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Aspiring black homeowners targeted at Community Wealth Building Day

By Dalisia Brye, Special to The New Tri-State Defender



The Memphis Chapter of the National Association of Real Estate Brokers (NAREB) held its 2nd annual Community Wealth Builders event this past Saturday. The event provided information to aspiring homeowners about various financial programs. “We’re here to provide wealth and longevity to black communities through homeownership,” said local President Sherita McCray. “Our goal is to teach financial literacy and provide credit manageability though various financial vendors.” Created by National President Ron Cooper, the initiative is designed to get two million new African-American homeowners into homes within the next 5 years. The four-hour event featured financial counseling from the Tennessee Housing Authority, Aflac and State Farm. Free credit checks were provided through the National Investment Division-Housing Counseling Agency. NAREB, said McCray, caters to homeowners facing foreclosures. “We want all black homeowners to keep their property so they can pass it down from generation to generation,” she said. NAREB programs include those that provide credit vouchers for those in need of assistance with closing costs. “Prior to us getting married, my husband and I didn’t know where to start when it came to purchasing a home,” said Ashley Martin, who attended the Community Wealth Building Day event. “Thanks to these programs, we got our credit in order and became homeowners shortly after we were married. We’ve been in our home for two years now. Thankful isn’t the word.” (For more details, contact Sherita McCray at www.narebmemphis.com.)

MONEY MATTERS

By Charles Sims Jr., Special to The New Tri-State Defender



Most employers have already replaced traditional pensions, which promise lifetime income payments in retirement, with defined contribution plans such as 401(k)s. Even so, 35 percent of workers say they (and/or their spouse) have pension benefits with a current or former employer. A 2016 study by the Employee Benefit Research Institute indicates that pension payments are a major or minor source of steady income for about 47 percent of retirees. About half of pension plan participants can choose to take their money in a lump sum when they retire. In addition, companies can offer pension buyouts — not only to vested former employees who are working elsewhere but even to retirees who are already receiving pension payments. By shrinking the size of a pension plan, the company can reduce the associated risks and costs and limit the impact of future retirement obligations on current financial performance. However, what’s good for a corporation’s bottom line may or may not be in the best interests of plan participants and their families. For most workers, there are clear mathematical and psychological advantages to keeping the pension. However, a lump sum could provide financial flexibility that may benefit some families. Weigh risks before letting go A lump-sum payout transfers the risks associated with investment performance and longevity from the pension plan sponsor to the participant. The lump-sum amount is the discounted present value of an employee’s future pension, set by an IRS formula based on current bond interest rates and average life expectancies. Individuals who opt for a lump-sum payout must then make critical investment and withdrawal decisions and determine for themselves how much risk to take in the financial markets. The resulting income is often not enough to replace the pension income given up, unless the investor can tolerate exposure to stock market risk and is able to achieve solid returns over time. Gender is not considered when calculating lump sums, so a pension’s lifetime income may be even more valuable for women, who tend to live longer than men and would have a greater chance of outliving their savings. In addition, companies may not include the value of subsidies for early retirement or spousal benefits in lump-sum calculations; the latter could be a major disadvantage for married couples. When a lump sum might make sense A lump-sum payment could benefit a person in poor health or provide financial relief for a household with little cash in the bank for emergencies. But keep in mind that pension payments (monthly or lump sum) are taxed in the year they are received, and cashing out a pension before age 59½ may trigger a 10 percent federal tax penalty. Rolling the lump sum into a traditional IRA postpones taxes until withdrawals are taken later in retirement. Someone who expects to live comfortably on other sources of retirement income might also welcome a buyout offer. Pension payments end when the plan participant (or a surviving spouse) dies, but funds preserved in an IRA could be passed down to heirs. IRA distributions are also taxed as ordinary income, and withdrawals taken prior to age 59½ may be subject to the 10 percent federal tax penalty, with certain exceptions. Annual minimum distributions are required starting in the year the account owner reaches age 70½. It may also be important to consider the health of the company’s pension. The “funded status” is a measure of plan assets and liabilities that must be reported annually; a plan funded at 80 percent or less may be struggling. Most pensions are backstopped by the Pension Benefit Guaranty Corporation (PBGC), but retirees could lose a portion of the “promised” benefits if their plan fails. The prospect of a large check might be tempting, but cashing in a pension could have costly repercussions for your retirement. It’s important to have a long-term perspective and an understanding of the tradeoffs when a lump-sum option is on the table. (Charles Sims Jr., CMFC, LUTCF, is President/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com).

THE MOVE: Tri-State Bank of Memphis is taking its headquarters to Whitehaven

By Karanja A. Ajanaku, kajanaku@tri-statedefender.com In the banking industry as in the world of medicine, heart transplants require expertise, precision execution and loads of care and c...

MONEY MATTERS: Should you add real estate to your portfolio?

By Charles Sims Jr., Special to The New Tri-State Defender



With a stable housing market, low interest rates, and a more positive employment picture, more Americans may be in a position to buy or sell properties in 2017. Moreover, the U.S. tax code favors real estate ownership, allowing for tax savings that might help families enhance their everyday lives and build wealth over the long term. Incentives for homeowners The ability to write off mortgage interest and other home-related expenses can help subsidize a home purchase. Homeowners must itemize deductions on Schedule A of their federal tax returns instead of claiming the standard deduction. The deduction for mortgage interest applies on up to $1 million for first mortgages — plus up to $100,000 on home-equity loans — for a primary residence and a second home such as a vacation condo, mobile home, boat, house trailer, or any structure with sleeping, cooking, and toilet facilities (if it is not rented for income). The property owner can also deduct real estate taxes in the year they are paid, as well as mortgage points (origination fees) — even if the seller pays them for the buyer. Protected profits When a principal residence is sold, losses are not tax deductible, but a profit of up to $250,000 ($500,000 for married joint filers) may be excluded from the federal capital gains tax. To qualify for the exclusion, the home must have been owned and occupied as a principal residence for two out of the five years before the sale. Owners who cannot pass this test may be eligible for a reduced exclusion, but only if the home sale resulted from an employment relocation, health reasons, or certain other unforeseen circumstances. Different rules for rentals Because rental property is considered business property, mortgage interest, property taxes, insurance, maintenance, depreciation, and other expenses are tax deductible and can be used to offset some or all of the rental income. Depreciation is calculated on a straight-line basis over 27.5 years, which means about 3.63% of the entire purchase price may be deducted each year, even if the property is largely financed. Under IRS Section 1031, when a qualified (non-owner occupied) investment property such as a rental home is exchanged instead of sold, the capital gains tax may be postponed indefinitely as long as the transaction is documented and conducted properly. The seller must purchase ‘like-kind’ property (i.e., real estate must be exchanged for real estate, but it need not be the same grade, quality, type, or class) of equal or greater value within 180 days. IRS rules mandate that the proceeds from the sale of the original property must be held by a third party (such as a qualified intermediary), and the exchange process must meet a number of other specific conditions. (Charles Sims Jr., CMFC, LUTCF, is President/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com).

MONEY MATTERS: TAX EDITION

By Charles Sims Jr., Special to The New Tri-State Defender



According to a 2015 survey by the National Small Business Association, one in three small businesses devote more than 80 hours each year — two full work-weeks — to handling federal taxes. Because of the complexity of the tax code, it typically benefits small-business owners to take full advantage of every legal tax break they can find. The following deductible business costs could help reduce your tax bill. Be sure to consult with your tax professional before you take any specific action. Investments. Some businesses are still eligible to deduct the full amount of certain capital expenditures (such as machinery, equipment, computers, furniture, and some “heavy” vehicles) in the first year of use rather than depreciating them over time. To be eligible, qualifying property must be used more than 50 percent for business. The maximum IRC Section 179 deduction is $500,000. The deduction phases out when the value of all property placed in service during 2016 exceeds $2.01 million. Insurance. Premiums for property and liability policies that help protect your business interests are typically 100% deductible. Health insurance premiums may also be fully deductible for sole proprietors who are not eligible for other medical coverage, but the deduction must not exceed the business’s net profit. Businesses can typically deduct 100 percent of employer contributions toward health coverage for employees, including owners’ spouses who work for a family company. Moreover, some small businesses with fewer than 25 full-time employees may qualify for a tax credit when health coverage is offered through the federal government’s SHOP Marketplace and the employer pays at least 50 percent of employee premiums. Vehicles. Small businesses can take a deduction for auto expenses based on the number of miles traveled using the standard mileage rate (54 cents per business mile for 2016) plus parking and tolls. An alternative method involves adding up the actual costs, including lease payments or vehicle depreciation, car maintenance, and gas. In either case, the IRS generally expects taxpayers to keep a log that tracks the date, destination, purpose, and odometer readings for each business trip. There may be other expenses, such as supplies, business travel, client entertainment, and charitable donations that can be written off. Keeping detailed records throughout the year may help ensure that your tax returns are filed accurately and, if you are audited, that you have the documentation needed to back up your deductions. (Charles Sims Jr., CMFC, LUTCF, is President/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com).

5 surprising facts on the wage gap for women of color

By Angela Bronner Helm, The Root



In honor of Equal Pay day on April 4, the American Association of University Women released its latest report on the disparity in men and women’s pay in America, and unfortunately, Black and Hispanic women have the longest way to go. We have all heard about the “20 percent” pay gap that exists between men and women—but in truth this does not reflect the reality of all women. The Simple Truth about the Gender Pay Gap gets to the brass tax of things, by not only addressing how the pay gap is influenced by age, race, motherhood and education levels, it now even includes information on disability status, sexual orientation, and gender identity. It also offers solutions on how to close it. First, five quick facts from the report: 1 - According to AAUW, the pay gap won’t close until 2152. 2 - The gender pay gap is worse for mothers, and it only grows with age. 3 - Thanks to the pay gap, women of color especially struggle to pay off student debt. 4 - Women in every state experience the pay gap, but in some states it’s worse than others. 5 - More education helps increase women’s earnings, but it still doesn’t close the gender pay gap. Compared to the earnings of non-Hispanic White men (the largest segment of the workforce in America), Hispanic women earn 54 cents to every white man’s dollar; Black women earn 63 cents; White women earn 75 cents and Asian women 85 cents (which all together gets us to the “20 percent” wage disparity.) The report also dispels the notion that more education closes the gender pay gap. “As a rule, earnings increase as years of education increase for both men and women. However, while more education is a useful tool for increasing earnings, it is not effective against the gender pay gap. At every level of academic achievement, women’s median earnings are less than men’s median earnings, and in some cases, the gender pay gap is larger at higher levels of education,” notes the AAUW’s website. The report also documents that women of color have a harder time paying off their student debt. Yet, for all of the “bad news,” the AAUW also offers solutions to the gender pay gap: For companies While some CEOs have been vocal in their commitment to paying workers fairly, American women can’t wait for trickle-down change. AAUW urges companies to conduct salary audits to proactively monitor and address gender-based pay differences. It’s just good business. For individuals Women can learn strategies to better negotiate for equal pay. AAUW’s salary negotiation workshops help empower women to advocate for themselves when it comes to salary, benefits, and promotions. In Boston or Washington, D.C.? Read more about the free workshops in your area, and stay tuned for more cities to come! For policy makers The Paycheck Fairness Act would improve the scope of the Equal Pay Act, which hasn’t been updated since 1963, with stronger incentives for employers to follow the law, enhance federal enforcement efforts, and prohibit retaliation against workers asking about wage practices. Tell the Congress to take action for equal pay.

4 reasons to steer clear of romance in the workplace

By BlackDoctor.org



As innocent and convenient as it may seem to let a little flirtation with a co-worker turn into something a bit more, you might find it’s not worth the headache. I mean, most people spend the majority of their lives at work. The people you at your job can often see your more than your family. Romantic relationships in the workplace aren’t farfetched, but that doesn’t mean they aren’t messy. The following might be reasons you need to consider before you partake in that “lunch date.” 1. Who Are They Really? Have you ever spent time with this person outside of work? If not, it’s hard to really know who you are getting to know. Most people spend the majority of their time in the office figuring out who they want their work persona to be. Corporate culture practically encourages the fake personality you learn to have every day when you walk into the office. So how are you to know if you TRULY like this person, or if you just are crushing on the person at work? #Workbae might just be that someone you like only at work. 2. Favoritism If you work on the same team or in the same division of the company, it could be a conflict of interest especially if you are in management. People on your team might feel that you show the person you like more favoritism simply because of the relationship you two share. No longer will your agreements with their opinions or ideas be simply that; most people will assume it’s a biased perspective. 3. The Break If you guys don’t work out and have to still see each other every day how will that go over? What if the breakup is awful?Perfect recipe for awkwardness. Breaking up is already a hard thing to deal with. Add still managing to wake up and go to work with a smile on your face every day. Imagine having to do this while being anxious you will run into your ex in the breakroom….not fun! 4. Gossip Now there is always a topic of discussion going around the office and it’s never fun for it to be about you. Dating in the office can stir up quite the discussion and could put a damper on your career goals if the wrong ear catches wind of your relationship. It’s best to keep your personal life personal while at work and dating someone in the office can make this rather difficult.

MONEY MATTERS

By Charles Sims Jr., Special to The New Tri-State Defender



Information on Roth IRAs often refers to the “five-year rule,” but in fact there are two separate five-year holding requirements that may affect the tax treatment of Roth distributions. The first determines whether a withdrawal of earnings will be tax-free, and the second determines whether a withdrawal of converted principal will be penalty-free. Withdrawal of Earnings You can withdraw contributions to a Roth IRA at any time without tax liabilities or penalties, because contributions are made with after-tax dollars. However, to qualify for a tax-free and penalty-free withdrawal of earnings, the distribution must take place after age 59½ (with exceptions for death, disability, and up to $10,000 for a first-time home purchase) and meet the Roth earnings five-year rule. The five-year holding period for earnings begins on January 1 of the tax year for which you made your first contribution (regular or rollover) to any Roth IRA you own. For example, if your first Roth IRA contribution was designated for tax year 2016 (even if made in early 2017), your five-year holding period began on Jan. 1, 2016, and will end on Dec. 31, 2020. You have only one five-year holding period for determining whether distributions from any Roth IRA you own are qualified tax-free distributions. Inherited Roth IRAs are subject to different rules. Converted Principal When you convert assets in a traditional IRA to a Roth IRA, the amount you convert (except for any after-tax contributions you’ve made) is subject to income tax in the year of the conversion. If you withdraw any portion of the converted amount within five years, you may have to pay the 10 percent early-distribution penalty on those funds, unless you’ve reached age 59½ or qualify for an exemption. This five-year holding period starts on Jan. 1 of the year you convert assets to a Roth IRA. If you have more than one conversion, each will have its own separate five-year holding period for this purpose. This rule also applies to assets rolled over from a qualified (tax deferred) retirement plan such as a traditional 401(k) to a Roth IRA. These guidelines may be helpful, but Roth distribution rules are complex. Be sure to consult your tax professional before taking any specific action that might have tax consequences.

African Americans are working more than ever, but pay hasn’t caught up

By Valerie Wilson and Janelle Jones, www.epi.org



Over the last several decades, black workers have been offering more to the economy and the labor market to incredibly disappointing results in pay and unemployment. Some have argued that the disparity in wages between blacks and white is the result of white workers working longer and harder than black workers. They blame black workers for racial wage gaps, saying that they should do anything from getting more education to simply working harder. Such explanations minimize the role of racial discrimination on labor market outcomes, while perpetuating racial bias and stereotypes of black workers as unmotivated and lazy. And the data show they are simply false: hours and weeks worked have increased for both races, with a larger increase for black workers over the last several decades. The increase in annual hours is particularly striking for workers in the bottom 40 percent of the wage distribution, where it has been driven almost entirely by women. Table 1 provides data on annual hours worked in 1979 and 2015 for workers ages 18–64 years old who report non-zero earnings during the year (so the averages are conditioned on working. In forthcoming research, we explicitly address trends in labor force participation). Work hours include paid vacations and time off, and therefore represent paid hours. The table also presents the percent change from 1979 to 2015 in annual hours, weeks worked, and weekly hours. These data are shown by race and wage fifth, or quintile. The key finding is that the average black worker worked 1,805 hours in 2015, an increase of 199 hours, or 12.4 percent from the 1979 work year of 1,606 hours. Resulting in a smaller increase of 11.0 percent, the average white worker worked 1,888 hours in 2015, an increase of 187 hours from the 1979 work year of 1,701 hours. For both white and black workers, the growth in annual hours was primarily driven by an increase in the number of weeks worked (up 8.1 percent for white workers and 10.2 percent for black workers) rather than an increase in weekly work hours (up 2.7 percent for white workers and 2.0 percent for black workers). The increase in annual hours between 1979 and 2015 was more pronounced among workers in the lowest fifth of the wage distribution than among workers in the middle fifth. It was also greater among middle-wage workers than among the top fifth of earners. As expected, the pattern for annual hours is similar to that of weeks. While the number of hours worked by those in the lowest quintile is consistently lower than those of better-off fifths, the greatest rise in weeks worked has been among individuals at the bottom of the income distribution. For both black and white workers, the growth in weeks worked for the bottom fifth was more than triple the increase for the top fifth. White workers in the bottom quintile have increased their annual hours by 17.0 percent since 1979, compared to 21.9 percent for black workers at the bottom. Annual hours for the second and middle fifth are very similar for black and white workers. At the top income distribution, white workers have seen a 5.6 percent increase in annual hours while black workers experienced a 6.2 percent increase. Trends in work hours vary greatly by race, gender, and wage group. Table 2 provides data on annual hours, weeks worked, and weekly hours in 1979 and 2015, further disaggregated by these categories. The data reveal that growth in work hours, for both whites and blacks, was heavily driven by the growth of work hours among women. Overall annual work hours grew by 22.0 percent among white women and 18.4 percent among black women. However, the growth in annual hours in the bottom fifth and second fifth is larger for black women than for white women. Black women also have higher annual hours than white women all across the wage distribution. Work hours only grew 4.0 percent among white men and 7.4 percent among black men. Similar to the overall trend, annual work hours grew more among women than among men from 1979 to 2015 because women increased their weeks per year more than their weekly hours in the paid workforce. Figure A shows annual hours by race for the business cycle peak years of 1979, 1989, 2000, and 2007, as well as for 1995 (the point during the 1990s business cycle after which wages grew dramatically) and for 2014 and 2015 (the two most recent years of the current recovery for which data are available). It shows that this trend of African American workers increasing work hours more than their white counterparts occurred primarily between 1979 and 2000. With the exception of a notable decline in work hours among black workers between 2007 and 2014, work hours have changed very little since 2000. However, during this period of time, labor market returns to black workers continued to worsen relative to their white counterparts regardless of age, education, occupation, and other socioeconomic demographics. The data make it clear that there has been no lack of effort on the part of black workers. Even in the face of persistent racial wage gaps, labor market discrimination, occupational segregation, and other labor market obstacles, black workers continue to increase their annual hours and weeks worked per year. (This blog post is based on data analysis from the EPI Program on Race, Ethnicity and the Economy’s (PREE) an ongoing project on Work Hours, Unemployment and Labor Market Disconnection.)

When investing, should you chase performance or diversification?

By Charles Sims Jr., Special to The New Tri-State Defender



In 2013, the S&P 500 index, generally considered representative of the U.S. stock market as a whole, produced total returns of 32.39 percent — the highest return for the index since 1997. But the S&P 600, which represents the stocks of smaller companies, returned 41.31 percent. Consider a hypothetical investor named Jim, who looked at those returns at the end of 2013 and decided to sell his shares in an S&P 500 index fund and reinvest them in an S&P 600 fund, hoping to ride the hot stocks of smaller companies. Index mutual funds and exchange-traded funds (ETFs) attempt to track the performance of a benchmark index by holding the securities that comprise the index; individuals cannot invest directly in an unmanaged index. The trade would have been a disappointment for Jim. Small-cap stocks slumped in 2014, with the S&P 600 returning just 5.76 percent. By contrast, the S&P 500 returned 13.69 percent. Jim would have missed out on the higher return because he tried to chase prior-year performance. If he continued to chase performance and switched his investments back to an S&P 500 index fund, he would have been slightly ahead in 2015, a down year for the market in general, and then lost out again in 2016 when small caps again outpaced large-cap stocks (see chart). Spreading the risk This example clearly illustrates the danger of chasing performance, but it also demonstrates why owning stocks in companies of different sizes can be a helpful diversification strategy. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. Companies are typically classified based on market capitalization, which is calculated by multiplying the number of outstanding shares by the price per share. There is no standard classification system, but Standard & Poor’s indexes offer a helpful comparison and are used as benchmarks for many funds.3 S&P 500 (market capitalization exceeding $5.3 billion). Stocks of larger companies, or large caps, are generally considered more stable than those of smaller companies. Large caps may provide solid long-term returns and possibly higher short-term returns in some years, as they did in 2013. But large caps typically have lower growth potential because they have already experienced substantial growth to reach their current size. S&P MidCap 400 (market capitalization of $1.4 billion to $5.9 billion). Mid caps may have greater growth potential than large caps, and mid-sized companies can sometimes react more nimbly to changes in the business environment. Mid caps are associated with greater risk and volatility than large caps, but are considered less volatile and risky than small caps. Although they may not be the best performer in any given year, mid caps have produced the highest returns over the last 10-, 20-, and 30-year periods.4 S&P SmallCap 600 (market capitalization of $400 million to $1.8 billion). Small-cap stocks might offer the highest growth potential of the three classifications, because they have the furthest to grow and are more likely to react quickly to market opportunities. However, they are typically the most risky and volatile class of stocks, as illustrated by the performance swings of the last four years. The performance of an unmanaged index is not indicative of the performance of any specific security. Past performance is not a guarantee of future results, and actual results will vary. The investment return and principal value of stocks, mutual funds, and ETFs fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost. Supply and demand for ETF shares may cause them to trade at a premium or a discount relative to the value of the underlying shares. (Charles Sims Jr., CMFC, LUTCF, is President/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com).
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