Volume VII Issue 1

The Tech Sector Could Be Dominating Your PortfolioFinanceFOCUS

March, 2019

The Tech Sector Could Be Dominating Your Portfolio

Can a Flexible Work Schedule Help You Stay in the Workforce?

Down the Donut Hole: The Medicare Coverage Gap

Key Retirement And Tax Numbers for 2019

Business Owners: What's Your Business Plan for Retirement?

Women: Are You Planning for Retirement with One Hand Tied Behind Your Back?

Talking to Your Teen About Money

Gray Divorce: Dividing AssetsCan Impact Retirement

FinanceFocus is published quarterly by Samalin Investment Counsel

Samalin Investment Counsel is a fee-only, nationally recognized SEC registered investment advisory firm. With offices in Chappaqua NY and NYC, we specialize in wealth management, pre and post divorce financial planning, retirement planning, and other related financial services.

Westchester297 King StreetChappaqua, NY 10514 914.666.6600FAX: 914.666.6602

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The biggest names in technology powered stock market gains and bouts of volatility in 2017, and the trend continued into 2018. The S&P Informa-tion Technology sector index posted a 13.19% total return from January through July 2018, compared with 6.47% for the broader S&P 500 index.1

Wall Street analysts and the business media often refer to well-known technology companies Facebook, Apple, Amazon, Netflix, and Google (now officially Alphabet) collectively with the acronym FAANG. Others use FAAMG, which substitutes Microsoft for Netflix. Apple, Microsoft, Amazon, and Facebook, respectively, are the four most valuable companies by market capitalization in the S&P 500 index; Alphabet is ranked eighth and ninth (based on two different share classes).2

These tech giants are household names because they already play a huge role in everyday life, but they are also bold innovators with lots of cash on hand. They aim to expand their influence further by developing new products (such as self-driving cars and virtual reality) and disrupting established industries.3

The problem with popularity Many benchmark indexes are weighted by market capitalization (the value of a company's outstanding shares), which gives larger companies an outsized role in index performance. The same large-cap tech stocks dominate the index mutual funds and exchange-traded funds (ETFs) that track these indexes, and can also be found among the largest holdings of many actively managed funds.

Spreading investments among the 11 different sectors is a common way to diversify stock holdings. However, investors holding a mix of different funds for the sake of diversification could be surprised by the heavy concentration of popular technology stocks if they eventually fall out of favor and prices fall.

Asset allocation and diversification are methods used to help manage risk; they do not guarantee a profit or protect against investment loss.

Mind your sector exposureOver time, a core portfolio of diversified equity funds can become overweighted in a sector that has been outperforming the broader market. Some investors with large positions in technology stocks may not be aware of the concentration level in their portfolios. Others could be

ignoring the risk, possibly because they are overly optimistic about the sector's future prospects.

Each business cycle is unique, which makes it difficult to predict which sectors stand to benefit in the months ahead. Although there's little you can do about the returns delivered by the financial markets, you can control the composition of your portfolio. For this reason, you may want to review the sector allocation and risk profile of your investment portfolio, if you have not done so lately.

All investments are subject to market fluctuation, risk, and loss of principal. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve a higher return may involve greater risk. Sector funds tend to be more volatile than the market in general and may carry additional risks.

Mutual funds and ETFs 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 S&P Dow Jones Indices, 20183 The Economist, June 2, 2018

FinanceFOCUS

Down the Donut Hole: The Medicare Coverage Gap

Can a flexible work schedule help you stay in the workforce after having children?Yes, it just might be the key. Your job is the foun-dation for general financial security, including retirement. In addition to providing you with a steady salary and valuable employee benefits, it typically brings with it the ability to save in a tax-advantaged employer-sponsored retirement plan like a 401(k), and if you're lucky, a pension. It also allows you to start qualifying for Social Security retirement benefits.

Women and men may start out on relatively equal financial footing in their 20s. But when children come along, women are much more likely to take time out of the workforce to care for them.1 A common refrain is "my salary would just go to daycare costs anyway, so what's the point?" This is often true. But it's really not fair for one parent to assume sole responsibility for child-care costs; it is a shared financial responsi-bility that both parents should take on.

Many women want to keep at least one foot in the workforce after having children, not only for financial reasons but also for career mobility and personal fulfillment. If you'd like to keep working but can't accommodate the traditional, 40-hour-per-week, in-office schedule, consider requesting a modified schedule if your job allows it. This could mean telecommuting from home one or more days per week, having a flexible work schedule (such as 11 a.m. to 7 p.m.), working part-time, or some combination thereof. In many cases, a flexible work arrangement can be the difference between staying in the workforce or having to leave it, so consider exploring this possibility before you exit prematurely.

Think about what your ideal work arrangement would be and request a meeting with your man-ager to discuss your well-thought-out proposal. This plan should include a trial period after which both sides can come back to the table and evaluate how things are working. Employers are increasingly recognizing that flexible schedules are key to having a diverse, gender-neutral work-force. In the end, asking for a flexible schedule might just allow you to keep that steady salary and continue saving for retirement.

1) U.S. Department of Labor Blog, Women and Retirement Savings, March 2017

One of the most confusing Medicare provisions is the prescription drug coverage gap, often called the "donut hole." It may be clearer if you consider the gap within the annual "lifecycle" of Medicare Part D Prescription Drug Coverage. This also applies to drug coverage that is integrated into a Part C Medicare Advantage Plan.

ANNUAL DEDUCTIBLE. Prescription drug plans typically have an annual deductible not exceeding $405 in 2018. Before reaching the deductible, you will pay the full cost of your prescriptions, although you may receive negotiated discounts.

INITIAL COVERAGE PERIOD. After you meet the annual deductible, your plan will pay a portion of your prescription drug costs, and you will typically have a copayment or coinsurance amount. A 25% coinsurance amount is the standard coverage required by Medicare, but most plans have different levels or "tiers" of copayments or coinsurance for different types of drugs.

COVERAGE GAP. When you and your plan com-bined have spent a specified amount on drugs for the year ($3,750 in 2018), you enter the coverage gap. In 2018, you pay 35% of your plan's price for covered

CLOSING THE GAPBeginning in 2013, the Affordable Act required drug manufacturers to provide 50% discount on

brand-name drugs, and since then the percentage that beneficiaries must pay has been gradually reduced. By 2020, beneficiaries will pay no more than the standard 25% coinsurance amount for all

covered drugs, effectively ending the coverage gap.

Manufacturer Discount Plan Payment Benefifiary Payment

50% 50% 50% 56% 63% 75%

15% 20% 25%35% 30% 25%

45% 37% 25%

Brand-name Drugs Generic Drugs2018 2019 2020 2018 2019 2020

Source: Centers for Medicaid Services, 2017

brand-name prescription drugs and 44% of the price for generic drugs. The gap is closing over the next two years (see chart).

You remain in the coverage gap until you reach an annual out-of-pocket spending limit ($5,000 in 2018). Spending that counts toward the limit includes your deductible, copay, and coinsurance; the manufacturer's discount on brand-name drugs in the coverage gap; and your out-of-pocket payments in the gap. It does not include your premiums, the amount the plan pays, or your payments for noncovered drugs.

CATASTROPHIC COVERAGE. Once you have reached the out-of-pocket limit, you receive catastrophic coverage with much lower pay-ments. In 2018, you would pay the greater of 5% of drug costs or $3.35/$8.35 for each generic and brand-name drug, respectively.

Some plans have more generous coverage in the gap. You may be able to avoid the coverage gap by using generic medicine, when appropriate, to lower your drug costs.

For more information, see Medicare.gov.

Every year, the Internal Revenue Service announces cost-of-living adjustments that affect contribu-tion limits for retirement plans and various tax deduction, exclusion, exemption, and threshold amounts. Here are a few of the key adjustments for 2019.

Employer Retirement Plans • Employees who participate in 401(k), 403(b), and most 457 plans can defer up to $19,000 in compensation in 2019 (up from $18,500 in 2018); employees age 50 and older can defer up to an additional $6,000 in 2019 (the same as in 2018).

• Employees participating in a SIMPLE retirement plan can defer up to $13,000 in 2019 (up from $12,500 in 2018), and employees age 50 and older can defer up to an additional $3,000 in 2019 (the same as in 2018).

IRAs The combined annual limit on contributions to tra-ditional and Roth IRAs increased to $6,000 in 2019 (up from $5,500 in 2018), with individuals age 50 and older able to contribute an additional $1,000. For individuals who are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is phased out for the following modified adjusted gross income (AGI) ranges:

2018 2019

Single/head $63,000 - $64,000 - of household $73,000 $74,000 (HOH)

Married filing $101,000 - $103,000 - jointly (MFJ) $121,000 $123,000

Married filing $0 - $10,000 $0-$10,000 separately (MFS)

Note: The 2019 phaseout range is $193,000 - $203,000 (up from $189,000 - $199,000 in 2018) when the individual making the IRA contribution is not covered by a workplace retirement plan but is filing jointly with a spouse who is covered.

The modified AGI phaseout ranges for individuals to make contributions to a Roth IRA are:

Estate and Gift Tax• The annual gift tax exclusion for 2019 is $15,000, the same as in 2018.• The gift and estate tax basic exclusion amount for 2019 is $11,400,000, up from $11,180,000 in 2018.

Kiddie TaxUnder the kiddie tax rules, unearned incomeabove $2,200 in 2019 (up from $2,100 in 2018)is taxed using the trust and estate income taxbrackets. The kiddie tax rules apply to: (1)those under age 18, (2) those age 18 whoseearned income doesn't exceed one-half of theirsupport, and (3) those ages 19 to 23 who arefull-time students and whose earned incomedoesn't exceed one-half of their support.

Standard Deduction

Note: The additional standard deduction amount for the blind or aged (age 65 or older) in 2019 is $1,650 (up from $1,600 in 2018) for single/HOH or $1,300 (the same as in 2018) for all other filing statuses. Special rules apply if you can be claimed as a dependent by another taxpayer.

KEY RETIREMENT AND TAX NUMBERS FOR 2019

2018 2019 Single/HOH $120,000 - $122,000 - of household $135,000 $137,000 (HOH)

Married filing $189,000 - $193,000 - jointly (MFJ) $199,000 $203,000

Married filing $0 - $10,000 $0-$10,000 separately (MFS)

2018 2019

Single $12,000 $12,200

HOH $18,000 $18,350

MFJ $24,000 $24,400

MFS $12,000 $12,200

Alternative Minimum Tax (AMT)

2018 2019

Maximum AMT exemption amount

Single/HOH $70,300 $122,000

MFJ $109,400 $111,700

MFS $54,700 $55,850

Exemption phaseout threshold

Single/HOH $500,00 $510,300

MFJ $1,000,000 $1,020,600

MFS $500,000 $510,300

26% rate on AMTI* up to this amount, 28% rate on AMTI above this amount

MFS $95,550 $97,400

All others $191,100 $194,800

*Alternative minimum taxable income

If you're a small-business owner, you probably pour your heart, soul, and nearly all your money into your business. When it comes to retirement planning, do you cross your fingers and hope your business will provide the nest egg you'll need to live comfortably? What if you become ill and have to sell your business early? Or what if the business experiences setbacks just before you retire?

Rather than relying on your business to define your retirement lifestyle, consider a tax-advantaged re-tirement plan to supplement your strategy. Employ-er-sponsored plans offer many benefits, including current tax deductions for the business itself and tax-deferred growth (and perhaps even tax-free income) for you and your employees. Here are some options to consider.

QUALIFIED PLANSAlthough these types of plans generally have regula-tory requirements that can be costly and somewhat cumbersome, they offer a certain level of control and flexibility.

• Profit-sharing plan: Typically, only the business contributes to a profit-sharing plan. Contributions are discretionary (although they must be "substantial and recurring") and are placed into separate accounts for each employee according to an established allocation formula. There's no fixed amount requirement, and in years when profitability is particularly tight, you generally need not contribute at all.

• 401(k) plan: Perhaps the most popular type of retirement plan offered by employers, a 401(k) plan can allow employees to make both pre- and after-tax (Roth) contributions. The accounts grow on a tax-deferred basis. Distributions from pre-tax accounts are taxed as ordinary income, whereas distributions from Roth accounts are tax-free as long as they are qualified. Employee contributions cannot exceed $18,500 in 2018 ($24,500 for those 50 and older) or 100% of compen-sation, and you, as the employer, can choose to match a portion of employee contributions. These plans must pass tests to ensure they are nondiscriminatory; however, you can avoid the testing requirements by adopting a "safe harbor" provision that requires a set matching contribution based on one of two formulas. Another way to avoid testing is by adopting a SIMPLE 401(k) plan. However, because they are more compli-cated than SIMPLE IRAs (described later in this article), SIMPLE 401(k)s are not widely utilized.

Women can face unique challenges when planning for retirement. Let's take a look at three of them.

First, women frequently step out of the workforce in their 20s, 30s, or 40s to care for children — a time when their job might just be kicking into high (or higher) gear.

It's a noble cause, of course. But consider this: A long break from the workforce can result in several financial losses beyond the immediate loss of a salary, saving for retirement and the loss of any employer match, the loss of other employee benefits like health or disability insurance, and the postponement of student loan payments. In the mid term, it may mean a stagnant salary down the road due to difficulties re-entering the workforce and/or a loss of promotion opportunities. And in the long term, it may mean potentially lower Social Security retirement benefits because your benefit is based on the number of years you've worked and the amount you've earned. (Generally, you need about 10 years of work, or 40 credits, to qualify for your own Social Security retirement benefits.)

Second, women generally earn less over the course of their lifetimes. Sometimes this can be explained by family caregiving responsibil-ities, occupational segregation, educational attainment, or part-time schedules. But that's not the whole story. A stubborn gender pay gap has women earning, on average, about 82% of what men earn for comparable full-time jobs, although the gap has narrowed to 89% for women ages 25 to 34.1 In any event, earning less over the course of one's lifetime often means lower overall savings, retirement plan balances, and Social Security benefits.

Third, statistically, women live longer than men.2 This means women will generally need to stretch their retirement savings and benefits over a longer period of time.

1) Pew Research Center, The Narrowing, But Persistent, Gender Gap in Pay, April 2018 2) NCHS Data Brief, Number 293, December 2017

• Defined benefit (DB) plan: Commonly known as a traditional pension plan, DB plans are not as popular as they once were and are uncommon among small businesses due to costs and complexities. They prom-ise to pay employees a set level of benefits during retirement, based on a formula typically expressed as a percentage of income. DB plans generally require an actuary's expertise.

Total contributions to profit-sharing and 401(k) plans cannot exceed $55,000 or 100% of compensation in 2018. With both profit-sharing and 401(k) plans (except safe-harbor 401(k) plans), you can impose a vesting schedule that permits your employees to become entitled to employer contributions over a period of time.

IRA PLANSUnlike qualified plans that must comply with specific regulations, SEP-IRAs and SIMPLE IRAs are less com-plicated and typically less costly.

• SEP-IRA: A SEP allows you to set up an IRA for your-self and each of your eligible employees. Although you contribute the same percentage of pay for every employee, you're not required to make contributions every year. Therefore, you can time your contribu-tions according to what makes sense for the business. For 2018, total contributions (both employer and em-ployee) are limited to 25% of pay up to a maximum of $55,000 for each employee (including yourself).

• SIMPLE IRA: The SIMPLE IRA allows employees to contribute up to $12,500 in 2018 on a pre-tax basis. Employees age 50 and older may contribute an additional $3,000. As the employer, you must either match your employees' contributions dollar for dollar up to 3% of compensation, or make a fixed contribution of 2% of compensation for every eligible employee. (The 3% contribution can be reduced to 1% in any two of five years.)

FOR THE SELF-EMPLOYEDIn addition to the options noted above, sole entrepre-neurs may consider an individual or"solo" 401(k) plan. This type of plan is very similar to a standard 401(k) plan, but because it applies only to the business own-er and his or her spouse, the regulatory requirements are notmas stringent. It can also have a profit-sharing feature, which could help you maximize your tax-advantaged savings potential.

Women: Are you Planning for Retirement

with One Hand Tied Behind your Back?

Business Owners: What's Your Business Plan for Retirement?

FinanceFOCUS

Talking to Your Teen

About MoneyYou probably feel comfortable talking to your teen about things like school, sports, and clothing. But how do you feel about talking about money? While it may be a tricky topic to broach, odds are that your teenager will rely on you to learn basic financial management skills. And the teenage years can be a critical learning period. According to a report by the Consumer Financial Protection Bureau, it's important to establish strong financial decision-making habits in the teen years because it will help your child better navigate his or her financial life as an adult.1

Prepare your teenager for the financial challenges of adulthood by talking to him or her about the following topics.

Handling an income Whether your teen earns an allowance from you or works a part-time job, he or she will need guidance on what to do with the income. Set some expecta-tions regarding your teen's pay. How much of it will be discretionary? Will your teen start contributing to his or her share of a monthly cell phone bill, or would you prefer for your child to set aside a portion of each paycheck for college?

When your teen earns his or her first paycheck, take time to sit down and review the information on the pay stub or online statement. Help your child understand what certain terms mean, such as gross pay, net pay, federal income tax, state income tax, Social Security tax, and Medicare tax. Show your teen how income taxes can affect take-home pay.

Building a budgetHelp your teen learn to be accountable for his or her finances by developing a spending plan. Start by listing all sources of regular income (e.g., an allowance or earnings from a part-time job). Next, ask your teen to identify regular expenses. Depend-ing on what you and your child have agreed on, that might include car insurance, a cell phone bill, or clothing expenses. Take the total expenses and subtract them from your teen's total income.

If this exercise shows that your child won't have enough income to meet his or her expenses, help your teen come up with a plan for making up the shortfall. Suggest ways to earn more money or cut back on expenses, but resist the temptation to bail out your teen. The point of establishing a budget is

to give your child a taste of what it's like to earn an in-come and pay expenses without running out of money.

Setting and saving for financial goals In the past, your teenager probably came to you for money to pay for items that he or she wanted. Now that your teen has a steady source of income, it's time for him or her to make purchases independently. Your child may be ready to start saving for larger goals such as a new computer or a car and longer-term goals such as college. Encourage your teen to save by putting these goals in writing to make them more concrete. Consider offering incentives, such as matching what your teen saves toward a long-term goal. For example, for every dollar your child sets aside for college, you might contribute 50 cents or more.

Remember to praise your teen for showingresponsibility when a goal is reached. Your approval, as well as the sense of accomplishment your teen will feel, can help reinforce healthy savings habits.

Getting familiar with creditWhile credit card companies require an adult to co-sign a credit card agreement before they will issue a card to someone under the age of 21, you shouldn't ignore the credit card issue altogether. Teach your teen about establishing and maintaining good credit. Explain how credit card interest is calculated and emphasize the importance of paying bills on time. Don't be afraid to share your experience using credit with your child — personal examples can be a great way to help him or her learn.

Becoming a smart shopperEncourage your teenager to spend money wisely. Teach your child to ask questions before making a purchase, such as:

• Why do I want this item? Am I buying something because I really want it, or because all of my friends have it?• Can I really afford this item?• Do I need to buy this item now, or can I set aside money to buy it at a later time?• Am I getting a good deal on this item, or should I shop around for a more affordable alternative?

Remember that talking to your teenager about money now can help him or her establish a more financially stable future.1 Report Brief: Building Blocks to Help Youth Achieve

Financial Capability,

Gray Divorce: Dividing Assets

Can Impact Retirement

Although most people who marry hope their unions will last forever, about 50% of first marriages in the United States end in divorce.1 Individuals age 50 and older are still less likely to get divorced than those who are younger. Even so, the divorce rate for Americans under age 40 has declined since 1990, while it has roughly doubled for those age 50 and older.2

Unfortunately, a divorcing couple must typically negotiate a property settlement agreement (or seek the assistance of the courts) to divide assets. Retirement plan benefits are often among the most valuable marital assets to be divided, along with houses, cars, and bank accounts. The laws of your particular state will define which retirement benefits are marital as-sets (or community property in community property states) that are subject to division.

Trading mar i ta l assets You and your spouse may have one or more retirement accounts held by various financial institutions, or pension benefits from past and current employers. In some cases, one spouse may agree to waive any rights to all or some of the other spouse's retirement benefits in exchange for other marital assets (for example, a home).

With 401(k) plans or IRAs where the value is clear, trading the account balance for other marital assets is generally straightfor-ward. On the other hand, trading pension benefits should be done only if you're certain the present value of those future payments has been accurately determined. Before you give up a valuable lifetime income, make sure you'll have other adequate resources available to you at retirement. (Continued on Page 6.)

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IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

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Employer p lans If assets in a qualified retirement plan will be divided, a qualified domestic relations order (QDRO) is provided to the employer. Pursuant to a QDRO, one spouse could be awarded all or part of the other spouse's pension plan benefit or 401(k) account balance as of a certain date.

Be sure to consult an attorney who has experience negotiating and drafting QDROs, especially if the QDRO may need to address complex issues such as survivor benefits, benefits earned after the divorce, plan subsidies, and cost-of-living adjustments (COLAs), among others. (For example, a QDRO may state that a first wife is to be treated as the surviving spouse, even if the husband remarries.)

Assuming the transfer is done correctly, the recipient is responsible for any taxes on benefits awarded pursuant to a QDRO. If the distribution is taken from the plan, the 10% penalty that normally applies to early distributions before age 59½ will not apply. The recipient may be able to roll certain distributions into an IRA to defer taxes.

IRAs and taxesDividing assets in IRAs or nonqualified plans does not require a QDRO. However, a divorce decree may be needed to avoid the negative tax consequences of IRA distributions resulting from divorce. If the IRA assets are transferred to the former spouse's IRA in accordance with a divorce decree, then the original IRA owner will not be responsible for any taxes on the distribution. Going for-ward, the recipient spouse must pay ordinary income tax when distributions are taken from the IRA.

IRAs may play another important role in negotiations now that the tax deduction for alimony payments has been eliminated for divorce agreements executed after December 31, 2018. When a recipient spouse is older than 59½ (or doesn't need immediate spousal support), it might make sense to offer a lump-sum payment of alimony from a traditional IRA instead of making after-tax payments going forward.

1 National Survey of Family Growth, Centers for Disease Control and Prevention, 2017 2 Pew Research Center, 2017

Gray Divorce: Dividing Assets Can Impact Retirement

(Continued from Page 5.)