Donald L. Moore, Sr.

Chesapeake Financial Strategies, LLC

7501 Greenway Center Drive • Suite 420 • Greenbelt • MD • 20770

301-474-8300

info@chesapeakefinancialstrategies.com • www.chesapeakefinancialstrategies.com

Student Debt: It's Not Just for Young Adults

June 2020See disclaimer on final page

Recent college graduates aren't the only ones carrying student loan debt. A significant number of olderAmericans have student debt, too. In fact, student loan debt is the second-highest consumer debt category aftermortgage debt. In total, outstanding student loan debt in the United States now stands at approximately $1.5trillion, with the age 30 to 39 group carrying the highest load.

Source: New York Fed Consumer Credit Panel/Equifax (Q3 2019 data)

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Mid-Year Is a Good Time to Fine-Tune Your FinancesThe first part of 2020 was rocky, but there should bebetter days ahead. Taking a close look at yourfinances may give you the foundation you need tobegin moving forward. Mid-year is an ideal time to doso, because the planning opportunities are potentiallygreater than if you waited until the end of the year.

Renew Your ResolutionsAt the beginning of the year, you may have vowed tochange your financial situation, perhaps by savingmore, spending less, or reducing your debt. Are theseresolutions still important to you? If your income,expenses, and life circumstances have changed sincethen, you may need to rethink your priorities.

While it may be difficult to look at your finances duringturbulent times, review financial statements andaccount balances to determine whether you need tomake any changes to keep your financial plan ontrack.

Take Another Look at Your TaxesCompleting a mid-year estimate of your tax liabilitymay reveal planning opportunities. You can use lastyear's tax return as a basis, then factor in anyanticipated adjustments to your income anddeductions for this year.

Check your withholding, especially if you owed taxesor received a large refund. Doing that now, rather thanwaiting until the end of the year, may help you avoid abig tax bill or having too much of your money tied upwith Uncle Sam.

You can check your withholding by using the IRS TaxWithholding Estimator at irs.gov. If necessary, adjustthe amount of federal or state income tax withheldfrom your paycheck by filing a new Form W-4 withyour employer.

More to ConsiderHere are some other questions you may want to ask as part of your mid-year financial review.

Review Your InvestmentsReview your portfolio to make sure your assetallocation is still in line with your financial goals, timehorizon, and tolerance for risk. Look at how yourinvestments have performed against appropriatebenchmarks, and in relationship to your expectationsand needs. Changes may be warranted, but be carefulabout making them while the market is volatile.

Asset allocation is a method used to help manageinvestment risk; it does not guarantee a profit orprotect against investment loss. All investing involvesrisk, including the possible loss of principal and thereis no guarantee that any investment strategy will besuccessful.

Check Your Retirement SavingsIf you're still saving for retirement, look for ways toincrease retirement plan contributions. For example, ifyou receive a pay increase this year, you couldcontribute a higher percentage of your salary to youremployer-sponsored retirement plan, such as a 401(k),403(b), or 457(b) plan. If you're age 50 or older,consider making catch-up contributions to youremployer plan. For 2020, the contribution limit is$19,500, or $26,000 if you're eligible to make catch-upcontributions. If you are close to retirement or alreadyretired, take another look at your retirement incomeneeds and whether your current investment anddistribution strategy will provide enough income.

Read About Your Insurance CoverageWhat are the terms of your homeowners, renters, andauto insurance policies? How much disability or lifeinsurance coverage do you have? Your insuranceneeds can change; make sure your coverage has keptpace with your income or family circumstances.

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Four Questions on the Roth Five-Year RuleThe Roth "five-year rule" typically refers to when youcan take tax-free distributions of earnings from yourRoth IRA, Roth 401(k), or other work-based Rothaccount. The rule states that you must wait five yearsafter making your first contribution, and the distributionmust take place after age 59½, when you becomedisabled, or when your beneficiaries inherit the assetsafter your death. Roth IRAs (but not workplace plans)also permit up to a $10,000 tax-free withdrawal ofearnings after five years for a first-time homepurchase.

While this seems straightforward, several nuancesmay affect your distribution's tax status. Here are fourquestions that examine some of them.

1. When does the clock start ticking?"Five-year rule" is a bit misleading; in some cases, thewaiting period may be shorter. The countdown beginson January 1 of the tax year for which you make yourfirst contribution.

Roth by the Numbers

Sources: Investment Company Institute and Plan Sponsor Council ofAmerica, 2019

For example, if you open a Roth IRA on December 31,2020, the clock starts on January 1, 2020, and endson January 1, 2025 — four years and one day aftermaking your first contribution. Even if you wait untilApril 15, 2021, to make your contribution for tax year2020, the clock starts on January 1, 2020.

2. Does the five-year rule apply to everyaccount?For Roth IRAs, the five-year clock starts ticking whenyou make your first contribution to any Roth IRA.

With employer plans, each account you own is subjectto a separate five-year rule. However, if you roll assetsfrom a former employer's 401(k) plan into your currentRoth 401(k), the clock depends on when you made thefirst contribution to your former account. For instance,if you first contributed to your former Roth 401(k) in2014, and in 2020 you rolled those assets into yournew plan, the new account meets the five-yearrequirement.

3. What if you roll over from a Roth 401(k)to a Roth IRA?Proceed with caution here. If you have neverpreviously contributed to a Roth IRA, the clock resetswhen you roll money into the Roth IRA, regardless ofhow long the money has been in your Roth 401(k).Therefore, if you think you might enact a Roth 401(k)rollover sometime in the future, consider opening aRoth IRA as soon as possible. The five-year clockstarts ticking as soon as you make your firstcontribution, even if it's just the minimum amount andyou don't contribute again until you roll over theassets.1

4. What if you convert from a traditionalIRA to a Roth IRA?In this case, a different five-year rule applies. Whenyou convert funds in a traditional IRA to a Roth IRA,you'll have to pay income taxes on deductiblecontributions and tax-deferred earnings in the year ofthe conversion. If you withdraw any of the convertedassets within five years, a 10% early-distributionpenalty may apply, unless you have reached age 59½or qualify for another exception. This rule also appliesto conversions from employer plans.2

1 You may also leave the money in your former employer's plan, roll themoney into another employer's Roth account, or receive a lump-sumdistribution. Income taxes and a 10% penalty tax may apply to the taxableportion of the distribution if it is not qualified.

2 Withdrawals that meet the definition of a "coronavirus-related distribution"during 2020 are exempt from the 10% penalty.

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The ABCs of Finance: Teaching Kids About Money

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

Securities offered through Lincoln Investment, Broker/Dealer, Member FINRA / SIPC. www.lincolninvestment.com Advisory Services maybe offered through Lincoln Investment or Capital Analysts, Registered Investment Advisers. Chesapeake Financial Strategies, LLC andthe above firms are independent and non-affiliated.

The Lincoln Investment Companies do not provide tax, legal, or social security claiming advice. The information presented here is notspecific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to beused, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seekindependent advice from a tax professional based on his or her individual circumstances. These materials are provided for generalinformation and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assurethe accuracy or completeness of these materials. The information in these materials may change at any time and without notice.Diversification or asset allocation do not guarantee a profit or protect against a loss. Calculators are provided only as general self-helpplanning tools. Results depend on many factors, including the assumptions you provide and may vary with each use and over time. We donot guarantee their accuracy, or applicability to your circumstances.

It's never too soon to start teaching children aboutmoney. Whether they're tagging along with you to thegrocery store or watching you make purchases online,children quickly realize that we use money to buy thethings we want. You can teach some simple lessonstoday that will give them a solid foundation for makinga lifetime of sound financial decisions.

Start with an Allowance. An allowance is often achild's first brush with financial independence and agood way to begin learning how to save money andbudget for the things they want. How much you giveyour children will depend in part on what you expectthem to buy and how much you want them to save.Make allowance day a routine, like payday, by givingthem a set amount on the same day each week ormonth.

Help Them Set Financial Goals. Children might notalways appreciate the value of putting money away forthe future. Help them set age-appropriate short- andlong-term financial goals that will serve as incentivesfor saving money. Write down each goal and theamount that must be saved each day, week, or monthto reach it.

Let Them Practice. As children get older, they canbecome more responsible for paying other expenses(e.g., clothing, entertainment). The possibility ofrunning out of money between allowance days mightmake them think more carefully about their spendinghabits and choices and encourage them to budgetmore effectively.

Take It to the Bank. Piggy banks are a great way tostart teaching young children to save money, butopening a bank savings account will reinforce lessonson basic investing principles such as earning interestand the power of compounding. Encourage yourchildren to deposit a portion of any money they receivefrom an allowance, gift, or job into their accounts.

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