Two Truths – One Tale

Can You Find the False Statement?

Love a quick game? Love learning? Want to improve your personal finance acumen? 

We’ll post a weekly challenge similar to the popular game “Two Truths and a Lie”.  There is no actual “lie” (never a good practice!), but instead it’s a game of finding the incorrect statement followed by a quick explanation of the three statements.

Let’s Play!  Which one of the three statements is incorrect?

Scroll down to find the answer.

Statement #1:  About 25% of married women consider themselves the primary manager of their household’s financial affairs.
Statement #2:  Roughly ½ of American adults are open to conversations about prenuptials/premarital agreements.
Statement #3:  When surveying female divorcees and widows, one study found that over 70% of these women discovered accounts, other assets or liabilities that they were previously unaware of.
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If you guessed that Statement #1 was incorrect, you WIN!
In fact, it’s a much higher percent.  Nearly ½ (49%) of women are now claiming the title of Chief Financial Officer for their households, which is on the rise from previous years (Allianz).
A 2023 poll showed that increasing percentages (now ~50%) of US adults support the concept of a prenup to a certain extent, with the younger generations (Gen Z and millennials) being particularly open to these arrangements (Axios).
Sadly, this is true and why nearly ¾ of women in transition from death or divorce wish they had taken a more proactive role in the household’s finances rather than trying to reconcile the pieces on their own (UBS).

Let’s Play Again!

The TCJA (Tax Cuts and Jobs Act) is set to expire (“sunset”) on 12/31/2025 if no further legislation is passed.  Should the TCJA tax cuts sunset, which of the following statements is incorrect?

Statement #1:  The Long-Term Capital Gains Tax Brackets remain essentially unchanged (with 2017 tax numbers inflated to 2024)
Statement #2:  The Standard Deductions are essentially halved (with 2017 tax numbers inflated to 2024) although Personal Exemptions are back in play with Phase-Outs limitations imposed however.
Statement #3:  The highest ordinary income tax bracket remains at 37%
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If you guessed that Statement #3 was incorrect, you WIN!
The Long-Term capital gains rates do remain essentially intact as they are today.
The Standard Deduction does get more or less halved.  Personal exemptions may apply with limits based on income.
The highest ordinary income tax bracket will rise to 39.6%!

Let’s Play Again!

Statement #1: You have to take Required Minimum Distributions (RMD) from your Roth 401(k) monies.

Statement #2: The SECURE 2.0 Act raised the RMD age to 75 for people born in 1960 or later.

Statement #3: Once you reach RMD age, your first payment can be delayed until April 1st of the following year.
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If you guessed that Statement #1 was incorrect, you WIN!
  • Starting in 2024, employees who have money in a Roth 401(k) or 403(b) and similar accounts no longer have to take an RMD from this account.
  • The SECURE 2.0 Act raised the RMD age for two groups of people – for those born between 1951 and 1959, the RMD age is now 73. And for those born in 1960 or after, the RMD age is now 75. This legislation did not affect people that started their RMDs prior to 2023.
  • You do have the option of waiting to take your first RMD until April of the following year. However, if you choose to do this, your second RMD payment still must be taken by December 31st of the same year.

Let’s Play Again!

Statement #1:  Legal separation is an option for some couples that don’t want to live together but don’t want to get divorced (perhaps for reasons of religion or health insurance coverage for example).  The state of Texas recognizes legal separation.
Statement #2:  A CDFA Professional is a designation earned by a person specifically trained in handling financial aspects associated with divorce.  They may additionally be an attorney, a CPA, a financial advisor or a mediator.
Statement #3:  After 2019, spousal support or alimony was not included in taxable income to the recipient or deductible by the payor.
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If you guessed that Statement #1 was incorrect, you WIN!
Statement #1 is False! Interestingly, the state of Texas is one of the only states that doesn’t recognize legal separation.
Statement #2 is Correct!  A CDFA (Certified Divorce Financial Analyst) studies and trains to assist couples seeking divorce in all financial aspects of the marriage dissolution.  They provide support for the attorney and client on financial matters such as property division, tax implications, cost basis and capital gains on the sale of the marital home, analyzing pension and retirement accounts, etc.
Statement 3 is Correct!  People with divorce agreements dated January 1, 2019, or after don’t have to include information about alimony payments on their federal income tax returns since it isn’t considered income or a deduction.  However, alimony payments for divorce or separation agreements entered prior to January 1, 2019 are typically deductible by the payor and must be reported as taxable income by the recipient.

Let’s Play Again!

Statement #1:  You are more likely to feel the pain of losing $100 two to three times more strongly than you would feel the joy of winning $100.
Statement #2:  There are 2 general categories of biases: emotional and cognitive error. Emotional biases are typically easier to overcome than cognitive errors.
Statement #3:  Framing, confirmation bias, and herd behavior are all examples of heuristics which are mental shortcuts or tools we use to simplify complex decision making.
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If you guessed that Statement #2 was incorrect, you WIN!
Loss aversion states this clearly.  We are wired to have a strong preference to avoid losses over acquiring gains. How might this affect your investment style?  Investing too conservatively over the long-term may prove to be a detriment in reaching  your goals.
Cognitive errors are actually more easily corrected than emotional biases. Cognitive errors are often a result of lack of factual knowledge, whereas emotional biases deal with people’s feelings and instincts. Oftentimes, it’s much more straightforward to shed light on black-and-white facts versus changing someone’s longstanding opinions and impulses.
These three biases are a handful of many biases recognized in the behavioral finance world.  We will be publishing more on these powerful concepts in an upcoming blog post.

Let’s Play Again!

Statement #1: I can pay my tax liability when I file my return, even if I extend.
Statement #2: When I stop working, my tax rate actually may go UP.
Statement #3:  I have until April 15th of 2024 to make an IRA or HSA contribution for tax year 2023.
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If you guessed that Statement #1 was incorrect, you WIN!
Statement #1: Even if you file for an extension, this only applies to your return due date – your payment is still due by 4/15.
Statement #2: Yep, it’s true. Your tax rate may go up in retirement!  Counterintuitive? Required Minimum Distributions kick in which are distributions from IRAs, 401(k)s and other tax-deferred accounts that must be taken per IRS regulation (see table below).  There is often an opportunistic window between the age of retirement and RMD age where partial Roth conversions and tax-bracket management can play a meaningful role in lifetime tax liability. (See chart below to see when you will need to take RMDs).
Statement #3: You sure do! Some would argue that it’s better to do this at the beginning of each calendar year for that tax year to allow the maximum time for compounding to work for you, but better at the end than not at all.  Once that April 15th deadline passes, the opportunity is no longer available for the previous tax year (gone forever)!

Let’s Play Again!

Statement #1:  In 2020, women controlled only about 1/3 of the nation’s household wealth ($10.9 trillion). By 2030, it’s predicted that American women will control close to $30 trillion.
Statement #2:  In 1944, women were granted the right to open bank accounts and apply for credit cards on their own.
Statement #3:  2021 data from the U.S. Census Bureau shows that women who are working full-time earn about $0.84 for every $1 that men earn.
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If you guessed that Statement #2 was incorrect, you WIN!

Women are on track to manage an exponentially increasing amount of the nation’s household income. As the baby boomer generation ages, more and more of these women are inheriting wealth from their late spouses (source: McKinsey & Company).

It wasn’t until the Equal Credit Opportunity Act was passed in 1974 (yep, you read that right…1974) that women finally assumed the right to open bank accounts and lines of credit without the need for their spouse’s (or another male’s) co-signature (Source: Forbes Advisor).

While the pay gap is narrowing, women still ultimately earn about $0.16 less than men. One institution suggests gender pay equity won’t become a reality until 2056 (source: Center for American Progress).

Let’s Play Again!

Statement #1:  During the 1950s, 1960s and 1970s, the top federal income tax never dipped below 70 percent
Statement #2:  Transfer-in-Kind means that my positions will be sold to cash and then that cash is transferred to the target account (potentially triggering capital gains/losses)
Statement #3:  My HSA Account Catch-up Contribution age is 55
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If you guessed that the definition for Transfer-in-Kind was incorrect, you WIN!

Painful as it is, the tax statement is true.  Our top tax bracket currently is 37% so if you are wincing as you file your return, know that it could be worse!

It’s also true that the HSA Catch-up Contribution age is 55.  IRA and Defined Contribution Plan Catch-up Contribution eligible age is 50 so it’s confusing.  Why?!  We feel your pain! 🙁

Transfer-in-Kind is simple.  It is a transaction in which you move your invested assets from one custodian (ex Fidelity, Vanguard or Schwab) to another custodian.  There is no selling or buying of assets, nor there are any capital gains/losses transacted.  It IS possible that the custodian that you are transferring from will charge an administrative fee for the transfer, however.

Want to learn more about these types of topics?  Let us know if you’d like to talk!

Let’s Play Again!

Statement #1:  The acronym FIRE stands for Females in Retirement Early
Statement #2:  The acronym FOMO stands for Fear of Missing Out
Statement #3:  The acronym TCJA stands for Tax Cuts and Jobs Act
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If you guessed that the FIRE acronym definition was incorrect, you WIN!
  • While not altogether different in spirit, the acronym FIRE is widely used to abbreviate “Financial Independence, Retire Early”.  It is a movement that encompasses early career savings, reduced expenditures and investing strategies that pave the way to retirement or financial freedom sooner than the “standard” age of 65.  Another acronym that you might consider adding to your alphabet soup pot is FIERCEFemales in Every Role Changing Everything.  Check them out!
  • FOMO – Fairly commonly known as the Fear of Missing Out, this condition can wreak great havoc in all sorts of ways – financial and otherwise.  Investing FOMO can often lead to “buying high and selling low” – a recipe for losing money.
  • TCJA stands for the Tax Cuts and Jobs Act passed into law on December 22, 2017.  The entire document (approximately 1,025 pages of light reading-ha!) has many facets, but of particular interest to anyone who pays taxes, the provisions that lowered certain tax rates will automatically expire on December 31st, 2025 barring further legislative updates.  What does this mean for you?  Tax planning over the time remaining may well benefit those that take advantage of this window.  Here’s how.

Want to learn more about these types of topics?  Let us know if you’d like to talk!