What Is a Certified Financial Planner™?

A Certified Financial PlannerTM (CFP®) is a financial professional who meets the requirements established by the Certified Financial Planner Board of Standards, Inc. While others may call themselves financial planners, only those who demonstrate the requisite experience, education, and ethical standards are awarded the CFP® mark.

What are the requirements?

In order to obtain the CFP® mark, an applicant must:

  • Hold a bachelor's degree from an accredited college or university
  • Complete a CFP® Board-registered education program
  • Pass the 10-hour CFP® certification exam
  • Have at least three years of qualifying full-time work experience in financial planning
  • Pass a professional fitness standards and background check
  • Once appointed, a CFP® must meet continuing education requirements every other year in order to maintain the certification.

What does a CFP® do?

A CFP® is trained to develop and implement comprehensive financial plans for individuals, businesses, and organizations. A CFP® has the knowledge and skills to objectively assess your current financial status, identify potential problem areas, and recommend appropriate options. And with a CFP®, you're working with someone who's demonstrated expertise in multiple areas of financial planning, including income and estate tax, investment planning, risk management, and retirement planning.

How is a CFP® compensated?

Typically, financial planners earn their living either from commissions or by charging hourly or flat rates for their services. A CFP® may use a combination fee-and-commission structure: you pay a fee for development of a financial plan or for other services provided by the CFP®, who also receives a commission from selling you products. A commission is a fee paid whenever someone buys or sells a stock or other investment. It also is paid when someone buys insurance (such as health, life, or long-term care insurance) or annuities.
When calculating the cost to employ the services of a certified financial planner, consider fees, commissions, and related expenses, such as transaction fees and management fees related to the products they recommend.

How can a CFP® help you?

A CFP® can help you create a personal budget, control expenses, and develop and implement plans for retirement, education, and/or wealth protection. A CFP® can offer expertise in risk management, including strategies involving life and long-term care insurance, health insurance, and liability coverage. A CFP® often can help with your tax planning or manage your asset portfolio based on your goals.

Specifically, a CFP® can help you:

  • Establish financial and personal goals and create a plan to achieve them
  • Evaluate your financial well-being with a thorough analysis of your assets, liabilities, income, taxes, investments, and insurance
  • Identify areas of concern and help you address them by developing and implementing a financial plan that emphasizes your financial strengths while reducing your financial weaknesses
  • Review your plan periodically to accommodate your changing personal circumstances and financial goals

How to choose a CFP®

Selecting a CFP® is like choosing a doctor for your financial health. Working with a CFP® involves sharing very personal information and you will want to feel comfortable with the professional you've chosen. Not only will you want the CFP® to be competent, but he or she should also have integrity and a commitment to the highest ethical standards in the industry. Also, a CFP® may offer services to a particular clientele, such as small business owners, corporate executives, or retirees, so be sure the planner you select works with people whose interests and goals are similar to yours.

Before you choose a CFP® to work with, ask around. You may know a family member, friend, or colleague who has worked with a CFP® they'd recommend. Also, be prepared to interview the prospective CFP®. At your meeting, request a copy of form ADV or the comparable state form. A CFP® who offers investment advice for a fee is required to file form ADV with the U.S. Securities and Exchange Commission (SEC) or with the state of residence of the CFP® (although some exceptions apply). Form ADV contains information about the CFP®'s education, business, disciplinary history, services offered, fees charged, and investment strategies. In addition to form ADV, ask for the disclosure document that contains other important information regarding the CFP®. Even if you don't ask for the disclosure document, it must be provided to you at the time you enter into an agreement for services, or soon thereafter. Be sure to read the disclosure document carefully as well as any written agreements you enter into.

Questions to ask

Here are some questions you may want to ask a CFP® to help you find the right planner for you:

  • What is your education? What schools did you attend and what degrees have you earned?
  • What licenses do you hold? Are you registered with the SEC, FINRA, or the state?
  • Are you affiliated with any professional groups or organizations? Do you execute securities trades through a broker-dealer? Who is it?
  • Does your practice concentrate in a particular area? What types of clients do you work with?
  • What type of products and services do you offer? Are you limited as to the products and services you can offer me?
  • How are you compensated for your services? Do you receive a commission for products you may sell to me?
  • Have you ever been disciplined by any government board or regulatory agency?

Is a CFP® right for you?

The financial world has become a very complex place. Even if you're used to handling your own financial affairs, the time may be right to consult a CFP® who can review your financial health and offer suggestions that may help you reach your financial goals.
For example, are you familiar with all the different investment opportunities that might be available to you? Are you on track to meet your financial goals such as saving for your child's college education, securing enough income for a comfortable retirement, or protecting your assets against risks and lawsuits? A CFP® can offer the analysis you need to answer these and other important financial questions.

Note: Certified Financial Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

This article was provided by Forefield and distributed by Lawrence Sprung.

Choosing a Beneficiary for Your IRA or 401(k)

Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws in order to select the right beneficiaries. Although taxes shouldn't be the sole determining factor in naming your beneficiaries, ignoring the impact of taxes could lead you to make an incorrect choice.

In addition, if you're married, beneficiary designations may affect the size of minimum required distributions to you from your IRAs and retirement plans while you're alive.

Paying income tax on most retirement distributions

Most inherited assets such as bank accounts, stocks, and real estate pass to your beneficiaries without income tax being due. However, that's not usually the case with 401(k) plans and IRAs.

Beneficiaries pay ordinary income tax on distributions from 401(k) plans and traditional IRAs. With Roth IRAs and Roth 401(k)s, however, your beneficiaries can receive the benefits free from income tax if all of the tax requirements are met. That means you need to consider the impact of income taxes when designating beneficiaries for your 401(k) and IRA assets.

For example, if one of your children inherits $100,000 cash from you and another child receives your 401(k) account worth $100,000, they aren't receiving the same amount. The reason is that all distributions from the 401(k) plan will be subject to income tax at ordinary income tax rates, while the cash isn't subject to income tax when it passes to your child upon your death.

Similarly, if one of your children inherits your taxable traditional IRA and another child receives your income-tax-free Roth IRA, the bottom line is different for each of them.

Naming or changing beneficiaries

When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your beneficiaries. Changes are made in the same way--you complete a new beneficiary designation form. A will or trust does not override your beneficiary designation form. However, spouses may have special rights under federal or state law.

It's a good idea to review your beneficiary designation form at least every two to three years. Also, be sure to update your form to reflect changes in financial circumstances. Beneficiary designations are important estate planning documents. Seek legal advice as needed.

Designating primary and secondary beneficiaries

When it comes to beneficiary designation forms, you want to avoid gaps. If you don't have a named beneficiary who survives you, your estate may end up as the beneficiary, which is not always the best result.

Your primary beneficiary is your first choice to receive retirement benefits. You can name more than one person or entity as your primary beneficiary. If your primary beneficiary doesn't survive you or decides to decline the benefits (the tax term for this is a disclaimer), then your secondary (or "contingent") beneficiaries receive the benefits.

Having multiple beneficiaries

You can name more than one beneficiary to share in the proceeds. You just need to specify the percentage each beneficiary will receive (the shares do not have to be equal). You should also state who will receive the proceeds should a beneficiary not survive you.

In some cases, you'll want to designate a different beneficiary for each account or have one account divided into subaccounts (with a beneficiary for each subaccount). You'd do this to allow each beneficiary to use his or her own life expectancy in calculating required distributions after your death. This, in turn, can permit greater tax deferral (delay) and flexibility for your beneficiaries in paying income tax on distributions.

Avoiding gaps or naming your estate as a beneficiary

There are two ways your retirement benefits could end up in your probate estate. Probate is the court process by which assets are transferred from someone who has died to the heirs or beneficiaries entitled to those assets.

First, you might name your estate as the beneficiary. Second, if no named beneficiary survives you, your probate estate may end up as the beneficiary by default. If your probate estate is your beneficiary, several problems can arise.

If your estate receives your retirement benefits, the opportunity to maximize tax deferral by spreading out distributions may be lost. In addition, probate can mean paying attorney's and executor's fees and delaying the distribution of benefits.

Naming your spouse as a beneficiary

When it comes to taxes, your spouse is usually the best choice for a primary beneficiary.
A spousal beneficiary has the greatest flexibility for delaying distributions that are subject to income tax. In addition to rolling over your 401(k) or IRA to his or her IRA, a surviving spouse can decide to treat your IRA as his or her own IRA. This can provide more tax and planning options.

If your spouse is more than 10 years younger than you, then naming your spouse can also reduce the size of any required taxable distributions to you from retirement assets while you're alive. This can allow more assets to stay in the retirement account longer and delay the payment of income tax on distributions.

Although naming a surviving spouse can produce the best income tax result, that isn't necessarily the case with death taxes. One possible downside to naming your spouse as the primary beneficiary is that it will increase the size of your spouse's estate for death tax purposes. That's because at your death, your spouse can inherit an unlimited amount of assets and defer federal death tax until both of you are deceased (note: special tax rules and requirements apply for a surviving spouse who is not a U.S. citizen). However, this may result in death tax or increased death tax when your spouse dies.

If your spouse's taxable estate for federal tax purposes at his or her death exceeds the applicable exclusion amount (formerly known as the unified credit), then federal death tax may be due at his or her death. The applicable exclusion amount is $3.5 million in 2009 ($2 million in 2008).

Naming other individuals as beneficiaries

You may have some limits on choosing beneficiaries other than your spouse. No matter where you live, federal law dictates that your surviving spouse be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a timely, effective written waiver. And if you live in one of the community property states, your spouse may have rights related to your IRA regardless of whether he or she is named as the primary beneficiary.

Keep in mind that a nonspouse beneficiary cannot roll over your 401(k) or IRA to his or her own IRA. However, a nonspouse beneficiary may be able to roll over all or part of your 401(k) benefits to an inherited IRA (plans are not required to offer this option until 2010).

Naming a trust as a beneficiary

You must follow special tax rules when naming a trust as a beneficiary, and there may be income tax complications. Seek legal advice before designating a trust as a beneficiary.

Naming a charity as a beneficiary

In general, naming a charity as the primary beneficiary will not affect required distributions to you during your lifetime. However, after your death, having a charity named with other beneficiaries on the same asset could affect the tax-deferral possibilities of the noncharitable beneficiaries, depending on how soon after your death the charity receives its share of the benefits.

This article was provided by Forefield and distributed by Lawrence Sprung.

"Cash for Clunkers"

On June 24, 2009, President Obama signed into law the Consumer Assistance to Recycle and Save (CARS) Act of 2009.

The legislation creates a new program, commonly referred to as "Cash for Clunkers." The National Highway Traffic Safety Administration (NHTSA), though, refers to the program as the Car Allowance Rebate System. The program provides $3,500 or $4,500 vouchers that can be used toward the purchase or lease of a fuel-efficient new vehicle (new vehicle leases must be for a period of at least 5 years to qualify, however) when you trade in an old "gas-guzzler."

To qualify for the program:

  • You must purchase or lease a new vehicle between July 1, 2009 and November 1, 2009.
  • You must trade in a vehicle that is in drivable condition, was manufactured after 1984, and was continuously owned and insured by you for at least one year at the time of the trade. The vehicle must have a combined fuel economy value of 18 miles per gallon (mpg) or less. (For help in understanding and determining combined fuel economy, see the government website www.cars.gov.)
  • The new vehicle that you purchase or lease must retail for less than $45,000 and have a combined fuel economy value of at least 22 mpg for automobiles (18 mpg for certain SUVs, minivans, and light pickup trucks weighing under 6,000 pounds).

You're eligible for a $3,500 voucher if the new vehicle is at least 4 mpg more efficient than the eligible trade-in (if the new vehicle is an SUV, minivan, or light pickup truck, it generally needs to be only 2 mpg more efficient than the eligible trade-in vehicle). You're eligible for a $4,500 voucher if the new vehicle is at least 10 mpg more efficient than the eligible trade-in (if the new vehicle is an SUV, minivan, or light pickup truck, you generally qualify for the $4,500 amount if the new vehicle is 5 mpg more efficient than the eligible trade-in vehicle).

Vouchers are paid directly to the dealer. Since the dealer must destroy the vehicle you trade in, you won't get any trade-in value beyond the amount of the voucher. As a result, if you intend to trade in a vehicle that's worth more than the amount of the voucher you're entitled to, you will not benefit from the program.

It's important to note that the program also applies to heavier trucks (those that weigh 6,000 pounds or more), but the rules and fuel efficiency benchmarks are slightly different.

This article was provided by Forefield and distributed by Lawrence Sprung.

$250,000 Bank Deposit Account Insurance Limit Extended

On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act of 2009. Included in the legislation was a provision that postpones until January 1, 2014 the expiration of the $250,000 limit on Federal Deposit Insurance Corp. (FDIC) insurance for bank deposit accounts. The limit was raised in 2008 from $100,000 per depositor at a given institution, and had been scheduled to revert to the previous $100,000 limit on December 31, 2009.

The legislation covers all account categories other than: (1) IRAs and certain other retirement accounts, which will continue to be covered up to $250,000 per owner after January 1, 2014, and (2) non-interest bearing transaction deposit accounts, which temporarily have unlimited coverage and are insured under the Transaction Account Guarantee Program, which is still scheduled to expire after December 31, 2009.

The Act also extended to January 1, 2014 the National Credit Union Share Insurance Fund’s $250,000 share insurance coverage of accounts at credit unions.

Income Tax Considerations for Homeowners


Home ownership confers many benefits, including federal income tax advantages. In particular, you may be able to deduct your mortgage interest payments. In addition, special rules apply to the tax treatment of points, closing costs, home improvements, and repairs.

For information about deducting your property taxes, see our separate topic discussion, Property Taxes. For information about home sales, see our separate topic discussion, How Home Sales Are Taxed.

Tip: This discussion applies to your principal residence only. For tax rules surrounding second or vacation homes, see our separate topic discussion, Special Considerations for Second/Vacation Homes.

First-time homebuyer tax credit

The Housing and Economic Recovery Act of 2008 established a temporary refundable first-time homebuyer credit equal to 10 percent of the purchase price of a principal residence, up to $7,500 ($3,750 if married filing separately). The credit applies to first time homebuyers (individuals who have had no ownership interest in a principal residence for three years) who purchase a qualifying home on or after April 9, 2008 and before July 1, 2009. The credit is phased out for higher incomes, and must be paid back over 15 years in equal installments.

The American Recovery and Reinvestment Act of 2009 (the Act):

· Extends the existing homebuyer credit for qualifying home purchases before December 1, 2009,
· Increases the maximum credit amount to $8,000 ($4,000 for a married individual filing separately), and
· Waives the recapture of the credit for qualifying home purchases after December 31, 2008 and before December 1, 2009. This waiver of recapture applies without regard to whether the taxpayer elects to treat the purchase in 2009 as occurring on December 31, 2008.

Caution: If the home is disposed of or the home otherwise ceases to be the individual’s principal residence within 36 months of the date of purchase, the previous rules for recapture of the credit will apply.

Tip: The Act also modifies the coordination with the first-time homebuyer credit for residents of the District of Columbia under IRC Section 1400C, and removes the prohibition on claiming the first-time homebuyer credit if the residence is financed by the proceeds of a tax-exempt mortgage revenue bond.

Additional standard deduction for non-itemizers

Homeowners can claim an additional standard deduction for property tax if the taxpayer does not itemize. The additional amount that can be claimed is the lower of:

  • The amount of real estate property taxes paid during the year to state and local governments; or
  • $500 ($1,000 if married filing jointly)

This additional standard deduction applies to tax years beginning in 2008 and 2009 only.

Can you deduct your mortgage payments?

With most mortgages, part of each monthly payment is applied to the outstanding principal on your mortgage loan, and part is applied to the mortgage interest. If you itemize deductions on Schedule A of your federal income tax return, the part that is applied to mortgage interest may be deductible.

Mortgage taken to buy, build, or improve your home

You may be able to deduct qualified interest you paid on a mortgage to buy, build, or improve your principal home or second home, provided that the loan is secured by your home. More specifically, you may be able to deduct interest on up to $1 million of such mortgage debt ($500,000 if you're married and file separately). If your mortgage loan exceeds $1 million, some of the interest that you pay on the loan may not be deductible.

Tip: Different rules apply if you incurred the debt before October 14, 1987. All loans taken on and secured by your primary residence and one second residence prior to October 14, 1987--no matter how the proceeds are used--are considered "grandfathered" debt. All interest paid on such grandfathered debt is deductible, even if the total debt exceeds $1 million.

Tip: Special rules apply to the deduction of interest paid on a home construction loan.

Tip: For 2007 through 2010 only, premiums paid or accrued for qualified mortgage insurance is treated as deductible mortgage interest. Qualified mortgage insurance means mortgage insurance provided by the VA, FHA, and Rural Housing Authority as well as private mortgage insurance (PMI). The amount of the deduction is phased out if your AGI exceeds $100,000 ($50,000 if married filing separately). This provision does not apply with respect to any mortgage contract issued before January 1, 2007 or after December 31, 2010.

Home equity debt

You may also be able to deduct the interest you pay on certain home equity loans. However, the rules are different. (Home equity debt involves a loan secured by your main or second home that exceeds the outstanding mortgages on the property.) The interest that you pay on a qualifying home equity loan is generally deductible regardless of how you use the loan proceeds (unless you use the proceeds to purchase tax-exempt vehicles). In other words, the loan doesn't have to be made to buy, build, or improve your residence.

Deductible home equity debt is limited to the lesser of:

  • The fair market value of the home minus the total acquisition debt on that home, or
  • $100,000 (or $50,000 if your filing status is married filing separately) for main and second homes combined

Example(s): You bought a home some years ago for $180,000, taking out a mortgage of $130,000 to do so. The $130,000 is considered home acquisition debt. The fair market value of the home has now increased to $195,000, and the principal balance on the loan has been paid down to $110,000. You decide to take out a home equity loan of $90,000. You may deduct interest paid on $85,000 of the $90,000 home equity loan. Why? Interest cannot be deducted on the home equity debt that exceeds the difference between the fair market value of the residence ($195,000) and the principal owed on the acquisition debt ($110,000) at the time the home equity loan is taken.

If you refinanced your mortgage instead of taking out a home equity loan, see our separate topic discussion, Refinancing.

How are points and closing costs treated for tax purposes?

When you buy a home or refinance an existing loan on your home, you'll incur settlement charges. These usually include both points and closing costs, such as attorney's fees, recording fees, title search fees, appraisal fees, and loan preparation fees. The income tax treatment of these settlement charges depends on the type of charge and (in some cases) the type of loan.

Deducting points when you buy a home

Points are costs that your lender may charge when you take out a loan secured by your home. One point equals 1 percent of the loan amount borrowed (e.g., 1.5 points on a $100,000 loan equals $1,500). If you itemize your deductions on Schedule A of your federal income tax return, and if your lender charges the points as up-front interest and in return gives you a lower interest rate on the loan, the points may be deductible.

Tip: It doesn't matter whether your lender calls the charge points or a loan (or mortgage) origination fee. If this charge represents prepaid interest, it may be deductible.

If you take out a mortgage to buy or improve your home and pay points, you can deduct the points in the year they're paid if you meet all of the following conditions:

  • Your loan is secured by your main home
  • Paying points is an established business practice in the area where the loan was made
  • The points paid were not more than the points generally charged in that area
  • You use the cash method of accounting (most individuals use this method)
  • The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes
  • The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged
  • You use your loan to buy or build your main home
  • The points were computed as a percentage of the principal amount of the mortgage
  • The amount is clearly shown on the settlement statement as points charged for the mortgage. The points may be shown as paid from either your funds or the sellers

If you don't meet the above conditions, you must amortize your deduction of the points over the term of the loan. If the loan ends early (because, for example, you sell the home or refinance the mortgage), you may fully deduct the remaining points for the tax year the loan ends. For more information on deducting points, see IRS Publication 936.

Tip: If the seller pays your points, they may also be deducted as an up-front interest charge. However, because they are also considered a reduction in the cost of the home, you must lower your cost basis in the home by an amount equal to the points paid by the seller.

Tip: For information about deducting points charged on a mortgage secured by a second home, see our separate topic discussion, Special Considerations for Second/Vacation Homes.

Deducting points when you refinance your mortgage

Refinanced loans are treated differently. The points you pay on a refinanced loan generally must be amortized over the life of the loan. In other words, you can deduct a certain portion of the points each year. But there's one exception: If part of the loan is used to make improvements to your principal residence, you can generally deduct that portion of the points in the year the points are paid.

Example(s): Suppose you take a cash-out refinance mortgage for $100,000 and pay two points ($2,000). You use $90,000 to pay off the principal debt owed on the old mortgage, $4,000 to pay off bills, and $6,000 to install new kitchen cabinets. Because 6 percent ($100,000 divided by $6,000) is used for home improvements, $120 worth of points (6 percent of $2,000) may be deducted in the year the loan is taken. The remaining $1,880 in points must be deducted ratably over the life of the loan.

Tax treatment of closing costs

Generally, you can't deduct closing costs on your tax return. Instead, you must adjust your tax basis (i.e., the cost, plus or minus certain factors) in your home. If you're buying a home, you'd increase your basis by the amount of certain closing costs that you've paid.

Example(s): Your closing costs on a loan you take to purchase a $200,000 home total $3,000. Your closing costs would increase your cost basis in that home to $203,000.

Caution: Escrow fees that you pay at closing to cover costs that you must pay later (e.g., hazard insurance premiums) are not added to the basis of your home.

What is the tax treatment of home improvements and repairs?

Home improvements and repairs are generally nondeductible. However, a distinction is made between improvements and repairs, and they're treated differently for tax purposes.

Home improvements

Improvements can increase the tax basis of your home (which in turn can lower your tax bite when you sell your home). Improvements add value to your home, prolong its life, or adapt it to a new use. For example, the installation of a deck, a built-in swimming pool, or a second bathroom would be considered an improvement.

Tip: You may be entitled to one or more tax credits for making certain energy-saving home improvements.

Home repairs

In contrast, a repair simply keeps your home in good operating condition. Regular repairs and maintenance (e.g., repainting your house and fixing your gutters) are not considered improvements and are not included in the tax basis of your home.

Tip: However, if repairs are performed as part of an extensive remodeling of your home, the entire job may be considered an improvement.

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