Be Careful Using AI
In our highly regulated business of being a Registered Investment Advisor with the SEC, one of the most important things we must do is to keep our clients’ information as safe as possible. As we have expressed in the past, we take numerous safeguards to protect your privacy and your personal identifiable information. One thing that we learned early on is that when you use most of the chatbots and enter information AI retains the information to help it learn. In short, when you enter personal data, it is in the public domain…FOREVER!
In a recent court case, United States v. Heppner, the defendant used a public AI platform and the court ruled that those documents were not protected by the attorney-client privilege! You want to make sure that when any professional with whom you work is going to use AI, they are using an AI version that remains resident and is never in the cloud, just as we do at ProVise.
Social Security Trust Fund Timeline Shrinks
Most American and politicians know the shaky state of the Social Security Trust Fund. Many Americans probably wonder “When will the fund be depleted?”
According to the Congressional Budget Office, the Trust Fund will run out of funds a year earlier than previously thought, in 2032. At that point, the Trust Fund will have to rely on the income it receives from workers’ paychecks that will only cover about 62% of the benefits Social Security paid. Why did the shorter timeline develop? Partly because the One Big Beautiful Bill significantly reduces seniors’ income tax liability. While seniors may enjoy less taxes today, it might lead to less income in the not-too-distant future. This is going to be a good topic of conversation this fall during elections and even more so in 2028.
Trump Account Proposed Regulations
The One Big Beautiful Bill brought many changes to the tax front in 2026. That bill created the “Trump Account” which works like a combination of a 529 Plan and an IRA. The law creates a new type of retirement account for children who are U.S. citizens with a Social Security number and born between January 1, 2025, and December 31, 2028. The account gets kick-started with $1,000 compliments of the U.S. government on or about July 4th. Parents or grandparents can establish an account by filing Form 4547.
Each year, an additional $5,000 can be contributed to the Trump Account. The money must be invested into a broad U.S. investment index – think S&P 500 index. No money can be withdrawn before age 18. At age 18, the account becomes an IRA owned by the child who can use the money for the purchase of a first-time home up to $10,000, qualified education expenses, disability, birth or adoption expenses, and unreimbursed medical expenses above 7.5% of adjusted gross income. Beyond these exceptions, taxes are owed if money is withdrawn before age 59 ½ plus a 10% penalty.
Avoiding Underpayment Penalties: What You Need to Know
Millions of Americans incur tax underpayment penalties. Why? In most cases, the penalties come from missed or insufficient quarterly estimated tax payments. This can easily happen for anyone who earns self-employment income, investment income, or other forms of income that do not include automatic withholding.
Estimated payments were introduced around the same time that federal withholding on W-2 wages became mandatory. The intention was to create a tax system in which payments are made steadily throughout the year. As income sources have become more varied over time, more taxpayers now fall outside the traditional W2 structure, increasing the chances of underpayment. The interest rate applied to underpaid taxes has also risen in recent years. Although the rate will decrease from 7 percent to 6 percent on April 1, it is still much higher than the rates taxpayers saw in the past.
The natural question is how to avoid these penalties. The most effective method is to follow the IRS safe harbor rules. To qualify, you must pay at least 90 percent of your current year tax liability or 100 percent of your prior year tax liability, whichever amount is smaller. If your adjusted gross income exceeded $150,000 in the prior year, then the safe harbor amount becomes 110 percent of your prior year tax. Making these payments in four equal quarterly installments ensures that you will not receive a penalty even if your income changes throughout the year.
Underpayment of estimated tax by individuals penalty | Internal Revenue Service
Estimated Taxes Are a Pain. Here’s How to Avoid Costly Penalties. – WSJ
Schwab Enhances Its 529 Investment Lineup
Whether your child dreams of becoming a pilot, teacher, or biologist, a 529 savings account offers a tax-advantaged approach to saving for future educational expenses. As traditional education opportunities have expanded, Charles Schwab recently enhanced its 529 investment lineup by transitioning from age-based portfolios to target enrollment year portfolios. In addition, Schwab introduced three static allocation options – conservative, moderate, and aggressive – as well as thirteen individual fund portfolios. A meaningful benefit from this update includes a reduction in fees from 0.20% – 0.82% to 0.00% – 0.56%, depending on the selected investments.
Instead of investing solely based on age, the lower-fee enrollment year portfolios will follow a glide path that becomes increasingly conservative as the child’s college enrollment year approaches. Schwab also increased the maximum 529 account balance to $550,000 from $501,000. Altogether, these updates will help meet the diverse needs of future students, and with lower fees, allow more educational savings to compound over time. If you’re currently enrolled in a Schwab 529 plan and would like more information, please reach out to your ProVise advisor.
Show Me The Money
SmartAsset recently ranked 43 of the 50 states (Alaska, Delaware, North Dakota, Rhode Island, South Dakota, Vermont, and Wyoming were excluded) where data is available regarding the average net worth of a household. According to the U.S. Census Bureau in 2023, it varies from $62,500 to just shy of $700,000. Here are the top 10 along with the median net worth in each state:
10) Nebraska – $285,800
9) Maine – $303,700
8) New Jersey – $312,400
7) Idaho – $312,400
6) Maryland – $330,500
5) Colorado – $370,000
4) Massachusetts – $394,900
3) New Hampshire – $412,600
2) Washington – $456,500
1) Hawaii – $692,700
Up Your Assets™ Podcast
Episode 28 – Marriage, Money & Divorce: What Couples Need to Know Before and After “I Do”
Join Ray Ferrara, CFP® as he hosts Ky Koch, a Florida family law attorney with decades of experience in divorce and collaborative law.
In this compelling discussion about destiny… Learn what to do when preparing to marry, to the innovative process of collaborative divorce, Ky and Ray share insights that could change how you approach one of life’s most challenging transitions (or events). You’ll learn why pre-nuptial agreements are more relevant than ever, with real-world advice on full financial disclosure, asset valuation, and why protecting your ASSETS before the wedding bells ring is so important…SAY “I Do” and watch this great episode.
Acknowledgements and Important Disclosures
From the Up Your Assets website
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