SC Financial Group, LLC.
1417 116th Ave NE
Bellevue, WA 98004
Fax: (425) 451-2888
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Tax Scams to Watch Out For
Know Your Mutual Funds
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Is a vehicle subscription service in your
SC Financial Group
February 2019 Newsletter
Hidden Gem: HSAs in Retirement
When saving for retirement, you’re probably aware of the benefits of using tax-preferred accounts such as 401(k)s and IRAs. But you may not be aware of another type of tax-preferred account that may prove very useful, not only during your working years but also in retirement: the health savings account (HSA).
HSA in a nutshell
An HSA is a tax-advantaged account that’s paired with a high-deductible health plan (HDHP). You can’t establish or contribute to an HSA unless you are enrolled in an HDHP. An HDHP provides “catastrophic” health coverage that pays benefits only after you’ve satisfied a high annual deductible. However, you can use funds from your HSA to pay for health expenses not covered by the HDHP.
Contributions to an HSA are generally either tax deductible if you contribute them directly, or excluded from income if made by your employer. HSAs typically offer several savings and investment options. Your employer will likely indicate which funds or investment options are available if you get your HSA through work. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.
Withdrawals from the HSA for qualified medical expenses are free of federal income tax. However, money you take out of your HSA for nonqualified expenses is subject to ordinary
income taxes plus a 20% penalty, unless an exception applies.
Benefits of an HSA
An HSA can be a powerful savings tool. First, it may be the only type of account that allows for federal income tax-deductible or pre-tax contributions coupled with tax-free withdrawals.
Depending upon the state, HSA contributions and earnings could be subject to state taxes. In addition, because there’s no “use it or lose it” provision, funds roll over from year to year. And the account is yours, so you can keep it even if you change employers or lose your job.
HSA as a retirement tool
During your working years, if your health expenses are relatively low, you may be able to build up a significant balance in your HSA over time. You can even let your money grow until retirement, when your health expenses are likely to be greater.
In retirement, medical costs may prove to be one of your biggest expenses. Although you can’t contribute to an HSA once you enroll in Medicare (it’s not considered an HDHP), an HSA can help you pay for qualified medical expenses, allowing you to preserve your retirement accounts for other expenses (e.g., housing, food, entertainment, etc.). And an HSA may provide other benefits as well.
• An HSA can be used to pay for unreimbursed medical costs on a tax-free basis, including Medicare premiums (although not Medigap premiums) and long-term care insurance
premiums, up to certain limits.
• You can repay yourself from your HSA for qualified medical expenses you incurred in prior years, as long as the expense was incurred after you established your HSA, you weren’t reimbursed from another source, and you didn’t claim the medical expense as an itemized deduction.
• And once you reach age 65, withdrawals for nonqualified expenses won’t be subject to the 20% penalty. However, the withdrawal will be taxed as ordinary income, similar to a distribution from a 401(k) or traditional IRA.
• At your death, if your surviving spouse is the designated beneficiary of your HSA, it will be treated as your spouse’s HSA.
HSAs aren’t for everyone. If you have relatively high health expenses, especially within the first year or two of opening your account, you could deplete your HSA or even face a shortfall. In any case, be sure to review the features of your health insurance policy carefully. The cost and availability of an individual health insurance policy can depend on factors such as age, health, and the type and amount of insurance.
At the end of October 2018, there were 7,866 U.S. mutual funds spread across the following broad categories: Domestic equity (3,144) World equity (1,499) Hybrid (709) Taxable bond (1,573) Municipal bond (560) Taxable money market (297) Tax-exempt money market (84) Source: Investment Company Institute, 2018
Tax Scams to Watch Out For
While tax scams are especially prevalent during tax season, they can take place any time during the year. As a result, it’s in your best interest to always be vigilant so you don’t end up
becoming the victim of a fraudulent tax scheme.
Here are some of the more common scams to watch out for.
Phishing scams usually involve unsolicited emails or fake websites that pose as legitimate IRS sites to convince you to provide personal or financial information. Once scam artists obtain this information, they use it to commit identity or financial theft.
It is important to remember that the IRS will never initiate contact with you by email to request personal or financial information. This includes any type of electronic communication,
such as text messages and social media. If you get an email claiming to be from the IRS, don’t respond or click any of the links; instead forward it to email@example.com.
Beware of callers claiming that they’re from the IRS. They may be scam artists trying to steal your money or identity. This type of scam typically involves a call from someone claiming
you owe money to the IRS or that you’re entitled to a large refund. The calls may also show up as coming from the IRS on your Caller ID, be accompanied by fake emails that appear
to be from the IRS, or involve follow-up calls from individuals saying they are from law enforcement. Sometimes these callers may threaten you with arrest, license revocation, or even deportation.
If you think you might owe back taxes, contact the IRS for assistance at irs.gov. If you don’t owe taxes and believe you have been the target of a phone scam, you should contact the
Treasury Inspector General and the Federal Trade Commission to report the incident
Tax return preparer fraud
During tax season, some individuals and scam artists pose as legitimate tax preparers, often promising unreasonably large or inflated refunds. They try to take advantage of unsuspecting taxpayers by committing refund fraud or identity theft. It is important to choose a tax preparer carefully, since you are legally responsible for what’s on your return, even if it’s prepared by someone else
A legitimate tax preparer will generally ask for proof of your income and eligibility for credits and deductions, sign the return as the preparer, enter the Preparer Tax Identification Number, and provide you with a copy of your return.
Scam artists sometimes pose as a charitable organization in order to solicit donations from unsuspecting donors. Be wary of charities with names that are similar to more familiar or
nationally known organizations, or that suddenly appear after a national disaster or tragedy. Before donating to a charity, make sure that it is legitimate. There are tools at irs.gov to assist you in checking out the status of a charitable organization, or you can visit charitynavigator.org to find more information about a charity.
Tax-related identity theft
Tax-related identity theft occurs when someone uses your Social Security number to claim a fraudulent tax refund. You may not even realize you’ve been the victim of identity theft until you file your tax return and discover that a return has already been filed using your Social Security number. Or the IRS may send you a letter indicating it has identified a suspicious
return using your Social Security number. If you believe you have been the victim of tax-related identity theft, you should contact the IRS Identity Protection Specialized Unit at 800-908-4490 as soon as possible.
Stay one step ahead
The best way to avoid becoming the victim of a tax scam is to stay one step ahead of the scam artists. Consider taking the following precautions to keep your personal and financial
• Maintain strong passwords
• Consider using two-step authentication
• Keep an eye out for emails containing links or asking for personal information
• Avoid scam websites
• Don’t answer calls when you don’t recognize the phone number
Finally, if you are ever unsure whether you are the victim of a scam, remember to trust your instincts. If something sounds questionable or too good to be true, it probably is.
At the end of October 2018, there were 7,866 U.S. mutual funds spread across the following broad categories: Domestic equity (3,144) World equity (1,499) Hybrid (709) Taxable bond (1,573) Municipal bond (560)
Taxable money market (297) Tax-exempt money market (84) Source: Investment Company Institute, 2018
Know Your Mutual Funds
Almost 100 million Americans, representing about 44% of U.S. households, owned mutual funds in 2018. Saving for retirement was the primary goal for 73% of investors; other goals included saving for college or a house, building an emergency fund, or providing current income.1
Mutual funds offer a convenient way to participate in a broad range of market activity that would be difficult for most investors to achieve by purchasing individual securities. With almost 8,000 funds available on the U.S. market, you should be able to find appropriate investments to pursue your goals.2 However, it’s important to periodically examine the mix of funds you hold.
If you are approaching retirement or already retired, this may be a good time to assess the risk level and growth potential of your funds, along with any other investments in your portfolio. Keep in mind that even though it is generally wise to reduce risk as you near retirement, you may also need to pursue long-term growth opportunities.
The following overview describes some basic types of funds in rough order of risk, from lowest to highest. Investments seeking to achieve higher returns also carry an increased level of risk
Money market funds invest in short-term debt investments such as commercial paper and certificates of deposit and are typically used as a cash alternative. Although a money market fund attempts to maintain a stable $1 share price, you can lose money by investing in such a fund. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency
Municipal bond funds generally offer income that is free of federal income tax and may be free of state income tax if the bonds in the fund were issued from your state. Although interest income from municipal bond funds may be tax exempt, any capital gains are subject to tax. Income for some investors may be subject to state and local taxes and the federal alternative minimum tax.
Income funds concentrate their portfolios on bonds, Treasury securities, and other income-oriented securities, and may also include stocks that have a history of paying high dividends.
Balanced funds, hybrid funds, and growth and income funds seek the middle ground between growth funds and income funds. They include a mix of stocks and bonds and seek to combine moderate growth potential with modest income
Growth funds invest in the stock of companies with a high potential for appreciation but low emphasis on income. They are more volatile than many types of funds.
Global funds invest in a combination of domestic and foreign securities. International funds invest primarily in foreign stock and bond markets, sometimes in specific regions or countries. There are increased risks associated with international investing, including differences in financial reporting, currency exchange risk, economic and political risk unique to a specific country, and greater share price volatility.
Sector funds invest almost exclusively in a particular industry or sector of the economy. Although they offer greater appreciation potential, the volatility and risk level are also higher because they are less diversified.
Aggressive growth funds aim for maximum growth. They typically distribute little income, have very high growth potential, tend to be more volatile, and are considered to be very high risk.
Bond funds (including funds that contain both stocks and bonds) are subject to the interest rate, inflation, and credit risks associated with the underlying bonds in the fund. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. Dividends are not guaranteed.
Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss. Mutual fund shares, when sold, may be worth more or less than their original cost.
Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
1-2) Investment Company Institute, 2018
SC Financial Group, LLC.
1417 116th Ave NE
Bellevue, WA 98004
Fax: (425) 451-2888
Securities offered through Cadaret,
Grant & Co, Inc., Member FINRA/SIPC.
SC Financial Group, LLC and Cadaret,
Grant & Co, Inc. are separate entities.
Cadaret, Grant & Co, Inc. does not
provide investment, tax, or legal advice.
The information presented here is not
specific to any individual’s personal
To the extent that this material
concerns tax matters, it is not intended
or written to be used, and cannot be
used, by a taxpayer for the purpose of
avoiding penalties that may be imposed
by law. Each taxpayer should seek
independent advice from a tax
professional based on his or her
These materials are provided for
general information and educational
purposes based upon publicly available
information from sources believed to be
reliable—we cannot assure the accuracy
or completeness of these materials.
The information in these materials may
change at any time and without notice.
How can you lower the costs of owning a vehicle?
Vehicle expenses can take a big bite out of your budget. According to a AAA report, the average annual total cost of owning and operating a new vehicle in 2018 was $8,849. Fortunately, you may be able to save money by reducing three costs.
Depreciation: The loss of a vehicle’s value over time was the largest expense associated with buying a vehicle, according to the AAA report. Depreciation accounts for almost 40% of the cost of owning a new vehicle — on average, $3,289. Some cars hold their value better than others, so it’s important to consider resale value before you buy. Because depreciation lessens over time, buying a used vehicle or keeping a vehicle longer can help minimize the impact of depreciation.
Insurance: The average annual cost of full-coverage auto insurance was $1,189. Premiums are based on many factors, including the vehicle make and model, and your location. Some vehicles may cost substantially more to insure because they are statistically more likely to be damaged in a crash, stolen, or have high repair costs. So when you’re in the market for a vehicle, find out how much the insurance will cost before you sign the paperwork.
You can often save money on your insurance premium if you’re willing to accept a higher deductible. You may also want to review your policy annually with your insurer to make sure you’re receiving all the discounts for which you are eligible, and have only the coverage you need.
Maintenance and repairs: With an average annual cost of $1,231, maintaining and repairing your vehicle is a big line item expense in your budget. So before you buy or lease a vehicle, talk to a trusted mechanic who is familiar with the cost of parts and general repair issues for the makes and models you’re considering, or look for reliability statistics online. Get written estimates before you have any repairs completed, and shop around. Hourly labor rates and parts costs may vary widely. And keep up with regular maintenance. It can pay off in the long term, not only by preventing costly repairs but by potentially increasing your vehicle’s resale value.
Source: AAA Your Driving Costs, 2018 Edition. Average costs are based on driving 15,000 miles annually.
Is a vehicle subscription service in your future?
Automakers and start-up companies are betting that today’s generation of drivers will embrace a new model of temporary ownership called a vehicle subscription service.
A vehicle subscription service offers an alternative to buying or leasing. You don’t have to sign a long-term contract or commit to just one vehicle. Once you join, you typically pay an all-inclusive monthly or sometimes weekly fee that covers the cost of using the vehicle you choose, including insurance, routine maintenance, roadside assistance, and a warranty. You then have the option of swapping out your vehicle periodically, depending on the terms of your subscription.
For example, perhaps you’ve been temporarily transferred to a new city and want a fuel-efficient car for the six months you’re living there. Maybe you need a second car only during the summer when your child is home from college.
Or you might want the flexibility to drive whichever vehicle suits your needs at the time — a luxury sedan for day-to-day driving, then a minivan for a family trip. If your needs change, you can return your vehicle and get another, or end your subscription.
Plans vary, but many subscription services require only a short one- to two-month minimum commitment, with the option to renew. Subscription services are often app-based, making it easy to find and swap vehicles, and your newest ride may be delivered to you via a concierge service.
Of course, flexibility and convenience come at a cost, which is often substantial, so if you are interested in subscribing to your next vehicle you’ll need to carefully assess your options. Prices depend on the subscription service, the vehicle selected, and other factors such as mileage and extras. You may also be required to pay a sign-up fee.
Vehicle subscription services are evolving and are still not available everywhere. Many services are in the testing phase, and most have been launched primarily in major metropolitan markets such as Los Angeles, San Francisco, and New York, with a few offered in other cities. But vehicle subscription services are gaining traction, increasing the likelihood that they will someday be available in most areas.
IMPORTANT DISCLOSURES Securities offered through Cadaret, Grant & Co, Inc., Member FINRA/SIPC. SC Financial Group, LLC and Cadaret, Grant & Co, Inc. are separate entities. Cadaret, Grant & Co, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.