LPL FinancialJohn W. Cobb, CFP®Wealth Management Advisor5214 Maryland Way, Suite 107Brentwood, TN 37027615-377-8523john.cobb@lpl.comwww.johncobblpl.com

February 2014The Frugal Habits of Millionaires

Married Filing Jointly or Separately? TheChoice Is Yours

Filing Your 2013 Federal Income TaxReturn

Are you ready to retire?

Monthly Newsletter

The Frugal Habits of Millionaires

See disclaimer on final page

The word "millionaire"typically conjures upimages of a lavish,jet-setting lifestyle, butbehind the scenes, thatmay not always be thecase. Like Warren Buffett,who famously still lives inthe relatively modest

house in Omaha, Nebraska, that he bought in1958 for $31,500, many millionaires (andbillionaires) live a modest, if not downrightfrugal lifestyle--a lifestyle that may have helpedthem become millionaires in the first place.

We've all heard the saying "It takes money tomake money." So how can you find extradollars to save and invest? If you're looking toimprove your financial position, consider puttingsome of these habits into practice.

Cultivate a frugal mindsetMany people equate being frugal with beingcheap, but that's not really correct. Being frugalmeans carefully watching your dollars and notspending more than you need to--a trait manymillionaires employ. To help cultivate a frugalmindset, get in the habit of asking yourself thisquestion: "With a little extra effort and/orsacrifice on my part, is there any way I cansave money here?" Having a frugal mindsetcan really help when it comes time to playingthe role of American consumer, wheretemptation is everywhere.

Buy wisely and sparinglyWe all need "stuff" now and then; the key is notoverdoing it or overpaying for it. Try to buymostly what you really need, not what youreally want. Money you save can then be usedto build your savings and investment accounts.

Don't let the price tag of your car, home, ordesigner suit define your character. Forexample, a reliable car that safely gets youfrom Point A to Point B may be completelysufficient for your needs. According to the bookThe Millionaire Next Door, the top car brandamong millionaires is Toyota, not Mercedes orBMW. Even Mark Zuckerberg, the billionairefounder of Facebook, has been spotted drivingan Acura TSX, an entry-level luxury car whose

base price is about $30,000. The bottom line?As you move up the net worth ladder, avoid thetemptation to elevate your "status" byoverspending on luxury goods.

You can be smart about everyday consumerpurchases, too. You might be surprised to learnthat many millionaires clip coupons, buy in bulk,wait for sales, scour eBay and Craigslist fordeals, limit clothing purchases, fly coach, avoidcredit cards, and save half their restaurant mealfor lunch the next day--habits that can free upcash for the occasional splurge.

Shun debtDebt is bad. Well, mostly. At times taking ondebt is necessary, for example when buying ahome or attending college, because without it,many people won't have saved enough money.But generally speaking, you should be leery oftaking on debt for things that cause you to livebeyond your means. Remember, every dollaryou borrow today is a dollar you'll have to payback tomorrow, with interest.

People who turn a modest financial base intowealth often do so by living frugally, savingregularly, investing wisely, and avoiding debt.By contrast, people who end up in a perpetualcycle of debt are often those who spend andborrow excessively to support an unsustainablelifestyle.

Take actionWhat do CEOs Tim Cook (Apple), Ursula Burns(Xerox), Robert Iger (Disney), and Indra Nooyi(PepsiCo) have in common? They're all up by5:00 a.m., hitting the gym, reading, working. AsBenjamin Franklin famously quipped: "Early tobed and early to rise makes a man healthy,wealthy, and wise." And indeed, manymillionaires and leaders aren't couch potatoes.They don't sit around waiting for things tohappen; they make things happen--by gettingup early, working hard, looking foropportunities, constantly educating themselves,taking calculated risks, networking, stayingactive, and generally trying to improvethemselves day in and day out. And with theexplosion of information online 24/7, learningnew things has never been easier.

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Married Filing Jointly or Separately? The Choice Is YoursIf you are married, you generally have a choiceof filing your federal income tax return(s) asmarried filing jointly (MFJ) or as married filingseparately (MFS). Because of a number ofspecial rules, your combined tax will often belower if you file married filing jointly than if youfile married filing separately, but that is notalways the case. You should generallycalculate your tax both ways to determinewhich filing status results in the lower total tax.

Basic rulesYou and your spouse can file as married filingjointly if you are considered married and youboth agree to file a joint return. On a jointreturn, you and your spouse report yourcombined income, exemptions, deductions, andcredits. You are both responsible for any tax,interest, or penalty due on a joint return.

Alternatively, you and your spouse can file asmarried filing separately. On a separate return,you each generally report only your ownincome, exemptions, deductions, and credits.You each are responsible only for any tax,interest, or penalty due on your separate return.

Special rules for married filingseparatelyMaybe not unexpectedly, many tax items forMFS are exactly half of the amounts for MFJ:

• The tax brackets (for MFS, higher tax ratesare reached at lower income levels than forMFJ)

• The phaseout thresholds for personalexemptions

• The limitation thresholds for itemizeddeductions

• The limits on the amount of income that canbe excluded under an employer's dependentcare assistance program

• The alternative minimum tax exemptions• The amount of capital losses you can deduct• The income levels at which the child tax

credit is reduced• The income levels at which the retirement

savings contributions credit is reduced• The income thresholds for the additional

0.9% Medicare tax on Social Security wagesand self-employment income and the 3.8%Medicare tax on net investment income

Some items are not available for MFS:

• The credit for child and dependent careexpenses (in most cases)

• The earned income credit• The exclusion or credit for adoption expenses

(in most cases)

• The American Opportunity credit and theLifetime Learning credit

• The deduction for student loan interest, andthe deduction for tuition and fees

• The exclusion for interest from qualified U.S.savings bonds used for higher educationexpenses

Other rules that apply to MFS:

• With MFS, if your spouse itemizesdeductions, you cannot claim the standarddeduction, and even if you claim the standarddeduction, the standard deduction for MFS ishalf the amount for MFJ

• The thresholds for taxation of Social Securitybenefits are lower for MFS than for MFJ

• The phaseout thresholds for deductiblecontributions to a traditional IRA (if you werecovered by an employer retirement plan) orfor contributions to a Roth IRA start at $0 forMFS

Something else to considerIf your adjusted gross income (AGI) for MFS islower than for MFJ, you may be able to deducta larger amount for certain deductions that aredeductible only to the extent they exceed apercentage of your AGI (e.g., medicalexpenses, casualty and theft losses, and jobexpenses and other miscellaneous deductions)for MFS. For example, medical expenses aregenerally deductible only to the extent theyexceed 10% of AGI. By claiming medicalexpenses on a separate return with a lowerAGI, the amount of medical expenses that canbe deducted may be increased.

New rules for same-sex marriagesIn response to a 2013 Supreme Court decisioninvalidating a key provision of the Defense ofMarriage Act, the IRS has ruled that same-sexcouples who were legally married in ajurisdiction that recognizes their marriage aretreated as married for federal tax purposes,regardless of whether the jurisdiction the couplelives in recognizes same-sex marriages.However, the rule does not apply to registereddomestic partnerships, civil unions, or similarformal relationships recognized under state law.As a result, legally married same-sex couplesgenerally must file their 2013 (and future)federal income tax returns as married filingjointly or married filing separately. Also, legallymarried same-sex couples may wish toconsider filing amended returns for earlier yearsas married filing jointly or married filingseparately. State tax treatment of same-sexcouples varies widely.

Because of a number ofspecial rules, yourcombined income tax willoften be lower if you filemarried filing jointly than ifyou file married filingseparately, but that is notalways the case. It alldepends on your uniquecircumstances. You shouldgenerally calculate your taxboth ways and choose thefiling status that results inthe lower combined tax.

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Filing Your 2013 Federal Income Tax ReturnFor most people, the due date for filing a 2013federal income tax return is April 15, 2014.Here are a few things to keep in mind this filingseason.

Lots of changes to considerWhile most individuals will pay taxes based onthe same federal income tax rate brackets thatapplied for 2012, a new 39.6% federal incometax rate applies for 2013 if your taxable incomeexceeds $400,000 ($450,000 if you're marriedfiling jointly, $225,000 if married filingseparately). If your income crosses thatthreshold, you'll also find that a new 20%maximum tax rate on long-term capital gain andqualifying dividends now generally applies (inprior years, the maximum rate was generally15%).

You may also need to account for new taxesthat took effect in 2013. If your wagesexceeded $200,000 in 2013, you were subjectto an additional 0.9% Medicare payroll tax--ifthe tax applied, you probably noticed theadditional tax withheld from your paycheck. Ifyou're married and file a joint tax return, theadditional tax kicks in once the combinedwages of you and your spouse exceed$250,000 (if you're married and file separatereturns, the tax kicks in once your wagesexceed $125,000). One thing to note is that theamount withheld may not accurately reflect thetax owed. That's because your employercalculates the withholding without regard toyour filing status, or any other wages orself-employment income you may havereceived during the year. As a result, you mayend up being entitled to a credit, or owingadditional tax, when you do the calculations onyour return.

And, if your adjusted gross income (AGI)exceeds $200,000 ($250,000 if married filingjointly, $125,000 if married filing separately),some or all of your net investment income maybe subject to a 3.8% additional Medicarecontribution tax on unearned income.Additionally, high-income taxpayers (e.g.,individuals with AGIs greater than $250,000,married couples filing jointly with AGIsexceeding $300,000) may be surprised to seenew limitations on itemized deductions, and apossible phaseout of personal and dependencyexemptions.

New home office deduction rulesIf you qualify to claim a home office deduction,starting with the 2013 tax year you can elect touse a new simplified calculation method. Underthis optional method, instead of determiningand allocating actual expenses, you simply

multiply the square footage of your home officeby $5. There's a cap of 300 square feet, so themaximum deduction you can claim under thismethod is $1,500. Not everyone can use theoptional method, and there are some potentialdisadvantages, but for many the new simplifiedcalculation method will be a welcomealternative.

Same-sex married couplesSame-sex couples legally married injurisdictions that recognize same-sex marriagewill be treated as married for all federal incometax purposes, even if the couple lives in a statethat does not recognize same-sex marriage. Ifthis applies to you, and you were legallymarried on December 31, 2013, you'll generallyhave to file your 2013 federal income tax returnas a married couple--either married filing jointly,or married filing separately. This affects onlyyour federal income tax return, however--makesure you understand your state's income taxfiling requirements.

2013 IRA contributions--still timeYou generally have until April 15 to contributeup to $5,500 ($6,500 if you're age 50 or older)to a traditional or Roth IRA for 2013. With atraditional IRA, you may be able to deduct yourcontribution (if you or your spouse are coveredby an employer plan, your ability to deductsome or all of your contribution depends onyour filing status and income). If you makecontributions to a Roth IRA (your ability tocontribute depends on your filing status andincome) there's no immediate tax benefit, butqualified distributions you take in the future arecompletely free from federal income tax.

Filing for an extensionIf you're not going to be able to file your federalincome tax return by the due date, file for anextension using IRS Form 4868, Application forAutomatic Extension of Time To File U.S.Individual Income Tax Return. Filing thisextension gives you an additional six months(to October 15, 2014) to file your return. Don'tmake the mistake, though, of assuming that theextension gives you additional time to pay anytaxes due. If you don't pay any taxes owed byApril 15, 2014, you'll owe interest on the taxdue, and you may owe penalties as well. Notethat special rules apply if you're living outsidethe country or serving in the military outside thecountry on April 15, 2014.

2013 is the last year to takeadvantage of:

• Increased Internal RevenueCode (IRC) Section 179expense limits ($500,000maximum amount decreasesto $25,000 in 2014) and"bonus" depreciationprovisions

• The $250 above-the-line taxdeduction for educatorclassroom expenses

• The ability to deductmortgage insurancepremiums as qualifiedresidence interest

• The ability to deduct stateand local sales tax in lieu ofthe itemized deduction forstate and local income tax

• The deduction for qualifiedhigher education expenses

• Qualified charitabledistributions (QCDs),allowing individuals age 70½or older to make distributionsof up to $100,000 from anIRA directly to a qualifiedcharity (distributions areexcluded from income andcount toward satisfying anyrequired minimumdistributions (RMDs) for theyear)

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LPL FinancialJohn W. Cobb, CFP®Wealth Management Advisor5214 Maryland Way, Suite 107Brentwood, TN 37027615-377-8523john.cobb@lpl.comwww.johncobblpl.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014

The opinions voiced in this materialare for general information onlyand are not intended to providespecific advice orrecommendations for anyindividual. To determine whichinvestment(s) may be appropriatefor you, consult your financialadvisor prior to investing. Allperformance referenced ishistorical and is no guarantee offuture results. All indices areunmanaged and cannot beinvested into directly.

The information provided is notintended to be a substitute forspecific individualized tax planningor legal advice. We suggest thatyou consult with a qualified tax orlegal advisor.

LPL Financial Representativesoffer access to Trust Servicesthrough The Private TrustCompany N.A., an affiliate of LPLFinancial.

How much can I contribute to my IRA in 2014?The amount you can contribute to your traditional or Roth IRA remains $5,500for 2014, $6,500 if you're 50 or older. You can contribute to an IRA in addition toan employer-sponsored retirement plan like a 401(k). But if you (or your spouse)participate in an employer-sponsored plan, the amount of traditional IRAcontributions you can deduct may be reduced or eliminated (phased out),

depending on your modified adjusted gross income (MAGI). Your ability to make annual Rothcontributions may also be phased out, depending on your MAGI. These income limits (phaseoutranges) have increased for 2014:

Income phaseout range for deductibility of traditional IRA contributions in 2014

1. Covered by an employer-sponsored plan and filing as:

Single/Head of household $60,000 - $70,000

Married filing jointly $96,000 - $116,000

Married filing separately $0 - $10,000

2. Not covered by an employer-sponsoredretirement plan, but filing joint return with aspouse who is covered by a plan

$181,000 - $191,000

Income phaseout range for ability to fund a Roth IRA in 2014

Single/Head of household $114,000 - $129,000

Married filing jointly $181,000 - $191,000

Married filing separately $0 - $10,000

Are you ready to retire?Here are some questions toask yourself when decidingwhether or not you are readyto retire.

Is your nest egg adequate?

It's obvious, but the earlier you retire, the lesstime you'll have to save, and the more yearsyou'll be living off of your retirement savings.The average American can expect to live pastage 78. (Source: CDC, "Deaths: PreliminaryData for 2011") With future medicalbreakthroughs likely, it's not unreasonable toassume that life expectancy will continue toincrease. Is your nest egg large enough to fund20 or more years of retirement?

When will you begin receiving SocialSecurity benefits?

You can begin receiving Social Securityretirement benefits as early as age 62.However, your benefit may be 25% to 30% lessthan if you waited until full retirement age (66 to67, depending on the year you were born).

How will retirement affect your IRAs andemployer retirement plans?

The longer you delay retirement, the longer youcan build up tax-deferred funds in your

IRAs--remember that you need compensationto contribute to an IRA. You'll also have alonger period of time to contribute to employersponsored plans like 401(k)s--and to receiveany employer match or other contributions. (Ifyou retire early, you may forfeit any employercontributions in which you're not yet fullyvested.)

Will you need health insurance?

Keep in mind that Medicare generally doesn'tstart until you're 65. Does your employerprovide post-retirement medical benefits? Areyou eligible for the coverage if you retire early?If not, you may have to look into COBRA or aprivate individual policy--which could be anexpensive proposition.

Is phasing into retirement right for you?

Retirement need not be an all-or-nothing affair.If you're not quite ready, financially orpsychologically, for full retirement, considerdownshifting from full-time to part-timeemployment. This will allow you to retain asource of income and remain active andproductive.

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