The Past, Present, and Future of Financial Planning

The science of financial planning is relatively new. While pinpointing the career’s starting point is difficult, I’d put it somewhere in the neighborhood of 1969 with Loren Dunton and the Institute of Consumer Financial Education. Dunton had a vision of educating the public on financial planning techniques. His initiatives led to the creation of the College for Financial Planning. The College distributes the Certified Financial Planner designation to students who complete a series of modules. The Certified Financial Planner designation is now a standard of excellence in the industry. Dunton focused the late part of his career on educating financial professionals on how to teach financial planning.

Continue reading

WisdomTree Investments to launch 20 ETFs on Friday

WisdomTree Investments plan to launch 20 exchange-traded funds. This is the largest daily release of ETFs to enter the market (June, 2006). The common characteristic of the WisdomTree family is dividends. Each of the 20 funds pays a dividend and the yields are fairly high compared with other equity-based ETFs. The fund family is also geared internationally with 14 non-US funds dominating the six US funds. Of the international funds, three track Europe, three track Japan, two track the broader Pacific and six are broad-based international funds.

Continue reading

The Roth 403b

“Roth” is a provision which allows earnings from qualified plans to be withdrawn free of income tax. What you sacrifice with any Roth plan is the ability to take a tax deduction in the year the contributions were made. Take the following example: you’re a teacher who earns $100,000 per year. With the traditional 403b plan offered at your school, you decide to do a total salary deferral of $15,000 for 2006. As a result, your only taxed on $85,000 worth of income. The $15,000 grows on a tax-deferred basis until you reach age 59 ½. If you invested that $15,000 in an aggressive fund which grew to $25,000, there is no capital gains tax owed on that investment when sold. When you eventually retire in 2018, you decide to take a withdrawal from your 403b account. In 2018, you’d pay tax on your withdrawals at your income tax bracket for that year. Whether marginal tax brackets are higher or lower in 2018 than they were in 2006 is anybody’s guess. Most financial planning scenarios assume a lower tax bracket during retirement because, well, you’re retired!

Continue reading

An Introduction to Income Tax – Understanding Form 1040

In my first few years as a financial planner, taxes were not my best topic. I preferred to help clients choose investments and make recommendations about retirement plans. I learned quickly that having at least a basic understanding of taxes is crucial to any aspect of the financial planning process. The goal of this article is to share the basic tax concepts which I think each person should know for general street smarts. I’m going to focus most of the article on what the steps are to filling out a 1040, the basic individual tax return. Through this explanation you’ll begin making sense of terms like adjusted gross income, standard deduction, tax credits, etc.

Continue reading