 percent in value. Pete Roberts of Nottingham, England, was one of the many risk-takers who threw their savings into cryptocurrencies when prices were going through the roof last winter. Now, eight months later, the $23,000 he invested in several digital tokens is worth about $4,000, and he is clearheaded about what happened.

“I got too caught up in the fear of missing out and trying to make a quick buck,” he said last week. “The losses have pretty much left me financially ruined.”

Mr. Roberts, 28, has a lot of company. After the latest round of big price drops, many cryptocurrencies have given back all of the enormous gains they experienced last winter. The value of all outstanding digital tokens has fallen by about $600 billion, or 75 percent, since the peak in January, according to data from the website

Click here for full article.


From my friend Peter. You can’t make this stuff up.

09-2018_Headlines (8)


As one might expect, the desolate and remote East Antarctic Plateau is home to Earth’s coldest temperatures. What is surprising, however, is that these bitter temps are even colder than previously thought—reaching nearly -148 degrees Fahrenheit (-100 degrees Celsius).


From my friend Judy. Always a good source of interesting tidbits.

  • My goal for 2018 was to lose 10 pounds. Only 15 to go!
  • I ate salad for dinner. Mostly croutons and tomatoes. Really just one big round crouton covered with tomato sauce. And cheese. FINE, it was a pizza. I ate a pizza.
  • I just did a week’s worth of cardio after walking into a spider web.
  • I don’t mean to brag, but I finished my 14-day diet food in 3 hours and 20 minutes.
  • A recent study has found women who carry a little extra weight live longer than men who mention it.
  • Kids today don’t know how easy they have it. When I was young, I had to walk nine feet through shag carpet to change the TV channel.
  • Just remember, once you’re over the hill you begin to pick up speed.



Harold Evensky to receive FPA’s highest award


Harold Evensky to receive Frankel Fiduciary Prize


From my friend Alex.

09-2018_Memes (9-A)

09-2018_Memes (9-B)



One evening, a grandson was talking to his grandmother about current events. The
grandson asked his grandmother what she thought about the shootings at schools,
the computer age, and just things in general.

The grandmother replied, “Well, let me think a minute.”

  • I was born before:
    • Television
    • Penicillin
    • Polio shots
    • Frozen foods
    • Xerox
    • Contact lenses
    • Frisbees
    • The Pill
  • There were no:
    • Credit cards
    • Laser beams
    • Ballpoint pens
  • Man had not yet invented:
    • Pantyhose
    • Air conditioners
    • Dishwashers
    • Clothes dryers (clothes were hung out to dry in the fresh air)
    • Man hadn’t yet walked on the moon
  • In my day:
    • “Grass” was mowed
    • “Coke” was a cold drink
    • “Pot” was something your mother cooked in
    • “Rock music” was your grandmother’s lullaby
    • “Aids” were helpers in the principal’s office
    • “Chip” meant a piece of wood
    • “Hardware” was found in a hardware store
    • “Software” wasn’t even a word.
  • Until I was 25, I called every man older than me “sir.”
  • And after I turned 25, I still called policemen and every man with a title “sir.”
  • We were before gay rights, computer dating, dual careers, day care centers, and group therapy.
  • Our lives were governed by good judgment and common sense.
  • We were taught to know the difference between right and wrong and to stand up andtake responsibility for our actions.
  • Serving your country was a privilege; living in this country was a bigger privilege.
  • We thought fast-food was what people ate during Lent.
  • Having a meaningful relationship meant getting along with your cousins.
  • Draft dodgers were those who closed front doors as the evening breeze started.
  • Time-sharing meant time the family spent together in the evenings and weekends, notpurchasing condominiums.
  • We never heard of FM radios, tape decks, CDs, electric typewriters, yogurt, or guys wearing earrings.
  • We listened to big bands, Jack Benny, and the president’s speeches on our radios.
  • If you saw anything with “Made in Japan” on it, it was junk.
  • The term “making out” referred to how you did on your school exam.
  • Pizza Hut, McDonald’s, and instant coffee were unheard of.
  • We had 5-and-10-cent stores where you could actually buy things for 5 and 10 cents.
  • Ice cream cones, phone calls, rides on a streetcar, and a Pepsi were all a nickel. And if you didn’t want to splurge, you could spend your nickel on enough stamps tomail one letter and two postcards.
  • You could buy a new Ford Coupe for $600, but who could afford one?Too bad, because gas was 11 cents a gallon.
  • We volunteered to protect our precious country.
  • No wonder people call us “old and confused” and say there is a generation gap.

How old do you think I am? 

Are you ready?

This woman would only have to be  66  years old. All this is true for those of us born any time before late 1952. Gives you something to think about.

Depressing, as I’m lots older.


Why Conflicting Retirement Advice is Crushing American Households

From Forbes

It is a well-documented fact that American workers are financially underprepared for retirement. For example, in a recent Government Accountability Office Report that examined the retirement savings of households in the 55 to 64 age group, researchers found that 55% of households had little to no retirement savings. Additionally, the remainder in that range that had saved for retirement saved a median of approximately $104,000. Even with Social Security, it seems the average American worker will have limited financial resources to generate income during retirement.

When you look at the savings data, this shortfall is not a surprise, as the U.S. consistently under-saves its peers. Data sourced from the Organization for Economic Co-operation and Development (OECD) spanning over a decade of savings rates ending in 2008 shows that the U.S. has historically come up short. Canada, France, Germany, Italy, Japan and the U.K. all reported generally better national savings rates during that time period. Although the retirement preparedness of the average American worker is distressingly bad and the savings trends and figures are of great concern, the focus of this article will be on the cost of conflicting advice on retirement preparedness.

The effects and financial impact of conflicting advice on American families is of consequence. In a 2015 report by the Council of Economic Advisers, the authors estimate that “the aggregate annual cost of conflicted advice is about $17 billion each year.” This conflicting advice comes from individuals and institutions that are “compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest.”

Unfortunately for the American family seeking “professional” financial advice, the choices are few. Just a small percentage of financial professionals are able to offer financial advice without facing the conflicts outlined by the Council of Economic Advisers. In a recent article (paywall) penned by Dr. Kent Smetters, he suggests that out of the roughly 285,000 financial advisers in the U.S., few are “fee-only advisers who follow a true fiduciary standard that prohibits commissions on products recommended to clients and legally requires the advisers to always put their clients’ interests first.”

It is challenging at best to determine which advisers, brokers, agents and mutual fund companies are able to act in your best interests as most say they will.

The effects and financial impact of conflicting advice on American families is of consequence. In a 2015 report by the Council of Economic Advisers, the authors estimate that “the aggregate annual cost of conflicted advice is about $17 billion each year.” This conflicting advice comes from individuals and institutions that are “compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest.”

Click here for full article.


From Yahoo Finance

For almost two years, Wells Fargo has been under near-constant fire. It all began, of course, with the revelation that employees in bank branches, who faced immense pressure to sell, had opened fake accounts for customers. Then, the bank agreed to pay a $1 billion fine to settle allegations of abuses in its auto lending and mortgage businesses.

In the spring, the bank also disclosed that its board was conducting a review of “certain activities” within the bank’s wealth management unit, which filings describe as including fee calculations of fiduciary accounts.

In mid-July, Yahoo Finance reported on increasing sales pressure in the wealth management sector of Wells’ Private Bank. Late last month, the Wall Street Journal also reported that four Wells Fargo advisors had sent a letter to the Justice Department and the Securities and Exchange Commission, detailing “long-standing problems” in the wealth management business.

In addition, the Journal reported that the broad class of Wells Fargo advisors were encouraged to funnel wealthier clients into the Private Bank’s wealth management area because the fees were higher. A former senior executive in this area and multiple former Wells Fargo brokers expressed that to Yahoo Finance as well.

Click here for full article.


From Financial Advisor

“Merrill Lynch’s equity research arm has agreed to pay approximately $8.9 million to settle Securities and Exchange Commission charges that it failed to disclose a conflict of interest to more than 1,500 of Merrill’s retail advisory accounts who were sold approximately $575 million in products as a result.

Investors continued to be sold the products managed by a U.S. subsidiary of a foreign multinational bank despite concerning management changes because of the fees the banks paid to be on Merrill’s advisory platforms and its broader financial relationship with the wirehouse, the SEC found.

‘By failing to disclose its own business interests in deciding whether certain products should remain available to investment advisory clients, Merrill Lynch deprived its clients of unbiased financial advice,’ said Marc P. Berger, director of the SEC’s New York Regional Office. ‘Retail clients must feel confident that their advisors are eliminating or disclosing such conflicts and fulfilling their fiduciary duties.’

Merrill’s decision to continuing offering the U.S. subsidiary’s products violated both its due diligence and disclosure policies and violated its own ADV requirements.

According to the order, Merrill put new investments into these products on hold due to pending management changes at the third party. As part of the decision, Merrill’s governance committee planned to vote on a recommendation to terminate the products and offer alternatives to investors.

The third-party manager sought to prevent termination by contacting senior Merrill executives, according to the order, including making an appeal to consider the companies’ broader business relationship.

Following those communications, and in a break from ordinary practices, the governance committee did not vote and chose instead to defer action on termination, the SEC found.”

Click here for full article.

If you’re in doubt regarding the legal relationship you have with an advisor, have them sign the simple mom-and-pop “fiduciary oath” (it doesn’t even have the word “fiduciary” in it). If you’d like a copy, call (305-448-8882) or send an email ( and we’ll send you one.

Hope you enjoyed this issue, and I look forward to “seeing you” again in a couple months.



Harold Evensky


Evensky & Katz / Foldes Financial Wealth Management


Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 4 – August 2018