We are not Robo-Advisors

We are not Robo-Advisors

Robo-advisors fill a need. They are serving people with a small amount of money who haven't traditionally been served by advisors. They have also pushed the entire financial industry forward in terms of becoming more technologically efficient and transparent. That being said, PWR is not a robo-advisor and we have no plans to become one. 

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Ask Linda: We're Getting Divorced. Now what?

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Dear Linda,

My spouse and I recently decided to get a divorce. What should we expect with regards to the divorce process and its financial implications? I am particularly concerned about how my retirement plan will be affected. 

Separated Sam

Dear Sam,

We outlined the most common ways to obtain a divorce below, including the estimated price for each process. While this is not meant to replace your own due diligence, it should help you get started.

Here are the four most common ways to obtain a divorce.

1) Do-it-yourself (total cost is typically under $2,000)

  • No outside professionals are involved, therefore, no one is looking out for your best interest except you.

  • It can be the quickest and cheapest option.

  • This is not a good option if you are concerned about your spouse hiding assets as there is no subpoena power.

2) Mediation (total cost is typically under $10,000)

  • You and your spouse hire a mediator - a neutral party.

  • The mediator's job is to have you and your spouse come to an agreement, not necessarily to ensure an even split.

  • Again, this is not a good option if you are concerned about hidden assets as the mediator has no subpoena power.

3) Collaborative (total cost is typically at least $25K - $50K)

  • Both you and your spouse will hire your own attorney to represent your respective interests.

  • A neutral financial professional, or Certified Divorce Financial Analyst (CDFA®), is also hired to ensure the assets are split as fairly as possible.

  • If your spouse is withholding information, your lawyer can file paperwork with the courts requiring each party to disclose all assets and pertinent information.

  • If an agreement is not reached, you will need to go to litigation, and the attorney you selected for the collaborative process is disqualified from representing you during the litigation process.

4) Litigation (total costs vary greatly, but typically at least $25K - often much higher)

  • Both you and your spouse hire your own attorney to represent your respective interests.

  • There is a subpoena of records, so it is much harder to hide assets.

  • The terms of your divorce will be public, unlike the previous 3 approaches.

Why we like the collaborative divorce process.

While every situation is different, we typically recommend clients at least consider the collaborative divorce process because you have an advocate (your lawyer) and a neutral financial person (the CDFA®) to ensure there is an even split of the assets. A CDFA® is a financial planner who has specialized training to properly analyze the financial issues relating to divorce. For example, the CDFA® will review the different account types and how they are taxed differently. When splitting $1M in half, you don't want one person to end up with $500K in a 401k and the other $500K in a brokerage account without understanding that this is a potentially uneven split after taxes. The 401k is fully taxable upon distribution while the brokerage is not, so that difference needs to be factored into the calculations.

Even if you decide the collaborative process isn't for you, we still recommend you consider engaging a CDFA® on an hourly basis to confirm that you completely understand the financial ramifications of the proposed split and settlement.

PWR does not have any CDFA®s on staff, but we can point you in the right direction if you need help.

Where you should start.

Be clear on what you spend each month.

The biggest regret we hear from divorcees is that they did not handle the family finances during their marriage, and therefore feel anxious about making any financial decision. If this is your situation, start by tracking your expenses. It is the first step towards having a clear picture of your finances and it will enable you to evaluate options during the divorce process, such as if you can afford to keep your marital home or other non-income producing assets.

Start building a support network to help you through this time.

Build a team of people who will look out for your best interests. This may include family members, friends, a counselor, an attorney, a tax preparer, and a financial advisor.

Once the divorce is finalized, update your financial plan.

After the divorce, you may need to adjust your savings amounts or living situation based on your change in income and assets. The sooner you make these adjustments, the less painful the changes tend to be. Have a CERTIFIED FINANCIAL PLANNER TM help you do an evaluation of your new circumstances.Updating your plan will give you the confidence to make changes and move forward with your life.

I wish you the best,


“Ask Linda” is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it benefits others. If you would like to ask Linda a question, email her or contact her on Twitter.



What is AD&D Insurance?


Dear Alicia,I have the ability to buy AD&D Life Insurance at work. The coverage would cost me less and I would get a higher death benefit than the Term policy I currently have. Should I buy it? I don't understand the difference?

- Insurance Irene 

Dear Irene,

In general, life insurance is purchased to give those who are dependent on your income a lump sum of cash upon your death so they can sustain their current lifestyle. An AD&D policy stands for accidental death and dismemberment and is a type of life insurance. AD&D has some specific requirements for when it will and will not pay death benefits to the named beneficiaries. This restriction in payments is why we most often recommend Term over AD&D.

What is covered

AD&D policies pay out only if you are killed or injured in an accident. Accidents that result in death or injury, such as, a car or plane crash would qualify, but accidents from high-adrenaline sports, skydiving or car racing, would not. Also, if the accident was caused by the insured because they were under the influence of drugs or alcohol, it would also not be covered. Lastly, if the insured does not pass away as a direct result from the accident, but instead dies from another disease or complication after the accident, the policy would also not pay. To qualify for a payout for injury, you must lose a body part or the ability to hear, see or speak. Injuries generally pay out only part of the full death benefit.

Therefore, to get paid out under AD&D life insurance, you must pass away or lose a body part or function from a pure accident which is unforeseen, unintentional and immediate.

Term vs. AD&D

Term insurance will pay out for almost any type of death claim as long as you are covered with an active policy at the time of death. The primary exclusion for Term insurance is usually a suicide clause that lasts, most often, for the first two years of the policy.

AD&D does not cover the top two causes of death which Term does. Heart disease and cancer amount to 44.9% of deaths (from the CDC's 2015-2016: NCHS, National Vital Statistics System, Mortality Report*). Death's caused by accident (unintentional injuries), from the same report, only accounted for 5.9% of deaths. So, statistically qualifying for an AD&D payout is much less likely than regular Term insurance.

Why we don't recommend AD&D

Overall, AD&D insurance is not recommended because of the limited scope for claims. AD&D is less risky to the insurance agencies because there is a lower probability they will have to pay the beneficiaries. This is why they can offer reasonable prices and higher coverage. Just remember, you always get what you pay for.

If you are going to buy life insurance, we recommend you purchase Term. If AD&D is the only coverage you can afford, or it is free, then something is better than nothing. But almost always, Term insurance will leave you and your dependents with no gaps in coverage. Paying a little extra money for a lot more coverage is worth it.

Each policy is different, talk to an independent licensed life insurance broker to understand what is and is not covered under your own policies. Talk to a professional before making any changes to your insurance coverages

For more information on types of life insurance, read Linda's article on "Term vs. Whole" Life Insurance

Sources:*CDC Reporthttps://www.nerdwallet.com/blog/insurance/life-insurance-accidental-death/

We're "Official." Now What?

Dear Alicia,


We're getting married soon and are wondering if there are any particular financial steps we should take once we're "official?"

-Ned and Nancy the Newlyweds

Congrats Ned and Nancy! Getting married is an exciting and hectic time. Here are the financial steps you should be taking once you are "official."


Start by discussing your financial goals now and in the future. Do you want to buy a home, start planning for a baby, or create an emergency fund? Write down your joint and individual goals and when you would like to achieve them. Make sure to decide which goals will be jointly or individually funded.

Credit Check-Up

Review your credit scores together (free from most credit cards) and pull your full reports at annualcreditreport.com. If one of your goals requires you to apply for a loan, it is good to know in advance if either of you needs to work on increasing your credit score.

Balance Sheet

Decide if you will combine or not combine your money. There are many things to consolidate like; checking and savings accounts, credit cards, and investment accounts (ex. brokerage or trust accounts). Start by creating a simple balance sheet, one page showing all assets and liabilities you own. This is a great way to see what each of you has and to review how your situation looks as a whole.

Expense Management

Managing the household bills usually falls on one individual. Regardless, it is essential to make sure someone takes on the specific responsibility of paying joint bills on time. Creating a joint cash flow, showing all income coming in and expenses going out, will help both spouses to visualize how much each of you spends and saves. You will also want to decide what types of expenses you will discuss together before purchasing. Couples often set a dollar limit, like $500, for a large purchase that should be discussed.

Investment Strategy

Also to be considered is whether you will have a joint investment strategy and joint savings strategy or if you are going to save and invest for your own separate goals. Do you both have the same risk tolerance when it comes to stocks? Review your current investment accounts, the holdings (funds invested in), and overall asset allocation (% stock and bonds) to see if you are currently invested similarly.


Review your taxes currently and decide how best to manage them after marriage. You may need to change your tax withholdings to "married status" on your W4 at work. Also, determine whether you will file your taxes Married Filing Jointly or Married Filing Separate. You will also need to agree on if you want to prepare your taxes on your own or find a tax preparer.


Once married, your spouse most often becomes dependent on a second income to support the lifestyle you build together. Do you know how much life insurance you currently have? Discuss and decide if it is enough. Also, look into who has a better health care plan at work. Most often you can combine your health coverage into one family plan. You may also want to consolidate your Auto, Home/Renters, Umbrella and Earthquake Insurance under one carrier to save with bundled prices. Make sure each spouse is named on all policies as a covered individual. It is also wise to consider insuring your engagement/wedding rings on a separate rider. Your home or renters insurance may have provisions for covering jewelry, but if you have expensive rings, it can be a good idea to get more coverage in case they are lost or stolen.

Estate Planning

Most often Newlyweds don't have estate plans already created. So now is a good time to get them done, especially if you own a house or have kids. Discuss who you want to have your belongings and money if something were to happen to one or both of you. Remember that assets acquired before marriage are separate property, but if commingled with joint funds, it becomes marital property (each state's laws are different, this is related to CA). You will also want to change the beneficiaries of all your retirement accounts and life insurance to your spouse. Lastly, update the titling of your non-retirement assets to both of your names "Joint with Rights of Survivorship" or in the name of your Trust, if created. An estate planning attorney can help you decide the best titling for your assets as well as create your estate plan. Always review these issues with a licensed estate planning attorney, in your state, before taking action.

Once you become "Official," you are now a joint financial team. Set up regularly-scheduled meetings to review your finances and any financial issues you may be having. Commit to communicating actively and openly about any money issues. If you ever get stuck or are too overwhelmed, always get help from a fee-only and fiduciary CERTIFIED FINANCIAL PLANNER™ for any tasks that seem beyond your grasp.

Planning Within Reach serves Newlyweds and helps their clients with financial planning and tax preparation. If you are interested in how we help our clients, see our Newlywed Plan Packageand our Tax Preparation Service.

Ask Linda: Pre-tax versus Post-tax savings

Dear Linda,Should I save to my pre-tax 401k at work or my Roth IRA? I cannot fully fund both.


Super Saver

Dear Super Saver,


To determine which account you should save to, calculate your tax rate today versus your projected rate in retirement. In general, Roth contributions are made with after-tax dollars and distributed tax-free. The 401k is the opposite - contributions are made with pre-tax dollars and distributions are taxed at ordinary income rates.

If you are in a higher tax bracket now than you will be in retirement, save to the pre-tax 401k. If you will be in a higher tax bracket in retirement, save to the Roth IRA.

There are other considerations:

  • Tax laws can change - We don't know for sure what tax rates will be in the future, therefore, some people prefer to save to both types of accounts to hedge this uncertainty and manage their tax bill in retirement.

  • Employer matching - If your employer offers a match on contributions, save at least enough to the 401k to receive that "free money".

  • Investment options - If your 401k options are limited and expensive, you may choose to invest in the Roth IRA for the ability to create a custom strategy.

  • Income phaseouts - You may make too much money to contribute to a Roth IRA. You can typically get around this with a backdoor Roth IRA, but saving to a 401k may still be the best option for high earners.

  • Flexibility - Roth IRA's and 401k's have different hardship provisions for accessing money earlier than generally allowed (age 59 1/2 with exceptions). Examples relate to education expenses, medical bills and a first time home purchase. Additionally, some 401k's allow you to take out a loan. While this isn't necessarily a good idea, it is an option that is not available to you with the Roth IRA.

Even though one savings vehicle may end up being a better choice for you mathematically, realistically, either is fine as long as you are saving enough. Have a fee-only, fiduciary Advisor develop a custom retirement planto make sure you are on track.


“Ask Linda” is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it benefits others. If you would like to ask Linda a question, email her or contact her on Twitter.

Credit Lock v.s. Freeze. Don't Get Fooled.


Dear Alicia, I have been following your newsletter telling me that credit freezes will now be free. The other day I was watching television and saw an advertisement for Experian's Credit Lock Services. Should I sign up for that instead of the freeze? It sounds exactly the same to me.

Thanks,Credit Craig

Dear Craig,

Great question! A credit freeze and a credit lock are two separate services. They are very similar but do have distinct differences.

Credit Lock:

Instant lock. The main benefit of a lock versus a freeze is that a credit lock is supposedly easier and quicker. Experian says you can unlock “with a touch of a button,” while TransUnion says you can lock or unlock “with a single swipe or click.” Consumers simply have to sign into their online account to lock or unlock. The three big credit agencies also provide a mobile application.

Additional benefits. When you pay for a lock, it usually comes with added benefits like the ones below. * Credit report monitoring * Social Security Number scanning * 3-Bureau credit scores * Adding additional family members * ID Theft Insurance

Monthly Fee. Experian's lock will cost you $19.99 a month(free for the first 30 days). Transunion's credit lock plus is $19.95 a monthand offers the ability to lock your Transunion and Equifax accounts. Equifax is the only one of the big three that still advertises their lock services "are free for life". The only problem is you need to lock all three to be secure. Locking all of the big three would cost you $39.94 a month and would have double coverage of the extra paid services that come with the Experian and Transunion locks.

Not governed, so they sell your data. This is the main pitfall. Because credit locking is not governed, all three locks can have different rules. Make sure to read the terms to know what each company is doing differently. One article brought up that using a lock service gave the companies access to still sell and use your data for marketing, whereas if you have a freeze, it is not allowed.

The marketing tries to convince you it's a better choice. As to why you saw a commercial for the locks, remember anything a for-profit company advertises and spends marketing dollars on, is most likely because it benefits themselves.

Credit Freeze:

Governed by state laws. The best quality of the freeze is that it is a regulated program. Because of this, the freezes will be held to a higher standard and cannot change their terms. This also takes away the companies abilities to use your data for other purposes, such as selling your data to marketers.

100% free in all states. Previously it cost money, depending on the state you lived in, to freeze your credit. After the Equifax breach this year, the government passed a law for freezes to be free in all states as a way to encourage consumers to protect their credit. As of September 21, 2018, you can freeze your credit report for free no matter where you live. The links to the freeze webpages for the three major credit bureaus are below. The big three are not the only bureaus that collect your data. In a distant fourth ranking is Innovis and father fifth is NCTUE (Telecom and Utilities data report). We suggest freezing all five.

Follow these links to set up a freeze for free: Equifax:https://www.equifax.com/personal/credit-report-services/Experian:https://www.experian.com/freeze/center.html#content-01Transunion:https://service.transunion.com/dss/orderStep1_form.pageInnovis:https://www.innovis.com/securityFreeze/indexNCTUE:https://www.exchangeservicecenter.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

Extra protection. When you initially freeze your credit report, you will get a random personal identification number (PIN). To thaw and re-freeze your credit, you must provide the PIN that was assigned to you. Besides the PIN, they will also ask you to provide identifying information to complete the process. These are two extra layers of needed information that the lock doesn't require. With a lock, if your cell phone, ID, and password got into the wrong hands, they could instantly unlock your credit and create havoc. This makes the freeze much more secure. Just don't forget or lose your PIN. Store your PINs in a safe and secure place.

It can take three days. The general rule for a freeze is that you should allow up to three days to thaw or refreeze, but from our experience, unfreezing can be fast and easy. A TransUnion spokesman says it only takes within 15 minutes to implement a thaw by phone or online. This makes the benefit of the instant lock minimal to nonexistent. Once you find out which credit agency the bank or organization is going to pull from, call or use the online system at that agency to request a "thaw" of your credit report.

Speculation of future issues. The devils advocate perspective is, now that the credit agencies are no longer making money on the freezing services, will the services become harder to obtain or will the waiting period become longer? Could they use this as a tactic to get consumers to use their lock services, where they will have control of the service offering and price? As of now, it is unsure as only a few days have passed since the official "free" date. The only drawback noticed by users so far is that the free freeze isn't promoted on the front pages of their websites and in some instances trying to sign-up for a freeze has caused the sites to crash, making you come back at a later time to try again.

Overall: Both freezes and locks meet the goal of preventing a fraudster from opening new credit in your name. For the most regulated product that is now free for everyone, we still recommend sticking with a freeze.

Lastly, remember that placing a freeze or lock does not prevent you from using existing lines of credit you already have open. This also means they don't help to prevent criminals from gaining unauthorized access to your existing accounts. Even if you freeze or lock, still check annualcreditreport.com to review your credit report regularly and take normal precautions, such as alerts and strong passwords.


Can't get yourself FIREd? You can still have a LIFE.


FIRE stands for financially independent, retire early. The movement continues to grow, with retirees in their 20's through 40's. It has caught on because it is unexpected - we don't picture retirees being so young. Yet it is entirely possible and there is an ever-growing number of blogs and books that prove it. The typical profile of someone who has achieved FIRE:

  • Graduated from college with very little or no student loan debt

  • Earned $100,000+ per year with benefits

  • Saved 50%+ of their gross income by knowing where every dollar is going

  • Is typically single, married without children, or married with 2 or fewer children (I haven't seen any with more than 2 kids, but with the increasing number of FIREs, I am sure there will be some!)

  • Is typically burnt out on their current job and would prefer to be done with working instead of finding more rewarding employment

Obviously, this is very hard to achieve if you are earning minimum wage in a job without health insurance, have a mountain of student loan debt, or a large family. Still, there are a lot of positive things to take from the movement. For example, it is good to be reminded that you have choices. You don't have to do what your parents did or your neighbors are doing. Some FIREs live full-time in an RV, stopped eating meat, started cooking at home, etc. Many say they don't feel deprived after these changes - they simply changed a habit and are just as happy with the newer, cheaper way of doing things.

There are also risks. For those without children, what if they end up having kids and doubling their annual expenses?  Are they prepared to forego soccer and birthday parties to stay within their annual budget? Did they factor in healthcare costs correctly or purchase long-term care insurance? Are they prepared for the next bear market? Most of the profiles I have read are of people who have retired recently, so we don't know the success of their plans given uncertainties. We can choose to take the best of what we have seen and make it more universally attainable. So even if you can't get FIREd, you can still have a LIFE.


Live a more balanced life today

FIRE assumes a balanced life occurs after the retirement date. Don't wait a decade or more for that goal - life is too short. We created a plan for a client showing he could work part-time until age 40 so he could spend more time with his young children now, while they were home. This is the opposite of FIRE, but that solution made more sense to him. Evaluate what you can do today to achieve a more balanced life, whether it is carving out more family time or finding a different employer.

Imagine you are financially free

The goal of FIRE is to be financially free - so imagine you are retired. What would you do every day considering your family, friends and social network are busy during the week and have limited funds? After traveling the world and tinkering with your hobby, is there something you could do every day without getting bored? Can you make money doing it? We created a plan for a former stay-at-home Mom to go back to nursing school. She didn't need to work, she wanted to. She loves her new career and can see herself doing it for a long time.

Focus on what you can control

A good chunk of our monthly expenses are fixed: housing, insurance, and utilities are a few examples. FIRE user forums are filled with people who downsized or started biking to work. That is great, but for most people obsessing over every dollar leads to fatigue and they lose motivation for tracking expenses completely. Instead, focus on what you can control - the discretionary expenses. You can use our free FLEXCash system or whatever works for you, but the simpler it is, the more likely you are to stick with it.

Educate yourself

When people say they want to make a career change, we recommend they speak with someone who is currently doing that job. Learn about their daily activities, their work-life balance, and see if they are earning a livable wage. Similarly, if you want to retire early, talk to someone who actually did it. Were the sacrifices worth it? What would they do differently? If you retire early and end up needing or wanting to return, it may be difficult to re-enter your industry after a prolonged absence.

Keep reading FIRE stories if you enjoy them, but don't define success as being retired. Retirement isn't a race worth winning if you aren't happy in the end. Whether you choose to get FIREd or to get a LIFE, have a money roadmap in place so you know where you're going.

6 Estate Planning Mistakes to Fix Now


When estate planning is done wrong, it can create havoc on heirs after a family member passes. Estate Planning is not a fun topic to discuss, but it is an essential part of financial planning. The only way to keep your plan in good condition is to review it regularly yourself and every five years by an attorney. Brianna Bocian, the owner of and estate planning attorney at the Law Offices of Brianna Bocian in San Diego is helping us review some costly estate planning mistakes.

1. Not having a plan in place.

The biggest mistake we see is not having a plan at all. We hear most often that people think they do not need a plan. If you have any of these; children, a house, money in a brokerage account worth more than $150,000 (in California), or you desire to have specific items go to particular people, you are in need of a plan. "Not having a plan in place could lead to probate and will most likely create confusion and a burden on the surviving family members. Probate is costly, a matter of public record and can take up to a year and a half to complete. Having an estate plan in place will bring peace of mind to you and your family." - Brianna Bocian. At the minimum, we recommend you have a Will, Advanced Health Care Directive, and Durable Power of Attorney created.

2. Not making a thorough decision on a child's guardian.

Choosing a guardian for your children is probably the hardest decision to be made when creating an estate plan. You need to consider many things, but don't forget to think about, will the potential guardian have the required financial means, is their life stable, and will they be around to see your kids through age 18? Often the first thought is to name your parent/s as guardian, but this might not be the best idea. It is always good to look for someone your age or younger at least as a second option. Lastly, you need to make sure the person up for the job. Always talk to those you are thinking of naming before you do it and make sure they are comfortable with being appointed to take on this responsibility. Brianna adds that a "Child's guardian is a tricky one because even if you pick someone, the court looks at what is in the best interest of the child. So...be mindful of that." Even if the court reviews your decision to confirm it is appropriate, it is always best to be able to give your own direction.

3. Not explaining your plan to those involved.

Make sure those with leadership roles in your plan know their duties, so their responsibilities do not blindside them. Make sure they know what they will need and where documents are located. Brianna say's "Not explaining your plan to those involved can create confusion after your death. In addition, explaining your choices and decisions before something happens to you lets your loved ones know what you want and why. In addition, it can help avoid trust administration litigation if everyone understands how your assets will be distributed." See my previous blog postfor more information on what to share with those involved in your plan.

4. Not titling assets into your trust.

If you take the time and money needed to create a trust but then decide not to title your assets in the name of the trust, it becomes pointless. Move all assets without beneficiary designations under the name of the trust to make sure they are distributed as per your instructions. Many individuals create "Pourover Will's" for the intent that, if something wasn't named in your trust, the Will grabs that asset and pours it into your trust. This is an excellent type of Will to have, but don't leave all the work up to the Pourover Will. If you don't fund your trust, thinking the Pourover Will can grab all of your leftover assets without probate, you are wrong. If not titled correctly Pourover Will assets over $150,000 can be subject to probate court (CA). Make sure to title your assets in the name of your trust right after it is created. Your Estate Planning attorney will often help you do this.

5. Not changing your beneficiaries.

This mistake is the most common. Custodians do not make naming a beneficiary a requirement to account opening, so you might never have filled this out. If they are currently not blank, they could be in your parent's names, in the name of an underage child (children, under 18, can't take possession of an account), or ex-wife/husband. All of these examples have their own issues. Make sure you regularly check who is named and update them as life changes. You will need to designate a primary and contingent beneficiary. If you have created a trust, you can also name the trust as a beneficiary, and it will be distributed as per the language of the trust. This simplifies the process so as long as your trust is updated, the accounts will be too, but this could not be the best option in some cases. Check with your estate planner on what will be the best option for you and your beneficiaries.

6. Not updating your plan every 5 years.

Brianna notes that "Not updating your plan every 5 years may cause problems for your beneficiaries. There are often changes in the law so you want to make sure your plan isn't affected by new laws. In addition, you may have asset changes not reflected in your documents, and you may want to change your beneficiaries." You may also need to rename individuals of power over time. Sometimes the people you have named in leadership roles can become estranged from you, get divorced from you, or become deceased. In any of these cases, you need to update your documents immediately. Life changes also need to be documented, such as having a new child. When big changes happen, it is a great opportunity to update and review your plan.

Estate planning is a living document, and the only way to keep up the changes is to make a note on your calendar to review it regularly. We review these pertinent areas with all of our PWR financial planning clients. Get in the habit of making sure your plans are still in line with your current intent.

*This article contains general advice and advice specific to California residents. We are not attorneys and are not giving legal advice. Always review your plans with your estate planning attorney.

Ask Linda: I moved to consulting status - now what?

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Dear Linda, I recently transitioned from being a salaried employee to a self-employed consultant. I like the flexibility but realize that I have more responsibility with regards to my finances. For example, I was previously enrolled in my employer's 401k plan and now I am not sure how to save for retirement. I am also confused about taxes - my employer withheld money from each paycheck but no taxes are being withheld when clients pay me. And people keep saying I can "write things off", but I am not sure what that means.

Consultant Christopher

Dear Christopher,

This transition can be confusing, but as long as you stay organized you will be fine. Here are some recommendations to help get you started.

Track all income & expenses related to your consulting work.

Open a separate bank account for business activity. Save all invoices and receipts relating to the business transactions. While not necessary, we also recommend using a bookkeeping software, such as Quickbooks Online, to generate invoices, attach receipts to transactions, and run reports that will help you at tax time.

Pay your taxes throughout the year.

You may need to calculate and pay estimated tax payments. Alternatively, you can increase your spouse's withholding if you are married and filing jointly. If you do not withhold or pay enough in estimated taxes you may incur a penalty. Work with a tax preparer if you have any concerns about the calculation or process.

Take advantage of "write-offs" and document your work mileage.

Deductions, or "write off's", are eligible expenses that reduce your taxable income. Examples include advertising costs, professional fees, and insurance premiums. You can also write-off expenses related to your work area at home as long as it is used solely for work. If you drive for work, you can deduct car expenses but a mileage log is required to justify the deduction. It is hard to re-create this at tax time so start keeping track now if it is something you plan to deduct. Leave a notebook in the car that lists the date, mileage and business purpose of each trip including the start and end location. You also need the odometer reading the first and last days of the year that the car is used for business (the tax return will ask for personal vs. work miles). There are phone apps that track mileage including one that links up to Quickbooks, so find what works best for you.

Continue saving for retirement.

Check with your financial planner to determine the best type of retirement account to use. Examples include the SEP IRA, Traditional IRA, Single 401k and Roth IRA. They all have unique characteristics and contribution limits so it will depend on your tax bracket, expected income, and other details relating to your personal situation.

Re-evaluate your personal insurance coverage.

Don't forget to seek out any coverage you may have lost when you transitioned to self-employment. Examples include medical, life and disability insurance.

Good luck!

This information is not a substitute for tax advice. We recommend speaking with your tax advisor if you have any questions relating to your particular situation. PWR offers Tax Preparation and Advisory Services. Learn more.

"Ask Linda" is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it benefits others. If you would like to ask Linda a question, email her or contact her on Twitter.

How to Recognize a Ponzi Scheme


A Ponzi scheme is a fraudulent investment. The organizers of the scheme do not invest your money in something with intrinsic value. Instead, they pay you a "return" with the contributions of new investors. Ponzi schemes received their name in the 1920's after Charles Ponzi was convicted of running this type of business. Despite all the knowledge we have of previous Ponzi schemes, they continue to defraud people from all walks of life. We are even seeing a new wave of Ponzi schemes involving virtual currencies, such as Bitcoin. Here is a summary of what to look for to protect yourself against Ponzi schemes:

High returns with little or no risk.

All investments, especially those expecting higher returns, involve risk. Be suspicious if someone is selling you an investment that allegedly defies the odds.

Unusually consistent returns.

Investment values go up and down on a daily basis. If your investment generates regular, positive returns, regardless of the overall market, that is a red flag.

Unlicensed sellers.

Most, but not all, Ponzi schemes involve unlicensed individuals or unregistered firms. Research your Broker or Investment Advisor to confirm they are registered with the SEC or required state regulators.

Unregistered investments.

Ponzi schemes typically involve investments that have not been registered with regulating authorities. By not registering, they can avoid disclosing details about the company's management, products, services, and finances.

"Black box" strategies.

Don't invest in something you don't understand. It is not a good sign if your Advisor grows irritated with your questions or treats you as if you don't understand something that is obvious.

Lack of detailed or complete paperwork.

You should be able to read about an investment in writing. Confirm the paperwork is detailed and complete without spelling and grammatical errors.

Difficulty receiving your money.

As the pool of investors grows, it becomes increasingly difficult to recruit enough new investors and contributions to keep the scheme running. Therefore, the organizers may encourage you to re-invest your return versus withdrawing it. They may also become more aggressive with their sales tactics and encourage you to tell your friends and family about the investment. If you were told the investment was liquid, but you are unable to retrieve your money in a timely matter, or without significant penalties, that is cause for concern.

Unfortunately, if you are caught up in a Ponzi scheme, there is no guarantee that you will get your money back or that the perpetrators will be prosecuted. There are many reasons for this, one being that the statute of limitations on financial crimes is five years. PWR is fighting to get this extended, but the reality is that many people don't realize they have been defrauded until year two or three, leaving insufficient time to complete the necessary legal proceedings. Therefore, the best way to protect yourself is to avoid a Ponzi scheme altogether.

Source: https://www.sec.gov/fast-answers/answersponzihtm.html