Charting
the Course

The coronavirus pandemic has taken its toll on our economy, but as bad as conditions might seem, savvy investors are seeing some good news. In fact, this is a unique circumstance that doesn’t happen very often, and some have been waiting years for a tax savings opportunity like this to come along.

Recent legislation combined with economic mayhem caused by COVID-19 has opened the door to investors looking for opportunities to move their retirement savings from traditional IRAs to Roth IRAs.

So, why is that a big deal?

The Roth IRA advantage comes down to taxes and flexibility. The money we deposit into our traditional IRA has not been taxed, so we see a big bang for our buck going into the account, but when we pull the money out after retirement, Uncle Sam is there, waiting for his share. Money placed in a Roth account has already been taxed, so the money we withdraw stays in our pockets. Meanwhile, Roth IRAs allow us to withdraw our contributions tax-free at any time, as long as the five-year aging requirement has been met and the investor is at least 59½ years old.

Also, under the SECURE Act, which became law in 2019, an IRA could cause financial hardships for children who inherit the account. Under the new law, beneficiaries who are more than 10 years younger than the deceased owner must withdraw the entire inherited IRA balance within 10 years. In most cases they must pay taxes on the money, and the financial consequences could be significant for lower-income inheritors, who may be bumped into a higher tax bracket. Under a Roth account, there is still a 10-year stipulation, but most inheritors do not pay taxes on withdrawals.

Millions of people have IRAs, usually set up as part of a retirement benefit offered by an employer. Many of those people would love to move that money into a Roth account. In the past, though, the taxable amount on such a move would have been very costly. But, for some investors, those circumstances have changed, and that red light has suddenly turned green.

As everyone knows, we pay taxes according to tax brackets linked to our incomes. The more money we earn, the higher the percentage we pay in taxes. The Tax Cuts and Jobs Act of 2017 lowered tax rates across the board for most Americans. For example, a married couple earning $300,000 per year used to be in the 33% tax bracket. Under the new law, the couple pays 24%.

Meanwhile, the economic crisis caused by COVID-19 has reduced incomes across the country, pushing many into lower tax brackets and further opening opportunities for lower-cost conversions.

This window will not be open forever, though. Under the Tax Cuts and Jobs Act, tax brackets will return to their original levels in 2026. The economic downturn will eventually end, and incomes will improve. Financial markets have already recovered substantial ground, and the unemployment rate is dropping. But more economic instability may be ahead as the pandemic continues, and there are many factors that could determine if this is your year for conversion. Investors should consult with a registered investment adviser and a CPA now, so they can be ready to convert if shifting markets create even greater opportunities this fall.

Stacy Murray is a certified public accountant and a member of the team of financial advisers at Oklahoma City-based Full Sail Capital.

Depression-era criminal Willie Sutton might have put it best when someone asked why he robbed banks. The infamous thief was quoted as saying, “That’s where the money is.”

Well, banks still have money, but the fraudsters and scammers among us these days are going for easier pickings that are just waiting to be snatched from those struggling in the age of COVID-19.

While the rest of us are protecting our health and trying to feed our families, predators are at work, gaming the federal and state governments’ efforts to preserve the economy.

The federal Paycheck Protection Program, expanded unemployment benefits and economic stimulus checks are among the targets, and scammers are walking away with cash and the personal identities of thousands of unsuspecting victims.

Multiple coronavirus relief initiatives have been introduced this spring, sending trillions of dollars flowing into the hands of Americans, and scammers have hit their stride. Their schemes range from fraudulent PPP applications to bogus stimulus check websites. The first fraud charges were already announced a couple of weeks ago.

In this new world of COVID-19, there are many types of predators, and they’re out to harm more than our health. Vigilance is the key defense.

Businesses and self-employed individuals should use only banking institutions they know or are able to verify. Scammers are looking for opportunities presented by those desperate to get much needed relief. Play it safe and initiate contact yourself rather than answer an unfamiliar solicitation. With one report showing 645 domains related to the PPP registered between March 30 and April 20 alone, individuals should use websites that end in .gov for the most reliable information.

Thieves also are targeting the government’s enhanced unemployment program for jobless people affected by COVID-19. While these scams are costing taxpayers millions, they’re also harming businesses and individuals.

The Oklahoma Employment Security Commission has seen thousands of people file bogus layoff claims against unsuspecting businesses. In fact, my wife recently received notice of two fraudulent applications in connection with her LLC in consecutive days.

Even though the government is sending the funds, employers and employees stand to lose. Employers could pay higher unemployment taxes, and employees with stolen identities could face a host of financial consequences.

Businesses and individuals can fight back by contacting the OESC if they receive filing notifications that they are not familiar with, and vigilance pays off. So far, they have discovered nearly 4,000 fraudulent claims.

There are even scams designed to dupe individuals still waiting for their stimulus payment into giving up personally identifiable information to speed up access to the funds.

Scammers are contacting victims through email, calls and texts, offering to help obtain funds faster or for a fee. Just click the link, they say, and fill out the form with your name, Social Security number and/or bank account number. These thieves are feeding on the desperation of others, using stolen identities to try and obtain credit cards and loans before fading into the woodwork.

Disasters can bring out the best and the worst in people, and the coronavirus is no different. People can protect themselves by investigating suspicious offers that show up in inboxes or mailboxes, and they should never hesitate to consult with trusted friends, financial advisors or attorneys.

As we all work to keep ourselves, our families and our neighbors safe from the virus, it’s important to watch out for the predators who don’t show up under a microscope. Sometimes, they can be just as destructive.

Max Rhodes is the chief compliance officer at Full Sail Capital.

They’re not particular. Generational lines don’t really matter to them. Baby boomers, Gen Xers, millennials. A target is a target. Just give them a name, a number and an address and they’ll go to work.

These are the criminals who can rob you with a smile, a handshake and a pat on the back as they’re walking out the door.

Con artists, scammers and fraudsters are out there in rising numbers, using more sophisticated means than ever, and they’re not going away. Many victims find the most lethal culprits are people they know, family members, friends or caregivers.

Locked doors, alarm systems and bank vaults can’t protect against this type of thief. Awareness, caution and education are the best protections.

Today’s society is pulsing with technology and information overload, making it almost impossible to keep up with changes as we go about our daily lives, so it’s easy to be ambushed with a pitch, a story or an opportunity that sounds plausible. Some scammers will go to great lengths to boost their credibility, creating websites and slick promotional materials.

The scams are countless, and many are age-old. It might be some type of investment that requires you to lock up your money, cutting your access to it, or maybe it’s not an investment at all. Perhaps it’s a vacation, a new product or a claim that you’ve won something. Beware of callers who say they’re with the IRS, strangers asking for your address or people who want your Social Security number.

Pay attention to checking accounts, savings accounts and credit card accounts. Keep up with where money goes. When scammers obtain access, they typically take small amounts of money at a time to help evade detection.

While vigilance is a good first line of defense, it may be helpful for some to have a trusted friend or a family member as a backup. And now, through the Senior Safe Act of 2018, financial advisers can help.

Under the law, financial advisers and employees with financial institutions can be trained on how to identify exploitative activity against seniors, and the law opens avenues for reporting without the risk of liability.

This important development in the fight against fraud allows financial advisers to serve as objective third parties that are in a unique position to see red flags.

For example, there may be red flags when a widow starts bringing someone new to meetings with her banker or financial adviser and giving access to her financial accounts. Or, there may be sudden changes to beneficiaries. Financial advisers can also monitor transactions and spot requests to send money to third parties, or they can watch for unusual withdrawals.

Unusual activity does not always mean exploitation, however. That’s why financial advisers might encourage clients to identify a trusted friend or other contact. Communication is a key to identifying fraud.

These days, baby boomers are among the most vulnerable, and, with more money than any other generation in history, they are a lucrative target.

So, there can be a lot at stake, making it more important than ever to take measures that protect wealth from dangerous exploitation, and it’s good to have people who can help.

And, always remember, if it’s too good to be true, it probably isn’t.

Max Rhodes is an attorney and the chief compliance officer at Full Sail Capital.

Watch your mail, because this is the season when county assessors send property valuation notices to homeowners and commercial property owners across the state.

Before you roll your eyes and turn the page, read on, because February is the time of year when normal, everyday people can save hundreds, thousands or even tens of thousands of dollars in property taxes. All they have to do is pay attention and be their own advocates.

I never let a February pass without giving my property valuation notices a close look. It’s not unusual for me to pay the assessor’s office a visit to discuss my own properties or advocate for my clients when I think valuations are either unfair or inaccurate.

Here’s how property taxes are figured. Assessors establish the Market Value of a property, then it adjusts the Taxable Market Value of the property in accordance with limits imposed by state law. Once the Taxable Market Value is solidified, it multiplies that Value by the Assessment Ratio. Next, it subtracts any Exemptions, such as the Homestead Exemption. Finally, it multiplies this adjusted amount by a Millage Rate, which is not set by the Assessor and varies depending on the county and school district. This is a bit complicated, so to simplify, the higher the property’s assessed value, the higher the tax assessment.

The county assessor’s job is to generate funds for county government and public schools. Assessor’s offices across the state are tasked with establishing market valuations for thousands, and in some counties, tens of thousands of properties. The sheer volume of this work creates a lot of opportunity for inaccuracies, faulty data or property specific considerations that these diligent assessors cannot possibly know. That’s why assessors distribute notices each year. They want to hear from you.

To many property owners, those notices are just another piece of mail to put in a stack, but for those paying attention, they are opportunities to reduce their tax burdens. If they find the assessor’s market value estimates are too high, they get to work.

Property appraisals are not always accurate. That’s why you can and should ask for the comparable properties and other information that an assessor used when estimating your property’s market value.

Few properties are truly the same in a given area, especially in neighborhoods with homes built at different times. Look at each property and determine if they truly compare to yours. The internet makes this research easy. Just key in the address and all kinds of information pops up.

Has the comparable property been remodeled recently? Does it have expensive amenities that your property does not have? Are the structures similar in age? Also, what’s the condition of your property? Are there foundation issues that could devalue your property? What’s the condition of the electrical system and the plumbing? Does your property need a new roof?

Those questions can help you determine if the assessor’s comparisons are fair and accurate. Assessors aren’t your advocates. They use a much broader brush that usually works in the county’s favor. So, the question is, are you going to do the leg work, ask the questions and be your own advocate? The county hopes you don’t.

Scott Cravens is chief operating officer and a founding principal at Full Sail Capital in Oklahoma City.

It’s hard to find good help these days.

There is little doubt that’s true as thousands of companies across the nation struggle to find the right people amid a sizzling U.S. job market. With today’s unemployment rate at a 50-year low, finding the right people can be a major achievement, and when an employer finds the right person, hanging on to them may be more complicated than a competitive salary.

To attract and hold the best employees, the most competitive companies offer ways for their people to save for the future, such as 401(k) plans, profit-sharing plans, defined benefit plans and health savings accounts.

But establishing a good retirement plan for employees is not that easy, and companies that have already checked that box can’t just walk away. Retirement programs are living, breathing entities that must be monitored and maintained. Benchmarking is necessary, a prudent process must be established, and adjustments must be made as federal rules change and financial markets fluctuate.

Registered investment advisers are in a good position to help employers develop and maintain programs that facilitate retirement savings and provide peace of mind to employees and their families.

While CEOs, CFOs, company presidents and HR directors are focusing on the day-to-day of operating a business, advisers are watching the financial markets, keeping up with regulatory changes and managing investment portfolios.

The financial environment is evolving, and big changes can occur, seemingly overnight, causing headaches for those who aren’t paying attention.

For example, the biggest change in retirement savings law in more than a decade was signed by President Trump over the Christmas holiday, but few people noticed, and that’s understandable. The law, known as the Secure Act, was one of several measures included in an omnibus spending bill Congress approved and sent to the president as the session drew to a close in December.

Many in the financial community have been watching the Secure Act evolve over the past year, and they knew approval was on the horizon. Now, they’re working with clients to update plans with new elements, such as inclusion of long-term, part-time employees in 401(k) plans. Until the Secure Act was passed, 401(k) programs were available to only full-time employees. The law also contains new disclosure requirements that now must be incorporated.

There are many moving parts in the world of retirement savings. While some companies navigate the landscape on their own, others turn to experts, but the process of finding the right team of advisers is not as easy as picking up the phone.

Employers might consider narrowing their search by focusing only on accredited financial fiduciaries, who are legally bound to act in their clients’ best interests. Next, employers should consider local firms who are familiar or seek recommendations from trusted contacts. Then, employers should interview prospective advisors to determine the cost of services, method of compensation and amount of experience with comparable clients. Also, seek a clear understanding of their process for enrollment, education, reviews, and due diligence.

Why is all this so important? For most people, retirement funds are the only type of savings they have, so imagine employees working for companies that don’t have retirement savings programs. The best companies need the best employees, so they want to treat them the best way they can. By offering efficient retirement programs, companies can empower people to impact future generations.

Tyler Grubbs is an accredited investment fiduciary at Full Sail Capital, an SEC-registered investment adviser located in Oklahoma City.

President Trump’s signing of the Secure Act just before Christmas marks the biggest change in retirement savings law in more than a decade. While several of the provisions may be worthy of celebration, there are others that are not necessarily good news.

For example, the law makes it easier for retirees to purchase expensive, potentially unnecessary products inside 401(k) plans. On the positive side, the new law eliminates the age limit for contributions to traditional individual retirement accounts, and long-term, part-time workers are now eligible to participate in 401(k) plans.

While people over 70½ can now contribute to IRAs, only earned income can be contributed. That means income from assets, such as stocks, bonds or real estate are prohibited. Meanwhile, retirees can now wait longer before taking money out of their IRAs. Previously, the age was 70½. Now, people can wait until they’re 72. This change benefits wealthier retirees who don’t need to draw on IRA balances for living expenses and want to see funds grow as long as possible within a tax-deferred vehicle.

One of the more unfavorable changes to IRA accounts comes from a “stretch” provision modification. Under the new law, beneficiaries who are more than 10 years younger than the deceased owner must withdraw the entire inherited IRA balance over a period of 10 years and pay taxes on the money unless they qualify as one of the act’s defined exceptions. The tax consequences could be significant for lower-income inheritors, who may be bumped into a higher tax bracket. Those planning to use IRAs in a wealth transfer strategy should consult with their tax, legal and financial advisers about alternative strategies.

Another provision in the new law allows part-time workers to participate in 401(k) programs, which is of particular benefit to women, who make up the majority of the nation’s part-time workforce. Previously, IRAs were the only retirement savings option available to part-timers. Now, they’ll have access to accounts with better investment funds and perhaps a matching benefit from employers. The new law also allows employees to withdraw up to $5,000 – penalty-free but not tax-free – in the case of birth or adoption.

As for plan sponsors, the new 401(k) provision contains advantageous changes to safe harbor rules, allowing the ability to apply for tax credits when starting a 401(k) plan or adding an automatic enrollment provision.

The new law also expands the way 529 savings accounts can be used to help pay for college. Now, up to $10,000 from a 529 account can be used to retire some types of student loan debt.

The most troubling provision in this new law will make it easier for 401(k) plan sponsors to offer annuities within retirement programs. The new law requires a “lifetime income disclosure” at least once a year on employee statements, which could lead many into buying an annuity product. While appropriate in some circumstances, annuities are typically more expensive than low-cost, index funds and are often sold by commission-driven advisers.

As more Americans find themselves unprepared for retirement, some provisions in the new law will be beneficial, but investors should be aware of the red flags. Those who need help navigating the new landscape may want to consider working with a fee-only, fiduciary financial adviser, who is required to put the client’s interests ahead of their own.

Tyler Grubbs is an accredited investment fiduciary at Full Sail Capital, an SEC registered investment adviser in Oklahoma City.

Most people spend decades saving and accumulating the wealth they need for their retirement. They often start with an IRA or a 401(k), and while the savings may start small, it can grow to be worth hundreds of thousands of dollars and even more.

When people get to that point, it can be exciting, but it can also be a perplexing fork in the road. As their wealth accumulates, investors realize there is even greater potential for larger gains as well as larger losses. Decisions surrounding money management become even more important, which brings us back to that fork in the road.

Some people manage their own investments through online brokerage houses with minimal fees as well as minimal advice and guidance. Others turn to financial advisers who meet with clients and customize portfolios and financial plans to fit individual needs.

The choice may seem simple, but choosing the right financial adviser isn’t always easy. There are different kinds of financial advisers, and most have no obligation to put their clients’ interests ahead of their own. In fact, the title “financial adviser” does not tell you much. When selecting an adviser, it’s important to look deeper into qualifications and affiliations.

A registered investment adviser, or RIA, has a legal duty to act as a fiduciary. That’s a technical way of saying the adviser must act in the client’s best interest. Less than 10% of the 300,000 financial advisers across the United States are fiduciaries, and within that small group of fiduciaries, more than 90% of them are “dually registered.” That means they’re only required to serve as your fiduciary some of the time.

In contrast, financial advisers who are registered exclusively as RIAs must act as your fiduciary all the time by disclosing conflicts of interest and disclosing all fees and expenses in writing.

Unfortunately, fiduciaries that are not dually registered can be hard to find. When engaging in a search for a financial adviser, remember that RIAs must make annual filings via a “Form ADV.” This filing provides prospective clients with tremendous detail and information about any RIA firm they are considering. For more on that, go to: https://www.sec.gov/fast-answers/answersformadvhtm.html.

Other financial advisers, such as broker-dealers, wire houses and insurance agents, are only required to fulfill a “suitability” obligation. They must provide suitable recommendations, but they don’t have to put their clients’ interests ahead of their own.

So how do you protect yourself? It’s important to meet with multiple advisers, and if they say they’re a fiduciary, ask if they’ll put it in writing, and then ask them a few key questions, such as:

Does anyone else pay them to advise their clients? If so, do they earn more to recommend certain products or services?

Do they participate in any sales contests or award programs that create incentives to sell a product?

Will they present your investment performance to you net of all your fees and expenses?

Can they tell you about their conflicts of interest, orally and in writing?

Do they earn fees for referring clients to specialists like insurance agents, estate planning attorneys and CPAs?

Ask these questions, and you’ll find out who you’re dealing with, especially when you ask them to put it in writing.

David T. Stanley is the chief executive officer and a founding principal of Full Sail Capital, an SEC registered investment adviser located in Oklahoma City. The firm is composed of financial advisers registered under the SEC as fiduciaries.