Endowment WealthManagement, Inc.Robert Riedl, CPA, CFP, AWMADirector of Wealth ManagementAmerican National Bank Bldg2200 N. Richmond St. Suite 200Appleton, WI 54911920-785-6010 x6011Rob@EndowmentWM.comwww.EndowmentWM.com

February 2017Tax Tips for the Self-Employed

Grandparents Can Help Bridge the CollegeCost Gap

Can the IRS waive the 60-day IRA rolloverdeadline?

What's the difference between a direct andindirect rollover?

EWM February 2017 NewsletterPlanning Your Financial FutureQuiz: How Much Do You Know About Social SecurityRetirement Benefits?

See disclaimer on final page

Social Security is an importantsource of retirement income formillions of Americans, but howmuch do you know about thisprogram? Test your knowledge,and learn more about your

retirement benefits, by answering the followingquestions.

Questions1. Do you have to be retired to collect SocialSecurity retirement benefits?

a. Yes

b. No

2. How much is the average monthly SocialSecurity benefit for a retired worker?

a. $1,360

b. $1,493

c. $1,585

d. $1,723

3. For each year you wait past your fullretirement age to collect Social Security,how much will your retirement benefitincrease?

a. 5%

b. 6%

c. 7%

d. 8%

4. How far in advance should you apply forSocial Security retirement benefits?

a. One month before you want your benefits tostart.

b. Two months before you want your benefits tostart.

c. Three months before you want your benefitsto start.

5. Is it possible for your retirement benefit toincrease once you start receiving SocialSecurity?

a. Yes

b. No

Answers1. b. You don't need to stop working in order toclaim Social Security retirement benefits.However, if you plan to continue working andyou have not yet reached full retirement age(66 to 67, depending on your year of birth), yourSocial Security retirement benefit may bereduced if you earn more than a certain annualamount. In 2017, $1 in benefits will be deductedfor every $2 you earn above $16,920. In thecalendar year in which you reach your fullretirement age, a higher limit applies. In 2017,$1 in benefits will be deducted for every $3 youearn above $44,880. Once you reach fullretirement age, your earnings will not affectyour Social Security benefit.

2. a. Your benefit will depend on your earningshistory and other factors, but according to theSocial Security Administration, the averageestimated monthly Social Security benefit for aretired worker (as of January 2017) is $1,360.1

3. d. Starting at full retirement age, you willearn delayed retirement credits that willincrease your benefit by 8% per year up to age70. For example, if your full retirement age is66, you can earn credits for a maximum of fouryears. At age 70, your benefit will then be 32%higher than it would have been at full retirementage.

4. c. According to the Social SecurityAdministration, you should ideally apply threemonths before you want your benefits to start.You can generally apply online.

5. a. There are several reasons why yourbenefit might increase after you begin receivingit. First, you'll generally receive annualcost-of-living adjustments (COLAs). Second,your benefit is recalculated every year toaccount for new earnings, so it might increase ifyou continue working. Your benefit might alsobe adjusted if you qualify for a higher spousalbenefit once your spouse files for SocialSecurity.

For more information, visit the Social SecurityAdministration website, ssa.gov.1 Social Security Fact Sheet, 2017 SocialSecurity Changes

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Tax Tips for the Self-EmployedBeing self-employed has many advantages —the opportunity to be your own boss and comeand go as you please, for example. However, italso comes with unique challenges, especiallywhen it comes to how to handle taxes. Whetheryou're running your own business or thinkingabout starting one, you'll want to be aware ofthe specific tax rules and opportunities thatapply to you.

Understand the self-employment taxWhen you worked for an employer, payrolltaxes to fund Social Security and Medicarewere split between you and your employer.Now you must pay a self-employment tax equalto the combined amount that an employee andemployer would pay. You must pay this tax ifyou had net earnings of $400 or more fromself-employment.

The self-employment tax rate on net earnings(up to $127,200 in 2017) is 15.3%, with 12.4%going toward Social Security and 2.9% allottedto Medicare. Any amount over the earningsthreshold is generally subject only to theMedicare payroll tax. However,self-employment and wage income above$200,000 is generally subject to a 0.9%additional Medicare tax. (For marriedindividuals filing jointly, the 0.9% additional taxapplies to combined self-employment and wageincome over $250,000. For married individualsfiling separately, the threshold is $125,000.)

If you file Form 1040, Schedule C, as a soleproprietor, independent contractor, or statutoryemployee, the net income listed on yourSchedule C (or Schedule C-EZ) isself-employment income and must be includedon Schedule SE, which is filed with your Form1040. Schedule SE is used both to calculateself-employment tax and to report the amountof tax owed. You can deduct one-half of theself-employment tax paid (but not any portion ofthe Medicare surtax) when you compute theself-employment tax on Schedule SE.

Make estimated tax payments on timeWhen you're self-employed, you'll need tomake quarterly estimated tax payments (usingIRS Form 1040-ES) to cover your federal taxliability. You may have to make state estimatedtax payments as well.

Estimated tax payments are generally due eachyear on the 15th of April, June, September, andJanuary. If you fail to make estimated taxpayments on time, you may be subject topenalties, interest, and a large tax bill at theend of the tax year. For more information, seeIRS Publication 505, Tax Withholding andEstimated Tax.

Invest in a retirement planIf you are self-employed, it is up to you and youalone to save sufficient funds for retirement.Investing in a retirement plan can help you savefor retirement and also provide numerous taxbenefits.

A number of retirement plans are suited forself-employed individuals:

• SEP IRA plan• SIMPLE IRA plan• SIMPLE 401(k) plan• "Individual" 401(k) plan

The type of retirement plan you choose willdepend on your business and specificcircumstances. Explore your options and besure to consider the complexity of each plan. Inaddition, if you have employees, you may haveto provide retirement benefits for them as well.For more information, consult a tax professionalor see IRS Publication 560, Retirement Plansfor Small Businesses.

Take advantage of business deductionsIf you have your own business, you can deductsome of the costs of starting the business, aswell as the current operating costs of runningthat business. To be deductible, businessexpenses must be both ordinary (common andaccepted in your field of business) andnecessary (appropriate and helpful for yourbusiness).

Since business deductions will lower yourtaxable income, you should take advantage ofany deductions to which you are entitled. Youmay be able to deduct a variety of businessexpenses, such as start-up costs, home officeexpenses, and office equipment.

Deduct health-care expensesIf you qualify, you may be able to benefit fromthe self-employed health insurance deduction,which would enable you to deduct up to 100%of the cost of health insurance that you providefor yourself, your spouse, your dependents, andemployees.

In addition, if you are enrolled in ahigh-deductible health plan, you may be able toestablish and contribute to a health savingsaccount (HSA), which is a tax-advantagedaccount into which you can set aside funds topay qualified medical expenses. Contributionsmade to an HSA account are generally taxdeductible. (Depending upon the state, HSAcontributions may or may not be subject tostate taxes.)

Self-employed individualsmake up 10.1% of the totalU.S. workforce.

Source: U.S. Bureau ofLabor Statistics, March 2016

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Grandparents Can Help Bridge the College Cost GapFor many families, a college education is asignificant financial burden that is increasinglyhard to meet with savings, current income, anda manageable amount of loans. For some, theace in the hole might be grandparents, whoseadded funds can help bridge the gap. If you're agrandparent who would like to help fund yourgrandchild's college education, here are somestrategies.

529 college savings planA 529 college savings plan is one of the bestvehicles for multigenerational college funding.529 plans are offered by states and managedby financial institutions. Grandparents can opena 529 account on their own — either with theirown state's plan or another state's plan — andname their grandchild as beneficiary (onegrandchild per account), or they can contributeto an existing 529 account that has alreadybeen established for that grandchild (forexample, by a parent).

Once a 529 account is open, grandparents cancontribute as much or as little as they want,subject to the individual plan's lifetime limits,which are typically $300,000 and up.Grandparents can set up automatic monthlycontributions or they can gift a larger lump sum— a scenario where 529 plans really shine.

Contributions to a 529 plan accumulate taxdeferred (which means no taxes are due on anyearnings made along the way), and earningsare completely tax-free at the federal level (andtypically at the state level) if account funds areused to pay the beneficiary's qualifiededucation expenses. (However, the earningsportion of any withdrawal used for anon-education purpose is subject to income taxand a 10% penalty.)

Under rules unique to 529 plans, individualscan make a lump-sum gift of up to $70,000($140,000 for joint gifts by a married couple)and avoid federal gift tax by making a specialelection on their tax return to treat the gift as if itwere made in equal installments over afive-year period. After five years, anotherlump-sum gift can be made using the sametechnique. This strategy offers two advantages:The money is considered removed from thegrandparents' estate (unless a grandparentwere to die during the five-year period, in whichcase a portion of the gift would be recaptured),but grandparents still retain control over theircontribution and can withdraw part or all of it foran unexpected financial need (the earningsportion of such a withdrawal would be subjectto income tax and a 10% penalty, though).

What happens at college time if a grandchildgets a scholarship? Grandparents can

seamlessly change the beneficiary of the 529account to another grandchild, or they canmake a penalty-free withdrawal from theaccount up to the amount of the scholarship(though they would still owe income tax on theearnings portion of this withdrawal).

Finally, a word about financial aid. Undercurrent federal financial aid rules, agrandparent-owned 529 account is not countedas a parent or student asset, but withdrawalsfrom a grandparent-owned 529 account arecounted as student income in the followingacademic year, which can decrease thegrandchild's eligibility for financial aid in thatyear by up to 50%. By contrast, parent-owned529 accounts are counted as parent assets upfront, but withdrawals are not counted asstudent income — a more favorable treatment.

Outright cash giftsAnother option for grandparents is to make anoutright gift of cash or securities to theirgrandchild or his or her parent. To help reduceany potential gift tax implications, grandparentsshould keep their gift under the annual federalgift tax exclusion amount — $14,000 forindividual gifts or $28,000 for joint gifts.Otherwise, a larger gift may be subject tofederal gift tax and, for a gift made to agrandchild, federal generation-skipping transfertax, which is a tax on gifts made to a personwho is more than one generation below you.

An outright cash gift to a grandchild or agrandchild's parent will be considered an assetfor financial aid purposes. Under the federal aidformula, students must contribute 20% of theirassets each year toward college costs, andparents must contribute 5.6% of their assets.

Pay tuition directly to the collegeFor grandparents who are considering makingan outright cash gift, another option is tobypass grandchildren and pay the collegedirectly. Under federal law, tuition paymentsmade directly to a college aren't consideredtaxable gifts, no matter how large the payment.This rule is beneficial considering that tuition atmany private colleges is now over $40,000 peryear. Only tuition qualifies for this federal gifttax exclusion; room and board aren't eligible.

Aside from the benefit of being able to makelarger tax-free gifts, paying tuition directly to thecollege ensures that your money will be usedfor education purposes. However, a directtuition payment might prompt a college toreduce any potential grant award in yourgrandchild's financial aid package, so makesure to ask the college about the financial aidimpact of your gift.

Assets in 529 plans reached$266.2 billion, spread over12.7 million accounts, as ofthe second quarter of 2016.

Source: College SavingsPlans Network, 529 Report:An Exclusive Mid-YearReview of 529 Plan Activity,September 2016

Note: Investors shouldconsider the investmentobjectives, risks, charges, andexpenses associated with 529plans before investing, alongwith each plan's specificinvestment options, underlyinginvestments, and investmentcompany. More informationcan be found in the plan'sofficial disclosure statementsand prospectus, which shouldbe read carefully beforeinvesting. As with anyinvestment, there are generallyfees and expenses associatedwith participation in a 529 plan.There is also the risk that yourunderlying investments maylose money or not perform wellenough to cover college costsas anticipated. Finally, beaware that your ability to takeadvantage of any 529 planstate tax benefits may becontingent on your enrollmentin your own state's 529 plan.

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Endowment WealthManagement, Inc.Robert Riedl, CPA, CFP, AWMADirector of Wealth ManagementAmerican National Bank Bldg2200 N. Richmond St. Suite 200Appleton, WI 54911920-785-6010 x6011Rob@EndowmentWM.comwww.EndowmentWM.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017

IMPORTANT DISCLOSURES

The information presented byEndowment Wealth Management, Inc. isnot specific to any individual's personalcircumstances and should not be takenas personal investment advice, norshould it be construed as a firmrecommendation.

To the extent that this material concerns taxmatters, it is not intended or written to beused, and cannot be used, by a taxpayer forthe purpose of avoiding penalties that may beimposed by law. Each taxpayer should seekindependent advice from a tax professionalbased on his or her individual circumstances.

These materials are provided for generalinformation and educational purposes basedupon publicly available information fromsources believed to be reliable—we cannotassure the accuracy or completeness ofthese materials. The information in thesematerials may change at any time andwithout notice. If you have any questionsplease call our offices at 920-785-6010.

Investments involve risk and unless otherwisestated, are not insured or guaranteed. Pastperformance is no guarantee of future results.A copy of Endowment Wealth ManagementInc.'s disclosure document, Form ADVBrochure Part 2, is available upon request.

What's the difference between a direct and indirectrollover?If you're eligible to receive ataxable distribution from anemployer-sponsoredretirement plan [like a 401(k)],

you can avoid current taxation by instructingyour employer to roll the distribution directlyover to another employer plan or IRA. With adirect rollover, you never actually receive thefunds.

You can also avoid current taxation by actuallyreceiving the distribution from the plan and thenrolling it over to another employer plan or IRAwithin 60 days following receipt. This is called a"60-day" or "indirect" rollover.

But if you choose to receive the funds ratherthan making a direct rollover, your plan isrequired to withhold 20% of the taxable portionof your distribution (you'll get credit for theamount withheld when you file your federal taxreturn). This is true even if you intend to make a60-day rollover. You can still roll over the entireamount of your distribution, but you'll need tomake up the 20% that was withheld using otherassets.

For example, if your taxable distribution fromthe plan is $10,000, the plan will withhold

$2,000 and you'll receive a check for $8,000.You can still roll $10,000 over to an IRA oranother employer plan, but you'll need to comeup with that $2,000 from your other funds.

Similarly, if you're eligible to receive a taxabledistribution from an IRA, you can avoid currenttaxation by either transferring the funds directlyto another IRA or to an employer plan thataccepts rollovers (sometimes called a"trustee-to-trustee transfer"), or by taking thedistribution and making a 60-day indirectrollover (20% withholding doesn't apply to IRAdistributions).

Under recently revised IRS rules, you can makeonly one tax-free, 60-day, rollover from any IRAyou own (traditional or Roth) to any other IRAyou own in any 12-month period. However, thislimit does not apply to direct rollovers ortrustee-to-trustee transfers.

Because of the 20% withholding rule, theone-rollover-per-year rule, and the possibility ofmissing the 60-day deadline, in almost all casesyou're better off making a direct rollover tomove your retirement plan funds from oneaccount to another.

Can the IRS waive the 60-day IRA rollover deadline?If you take a distribution fromyour IRA intending to make a60-day rollover, but for somereason the funds don't get tothe new IRA trustee in time,

the tax impact can be significant. In general, therollover is invalid, the distribution becomes ataxable event, and you're treated as havingmade a regular, instead of a rollover,contribution to the new IRA. But all may not belost. The 60-day requirement is automaticallywaived if all of the following apply:

• A financial institution actually receives thefunds within the 60-day rollover period.

• You followed the financial institution'sprocedures for depositing funds into an IRAwithin the 60-day period.

• The funds are not deposited in an IRA withinthe 60-day rollover period solely because ofan error on the part of the financial institution.

• The funds are deposited within one year fromthe beginning of the 60-day rollover period.

• The rollover would have been valid if thefinancial institution had deposited the fundsas instructed.

If you don't qualify for this limited automaticwaiver, the IRS can waive the 60-dayrequirement "where failure to do so would beagainst equity or good conscience," such as acasualty, disaster, or other event beyond yourreasonable control. However, you'll need torequest a private letter ruling from the IRS, anexpensive proposition — the filing fee alone iscurrently $10,000.

Thankfully, the IRS has just introduced a thirdway to seek a waiver of the 60-dayrequirement: self-certification. Under the newprocedure, if you've missed the 60-day rolloverdeadline, you can simply send a letter to theplan administrator or IRA trustee/custodiancertifying that you missed the 60-day deadlinedue to one of 11 specified reasons. To qualify,you must generally make your rollovercontribution to the employer plan or IRA within30 days after you're no longer prevented fromdoing so. Also, there is no IRS fee.

The downside of self-certification is that ifyou're subsequently audited, the IRS can stillreview whether your contribution met therequirements for a waiver. For this reason,some taxpayers may still prefer the certainty ofa private letter ruling from the IRS.

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