Carolyn Stewart

Laird W. Green

X. Alexandra Chastain

Stephen “Scotty” J. Scott

Cheryl R. Holland

Laird W. Green

Building a retirement nest egg is one of the most important financial activities you can engage in. And the earlier you can get started on that task, of course, the better.

Mike Switzer interviews Alex Chastain, a certified financial planner at Abacus.

Listen to Alex’s interview on SC Business Review:

X. Alexandra Chastain

If you have been in the market for a new (or used) car in the last 2-3 years, you are probably aware that the cost of buying a car has skyrocketed. According to the Kelley Blue Book, the average price of a new car was $46,526 in April 2022. With pandemic-related supply chain problems still present and no end in sight, you might be considering leasing a vehicle instead of buying. Which is best for you?

For most people, buying a car is still the financially optimal move. No matter what, you are going to come out ahead in the long run when you buy a car—whether you pay cash or use financing—over leasing a car. Even though the lower monthly payments on a lease might look attractive, you will pay thousands more with two separate three-year leases than if you bought a car over the same period. Additionally, with leasing you are simply paying to “rent” the vehicle during the period it’s depreciating the most and not building any kind of ownership interest. Also, what happens if you don’t like the car, or you find out you can’t make your payments? If that is the case, you may be charged up to the full lease amount for early termination.

On the other hand, if you are in a financial position where you are no longer building wealth nor are you worried about running out of money, then the car decision becomes more about priorities than numbers.  If you know you want to drive a new vehicle with the latest features every 2-3 years and simply drop the car off at the dealership at the end of that time, then leasing may be a good option if you want a new car frequently.

With leasing, you may be also surprised to see a relatively small down payment along with the lower monthly payments. Some contracts also include routine maintenance and oil changes. However, always keep in mind that the dealer will make up costs in other ways. A typical lease contract includes mileage restrictions, which could range from 10-15 thousand miles per year and charge between 10-25 cents per mile over that amount. At the end of your contract, you could also be subject to “excessive damage” fees, which may be up to the discretion of the dealer. Generally, they expect the car to be in showroom condition when it is returned. If you don’t expect to drive too much, and/or do not have kids or pets to put your car at an increased risk for damage, then these restrictions won’t matter.

The following graph shows the pros and cons of buying vs. leasing a car:

Buying a new or used car is still the most financially savvy choice despite the higher costs stemming from current supply chain snags.  For those few in the right financial position who don’t drive often and care about having the newest features every few years, leasing could be a better option—it all depends upon what your financial situation is at the time.  As with any major financial purchase, do your homework before making any important new vehicle decision.

Carolyn A. Stewart

The creation of a cash management plan is the best way to optimize your cash. A successful cash management plan incorporates cash needs, time frames, and future expenditures. A variety of options are available to ensure your cash is earning money while it is waiting to be used—from basic to more complicated investment strategies.

The simplest form of cash management is the combination of a checking account and a savings account. A checking account should carry just enough funds to cover upcoming short-term cash needs. A savings account is the next step, which should be used for emergency cash needs and short-term goals like trips and bigger expenditures such as repairs/replacements. With the creation of “online banks,” the ability to earn attractive interest rates is now easier than ever on your account.

From basic banking, cash management moves into more investment focused opportunities.  The three most common types of cash management offerings in the investment world include purchased money markets, US Treasury Bonds, CDs, and pre-refunded municipal bonds.

Purchased money markets are investments offered with the goal of generating higher yield while at the same time providing liquidity and stability. One of the main benefits of purchased money markets is the daily liquidity. For example, a purchased money market can save the day if you have a surprise cash need. (Several rules apply, so it is important to be aware of your particular money market.)

Treasuries and CDs are bonds issued by the US government and banks. These offer a wide variety of maturities and higher yields than purchased money markets. Treasuries and CDs match your need for cash with the maturity of the bond. Matching cash needs with bond maturities is a great way to pick up extra yield for known payments (like taxes).

Pre-refunded municipal bonds are municipal bonds whose payments are funded by a pool of US Treasury bonds. The municipal world is unique in that you cannot pay off a bond before its maturity date, like you can a mortgage. To get around the inability to pay off bonds early, municipalities will go buy enough US Treasury bonds to pay all the remaining interest and principal payments on a bond. Depending upon your tax bracket, pre-refunded bonds can be an excellent source of yield for your cash management needs. (*Other types of bonds can also be used for collateral, so do your homework.)

The final tool for a successful cash management program is using caution. Chasing excessive yield in a cash management program can be dangerous. One of the easiest ways to sell an investment is to advertise a high cash yield to potential investors. The problem is that to generate the high yield, the amount of risk is typically much greater than risks suitable for a cash management program. When it comes time to pay the tax bill or send the first payment to the builder, the investment may have imploded, and the cash is gone. No one wants that. Having a cash management plan can seem daunting at first, but once you have created a workable, solid foundation that optimizes your cash holdings opposed to having them sit idle can provide you with both more income and a greater peace of mind.

Charles B. Flowers

The 2017 Tax Cuts and Jobs Act triggered numerous changes. One was almost doubling taxpayers’ allowable standard deduction, now $27,700 for married filing joint taxpayers. For those committed to charitable giving, the question became whether to take the deduction or to itemize their contributions. Which would maximize their tax benefits? The answer is both.

The key is “bunching” two years of charitable contributions into one year, then itemizing deductions for that year, and taking the standard deduction the next year.

Let’s say a joint taxpayer contributes $12,000 each year to charity over a four-year period. When combined with other deductions of another $15,000 — mortgage interest and state taxes, for instance — the total itemized deduction adds up to $27,000 per year. Since the standard deduction of $27,700 is the greater of the two, taking the standard deduction is most advantageous.
Over four years, the standard deduction results in $110,800 of cumulative deductions. Can that number be beat? Yes, by applying the giving strategy of bunching charitable contributions through a Donor Advised Fund.
To understand the strategy, know that when making charitable contributions through a Donor Advised Fund, it is the contribution to the Fund that receives the tax deduction, allowing you to make gifts to your charities on your own timeline.

For example, if you contributed $24,000 to a Donor Advised Fund in December of 2023, you would receive a deduction of $24,000 in 2023. If desired, you could wait until 2024, 2025, or even later to distribute the funds to your favorite charities, resulting in two years’ worth of tax deductions in
the first year.

This pushes year one itemized deductions to $39,000 which exceeds the standard deduction by $11,300. After taking the standard deduction in year two, the taxpayer “doubles up” again in year three for another $39,000 in deductions.

Over the four-year period, the taxpayer’s cumulative deductions equal $133,400, which exceeds the first scenario by $22,600. For South Carolina taxpayers paying the highest income tax bracket, this amounts to $10,802 in tax savings over four years.

In addition to saving on taxes, taxpayers can use this strategy to increase the basis of stocks in their portfolios. By gifting highly appreciated stock to a Donor Advised Fund, then using the cash originally intended to be given to charity to buy the same stock, the taxpayer effectively “resets” their basis in their stock position. The taxpayer incurs fewer capital gains when the time comes to sell the stock (since the basis will have increased).

Philanthropy is a cornerstone of the Abacus culture. We enjoy helping clients be generous with their resources. We also appreciate paying the IRS its fair share, and no more.

Stephen E. Maggard