CUE Bulletin


Year End Tax Planning Tips

You may not be able to avoid Uncle Sam, but with careful planning, you may be able to minimize the tax bite. Here are a few year-end tax planning strategies:

CONTRIBUTE TO AN IRA ACCOUNT. With the changes in the tax law you now have several choices:

  • Traditional IRA – Contribute up to $5500 ($6500 if 50 or older) and receive a current tax benefit as well as tax deferred earnings on your money.
  • ROTH IRA – Contribute up to $5500 ($6500 if 50 or older) and have your money grow tax deferred and receive tax-free income at retirement.
  • Education Savings Account – Contribute up to $2000 per child and have the money grow tax deferred until college.
    Note: Phase-outs apply at higher income levels. Consult your tax advisor for details.

MAKE CHARITABLE CONTRIBUTIONS. Making donations may provide you a tax break while helping others.

GIFTING. You can gift up to $13,000 per year to any individual and incur no gift tax.

CAPITAL GAINS. If you are thinking of selling appreciated assets (example: stock), how long you have held the asset can make a difference in the capital gains rate you will pay. Make sure you know the rules before you sell.

Contact your CUE Advisor to discuss these and other investment options.

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Choosing Your Retirement Benefit Distribution

Many people rely on pension funds from their employers to provide income during retirement Consider carefully how you want your benefits to be paid out. The distribution methods you select may impact your family for years to come.

Most retirement plans let you choose between an annuity and a lump sum distribution. The annuity will provide monthly income for the rest of your life. Many plans allow you to include your spouse as well, although payments will be lower.

The lump sum option pays you the entire distribution, less any withholding. You receive the money as a single payment, thereby allowing you to reinvest or spend the money as you see fit. You can also roll over all or a portion of the distribution in an IRA.

A lump sum distribution lets you choose where and how to invest your funds. The annuity option gives you security, but you have no control over your money. If you are looking for a monthly income stream but want to maintain more control, you can roll over the lump sum to an IRA and customize the amount of income you receive.

Before you make that decision, you’ll also want to consider the tax consequences. An IRA is taxed as regular income when you receive payments. With a lump sum distribution, you have several different options for tax treatment. You can defer taxes. You can also apply five-year averaging, ten-year averaging or capital gains treatment. If you qualify for these methods, you may still be able to lower your tax liability.

Contact your CUE Advisor to discuss these and other investment options.

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Retirement Reminder

When figuring out how much money you’ll need to live on during retirement, remember to budget for “wants” as well as needs.
You’ll need food, clothing, shelter and health care. What about the comforts of retirement? Perhaps you hope to travel. Take up new hobbies. Volunteer. Entertain.

How much money you’ll need in retirement depends on a number of things. For example, will you still be making house payments when you retire? Will you be financing your children’s education?

According to a University of Georgia study, most retirees need 70% to 85% of their pre-retirement gross income to maintain their lifestyle during retirement.

Contact your CUE Advisor to discuss these and other investment options.

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Five Tips For Folks Over 50

  1. Keep some investments in stocks or growth mutual funds. They typically outpace other types of investments and are the best way to beat inflation. Historically, stocks have provided more than twice the total return of long-term government bonds.
  2. Know how interest rates affect fixed investments (e.g., bonds). As interest rates rise, bond prices fall and vice versa. So the value of your bonds may be higher or lower than their original face value if sold prior to maturity. Interest rates also affect the net asset value of bond fund shares.
  3. Don’t pass up investments (e.g., 10-year Treasury notes) just because you think they could last longer than you do! Your heirs can decide later whether or not to keep various assets.
  4. Make the minimum required withdrawals from tax-deferred savings plans (e.g., IRAs, or individual retirement accounts).
  5. Review life insurance policies to determine if you still need coverage.

Contact your CUE Advisor to discuss these and other investment options.

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Withdrawing Money Without Penalty

Making distributions before the age of 59 1/2 from IRA’s, SEP’s, Keogh Plans, 401(k) and annuities requires the payment of a 10% tax penalty, except in certain limited situations.

The government assesses the penalty to prevent taxpayers from using these plans as a short-term way to reduce taxes and to encourage them to wait until retirement to withdraw funds. In the event of death or disability, these funds can be withdrawn without penalty. But many taxpayers have other legitimate needs that could be satisfied by accessing these funds.

You wouldn’t want to use these funds for a vacation or to buy a new car. But perhaps you retired early and need additional income until you can collect Social Security benefits. You may have been laid off from your former job and your new job pays significantly less. You may face large, temporary college bills for your children or large unexpected bills for a parent’s nursing home costs. Access to your retirement funds would ease the burden but the 10% penalty tax is a stiff price to pay.

By setting up a payment schedule that results in substantially equal amounts over your life expectancy, you can utilize the funds without paying the penalty. No minimum age requirement exists to do this and you do not have to explain why you are making the withdrawals. Although the amounts are based on your life expectancy, you do not have to receive them for that length of time. Once you start making withdrawals, you must continue at that same level for five years or until age 59 1/2, whichever is later. If you stop making withdrawals or change the amount before the time limit, the 10% penalty will be retroactively levied on all distributions before age 59 1/2. After that, you can continue the payments, change the amount or stop the payments completely.

There are three methods to calculate the amount of your withdrawal – life expectancy, amortization and annuitization. The life expectancy method generally results in the lowest withdrawal amount and involves dividing your balance by line expectancy, as determined by the IRS tables. The amortization and annuitization methods allow you to factor in larger withdrawals.

If the amounts calculated are more than the amount you want to withdraw, you can split your plans into separate accounts and only make withdrawals from one of the accounts.

Contact your CUE Advisor to discuss these and other investment options.

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Understanding Breakpoints

The U.S. Securities and Exchange Commission (SEC) and FINRA, which regulates brokerage firms, have sought to ensure that mutual fund investors are charged the correct sales charges on mutual fund transactions. The investment Company Institute fully supports the efforts of FINRA and SEC to ensure that mutual fund investors receive applicable breakpoint discounts on fund purchases. The institute is pleased to offer this guide to help investors ensure that they are receiving the appropriate breakpoint discount on their mutual fund purchases:


  1. Review your fund’s breakpoint schedule. The schedule typically is included in the fund’s prospectus but may also be found in the fund’s “Statement of Additional Information.” You can also request this information from your broker or financial advisor.
  2. Make sure you know what investments you and your family members hold. Be sure to include investments in all your brokerage accounts, retirement accounts, and even your 529 college savings plans. You may be eligible for a breakpoint discount because of mutual fund holdings in a number of brokerage firms or within the same mutual fund family.
  3. Keep your financial professional in the loop. Make sure your broker or financial adviser knows about all of your mutual fund holdings, as well as those of your family members, both inside and outside of retirement accounts. And don’t forget to include purchases made with the assistance of other brokers or directly through the fund company.


What are breakpoints?

Many mutual funds that are sold with sales charges (or “loads) offer discounts to investors who invest certain amounts of money. These discounts are available only among funds that are sold with sales charges and do not apply to “no load” funds, which are sold without sales charges. The amount of the discount varies, depending upon the amount of the investment. The investment amounts at which investors qualify for the discounts are called breakpoints. The higher the level of your investment, the more likely you are to qualify for a breakpoint discount.

How are breakpoints determined?

Many mutual funds or families of funds offer breakpoints, and these terms may vary from one fund to another. Because fund companies have their own formulas for determining breakpoints, it is important that you ask your financial professional, or the fund itself, about the investment levels at which breakpoints are offered.

How can I determine if my mutual fund provides breakpoints?

Mutual funds that offer breakpoints generally include in the prospectus a schedule that shows the dollar amounts at which the discounts are offered. The law requires that every mutual fund investor must receive a mutual fund prospectus no later than at the time he or she receives confirmation of a purchase. You can also request a prospectus from the fund company, or from the broker or financial professional through whom the fund is offered for sale. Many fund companies offer downloadable versions of the prospectus on their websites. For example:

Your Investment
Sales Charge
Less than $25,000
5.75 percent
$25,000 or more but less than $50,000
5.50 percent
$50,000 or more but less than $100,000
4.75 percent
$100,000 or more but less than $250,000
3.75 percent
$250,000 or more but less than $500,000
2.50 percent
$500,000 or more but less than $1 million
2.00 percent
$1 million or more

What is a right of accumulation (ROA)?

This privilege allows individual investors or groups of related investors to combine their account balances and share purchases within the same fund family to qualify for a breakpoint discount. Different mutual fund organizations may have different rules regarding what types of accounts may be linked for purposes of qualifying for a right of accumulation.

Here’s how an ROA works: You have $52,000 invested in the ABC Growth Fund, which is sold with a 5.75 percent front-end sales load. You plan to invest an additional $50,000 in the ABC International Fund. Using the ROA privilege, your new $50,000 investment can be combined with your existing ABC Growth Fund account balance to total $102,000. As a result, you will pay the lower sales charge of 3.75 percent applicable to purchases of at least $100,000 on your new $52,000 investment.

What is a letter of intent (LOI)?

A letter of intent allows investors to qualify for a breakpoint discount without immediately investing the dollar amount at which the discount is offered. For example, by signing a letter of intent, an individual investor who intends to invest an amount greater than a load fund’s breakpoint (such as $50,000) within a designated period (such as 13 months) would be allowed to receive the breakpoint discount on the sales charge as if the investment had been made in a single lump sum.

Here’s how an LOI works: The XYZ Family equity funds are sold with a 5.75 percent front-end sales load. That sales charge declines to 3.75 percent for purchases in excess of $100,000. You open an account in the XYZ Growth Fund with a $10,000 investment and sign a letter of intent indicating that you intend to purchase a total of $100,000 worth of shares in one or more of the XYZ Family equity funds within the next 13 months. Consequently, you will receive a breakpoint discount on your purchase and pay a sales charge of 3.75 percent.

What is being done to ensure that I receive proper breakpoints?

FINRA has reiterated to its members the importance of entering breakpoint data correctly in automated mutual fund order processing and settlement systems. In its continuing education materials for registered representatives and others who sell mutual funds, the Institute emphasizes FINRA’s requirement that a sales professional may not make sales in dollar amounts just below a breakpoint without clearly informing the investor of the next available breakpoint.

How can I be sure I got the right breakpoint?

It is important for you and your financial professional to work together to make sure any breakpoints provided by your fund are applied to your purchase. This teamwork is particularly important where you have a right of accumulation that allows you to combine the balances in related accounts in the same fund or fund family. In that case, your broker must notify the fund company about which accounts should be linked together to compute your sales charge. AS long as your financial professional submits the correct information about your accounts to the fund, the correct sales load for that transaction will be applied to your purchase. After completing your transaction, be sure to check your account statement to see if the correct breakpoint has been applied. If it hasn’t, contact the financial professional who handled your sale. Usually, your account will be corrected promptly or you will receive a complete explanation. If not, you may contact the firm’s compliance department.

Contact your CUE Advisor to discuss these and other investment options.

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