Top Strategies for Managing Incentive Stock Options

Incentive stock options, or ISOs, are a pretty common way for companies to compensate management and key employees. Otherwise known as “statutory” or “qualified” options, ISOs are a way to give management a stake in the company’s performance without doling out a bunch of cash.

While they can have wonderful tax benefits, far too many people who own ISOs fail to exercise them wisely. Some estimates even claim that up to 10% of in the money ISOs expire worthless every single year. If you own incentive stock options but aren’t sure how to manage them, read on. This post will cover a few of the top management strategies at your disposal.

Continue reading→

ERISA Section 404(c): Another Way for Plan Sponsors to Limit Legal Risk

Sponsoring a qualified retirement plan is a pretty convenient way to defer taxes AND offer your employees a valuable benefit. It comes with some hefty responsibilities, too. Among other things, you’re obligated to act in the best interests of your participants, monitor expenses & performance, and make sure everyone’s getting the proper disclosures.

However, to make your life easier ERISA includes six nifty safe harbor provisions. By following a few additional guidelines your plan can qualify for these safe harbors, which relieves you of certain fiduciary responsibilities.

We covered one of the six safe harbors a few weeks back: auto-rollovers. Today we’ll cover another safe harbor: section 404(c). This section has to do with who is responsible for the investment performance in your participants’ accounts.

If you’re responsible for a qualified plan and are curious about how you can limit risk, read on. You’re in the right place.

Continue reading→

Essential Financial Moves for New Parents

You’ve heard it before: life changes once you have kids. As the proud parent to a six month old baby boy, I can attest that the rumors are true.

Having kids brings a quite a bit of chaos to your life. And to try to get a handle on things we’ve read several of the popular contemporary baby books. In most of them the message is the same: apply a consistent routine. When your baby knows when to expect sleep time, feeding time, or play time, they gain confidence and often start to excel. In other words, routine = fewer moving parts, less chaos, and more confidence.

I think our personal finances have a lot do with this as well. When you have a kid your financial picture changes. You have different and greater obligations, and need to start thinking about college costs. The fewer “loose ends” you have with family finances, the less chaotic your family life will be and more you’ll thrive.

So to help us get a feel for the financial side of parenting, I’d like to welcome my guest Josh Brein to the blog. Josh is a Seattle financial advisor and president of Brein Wealth Management, LLC. He’s also a proud dad to his daughter Erin.

Today, Josh will share with us how your finances change once you become a parent, as well as essential financial moves new parents should make.

Welcome, Josh! Let’s get to it:

Continue reading→

Entrepreneurship as a Means to Financial Independence

Today’s post is another on the topic of financial independence. We’ve had several of these recently, but since that’s the focus of this blog I guess that’s not surprising.

Rather than discuss the fundamental components of financial planning like insurance or investing, today’s focus is entrepreneurship. Specifically, how entrepreneurship can be a wonderful way to align your career with your lifestyle and become financially independent on your own terms.

Forewarning: today’s post is another that falls on the philosophical side of the spectrum. I normally don’t write too many of these posts, and realize there’s already been several to start the year. Read on if you’re OK indulging my abstract (and possibly poor quality) musings.

Continue reading→

How the Trump Presidency Could Affect Your Finances

Recently I’ve had a few questions from clients and readers about what they should be looking out for now that we have a new president in office. As you know, Mr. Trump has had a pretty eventful first few weeks in office. In fact, as I write this protests are underway at no less than 15 major airports across the country.

In this post I’m going to share some of the trends and data points that I’m keeping an eye on, and on some discuss how they might affect your financial situation. This post is in no way political. This isn’t an endorsement or criticism of president Trump or his policies. My objective here is simply to share some thoughts about how our new president might impact our finances and what you might want to look out for.

As one of my clients phrased it recently, we’re all in this boat together. Like or not we just have a new captain at the helm.

Continue reading→

The Role of Insurance in the Pursuit of Financial Independence

Executive Summary:

There are many unfortunate things that can happen to us that risk our pursuit of financial independence. Some of them we can manage & control, others we can’t. For the “stuff” out there we can’t control, insurance allows us to transfer risk to an insurance company in exchange for a nominal premium.

This post covers the role of insurance along your pursuit toward financial independence. It’ll also cover a prudent risk management framework. If used correctly, financial independence no longer becomes an aspiration that may happen – it becomes an inevitability.

Financial independence is a goal many of us share here in the America. It’s also, of course, the focus of this blog.

For the baby boomer generation, financial independence lines up very closely to the traditional American career path: enter the workforce in your 20s, put in 40-45 years, and fully retire sometime around age 65.

Younger generations are starting to explore more creative paths to financial independence, like extreme budgeting and newfangled forms of entrepreneurship.

Whatever your route to financial independence, risk is an important part of the equation. There are many unfortunate things that sometimes happen in this world that might drag us off course, or even be catastrophic:

We could die or become disabled unexpectedly
We could wreck our car
We could get sick
We could get sued
Our house could burn down

These are risks that we face every single day. They jeopardize our assets, our ability to earn income or both.

Continue reading→

Saving for College: 529 Plans vs. Everything Else

If you’re a parent or a grandparent, chances are that at some point you’ve woken up in a cold sweat thinking about college tuition costs. College tuition is rising 6-7% every single year, and given the astronomical amount of student debt that current grads are facing, it’s enough to make you shiver.

As you may know, my wife and I now have a beautiful baby boy at home. As I write this he’s about six months old. And given that I’m a total financial nerd, I’ve been spending some time recently thinking about how best to save for his college tuition costs. Popular opinion will tell you that 529 plans are by default the best choice for this purpose. But since to date all my posts on college costs have to do with student loans, I figured it was high time to cover the “other” end of the equation: saving for college before incurring any debt.

So today we’ll review the most common types of college savings accounts, and try to determine whether 529 plans are really your best choice. As you compare and contrast college savings vehicles on your own, be sure to incorporate how financial aid plays into the equation. Financial aid is awarded based on both you and your kids’ income and assets. Savings in some types of the accounts we’ll cover are included on the FAFSA (Free Application for Federal Student Aid) form, while others are excluded.

Students that have more assets to their own name won’t end up receiving as much financial aid as those who don’t. Every school operates a little differently, but if they think your kid is independently wealthy rest assured they won’t receive any financial aid. Your income and assets count as well, just to a far lesser degree.

Here’s the rundown.

529 Plans

529 accounts have been around for quite a while, but became really popular after the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The EGTRRA of 2001 expanded the tax benefits from the account, by exempting qualified distributions from income tax.

Continue reading→

Wiping the Slate Clean: The Ins & Outs of Student Loan Discharge

One of the murkier areas of student loans is the various ways you can get rid of them without actually paying them back. As you might know, there are pretty helpful forgiveness options in the federal student loan system. But what about getting your loans discharged in other extenuating circumstances? Can you shed your loans by declaring bankruptcy? What if you become disabled?

This post will cover the lesser known “out-clauses” (also known as dischargeability) for both federal and private student loans.

Federal Student Loans

You may have heard before that the federal student loan system is actually quite accommodative to borrowers. This is true. The federal student loan system has several different repayment options to make life easier on borrowers, like extended repayment periods and income driven repayment schemes. But on top of the various repayment options, the federal system gives borrowers a good number of “outs” where your debts will be erased under certain conditions. This includes both forgiveness, like PSLF, and dischargeability, if you were to become disabled or die.

Here’s the breakdown:

Continue reading→

Money-Centered vs. Happiness-Centered Living

Today’s post is going to fall a little more on the abstract side of the spectrum. To date, most of the posts you’ll find on Above the Canopy are somewhat technical, and oriented toward achieving financial independence.

But for many thousands of people in America, the traditional career trajectory (working for 30-40 years until fully retiring around age 65) is a poor fit for their values. The pursuit of financial independence often compromises the important parts of our lives, leaving us overworked and unhappy.

So in today’s post I’ll examine the difference between money-centered and happiness-centered living. We’ll cover what we actually need to be happy, and the role money plays in fostering a happy life. Finally, we’ll cover how you can arrange your finances to support a life focused on happiness & fulfillment. If you’re up for a “deeper” post and don’t mind me waxing philosophical, read on!

Traditional Financial Independence

Usually when we hear about financial independence, it’s used in the context of having enough assets to live off of comfortably. Whether they produce enough income to fully cover our living expenses, or the withdrawals from principal are small enough that we’re confident we’ll never run out of money, the idea is the same. Financial independence means we’re no longer beholden to employment, since we could live off our own assets if we wanted to.

This idea of financial independence also fits pretty nicely with our traditional view of retirement here in America, where there’s a stark contrast between “working” and “being retired”. Our working years start when we first enter adulthood. While we usually don’t have much to our name, we do have (hopefully) some ambition and a few skills we can use to earn a living. We go out and market these skills to potential employers and eventually get a job. If we’re lucky, it’s work that’s interesting to us and pays a decent wage.

Once we start our working years we begin to collect paychecks every other week, which we use to pay taxes, rent, and other living expenses. After the bills are paid we use anything left over to pad our retirement accounts, bank accounts or both.

At this point we’re in the phase of life affectionately known as the accumulation phase. We earn an income, use it to pay our living expenses, and save whatever is left over. Our savings grow with each paycheck, and our net worth accumulates over time.

We invest our savings in order to accelerate growth, and sooner or later we reach the holy grail – financial independence. If we wanted to, we could discontinue our employment and use income and withdrawals from our savings to pay our living expenses. We’re no longer reliant on our job for income. We can do whatever we want. We’re financially independent.

Continue reading→

Executive Summary:

The Current State of Social Security

529 Plans

Federal Student Loans

Traditional Financial Independence