Darrell Financial Services,LLCEmily Darrell Mascio, CFPMark J. Darrell, CFP2200 Baltimore BoulevardFinksburg, MD 21048410-857-7610888-795-8954mark@darrellfinancial.com

March - April 2020Is It Time to Review Your IRA Estate PlanningStrategies?

Spring Cleaning Your Way to Better Finances

How can I lower my credit card debt?

What information will I need when shoppingfor an auto insurance policy?

Money Matters NewsletterA Solid Foundation For Your Financial Future

Five Red Flags That Raise the Odds of an Audit

See disclaimer on final page

Hi Everyone!

During the last week of February, fear andpanic caused a major disruption in thestock market. History shows us that thesetypes of disruptions are usually short lived.

The secret to getting through these volatiletimes has always been to (1) Have a planand stick to it, (2) Have a well diversifiedportfolio of investments, and (3) Don't try totime the ups and downs of yourinvestments.

If you have any questions or concernsabout your plan, or your investmentdiversification, call us. We have beenthrough these times before, and this will beno different.

Save the Date : Darrell Financial ServicesAnnual Shred Event - Saturday, April 25th -8:30 to 11:00 a.m. Get rid of all those oldpapers and statements. Bring a friend! It'sFREE!

Until next time, take care.

Mark Darrell, CFP

Emily Darrell Mascio, CFP

The IRS audited about 1 milliontax returns in fiscal year 2018,and nearly 75% of thoseexaminations were conductedentirely throughcorrespondence.1 Taxpayers

selected for an official audit are notified by mail.

Confusing matters, the IRS also mails othertypes of compliance notices, which maypropose additional tax based on math errors,the automated detection of underreportedincome, or other factors. The National TaxpayerAdvocate calls these notices "unreal" audits,because the IRS doesn't count them as audits.But their impact is real — so the frequency andeffectiveness of IRS compliance contacts aresomewhat understated. About 8.5 milliontaxpayers experienced "unreal" audits duringfiscal year 2016, and if they were included theaudit rate would jump from 0.7% to more than6.0%.2

When the IRS gets realIf selected for a correspondence audit, you maybe asked to mail specific information to the IRS.Some examinations require an in-personinterview, which could take place in an IRSoffice (referred to as an office audit). Acomprehensive field audit would be conductedat your home, place of business, oraccountant's office.

How is a return selected for examination?When your federal income tax return isprocessed, a computer program called theDiscriminant Inventory Function System (DIF)screens for anomalies, compares deductions tothose of taxpayers with similar incomes, andassigns a DIF score. The higher the DIF score,the greater the potential that an audit will resultin the collection of additional taxes. In somecases, a return is examined because it's relatedto a transaction with another taxpayer who hasbeen audited.

Risky returnsThere's no way to know exactly what will triggeran audit, but one or more of the following redflags could make it more likely that the IRS willtake a closer look at your tax return.

1. Missing income. Don't forget sources ofincome not reported on a Form W-2, whichmight include investment income, interest,royalties, rent, compensation as anindependent contractor, forgiven debt, alimony,tips, gambling winnings, health insurancereimbursements for expenses deducted in aprevious year, and proceeds from selling goodsonline. These types of income may or may notbe reported by the payer to the IRS, but youmust include all income, whether you receive aForm 1099 or not.

2. Overdoing deductions. Even if they areallowed by law, deductions that are unusuallylarge for your income level can appearsuspicious. For this reason, high-valuecharitable donations require specificdocumentation.

3. Filing a Schedule C. Thoroughrecordkeeping is critical for self-employedtaxpayers, especially when claiming deductionsfor a home office or vehicle expenses (whichrequire a written log).

4. Keeping money in foreign accounts.Foreign assets worth at least $50,000 atyear-end or greater than $75,000 at any timeduring the year must be reported. (Thesethresholds are $100,000 and $150,000,respectively, for married joint filers.) Othercomplicated rules apply. Many overseasfinancial institutions are required to provideinformation about U.S. asset holders to the IRS,so even though the reporting of foreign assets(by you or the institution) may invite IRSscrutiny, noncompliance can result in penaltiesor legal problems.

5. Reporting a high (or very low) income.Audit rates are higher for wealthier taxpayersas well as for those with little or no income(possibly due to questionable tax deductions).Even though these situations are morecomplicated, they are often perfectly valid. Still,it might be wise to consult a trusted tax or legalprofessional if you receive any type ofcompliance-related communication from theIRS.1 Internal Revenue Service, 2019

2 Taxpayer Advocate Service, 2018

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Is It Time to Review Your IRA Estate Planning Strategies?The Setting Every Community Up forRetirement Enhancement (SECURE) Act,which was passed in December 2019 as part ofa larger federal spending package, included aprovision that warrants special attention fromthose who own high-value IRAs. Specifically,the "stretch" IRA provision — which permittednonspouse beneficiaries who inherited IRAs tospread distributions over their lifetimes — hasbeen substantially restricted. IRA owners maywant to revisit their estate planning strategies tohelp prevent their heirs from getting hit withhigher-than-expected tax bills.

The old "stretch" rulesUnder the old rules, a nonspouse beneficiarywho inherited IRA assets was required to beginminimum distributions within a certain timeframe. Annual distributions could be calculatedbased on the beneficiary's life expectancy. Thisability to spread out taxable distributions over alifetime helped minimize the annual tax burdenon the beneficiary. In the past, individuals coulduse this stretch IRA strategy to allow large IRAsto continue benefiting from potentialtax-deferred growth for possibly decades.

Example: Consider the hypothetical case ofMargaret, a single, 52-year-old bankingexecutive who inherited a million-dollar IRAfrom her 85-year-old father. Margaret had tobegin taking required minimum distributions(RMDs) from her father's IRA by December 31of the year following her father's death. Shewas able to base the annual distribution amounton her life expectancy of 32.3 years. Since shedidn't really need the money, she took only theminimum amount required each year, allowingthe account to continue growing. UponMargaret's death at age 70, the remainingassets passed to her 40-year-old son, who thencontinued taking distributions over theremaining 13.3 years of Margaret's lifeexpectancy. The account was able to continuegrowing for many years.

The new rulesAs of January 2020, the rules for inherited IRAschanged dramatically for most nonspousebeneficiaries.1 Now they generally are requiredto liquidate the account within 10 years of theaccount owner's death. This shorter distributionperiod could result in unanticipated andpotentially large tax bills for high-value inheritedIRAs.

Example: Under the new rules, Margaret wouldhave to empty the account, in whateveramounts she chooses, within 10 years. Sinceshe stands to earn her highest-ever salariesduring that time frame, the distributions could

push her into the highest tax bracket at both thefederal and state levels. Because the accountfunds would be depleted after 10 years, theywould not eventually pass to her son, and hertax obligations in the decade leading up to herretirement would be much higher than sheanticipated.

Notable exceptionsThe new rule specifically affects mostnonspouse designated beneficiaries who aremore than 10 years younger than the originalaccount owner. However, key exceptions applyto those who are known as "eligible designatedbeneficiaries" — a spouse or minor child of theaccount owner; those who are not more than 10years younger than the account owner (such asa close-in-age sibling or other relative); anddisabled and chronically ill individuals, asdefined by the IRS. The 10-year distributionrule will also apply once a child beneficiaryreaches the age of majority and when asuccessor beneficiary inherits account fundsfrom an initial eligible designated beneficiary.

A word about trustsIn the past, individuals with high-value IRAshave often used what's known as conduit — or"pass-through" — trusts to manage thedistribution of inherited IRA assets. The trustshelped protect the assets from creditors andhelped ensure that beneficiaries didn't spenddown their inheritances too quickly. However,conduit trusts are now subject to the same10-year liquidation requirements, so the newrules may render null and void some of theoriginal reasons the trusts were established.

What can IRA account owners do?IRA account owners should review theirbeneficiary designations with their financial ortax professional and consider how the newrules may affect inheritances and taxes. Anystrategies that include trusts as beneficiariesshould be considered especially carefully.Other strategies account owners may want toconsider include converting traditional IRAs toRoths; bringing life insurance, charitableremainder trusts, or accumulation trusts into themix; and planning for qualified charitabledistributions.1 For account owners who died prior to December 31,2019, the old rules apply to the initial beneficiary only(i.e., successor beneficiaries will be subject to the10-year rule).

The SECURE Act ushered inchanges that may have adramatic impact on IRAestate planning strategies.Account owners may wantto review their plans withtheir financial professionals.

There are costs andongoing expensesassociated with the creationand maintenance of trusts.

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Spring Cleaning Your Way to Better FinancesSpring is a good time to clean out the cobwebs,and not just in your home or apartment. Yourpersonal finances can benefit from a goodspring cleaning, too. Here are some questionsto ask yourself regarding your budget, debt,and taxes.

Is there room in my budget to savemore?A budget is the centerpiece of any goodpersonal financial plan. After tallying yourmonthly income and expenses, you hopefullyhave money left over to save. But... is thereroom to save even more? Review your budgetagain with a fine-tooth comb to see if you mightbe able to save an additional $25, $50, $100, or$200 per month. Small amounts can add upover time. If you participate in a workplaceretirement plan, you might not even notice yourslightly smaller paycheck after you increaseyour contribution amount.

If your expenses are running neck and neckwith your income, try to cut back ondiscretionary spending. If that's not enough,look for ways to lower your fixed costs orexplore ways to increase your current income.Budgeting software and/or smartphone appscan help you analyze your spending patternsand track your savings progress.

Do I have a strategy to reduce debt?When it comes to your personal finances,reducing debt should always be a priority.Whether you have debt from student loans,credit cards, auto loans, or a mortgage, have aplan to pay down your debt as quickly aspossible. Here are some tips.

• Credit cards. Keep track of your credit cardbalances and be aware of interest rates andhidden fees; manage your payments so youavoid late fees; pay off high-interest debt first;and avoid charging more than you can pay offat the end of each billing cycle.

• Student loans. Are you a candidate forincome-based repayment? You can learnmore at the Federal Student Aid website.

• Additional payments. Making additionalloan payments above and beyond yourregular loan payments (or the minimumpayment due on credit cards) can reduce thelength of your loan and the total interest paid.Online calculators can help you see theimpact of making additional payments. Forexample, if you're halfway through a 30-year,$250,000 mortgage with a fixed 4.5% interestrate, an additional principal payment of $150a month can shave two years off yourmortgage. An extra $250 a month can shaveoff three years!

• Refinancing. If you currently have consumerloans, such as a mortgage or auto loan, takea look at your interest rate. If you're paying ahigher-than-average interest rate, you maywant to consider refinancing. Refinancing to alower interest rate can result in lower monthlypayments and potentially less interest paidover the loan's term. Keep in mind thatrefinancing often involves its own costs (e.g.,points and closing costs for mortgage loans),and you should factor these into yourcalculation of how much refinancing mightsave you.

• Loan consolidation. Loan consolidationinvolves combining individual loans into onelarger loan, allowing you to make only onemonthly payment instead of many.Consolidating your loans has severaladvantages, including saving you time on billpaying and record keeping and making iteasier for you to visualize paying down yourdebt. In addition, you may be able to get alower interest rate.

• Paying down debt vs. investing. To decidewhether it's smarter to pay down debt orinvest, compare the anticipated rate of returnon your investment with the interest rate youpay on your debt. If you would earn less onyour investment than you would pay ininterest on your debt, then using your extracash to pay off debt may be the smarterchoice. For example, let's say you have$2,000 in an account that earns 1% per year.Meanwhile, you have a credit card balance of$2,000 that incurs annual interest at a rate of17%. Over the course of a year, your savingsaccount earns $20 interest while your creditcard costs you $340 in interest. So paying offyour credit card debt first may be the betterchoice.

Do my taxes need some fine-tuning?Spring also means the end of the tax filingseason. You might ask yourself the followingquestions:

• Am I getting a large tax refund or will I owetaxes? In either case, you may want to adjustthe amount of federal or state income taxwithheld from your paycheck by filing a newForm W-4 with your employer.

• What else can I learn from my tax return?Now is also a good time to assess taxplanning opportunities for the coming year,when you still have many months left toimplement any strategy. You can use lastyear's tax return as a reference point, thenmake any anticipated adjustments to yourincome and deductions for the coming year.

When it comes to yourpersonal finances, reducingdebt should always be apriority.

All investing involves risk,including the possible lossof principal, and there is noguarantee that anyinvestment strategy will besuccessful.

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Darrell FinancialServices, LLCEmily Darrell Mascio, CFPMark J. Darrell, CFP2200 Baltimore BoulevardFinksburg, MD 21048410-857-7610888-795-8954mark@darrellfinancial.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020

Securities and Investment AdvisoryServices offered through FoundersFinancial Securities, LLC. MemberFINRA/SIPC and RegisteredInvestment Advisor.

What information will I need when shopping for an autoinsurance policy?Shopping for auto insurancemight sound like a drag, butit's important for you to haveappropriate coverage in the

event of an accident. Following are someguidelines to consider when purchasing an autoinsurance policy.

• Gather information. Before you startshopping, compile key information abouteach vehicle you want to insure. This listshould include the year, make, and model ofeach vehicle. Knowing your VehicleIdentification Number (VIN) may help you geta more accurate quote. Be prepared toanswer questions about vehicle usage orspecial after-market equipment installed inyour vehicle.

• Decide what you need. Whether you'repurchasing auto insurance for a new vehicleor making changes to your existing policy, it'simportant to be familiar with the differentcoverage options that are available. Maybewhat you currently have doesn't meet yourneeds, or perhaps your premium seems toohigh.

Bear in mind that there may be a gapbetween the minimum coverage your staterequires and how much you may actuallyneed.

• Shop around. When selecting an insurer,ask questions. How long has the companybeen selling auto insurance? Does it have agood reputation? How is the company'scustomer service and claims handling? Is itable to provide the coverage you need at aprice you can afford? Answering thesequestions could make it easier for you toshop for the policy that's right for you.

• Ask about discounts. You could be eligiblefor several discounts. These vary by stateand company but may include discounts formultiple vehicles, anti-theft devices, and lowannual mileage.

• Compare quotes. Once you have acollection of quotes, you need to comparethem. Review each quote for informationsuch as coverage levels, policy length, andprice. This will help you attain the best overallvalue for your money as well as sufficientprotection for your vehicle.

How can I lower my credit card debt?If you find that you arestruggling to pay down a creditcard balance, here are somestrategies that can helpeliminate your credit card debt.

Pay off cards with the highest interest ratefirst. If you have more than one card thatcarries an outstanding balance, one option is toprioritize your payments according to theirinterest rates. Send as large a payment as youcan to the card with the highest interest rateand continue making payments on the othercards until the card with the highest interestrate is paid off. You can then focus yourrepayment efforts on the card with thenext-highest interest rate, and so on, untilthey're all paid off.

Apply for a balance transfer with anothercard. Many credit card companies offer highlycompetitive balance transfer offers (e.g., 0%interest for 12 months). Transferring your creditcard balance to a card with a lower interest ratemay enable you to reduce interest fees and paymore against your existing balance.

Most balance transfer offers charge a fee(usually a percentage of the balancetransferred), so be sure to do the calculations tomake sure it's cost-effective before you apply.

Pay more than the minimum. If you pay onlythe minimum payment due on a credit card,you'll continue to carry the bulk of your balanceforward without reducing your overall balance.Instead, try to make payments that exceed theminimum amount due. For more detailedinformation on the impact that making just theminimum payment will have on your overallbalance, you can refer to your monthlystatement.

Look for available funds to make alump-sum payment. Are you expecting anemployment bonus or other financial windfall inthe near future? If so, consider using thosefunds to eliminate or pay down your credit cardbalance.

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