Monthly Archives: June 2018

Thoughts From Willis | Hot Dogs, Fireworks, & Reviewing Your Investment Accounts

June 26, 2018

Next week, the average investor will celebrate July 4th with hot dogs, fireworks, and a semiannual review of their investment accounts…

Why? Because they have been busy all year and finally have the time to do so.


Independence Day is one of the few holidays that does not fall on a Friday or a Monday. For many corporate professionals, this justifies taking an extended vacation. This year, July 4th falls on a Wednesday, meaning the market will close at noon on July 3rd.


So, when a national holiday falls in the middle of the week like July 4th, how will the stock market be affected?


The key players driving the market during this year’s middle-of-the-week July 4th holiday are composed of three major trading groups and their activity during this period varies as outlined below.


Institutional Traders Do Less:

More than likely, these individuals will be taking off a portion of the July 4th holiday week, if not the entire week. This will potentially result in less-active trading for this period.


Automated Traders Do the Same:

Automated traders are computerized trading programs, which will not rest over the holiday. However, the pricing parameters remain set and execute only based off prior-set trading points if they are hit.


Busy individuals Do More:

Corporate professionals and executives account for many of the busy individuals who traditionally review their accounts at the end of the year and over long holiday weeks and/or weekends like the Fourth of July and Thanksgiving.


If institutional traders are not executing big trades during the July 4th week, the individual trader will account for a larger portion of the trading volume during the holiday break.


Thus, the individual trader should have more influence over the market’s activity than they normally would during an average market week.


Historically, the individual consumer’s trading activity has produced large swings in the market during similar mid-week holidays.


Should this scenario have any effect on your decision to buy or sell over the next week?


At Willis Johnson & Associates, we have our price targets for trading already set. In addition, we will have staff present during the upcoming holiday week in case a change needs to be made.


What is your plan?


CEO and President,

Willis Johnson CFP®


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

Financial Fact | 5 Budgeting and Tax Tips for Buying Your Vacation Home

June 19, 2018

The summer travel season is in full swing and many of our clients are headed to their favorite destinations along the Florida coast, Colorado Rockies, or abroad.  I too just returned from a week-long vacation to St. Augustine, Florida. 


There’s something about the old-world charm of Spanish forts, mile-long beaches and slow southern setting that brings us back year after year.  Now, as I sit back at my desk, I can’t help but daydream about someday purchasing my own house a block from the beach just off Highway A1A.   


For those with similar aspirations to own your favorite getaway, I thought it would be timely to share five budgeting and tax tips to keep in mind before making the leap to ownership.


1)   Property Tax Deduction Limits for 2018 May Reduce Tax Savings on Your Second Home

Recent tax law changes have impacted the deductibility of property taxes. Previously, clients could deduct the full value of property taxes on their primary residence and vacation home(s) when itemizing their deductions.


Today, however, state, local, and property taxes are limited to a combined $10,000 of deductible value, which means you may not be saving as much as you think on taxes when buying your next home.


2)   Review the Mortgage Interest Deduction Limits for 2018 Before Buying Your Second Home

Tax law has also changed the math on mortgage interest deductibility.  Going forward, this limits mortgage interest deductions to the first $750,000 debt used to purchase a first or second residence.


Clients with an existing mortgage, or those looking for financing an excess of $750,000, may be unable to deduct the full value of their annual interest payments.


For example, a client who finances their vacation home with a $1 million mortgage at 5% interest could only deduct ¾ ($37,500) of the annual interest paid instead of the full $50,000.


3)   Profit from Selling Your Vacation Home is NOT Exempt from Capital Gains Tax

What if you grow tired of the maintenance and hassle of owning a second home and decide to sell? You should note that the sale of a second home is not afforded the same tax exemption available when selling your primary home.


For married couples filing jointly, $500,000 of gain (profit) on the sale of your primary residence is exempt from capital gains tax. However, any gains resulting from the sale of your vacation home do not qualify for the same exemption.

4)   Capital Gains from Rental Depreciation Are Subject to Marginal Rates When Sold

The tax rules that apply to rental properties are very different from those that apply to one’s personal residence. Many second homeowners choose to rent their vacation home to help pay the bills or supplement their existing income. The owner of a rental property can deduct depreciation on the home when filing their annual taxes, thus lowering the income tax payments on the rental income they receive.


However, it’s important to note that depreciation also lowers the adjusted cost basis of the property when the owner decides to sell, thus increasing their capital gain (and the taxes they pay) as a result. If you’re considering a purchasing a second home to serve as a rental property, you should first understand that the gains attributable to depreciation from renting your vacation home will be taxed at your marginal tax rate when sold. 


For example, if you purchased your vacation home for $1.2 million and the depreciation of your property amounted to $325,000, the adjusted cost basis of your home would be $875,000.

Purchase price $1,200,000
Depreciation $325,000
Adjusted Cost Basis $875,000
Sale Price $1,500,000

If you sold your secondary residence for $1.5 million, the recapture gain (taxed at marginal income tax rates) would be $325,000 and the realized gain (taxed at capital gains rates) will be $300,000.


5)   Second Home Repairs May Turn Your Vacation Home into a Nightmare Expense

While taxes are an important part of deciding if a second home is right for you, it’s even more important to consider the additional costs and time needed to maintain the home while you’re away.  The dream of owning a turn-key property can quickly become a nightmare if you’re constantly funding repairs and spending well-deserved vacation time keeping up with your new home.  To set expectations ahead of time, we recommend budgeting ten percent of the property value every year for repairs and maintenance.


How Do You Know if Purchasing a Second Home is Right for You?

Like all other aspects of financial planning, planning to buy a second home requires that you consider all aspects of your long-term financial plan across every stage of your retirement journey. However, this isn’t always easy to do considering the complexity of the recent tax law changes paired with the variability of financial planning from one person to the next.


Always remember that a one size fits all advice is likely to put you in an uncomfortable place later down the road, which is why you should always get a second opinion from a trusted advisor before making such a significant financial commitment.


If you’re considering the purchase of a second home but are unsure how it may affect your long-term financial plan, schedule a conversation with a Willis Johnson & Associates financial professional to learn more about what you should consider.


SOL_3311 (2)Tyler Baker, CFP®



Tyler Baker is an associate wealth manager at Willis Johnson & Associates. Tyler enjoys guiding individuals and their families through the financial planning process, and he specializes in uncovering new opportunities that work to minimize client expenses while increasing their savings. Tyler graduated from the University of Georgia with two degrees, a Bachelor of Science in financial planning, and another in housing management and policy. 


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

What Nick’s Reading | What You Need to Know When Contributing to Your Company’s 401(k) Plan

June 14, 2018

Company 401(k) contributions are one of the most valuable retirement perks offered by employers, but unless you understand the nuances of how your company’s plan works, you may miss out on key benefits.


Many professionals assume it’s both saving-savvy and financially proactive to save more in your company 401(k) earlier in the year. The sooner you get the money in your 401(k), the more time the funds have to grow, and the more tax-deferred earnings you save over time, right?  Not always…


This approach may work for those saving in a company plan that offers an employer match accompanied by a true-up provision, but it doesn’t work for everyone.


In fact, I recently worked with a new client who had been employed at BMC Software for over 10 years. He used the “save more, save early” approach when determining how he would disperse his contributions throughout 2017. Let’s call this client ‘Paul’.


As part of our comprehensive planning process, we reviewed Paul’s 401(k), the BMC Software Inc., Savings and Investment Plan. We sifted through quite a bit of data, including his 2017 year statement—and that’s where we noticed he only received 1.6% of his income in matching employer contributions when he was eligible to receive up to 5% per year. We immediately identified this as a red flag, as we work with a number of new clients from BMC who, like Paul, are misled by similar generalizations.


Due to the way Paul contributed to his plan, he only received $4,583 from BMC, when he was eligible to receive up to $13,750.


That’s a $9,167 difference in his annual savings!


We didn’t go back and check, but based on how Paul has been telling us he contributed, we’re fairly positive he had been missing out on the ‘free’ $9,167 for several years. The important takeaway from Paul’s situation — one we actively communicate to clients — is the importance of following a financial road-map custom to you and your retirement journey. The end goal is to create a comprehensive plan that facilitates a tax-advantaged retirement future while making the most of your employee benefits along the way.


However, this can be a challenge for professionals like Paul who may not have the time to manage their career while ensuring their financial strategy capitalizes on every opportunity in their employer’s retirement plan. Let’s walk through Paul’s situation and some of the math behind his unrealized employer contributions to better understand why he missed out on these funds and how he can take full advantage BMC’s benefits going forward.


What to Consider When Contributing to Your Employer’s 401(k) Plan: Employer Matching Contributions, IRS Limits, the True-Up Provision, & Where You May be Missing Out on ‘Free’ Money 

Why was Paul’s company 401(k) contribution strategy a dilemma? To understand why front-loading his contribution was limiting, it’s necessary to understand BMC’s benefits plan and how that impacted Paul’s saving strategy when contributing to BMC’s 401(k) plan.


First, it’s important to note that page 42 of BMC’s 2017 US-Benefits Guide states, “BMC matches 100% of every dollar you contribute, up to 5% of your eligible pay each pay period.” In other words, Paul must contribute every pay period to receive a match every pay period, and BMC will only contribute a match of up to 5% of Paul’s income for each corresponding pay period in which he saves in the BMC plan.


To get the 5% per paycheck match, Paul must contribute at least 5% of his income that pay period to his company 401(k). So, if he only contributes 3%, he will only get a 3% match from BMC. In contrast, if he contributes 21%, BMC will still only match up to 5% of his income for each pay period in which he makes the 21% contribution.


Further, BMC’s employer contribution rule is clearly stated on page 42 of the company’s benefit book, “…as soon as your contributions reach the annual IRS limit ($18,000 in 2017, $18,500 in 2018), your contributions and matching contributions will end.”


In light of this rule, it’s also important to remember that the BMC Software Inc., Savings & Investment Plan is a per paycheck matching plan without a true-up provision.


So, if an employee reaches the annual IRS contribution limit within the first few months of the year, they will be restricted from making any future contributions and will not receive an employer match for the year’s remaining pay periods. In addition, BMC will not reimburse the employee, or ‘true-up’ the difference in missed contributions at the end of the year, which is why it’s necessary for employees like Paul to have a firm grasp of their plan’s unique stipulations. Once the matching opportunity is missed, there’s no going back, and years of overlooking these benefits can be a hard pill to swallow.


Let’s take a deeper dive into Paul’s predicament and break down some of the math involved…


⇒ Paul’s Annual Income/12 Months = $270,000/12 = $22,916.67/month.

⇒ The maximum BMC is going to contribute to Paul’s 401(k) per month is 5%, or $1,145.83/month.

⇒ BMC Matching Contribution per Pay Period X 4 Months = $1,145.83 X 4 = $4,583.33.


What happens to Paul’s contributions from January to April 2017?


For the first four months of 2017, BMC was contributing, $1,145.83 per month. After April, neither Paul nor BMC were able to contribute to his BMC Software Inc., Savings and Investment Plan for the remainder of 2017. Why? Once Paul’s contributions reached the annual IRS limit ($18,000 in 2017) his contributions and BMC’s matching contributions end.


Therefore, if Paul maxes out the IRS pre-tax $24,500 pre-tax and catch-up contribution limit by April, he does not receive an employer match for the rest of the year. As noted previously, BMC’s retirement plan does not include a true-up provision. Even though BMC’s matching contributions are cut short, the company will not compensate Paul for the money he could have received had he not maxed out his contribution limit so early in the year.


To reiterate, when Paul contributed to the BMC plan, he only received $4,583 in matching contributions from BMC for the entirety of 2017, when he could have easily received nearly $14,000. Had he known about the fine print in his employee benefits book, Paul could have accumulated thousands of dollars more per year, not including the corresponding tax-deferred earnings.


How Can You Distribute Your Annual 401(k) Contributions to Receive the Full Employer Match?

What should Paul do to maximize his annual contributions to his BMC Savings and Investment Plan for the 2018 year? First, he needs to determine the best way to distribute his contributions throughout the year so that he is contributing at least 5% of his income per pay period to his employer plan. Let’s walk through how he can do this.


BMC knows their matching contribution set-up is confusing and employees inadvertently miss receiving employer dollars as a result. To help solve this problem, they built the BMC 401(k) Deferral Calculator so employees can better estimate how to maximize their employer contributions. The BMC 401(k) Deferral Calculator is one of the easiest ways to do this. Paul can simply go to the website, enter his info, and the calculator will make recommendations specific to his situation similar to the results below.


Another way Paul can calculate his recommended contribution is by dividing the maximum annual pre-tax contribution ($18,500 for 2018) by the lessor of his annual income, or the IRS 401(a)(17) employee contribution limit ($275,000 for 2018):


⇒IRS Annual Pre-Tax Contribution Limit/Paul’s Annual Income = $18,500 / $275,000 = 6.73%


Since the BMC Savings Plan only accepts contribution increments of 5%, Paul should set his annual allocation to be 7% for the year. This way, he reaps the benefit of a 5% employer contribution all year.


*Note: We recommend our clients annually adjust their 401(k) contributions at the very beginning of the year for simplicity. We generally assist them to make the changes annually.


The True-Up Provision and Overlooked Employee Benefits 

Not all matching plans are as complicated as the BMC Software Inc., Savings and Investment Plan. Some plans have a true-up provision that ensures the company will ‘true-up’ any missed employer contributions at year’s end, even if an employee front loads their contribution at the beginning of the year. What’s nice about plans with a true-up provision is that as long as you’re maxing out your employer plan contributions, you’re also receiving the most money possible from your employer’s contributions.


According to a 2015 report, only 45% of employers that match contributions have a true-up provision in their employer-sponsored retirement plan!


This means nearly half of employees saving in an employer 401(k) do not have the safety net of a true-up provision and may risk making the same mistake as Paul. However, let’s be honest, who actually reads their company’s employee benefits book (other than us)?


*Note:  if a company’s benefits plan includes a true-up provision, we still normally recommend that our clients disperse their contributions throughout the whole year so that they don’t wait untill year end to receive their employer’s matching contribution.


Simple Contribution Plans and the Shell Provident Fund

In my opinion, the simplest and best 401(k) plans are those where the company makes a simple contribution to an employee’s 401(k) plan that is independent of the employee’s contribution.


For example, if you have been employed with Shell for nine years or more, the company will contribute 10% of your eligible pay to your employer-sponsored 401(k) plan, also known as the Shell Provident Fund. It doesn’t matter what amount you contribute to the 401(k) or when you make the contribution. If you are eligible, Shell will contribute 10%.


Unfortunately, not all plans are as easy to manage as the Shell Provident Fund and require knowledgeable management to fully take advantage of the employee benefits offered. Expert advice can help you identify the discrepancies and limits your company 401(k) plan entails, and leverage a contribution strategy that maximizes your annual retirement savings. Before you make a final decision, consult your financial advisor for advice, or meet with one of our financial professionals to get a second opinion on your company 401(k) contribution strategy.


nickNick Johnson, CFA®, CFP®



Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.


As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

Market Update | The Markets (as of market close May 31, 2018)

June 5, 2018

The Markets (as of market close May 31, 2018)

Despite a sell-off on the last day of the month, equities held enough of their gains to post mostly positive month-over-month returns. The Trump administration imposed tariffs on steel and aluminum imports on Canada, Mexico, and the European Union. And, just before scheduled trade talks with China were to resume, President Trump announced that he would proceed with tariffs on Chinese imports and limit Chinese investment in U.S. tech companies. Investors feared retaliation from impacted countries could lead to an all-out trade war. Early in the month, signs of rising inflation sent large caps down, while small caps and tech stocks climbed. However, stocks recovered following the Fed’s decision to maintain the current interest rate range. Throughout the month, stocks rallied, then slipped back, amid trade war fears, a few mediocre corporate earnings reports, and fear of rising price inflation.


market update for market month May 2018










Nevertheless, each of the indexes listed here posted monthly gains, with the exception of the Global Dow. The large caps of the Dow and S&P 500 closed the month of May in the black… Click here to read the full article. 

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