What Should I Do With A Large Lump Sum Of Money
Did you just win the lottery, receive a large inheritance, or win a lawsuit settlement? If you just won the lottery I would recommend being wise with that money since 70% of lotto winners lose or spend all their money in five years or less (Source: Reader’s Digest; link below). Being smart with an inheritance or lawsuit settlement is just as important. Here are some steps you may want to consider when deciding what to do with your newfound wealth.
Don’t Do Anything
You might want to buy a fancy new car, go on an expensive vacation, or be generous by sharing the money with friends and family. There will be plenty of time for those things, but you should take a month to let everything settle first. Carefully consider who you are going to tell about the money. Don’t quit your job. Don’t go around bragging or posting about it on social media. Don’t put all of it into the hot stock of the month based on a Reddit forum. Continue living your life as if you never received the money. You will make better decisions once your endorphin levels have settled back to baseline.
Contact a Certified Public Accountant (CPA)
The IRS loves when people receive large sums of money, and you can bet that they want a piece of the pie. Often, that piece ends up being much larger than you’d prefer, so finding a CPA that specializes in taxes should be a top priority. They could help you strategize a plan to reduce the tax burden and leave more money available for other things.
Contact an Attorney
An attorney is able to explain the benefits of having a will, a trust, and a DPOA for finances & healthcare. They should be able to help you complete these if needed for your particular situation. If you already have these in place, this might be a great time to review and update any if needed. Having these in place will save your family many headaches when you eventually pass away.
Contact a Financial Advisor
A financial advisor is able to help create a written plan for your money. This could include paying off high-interest debt, opening and/or maxing out retirement accounts, funding a brokerage account, evaluating the need for term life insurance, building out a net worth statement, starting a donor-advised fund, and determining your risk tolerance to create your ideal asset allocation. When searching for a financial advisor you want to make sure they:
Are a Fiduciary: Which means they have to put your best interests first!
Are a Fee-Only Advisor: This means they do not have a conflict of interest with potentially selling you certain investments to get a large commission.
Have a Clear Investment Strategy: Do they have an investment strategy that can be clearly explained to you and matches your investment philosophy?
I am proud to say that I check all 3 of these boxes in my financial advising practice.
Implement Your Plan
While creating your financial plan might sound like the hardest part, implementing your plan may be more difficult. A written financial plan of how you want to direct your money is great but if you don’t take steps to implement that plan then it was all for nothing. When implementing your plan keep in mind:
Not to let emotions control your financial decisions.
Don’t let the news media tempt you into making quick, spur-of-the-moment decisions during periods of market volatility (Remember the main goal of news media is to attract viewers, not to give solid financial advice).
Stay consistent and reach out for help if needed. Investing is a marathon, not a sprint.
A patient going for physical therapy could perform all their therapy on their own if they knew the correct exercises. Having a physical therapist guide which exercises will be the most effective and support/encourage the patient in completing them, could help the outcome tremendously. Partnering with an excellent financial advisor is similar.
Finally, Treat Yo Self!
If you have made it to this point and are implementing a well-thought-out financial plan, you should congratulate yourself. You did the hard work and made the tough decisions to set yourself up for success. Now might be the time for you to use a small portion of that money to Treat Yo Self as a reward!
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
The Stealth Retirement Account That Most Americans Don't Use
Are you trying to find more ways to save for retirement so you will be able to retire early? Let me explain how you can use a Health Savings Account (HSA) as a stealth retirement account by investing inside of it. Currently, only 4% of Americans who have HSAs unlock this powerful potential. (Source: Devenir 2019 study; link below)
First, you have to be covered under a High-Deductible Health Plan (HDHP) before you are allowed to contribute to an HSA. If you are covered under an HDHP, the maximum you are allowed to contribute in 2025 is $4,300/single or $8,550/family (an additional $1,000 if you are over 55 years old). You do not pay taxes on money contributed to your HSA, and if the money is withdrawn for eligible healthcare expenses, the funds are not subject to any penalty or taxes. Most people use their HSAs this way. The money goes in…then it comes right back out to pay for medical expenses. This is a great way to save money on taxes for eligible healthcare expenses, but it is not utilizing the full potential of your HSA.
With a few simple adjustments, you could turn your HSA into a stealth retirement account.
Pay Out-of-pocket for Medical Expenses
This allows you to accumulate more money inside your HSA every year instead of depleting the account every time you have an eligible medical expense. The longer you are able to keep the money in your HSA, the more time you are able to let it grow and compound.
Save your Eligible Healthcare Receipts
If you choose to use your HSA as a stealth retirement account, make sure you save your eligible healthcare receipts. This would then allow you to withdraw money from your HSA to reimburse yourself for the past eligible medical expenses that you paid out-of-pocket earlier. Currently, the IRS doesn't have a time frame for when you are allowed to reimburse yourself. This means you could spend $500 out-of-pocket today and submit it for reimbursement years later. The medical expenses have to have occurred while you were covered under an HDHP though!
Invest the Money
Investing your HSA money could allow it to grow into a significant amount, depending on what the time frame is and what return percentage you are able to achieve. Below are examples of someone investing their HSA money for 30 years with an annual return of 7%. Your numbers will be different depending on the length of investment and returns. (Source: Calculator.net; link below)
“Because of the effects of inflation, a 50-year-old couple in 2019 planning to retire at age 65 can expect to spend about $405,000 on health care in retirement. A 40-year-old couple faces $455,000 in expenses...” (Source: Annuity.org; link below)
These three things would allow someone to take full advantage of using their HSA as a stealth retirement account. HSAs allow investing in a triple tax advantage account. The money contributed reduces your taxable income while the qualified withdrawals and investment growth are tax-free. If the withdrawals are not qualified, this becomes tax-deferred growth.
Other Things to Consider
If you withdraw money from your HSA for non-medical expenses, you have to pay taxes and a 20% penalty. After you turn 65, the 20% penalty goes away. This allows you to optimize your tax efficiency by choosing which accounts to withdraw money from instead of having to fully depend on Social Security and Medicare. Additionally, most investors are in a lower tax bracket in retirement since they are no longer working, so there may even be another benefit to delaying the tax until later in life.
Not all HSAs are equal. Some charge high fees, some limit the amount of money you can invest, some limit your investment options, and others don’t allow investing at all. Your employer usually chooses which institution they use for HSA contributions, but once the money is in the account, you have full control of what happens with the money. Check to make sure it is a good one. If not, you may be able to move your HSA money to a better institution. If you would like assistance in moving over your HSA, deciding what investment options to invest in inside your HSA, or any other HSA-related questions, contact me and I would be happy to help.
Sources:
https://www.devenir.com/research/2019-midyear-devenir-hsa-research-report/
https://www.calculator.net/future-value-calculator.html
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Intro to Planning for Widows
Some of my most meaningful client relationships have been with widows. There are many reasons behind this, but widows face a different set of circumstances than couples do.
Whether a recent widow or a soon-to-be widow, a partnership has or is in the process of ending. You may have made financial decisions with your spouse or maybe these decisions were made separately, but now you are forced to make these decisions on your own. In a best-case scenario, you already have a good relationship with a financial advisor. But if not, you should look for someone who has been down this path before and understands what you are facing. You have so many decisions to make with a new set of facts and having the right financial team in place could really reduce the stress of these decisions.
With so many financial decisions looming, the list of considerations can be daunting. Income taxes, estate planning, investment advice, cash flow planning, long term care planning, electing Social Security…Any of these on their own is difficult. But so many of these are interrelated and one decision in one area has impacts in others as well.
Many people don’t NEED someone else to help them make a decision, but they prefer to have someone to work with through tough decisions. When the decisions are now all in your hands, this may seem off and you may want to bounce your thoughts and ideas off someone else before making the final choices.
When you are overwhelmed, it is more difficult to make tough decisions. Having an experienced advisor on your side can make the mountain of choices seem much more manageable. Not all decisions have to be made immediately and a professional can help you prioritize. Often, we make a list of what needs to be addressed with a corresponding timeline for each item.
The fog will eventually lift, but the decisions you make in the meantime are incredibly important. With so many different thoughts coming your way and a range of emotions, it pays to have a reliable partner to guide you through this period and beyond.
FOYER CHATS PODCAST // Financial Planning for Your Business AND Your Life with Leanne Rahn
Financial Planning for Your Business AND Your Life with Leanne Rahn
Episode Description
Today's episode we chat with Leanne Rahn - a fiduciary financial advisor specializing in helping new business owners and newlyweds! What is a fiduciary you ask?! Well we will ask that question for you ;). Leanne shares all about financial planning for your business AND your life. Take away tactical tips and tools to create a killer financial plan JUST RIGHT FOR YOU! Leanne makes talking about organizing the back end of your business and setting those big financial goals SO much fun, we already know you'll love her!
3 Reasons Business Owners Should Consider Rolling Over Their 401k to an IRA
So you took the leap and started a business. Whether that was recently or years ago, to you I say congrats! What an accomplishment to leave your old employer to begin a passion-driven career that you design. With all the excitement your new business brings, it can be easy to forget about that old 401k you had with your previous employer. Here are three reasons why you should consider rolling over your 401k to an IRA:
More Investment Options
Typically, 401ks have a set list of investment options you can choose from. This limits you to what’s on the paper in front of you. Yes, there is a chance you could have a great list of investment options, but there is a chance it could be the other way around too.
IRAs open up many other investment opportunities. Instead of potentially only having a few mutual fund options, you can choose from a variety of different mutual funds, ETFs, individual stock, bonds, and more. IRAs have more choices to fit a whole range of different needs. Who doesn’t love more customization?
Lower Fees
With more choices, may come lower fees. Management fees, administrative fees, and fund expense ratios can have a big impact on your retirement savings. This will look different for every 401k plan, but it is worth looking into.
If your plan has costly mutual fund options, IRAs could open a door to potential savings by choosing lower-cost investments. By rolling your old employer plan over to an IRA, you could be getting more money back in your pocket come retirement.
Better Communication
Your old 401k may be sitting at an investment firm that may have long hold times, poor communication, and more pains in your side. It may be harder to get information on your plan than if you were a current employee.
With an IRA and working with a Fiduciary Financial Advisor, you can have direct access to me and the company your IRA is held at. Instead of being an old employee, you are my client - a relationship I take seriously. No long hold times or lack of communication. Instead, one-on-one communication, questions answered, and your best interests first.
Don’t let your old 401k be a nagging concern as you continue to drive a pathway in your business. Let’s look at your old 401k together and figure out the best option for you. More investment options, lower fees, and better communication may be in your future. Sounds like a pretty good future to me.
Here, at Fiduciary Financial Advisors, we take our fiduciary oath seriously. We hold these five principles:
I will always put your best interests first
I will avoid conflicts of interest
I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional
I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.
I will fully disclose, and fairly manage, in your favor, any unavoidable conflicts
Action Point Financial Planning, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.