MSN Ask an Advisor Feature: What steps can a couple in their early forties with tweens take to balance saving for retirement and funding their children’s education?
Andrew Van Alstyne had the privilege to be featured in MSN to talk to readers about saving for both your children’s education and for retirement.
Andrew discusses the importance of setting goals and priorities while remaining adaptable to the variabilities that life may bring you.
Fiduciary Financial Advisors, 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.
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How Healthcare Professionals should use the Synergy of Health and Wealth to be Successful
Is it easier to be healthy when you are wealthy? Is it easier to be wealthy when you are healthy? I would say yes to both questions since health and wealth have synergy. Let’s explore a few habits that can assist healthcare professionals to be successful with both.
Downward Spiral versus Upward Spiral
Struggling to maintain both physical health and financial stability can be a common issue for many healthcare professionals. Health challenges can include poor diet, lack of exercise, insufficient sleep, or poor stress management. Wealth challenges can include overspending, low savings rates, poor investment decisions, or the absence of a financial plan.
Instead of focusing on health OR wealth, it is crucial to focus on BOTH since they are interconnected. Poor health can limit work capacity and increase medical expenses, reducing financial security. Conversely — limited finances can cause increased stress and decrease the time available for exercise/relaxation, which is detrimental to health. By focusing on both, you can create a positive feedback loop where improvements in one area support improvements in the other.
Habits to Adopt
The hardest part is usually just getting started. It takes a lot of hard work and dedication to move from out of shape to in shape. Once in shape, it is much easier to maintain and stay in shape. The same is true regarding finances. It takes a lot of hard work and dedication to pay off debt, balance the budget, and start setting money aside for the future. Once a financial plan is in place and followed, it is much easier to maintain and stay on track. Fortunately, the same habits can help enhance health and wealth.
Goal Setting: Setting clear and achievable goals
Example: Set a savings target for your retirement account for the year
Example: Set an activity goal for the number of times you plan to exercise every month
Discipline and Routine: Establishing and sticking to a routine
Example: Set up automatic monthly payments into your retirement account
Example: Carve out specific times each week for consistent exercise
Small actions every day can lead to significant results over a long period of time
Monitoring Progress: Regular check-ins and adjustments to stay on track:
Example: Review your budget and expenses regularly
Example: Calculate your net worth and update it every 6 months or every year
Example: Track your weight, strength, and cardiovascular health
Accountability: Seeking professional help when needed:
If you struggle with eating or exercise habits, consider working with a dietician or personal trainer to achieve your health goals
If you struggle with finances, budgeting, or expenses, consider working with a fee-only fiduciary financial advisor to achieve your financial goals
Having another person to assist with accountability and goal tracking can be immensely helpful
Encouragement Moving Forward
No one is perfect, but striving for continual improvement can lead to a healthier and more financially secure tomorrow. Here are a few key thoughts to remember.
Consistency is Key: Small, incremental changes can lead to significant improvements over time
Start Today: Don’t put things off until tomorrow. Make the harder first steps now so your future self will thank you
If you would like help improving your financial situation, please Schedule a Time to Meet. I would be happy to connect and assist.
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 Importance of Filing Estimated Quarterly Taxes
Learn why filing estimated quarterly taxes is crucial for avoiding IRS penalties, managing cash flow, and ensuring financial predictability. Our comprehensive guide provides key dates, steps to estimate what you owe, and expert tips for entrepreneurs, investors, and high-net-worth individuals.
Navigating the tax landscape is a critical aspect of financial planning for many. One crucial component of this landscape can be the filing of estimated quarterly taxes. Unlike employees who have taxes withheld from their paychecks, individuals who generate income through self-employment, investments, or other non-traditional means must take responsibility for calculating and paying their taxes in installments throughout the year. Here, we’ll discuss the importance of filing estimated quarterly taxes, key filing dates, how to properly estimate what you owe, as well as other essential considerations.
Why Estimated Quarterly Taxes Matter
Paying estimated quarterly taxes is vital for several reasons:
Avoiding Penalties:
The IRS requires taxpayers to pay their taxes as they earn income. Failing to pay enough in estimated taxes can result in significant penalties and interest charges when taxes are filed at the end of the year. By making quarterly estimated payments, you can avoid these late fees entirely. This proactive approach helps maintain financial stability and compliance with tax laws.
Cash Flow Management:
Regularly paying taxes throughout the year helps manage cash flow, preventing a large, and usually unexpected, tax bill at the end of the year. For most, this means avoiding a sudden drain on resources that could impact other financial goals.
Financial Predictability:
Quarterly tax payments provide a clearer picture of your financial health throughout the year. By aligning your tax payments with your income streams, you can make more informed decisions about budgeting, investments, and business expenditures.
Key Filing Dates
The IRS has set specific deadlines for paying estimated quarterly taxes:
First Quarter: April 15
Second Quarter: June 15
Third Quarter: September 15
Fourth Quarter: January 15 of the following year
Please be mindful that if the due date falls on a weekend or holiday, the deadline is extended to the next business day. Missing these deadlines can trigger late payment penalties, so it’s crucial to mark your calendar and set reminders.
It is important to note that these quarterly dates are not aligned with traditional fiscal calendars. The second and third quarters were adjusted in the 1960s to align with the Congressional budget year which starts on October 1. This timing allows the government to receive an additional quarter of tax payments before the new fiscal year begins.
Estimating What You Owe
Accurately estimating your quarterly taxes involves a few key steps:
Calculate Your Expected Income:
Estimate your total income for the year from all sources, including self-employment, investments, rental properties, and any other income streams. This estimate should be as accurate as possible to avoid underpayment or overpayment.
Deduct Allowable Expenses:
Identify and subtract any business expenses and deductions for which you are eligible. This might include costs related to operating your business, such as supplies, travel, and home office expenses. Ensure you keep detailed records and receipts to substantiate your deductions.
Subtract your deductions from your total income to get your taxable income.
Special Considerations
Safe Harbor Rule:
To avoid underpayment penalties, the IRS provides a "safe harbor" rule. If you pay at least 90% of your current year’s tax liability or 100% of the previous year’s liability (110% for high-income earners), you can avoid penalties. This rule provides a buffer for taxpayers whose income might vary year-to-year, offering some peace of mind.
Income Fluctuations:
For individuals with fluctuating incomes, such as seasonal businesses or commission-based earners, it may be beneficial to use the annualized income installment method. This method allows you to pay estimated taxes based on the actual income earned during each quarter. This approach can help ensure that your tax payments more accurately reflect your income patterns.
Given the complexities of estimating taxes, especially for those with diverse income streams, consulting a tax professional or financial advisor can provide valuable insights and help ensure accuracy. A professional can also help you identify potential deductions and tax-saving strategies, keeping you compliant with tax regulations while optimizing your tax liability.
Filing estimated quarterly taxes is a critical responsibility for many entrepreneurs, small business owners, and high-net-worth families. By understanding the importance of timely and accurate payments, knowing the key filing dates, properly estimating what you owe, and utilizing available resources, you can avoid penalties, manage your cash flow more effectively, and maintain control over your financial future.
Filing estimated quarterly taxes does not have to be a daunting task. With careful planning and the right approach, you can stay ahead of your tax obligations and focus on what you do best— growing your business and managing your wealth.
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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.
Fiduciary Financial Advisors does not give legal or tax advice. The information contained does not constitute a solicitation or offer to buy or sell any security and does not purport to be a complete statement of all material facts relating to the strategies and services mentioned.
Money Talk with Skyler Fleming: How Family Conversations Shield You from Financial Under-Preparedness
Andrew Van Alstyne had the privilege to be featured on the
Money Talk with Skyler Fleming Podcast.
Andrew discusses the importance of family conversations in financial planning. Andrew also shares his insights on how open discussions can prevent financial under-preparedness. He also talks about the role of including all family members in wealth management, the benefits of inter-generational wealth transfers, and how to overcome the tension of talking about money in families with difficult financial histories.
Click the Links Below to Watch or Listen to the Full Episode:
Fiduciary Financial Advisors, 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.
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Sales Gravy Podcast Feature: Personal Finance Strategies for Sales Professionals
Ben Lex had the privilege to be featured on the Sales Gravy Podcast.
Ben discusses the importance of personal financial well-being for sales professionals and how to improve their current circumstances with their variable income.
Click Below to Watch or Listen to the Full Episode:
Fiduciary Financial Advisors, 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.
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Route 664 Podcast Feature: Wealth Planning
Andrew Van Alstyne had the privilege to be featured on the Route 664 Podcast.
Andrew discusses the significance that proper financial planning can have on multi-generational wealth and the importance of doing thorough, comprehensive financial reviews.
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Fiduciary Financial Advisors, 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.
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Financial Freedom and Wealth Trailblazers Podcast Feature: Financial Guidance and Planning
Andrew Van Alstyne had the privilege to be featured on the Financial Freedom and Wealth Trailblazers Podcast.
Andrew discusses the importance of finding an advisor that aligns with your needs and who understands your relationship with money. He also discusses the significance that proper financial planning can have on multi-generational wealth.
Click the Links Below to Watch or Listen to the Full Episode:
Fiduciary Financial Advisors, 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.
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The Power of the Three Bucket System to Maximize Retirement Savings
Discover the Three Bucket System for retirement savings. Learn how to optimize tax efficiency and maximize investment growth while crafting a personalized strategy tailored to your financial goals.
Effective retirement planning is a common goal for many clients seeking financial guidance. While the focus often starts with an optimal savings strategy, the transition into retirement raises important questions about accessing those funds for income once the earning years stop. Among the various strategies available, the Three Bucket System stands out as a powerful approach that can optimize retirement savings while minimizing tax implications. In this article, we'll explore the intricacies of the Three Bucket System, explaining how it works and how investors can implement this strategy to maximize their retirement income.
Understanding the Three Bucket System
The Three Bucket System is a retirement savings strategy based on the tax status of different types of accounts, aiming to maximize tax efficiency and optimize investment growth. It involves dividing retirement savings into three distinct buckets:
Taxable Bucket:
The first bucket consists of taxable accounts, such as brokerage accounts or savings accounts, where investments are subject to taxation on capital gains, dividends, and interest income. While contributions to these accounts are made with after-tax dollars, they offer flexibility in terms of liquidity (access to the funds) and no restrictions on contribution limits.
Tax-Deferred Bucket:
The second bucket comprises tax-deferred accounts, such as Traditional IRAs, 401(k)s, 403(b)s, and similar retirement plans. Contributions to these accounts are made with pre-tax dollars, allowing for immediate tax savings. However, withdrawals during retirement are subject to ordinary income tax, and there are penalties for early withdrawals before age 59½ (with some exceptions). Investments in this bucket grow tax-deferred until withdrawn, enabling investors to potentially accumulate a larger retirement nest egg over time.
Tax-Free Bucket:
The third bucket encompasses tax-free accounts, such as Roth IRAs and Roth 401(k)s. Unlike traditional retirement accounts, contributions to Roth accounts are made with after-tax dollars, but qualified withdrawals, including earnings, are tax-free in retirement. Additionally, Roth accounts offer flexibility in terms of withdrawal timing and no required minimum distributions (RMDs) during the account owner's lifetime.
Benefits of the Three Bucket System
Tax Diversification:
Diversifying retirement savings across buckets with varying tax statuses is key to reducing overall tax liability in retirement. This strategic allocation empowers retirees to adjust their contribution and withdrawal strategies based on prevailing tax rates, effectively managing their tax burden. By spreading assets across taxable, tax-deferred, and tax-free accounts, investors can optimize their after-tax income while preserving wealth.
Flexibility in Withdrawals:
The Three Bucket System provides flexibility in retirement withdrawals, allowing investors to tailor their distributions to meet their financial needs while optimizing tax efficiency. Retirees can choose which accounts to draw from based on factors such as tax rates, investment performance, and financial goals, maximizing their after-tax income in retirement.
Risk Management:
Diversifying retirement savings across different tax buckets helps mitigate risks associated with changes in tax laws, market volatility, and economic conditions. By maintaining a balance of taxable, tax-deferred, and tax-free assets, investors can adapt to changing circumstances and protect their retirement savings from unforeseen events.
Implementing the Three Bucket System
Implementing the Three Bucket System requires careful planning and coordination. Here are four key steps to consider:
Assess Your Current Retirement Accounts:
Start by reviewing your existing retirement accounts to determine their tax status and contribution limits. Identify which accounts fall into each bucket (taxable, tax-deferred, tax-free) and evaluate their investment holdings and performance.
Establish Allocation Targets:
Decide the ideal allocation of your retirement savings contributions across the three buckets based on your tax situation, risk tolerance, and retirement goals. Make sure to take into consideration factors such as your current age, income level, anticipated retirement expenses, and projected tax rates, both now and in retirement.
Plan a Withdrawal Strategy:
In addition to planning how you are going to contribute to these accounts, a withdrawal strategy from your retirement accounts is needed to optimize tax efficiency and investment growth. By strategically tapping into taxable, tax-deferred, and tax-free accounts based on individual tax circumstances and financial goals, retirees can maximize their after-tax income and preserve their retirement nest egg for the long term. This approach not only ensures financial stability throughout retirement but also enables investors to leverage the potential growth of their investments while minimizing the impact of taxes on their overall portfolio.
Monitor and Adjust Regularly:
Regularly review your retirement accounts and adjust your allocation as needed based on changes in your financial situation, tax laws, and market conditions. Rebalance your portfolio periodically to keep your desired asset allocation and further mitigate risk.
The Three Bucket System offers a comprehensive framework for managing retirement savings with tax efficiency and investment growth in mind. By strategically allocating assets across taxable, tax-deferred, and tax-free accounts, investors can optimize their retirement income while minimizing tax liabilities. Implementing this strategy requires careful planning, but the long-term benefits of tax diversification, flexibility in withdrawals, and risk management make it a valuable approach for achieving financial security in retirement.
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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.
How Much Should You Invest for Retirement?
When it comes to investing, we all have to start somewhere. It can be easy to look for a set number or percentage of income to invest and stick with it. While that may be the simple approach, I believe more needs to be considered when choosing an amount to invest continually. With that being said, this should not be so complicated; it takes forever to figure out. While investing will look different for everyone, there are some helpful guidelines to establish what investing should look like for you.
The Importance of Investing
We must first establish why you should invest in the first place before diving into how to invest. Investing gives you the advantage of putting your money into a vehicle designed to grow wealth. This is the classic case of risk vs reward. You could leave your money in a savings account but will get minimal growth, if any. The alternative is investing some of that money into the stock market strategically to take advantage of a multiple percentage return.
When investing, it is crucial to know your goals with that money. This could be anything from saving for vacation to retirement planning and anything in between. Knowing what you are investing for is one piece of the puzzle. The second piece to consider is the timeline of your investment. If you are investing money that you plan to use for a vacation six months from now, your strategy will look significantly different than the money you invest towards your retirement, which is 20 years away. The final consideration is the risk you are comfortable taking with your investment. The timeline plays a role in this, but a personal component needs to be considered and talked through with a financial advisor.
How Much To Invest
When it comes to establishing the amount you are investing, it again depends on multiple factors. You must take into consideration the end goal as well as your own capacity to invest. The overarching recommendation is to invest 15%-25% of your income toward retirement. While this can be a helpful target to shoot for, this amount could be too little with the end goal. Instead of picking an arbitrary amount, I suggest doing a retirement expense inventory. Doing this will allow you to get a goal that is tailored to your cost of living and retirement expectations. This takes into account life expectancy, healthcare costs, and expected retirement lifestyle. From here, you can reverse solve to find a proper investment target using a compound interest calculator. Keep in mind that this target is going to move on you throughout your life. What makes sense at 30 years old will be different at 40 years old because you’ve gained more clarity on the components used to establish your target.
As great as it would be for everyone to understand their retirement expenses, it can often be challenging to project. What about someone with significant student loans who can't swing 15% of their income to retirement? This is where capacity comes into play. The above scenario is the goal, but it may not be feasible for your current financial situation. If that describes you, then the mentality you should have is to start small but start now. You will be better off by investing a little bit each month and building the habit of investing, as opposed to waiting until your circumstances are perfect to start. I recommend you find an amount that works with your budget and commit to investing that amount for a year. By doing this, you have built the habit of investing and allowed your money to start working through compounding interest.
Where to Invest
Now that you have established your goals and an amount of money to invest, you can consider what investment vehicle you want to use. If this is new territory for you, read my article “The Order of Operations for Retirement Savings.” This can give you a baseline of where to begin with investing.
All the pieces we have discussed up to this point will influence the strategy you choose for investing. At the end of the day, diversification is one of the most essential components of retirement investing. You’ve heard the phrase, “Don’t put all your eggs in one basket,” which holds true when investing. The stock market is volatile and should be approached with a well-thought-out strategy. Diversify your investment across multiple asset classes such as stocks, bonds, real estate, etc. This will help you have a robust strategy when the market is up and protect you from downsides when the market is down.
Adjust and Review
I’ve mentioned it once, but it deserves to be revisited. The amount you contribute to retirement savings will be a moving target. It will change as you get closer to retirement, have income fluctuations, and gain clarity on your financial goals. This change is not something to shy away from. It creates the opportunity to revisit this topic regularly. If you work with a financial advisor, this conversation should be part of a standard cadence between you and them. Having a plan is important, but understanding how that plan should flex over time is equally important.
Keep in mind that these are general guidelines around investing toward retirement. As I mentioned, everybody has a different situation and should consult a financial advisor to help consider all factors of your financial picture. If I can leave you with any piece of advice, it is that the best time to start investing was yesterday. The second best time is today.
References
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
https://smartasset.com/investing/how-much-money-to-invest-in-stocks-per-paycheck
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. The 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.
Yahoo! Finance Feature: How Much the Average Florida Retiree Should Have in Their Savings Account
Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the factors to consider if you want to retire to the sunshine state.
Andrew discusses the benefits to consider when retiring to a state without income tax as well as strategies that can be applied more broadly.
Fiduciary Financial Advisors, 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.
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GoBankingRates Feature: Net Worth for Baby Boomers: How To Tell Whether You’re Poor, Middle Class, Upper Middle Class or Rich
Andrew Van Alstyne had the privilege to be featured in GoBankingRates to talk to readers about gaining clarity on the blurred lines between classes in America.
Andrew discusses the differentiating factors in each wealth segment, and how to properly manage your assets based on the one you’re in.
Fiduciary Financial Advisors, 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.
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The Order of Operations for Retirement Savings
One of the most common questions people ask me is how to determine the best way to save for retirement. It’s a fair question because there is no one-size-fits-all retirement saving and investing approach. Each person’s unique financial situation can impact how they save for retirement. So, before we jump into a general recommendation for the order of operations in retirement savings, consult a financial advisor-–like myself-–to discuss your individual financial considerations that can influence your retirement outlook.
Step 1: Work-Based Retirement Plan
Employer retirement plans, such as 401k, 403b, or 457, are often the best and simplest way to begin retirement savings. Not all plans are created equal, depending on your employer, but these plans contain some significant benefits worth taking advantage of.
Minimal Barrier to Entry
Employer-sponsored retirement plans typically have low to no barriers to entry. In most cases, employees are auto-enrolled in the company plan, with some employers requiring a small contribution from each employee. If not automatically enrolled, opting into the plan is often as simple as filling out a few forms.
Matching Incentive
One widely recognized benefit of employer plans is the associated company match. While not mandatory for all employers, a company match is becoming a common addition to benefits packages. I like to call this “free money”. By contributing a percentage of your paycheck, your employer agrees to match your contribution up to a specified limit. For example, “Employer agrees to match 50% of employee’s contribution up to 6%”. This means that if you contribute 6% of your paycheck, your employer will add an additional 3% to your contribution. This is a key reason why work-based retirement plans are so effective.
Automatic Deduction
The final distinction of these employer plans is that your contributions come directly from your paycheck before you receive it. This makes the process of saving for retirement very simple and automated. Automatic deduction enables you to save for retirement before recognizing that money as income.
Step 2: Emergency Fund
I know what you’re thinking—having an emergency fund has nothing to do with retirement savings. While it doesn’t directly count as retirement savings, it’s a necessary step in the equation. To fund your retirement, you need to ensure that your current financial situation is under control. The control starts with having a safety net in place. An emergency fund allows you to manage your current financial picture before addressing your future financial picture. By establishing an emergency fund, you can stay on track with your retirement goals when unexpected expenses arise rather than halting retirement contributions to cover unforeseen costs. Once you’re contributing to your work-based retirement plan and have an emergency fund established, we can move on to other retirement savings accounts.
Step 3: Individual Retirement Accounts
Individual Retirement Accounts (IRAs) are often the next step in retirement savings. These accounts are separate from employer plans but still hold numerous benefits. There are two main types of IRAs, each effective depending on individual financial considerations. While this won’t be a deep dive into these accounts, here is a quick overview of their function and benefits.
Traditional IRA
A traditional IRA is a pre-tax retirement account. Contributions are made pre-tax, resulting in a current-year tax deduction. The money invested in the account grows and is taxed at an ordinary income rate when withdrawn. This is often referred to as tax-deferred, meaning that you defer your taxes until withdrawal.
Roth IRA
A Roth IRA is considered a post-tax retirement account. Contributions happen after taxes are taken out of your income. Since you pay taxes upfront, that money grows tax-free. Regardless of your tax bracket at withdrawal, you won’t have to pay taxes on the money in your account, assuming you follow proper withdrawal guidelines.
Which One?
This is where a professional comes in handy. Many individuals benefit from utilizing both IRAs at different points in their careers, often dictated by their current income. In most cases, ask yourself, “What is my current tax bracket compared to my retirement tax bracket?” If your current tax bracket is higher than your projected retirement bracket, it might make sense to contribute to a traditional IRA over a Roth. But a Roth could be the most efficient option if your current tax bracket is lower than your projected retirement tax bracket. The maximum contribution for an individual in 2024 is $7,000 for those under 50 years of age and $8,000 for those 50 and above.
Step 4: Health Savings Account
Health Savings Accounts (HSAs) are great financial tools for some individuals. An HSA is primarily a form of health insurance an employer could offer. It’s a high-deductible plan that allows you to put money into an account for qualified medical expenses. HSAs often have an employer contribution attached. Due to the high deductible, these plans are great for healthy individuals with lower medical needs.
There’s a point where an HSA can secondarily be used as a retirement savings account in addition to its primary use as a health insurance plan. This is when you have unused money in the plan to be invested. This allows you to utilize the “triple-tax advantage” of using an HSA as an investment vehicle. Contributions are tax-deductible, while the earnings and withdrawals are tax-free when used for medical expenses. After the age of 65, withdrawals can be taken from your HSA account for non-medical expenses and taxed like a traditional IRA. For many individuals, the HSA functions as a great tool for wealth accumulation after maxing out your IRA.
Step 5: Taxable Account
The final piece of the puzzle for retirement savings is a taxable account or brokerage account. This account does not offer the same tax benefits as the previously mentioned accounts, which is why it is last on the list. Contributions to these accounts occur after taxes, and the growth or income produced each year counts towards your taxable income for the year. With that being said, the benefit of this account is that you can contribute and withdraw as you please. Because the money is likely invested, it may take a few days to sell and withdraw, but there is no age limit to take the money out. What you lose in tax benefit, you gain in liquidity.
These accounts have multiple purposes but are commonly used to create a “bridge account” for retirement. Because work-based retirement plans, IRAs, and HSAs all require you to be a certain age before making withdrawals, you can use a taxable account to save and invest money if you decide you want to retire early. This account functions as the “bridge” to fund your life from when you retire until you start collecting Social Security or retirement account distributions.
As I mentioned at the start, this is not a blanket approach to retirement savings for everyone. While the structure may work for some, it is important to talk with an investment professional to consider how your income, retirement plan, and goals will impact your strategy. What’s universal about this information is that everyone can contribute to retirement savings in multiple ways to ensure their financial picture is on track.
References
https://www.bogleheads.org/wiki/Prioritizing_investments
https://www.bogleheads.org/wiki/Health_savings_account
https://thecollegeinvestor.com/1493/order-operations-funding-retirement/
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. The 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.
Yahoo! Finance Feature: Six Ways to Mitigate a Sudden Job Loss
Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the importance of being prepared at all times for the possibility of a job loss.
Andrew discusses why it is important to have a dedicated emergency fund along with tax efficient ways of further upskilling and educating oneself.
Fiduciary Financial Advisors, 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.
What is a Backdoor Roth IRA?
If you're a high earner, you might have come across the term "Backdoor Roth" - it's often hailed as a strategy to outmaneuver heavy tax burdens imposed by Uncle Sam. Yet, despite its popularity in conversation, it remains largely misunderstood. Let's delve into a clear explanation, one that's easy to digest.
So, what exactly is a backdoor Roth?
It's a tactic used by high earners to contribute to a Roth IRA, even when their income surpasses the limits set by the IRS for direct contributions.
Here's how it typically works:
Make a Nondeductible Traditional IRA Contribution.
Convert to a Roth IRA: After contributing to the traditional IRA, you convert it to a Roth IRA. This conversion, crucially, is allowed regardless of your income level.
Tax Implications: Because the original IRA contribution was made post-tax, there are generally no tax implications from the conversion.
Things to Consider: Before proceeding with a backdoor Roth IRA, it's important to understand the pro-rata rule. This rule can impact the tax treatment of the conversion if you have other traditional IRAs with pre-tax contributions.
For years, there have been discussions in Congress and the presidency about closing this perceived tax loophole. Therefore, a backdoor Roth may not always be an option. It's wise to determine sooner rather than later whether you can participate in this strategy and how to do so effectively.
Fiduciary Financial Advisors 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.
Maximizing Your Financial Windfall: A Guide to Smart Wealth Management
Learn how to effectively manage a substantial financial windfall with this comprehensive guide. From prudent planning to long-term preservation, discover expert strategies to optimize your newfound prosperity.
Receiving a substantial financial windfall is an exhilarating experience, but it also comes with tremendous responsibilities. Whether it's an inheritance, lottery winnings, a sizable bonus, or a business sale, managing this influx of wealth correctly can prove crucial for securing your financial future. In this guide, we'll explore essential steps to take when you find yourself with a sudden windfall. From prudent financial planning to long-term wealth preservation, we'll cover everything you need to make informed decisions and optimize your newfound prosperity.
Press Pause
Before making any decisions, take a moment to pause and reflect on your newfound circumstance. Emotions can run high, but making decisions fueled by emotion often leads to regret. Reflect on your financial goals, values, and priorities. Consider how this windfall can align with your long-term aspirations and contribute to your overall financial well-being.
Seek Professional Guidance
Navigating a substantial windfall can be complex, and even if you haven’t felt the need for it in the past, seeking professional guidance will prove extremely useful. A wealth manager can offer invaluable insights tailored to your specific circumstances. They can help you assess your current financial situation, identify your goals, and develop a strategy that aligns all elements of life that are touched by financial matters. Look for an advisor who is a fiduciary and has a duty to act in your best interest.
Review Your Financial Plan
Revisit your financial plan to make informed decisions and maximize your windfall's potential. Work with your advisor to outline clear objectives which may include debt reduction, investment diversification, retirement planning, and philanthropy. Ensure your plan covers short-term needs and long-term wealth preservation.
Maximize Tax Planning and Efficiency
Strategic, year-round tax planning can significantly impact the longevity and growth of your newfound wealth. By implementing tax-efficient strategies, you can minimize tax liabilities, preserve more of your assets, and enhance overall financial returns.
Diversify Investments
Avoid overexposure by diversifying your investment portfolio. While high-risk ventures may be tempting, prioritize stable, tax-efficient assets to protect your windfall. Depending on the size of the windfall it will probably be more important to protect the amount received by investing in lower-risk assets with stable, tax-efficient returns.
Manage Debt Wisely
If you have existing debts, such as mortgages, student loans, or credit card balances, consider using a portion of your windfall to at least reduce their burden if not paying them off. Prioritize debts with high interest rates to minimize long-term financial strain. Balance debt repayment with preserving cash reserves for long-term financial flexibility.
Protect Your Wealth
Safeguarding your newfound wealth against unforeseen risks is essential for long-term financial security. Review your insurance coverage, including life, health, disability, and liability policies, to ensure adequate protection for you and your loved ones. Depending on the wealth you’ve stepped into, there are more specialized insurance coverages you may need to give thought to that can be reviewed you’re your wealth manager. Also, consider implementing or reviewing estate planning measures, such as wills, trusts, and powers of attorney, to effectively manage and transfer assets according to your wishes.
Stay Informed and Engaged
Financial literacy is a powerful tool for wealth preservation and growth. Stay informed about economic trends, investment opportunities, and tax implications relevant to your financial situation. Regularly review your financial plan with your advisor to adapt to changing circumstances and capitalize on new opportunities. Engage in ongoing education to deepen your understanding of personal finance and empower yourself to make informed decisions.
Establish Family Governance
When a substantial windfall affects multiple family members or spans across generations, establishing clear governance structures becomes essential. Family governance encompasses the policies, processes, and communication channels that guide decision-making, wealth management, and intergenerational transfer of assets.
Receiving a substantial financial windfall presents both opportunities and challenges. By following these steps and leveraging professional guidance, you can effectively manage your newfound wealth and position yourself for long-term financial success for years if not generations to come. Remember to approach the situation with careful consideration, thoughtful planning, and a commitment to preserving and growing your assets. Whether you're planning for retirement, supporting your family, or giving back to your community, smart wealth management is the key to realizing your financial aspirations. Approach the situation thoughtfully, commit to preserving and growing your assets, and take the first step toward a secure financial future by consulting with a trusted advisor today.
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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.
Fiduciary Financial Advisors does not give legal or tax advice. The information contained does not constitute a solicitation or offer to buy or sell any security and does not purport to be a complete statement of all material facts relating to the strategies and services mentioned.
An X-ray of Grand Rapids Hospital Retirement Plans: Which One is Best?
Employer Retirement Plan Details: Why Should You Care?
Employer retirement plans — such as 403(b)s and 401(k)s — are usually a large part of the financial plan for providers, nurses, and other medical professionals. The details of these plans can be confusing so I thought it would be helpful to compare and contrast the plans of the four larger hospitals in Grand Rapids, MI for you.
Understanding the details of your employer plan can lead to a huge difference in your account value at retirement. It should also be factored in when deciding where to work, as it is part of your compensation package. Different aspects of these plans can make them better or worse, I will assign them a Heath Biller score ranging from 0 to 10 — since that is the range used for pain assessments. 10 will be excellent and 0 will be horrible. Let’s X-ray the plans.
*Full disclosure, I have previously worked at Corewell Health & Mary Free Bed
Eligibility
This is when you are allowed to start participating in your company’s retirement plan. Due to compounding interest, the sooner you can start participating the better.
Automatic Deferral
This is when a company automatically enrolls you into the plan at a certain contribution rate when you get hired. The other option is having you opt into the plan yourself, which sometimes doesn’t happen. Automatic deferral is usually much better since it helps you start investing sooner. Life can get busy and procrastination is real.
Employer Matching Contributions
This is the amount of money that your employer contributes to your account on your behalf. It can be matching contributions which is usually a percentage of what you contribute. They can also make a non-elective contribution which means they contribute money to your account even if you don’t contribute anything. A higher rate here is better since that is more money towards your account.
Vesting Schedule
This is the length of time you have to stay working at the company before you are eligible for their matching contributions. If you leave the company before this period of time, they will take their matching contributions back from your account. The shorter the vesting schedule the better.
Roth Option
For a long time, most companies only offered Traditional contributions as an option for their plans. This means you get a tax deduction now but will have to pay taxes down the road when you take the money out. More companies are now offering a Roth contribution option. This means you do not get a tax deduction now but when you take the money out down the road, it will be tax-free. Sometimes Traditional contributions are better and sometimes Roth contributions are better. Having a Roth option is beneficial as it allows flexibility for your specific situation. If you want to learn more about Traditional vs. Roth contributions, read this blog post.
Plan Fees
These are the fees charged to your retirement account by the plan providers for helping set up and manage the retirement plan. Lower fees here mean less money is coming out of your account.
Investment Options
These are the range of investment options the plan offers inside the account. You want to make sure you are contributing to your account, but you also want to be aware of how the money is invested inside your account.
And the Winner is…
Saint Mary’s-Trinity Health with a score of 60/70 (86%). The aspects of their plan that stood out the most compared to the competition were: their employer contribution, their plan fees, and their investment options.
The other plans are pretty good, I have seen much worse. I would have liked to have seen more automatic deferrals, higher employer matching contributions, and more target date funds as the default investment option. Hopefully, this has helped you better understand the plan where you work or evaluate the plans of future employers you are considering.
Please reach out if:
You work for one of these hospitals and have more questions about your plan and what you are invested in
You work for a different medical facility and would like me to help you review the retirement plan they offer
You work for a facility that currently does not offer a retirement plan but would like help setting one up
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.
Yahoo! Finance Feature: Why Your Idea of Retirement May Be Wrong: And What You Can Do To Better Prepare
Andrew Van Alstyne had the privilege to be featured in Yahoo! Finance to talk to readers about the importance of preparing for expenses in retirement.
Andrew discusses why retirees must plan on having similar, if not greater expenses in retirement to those they’re experiencing in their working years and how they can maximize their cash flow to support their financial independence.
Fiduciary Financial Advisors, 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.
2024 Tax Planning Guide for Optimal Wealth Management
Navigate the ongoing tax planning landscape with this comprehensive guide for 2024. From handling investment gains and losses to managing RMDs and exploring charitable giving strategies, optimize your financial strategy for maximum tax efficiency. Start your tax planning now to ensure a prosperous financial future.
2024 Tax Planning Guide for Optimal Wealth Management
Although we are almost one full quarter through 2024, the 2023 tax season is still wrapping up. Although there isn’t much time to put into effect tax planning strategies for 2023, in this guide, we'll explore a comprehensive checklist covering essential considerations for ongoing tax planning.
Realizing Investment Losses and Managing Capital Gains Distributions
Assess Unrealized Investment Losses:
Take stock of any unrealized losses in your taxable accounts. These losses can be strategically utilized to offset gains and potentially reduce your tax liability.
Even if most of your gains are in a tax deferred account, you could consider realizing losses in a brokerage account to write off up to $3,000 against ordinary income.
Review Investments Subject to Capital Gain Distributions:
Be aware of investments in taxable accounts that may be subject to end-of-year capital gain distributions and explore strategies to minimize tax liability associated with these distributions. This may involve rebalancing your portfolio or employing tax-efficient investment vehicles.
Required Minimum Distributions (RMDs) and Anticipating Income Changes
Understand RMD Requirements:
If you're subject to taking Required Minimum Distributions (RMDs), ensure you are accurately calculating your yearly RMD across all qualified accounts.
Aggregate RMDs from Multiple IRAs:
Generally, RMDs from multiple IRAs can be aggregated, allowing for more flexibility in managing distributions.
For example, if you have one account that underperformed due to the cycle in the market, it may make sense to pull the entirety of your RMD from that account so when that sector of the market recovers, you can realize gains in a more tax-efficient manner.
Inherited IRAs cannot be included in aggregation.
Properly Handling RMDs from Employer Retirement Plans:
RMDs from employer retirement plans must be calculated and taken separately, with no aggregation allowed.
One exception exists, 403(b) plans permit aggregation of RMDs from multiple like-accounts.
Managing Tax Thresholds and Charitable Giving Strategies
If You Anticipate Your Future Income to Increase:
Make your retirement contributions to Roth accounts and Roth conversions.
If your employer only has a traditional 401(k) plan, consider making after-tax contributions if your employer’s plan allows it.
If you are over 59.5, consider accelerating traditional IRA withdrawals to fill up lower tax brackets and allow for more tax-efficient growth moving forward.
If You Anticipate Your Future Income to Decrease:
Consider minimizing your tax liability now with contributions to a traditional IRA or 401(k) instead of Roth accounts.
If You Are on The Threshold of a Tax Bracket:
Consider deferring income or accelerating deductions to optimize tax outcomes. Remember, income doesn’t only have to come from employment, so you may have to look at your investment strategy to adjust your earned income appropriately.
Explore Tax-Efficient Charitable Giving:
Investigate strategies such as gifting appreciated securities or making use of donor-advised funds to maximize tax benefits.
If you usually only take the standard deduction, consider bunching your charitable contributions every few years which may produce a greater tax savings.
Additional Savings Opportunities
Here are some more unique opportunities to save in a tax-efficient manner if you are maxing out your retirement savings accounts:
Maximize HSA Contributions:
If you have a high-deductible health plan, you can fund a Health Savings Account (HSA). The funds in this account are triple tax free (free of tax on income, growth, and withdrawal.)
In 2024, the contribution limit is $4,150 if you are single and $8,300 for a family.
Those over 55 are eligible to contribute an additional $1,000 annually.
Consider Education Savings with 529 Accounts:
You can contribute up to $18,000 annually per beneficiary in 2024.
Alternatively, you can contribute $90,000 every five years, gift tax-free.
Be aware that many of these state-sponsored plans have caps on the maximum contribution amount.
An additional benefit with a 592s; with the introduction of Secure Act 2.0, up to $35,000 can be rolled over to a Roth IRA if not used for education expenses.
If you have a Flexible Spending Account (FSA):
Explore options to utilize unused FSA funds effectively:
Some companies allow up to $610 to be rolled over into the following year.
You may also be allotted a grace period (up to March 15th) to spend unused funds.
Many companies also have a 90-day grace period to submit receipts from the previous year.
Review Your Estate Plans:
While not exactly tax-related, this is a great time of year to review your estate plan while you are collecting and reviewing your tax documents.
Some topics to keep top of mind:
Have there been any family deaths or additions that you would like to account for?
Have you bought or sold any assets that need to be correctly accounted for?
Stay Informed About Regulatory Changes:
As the sole purpose of publishing this article at this time of year goes to serve; while putting the finishing touches on your 2023 tax planning it is also a great time to forecast out through 2024.
As Federal and State regulations change, you’ll have to update your plan. By this point in the year, you should be able to get a good sense of any regulatory changes that may impact your filing status for next tax season.
Tax planning is an ongoing endeavor that spans the entire year. While having a competent CPA or EA is invaluable for maximizing deductions at tax time, your financial advisor plays a pivotal role in guiding you through the year, ensuring that your financial strategy progresses in a tax-efficient manner.
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.
How (And More Importantly, When) Should Cryptocurrency ETFs Be Introduced To a Portfolio
Discover the defensive role cryptocurrency may play and the rationale behind the 'wait and see' philosophy. Gain strategic insights for navigating the evolving world of alternative investments.
How (And More Importantly, When) Should Cryptocurrency ETFs Be Introduced To a Portfolio
This comprehensive guide provides strategic insights for those seeking to navigate the evolving landscape of alternative investments. In this piece, I delve into the strategic integration of cryptocurrency exchange-traded funds (ETFs) into investment portfolios. Uncover the significance of patience, prudent allocation, and a measured approach to navigating the volatility that this new investment presents. I'll explore the possibility of using cryptocurrency as a defensive play to hedge against traditional assets. Lastly, read about the rationale behind the 'wait and see' philosophy, and how it offers a cautious yet informed entry into the dynamic world of cryptocurrency.
Last month we saw the introduction of cryptocurrency exchange-traded funds (ETFs) which has stirred considerable interest among retail investors. Because of this fevered interest, I thought it would be beneficial to share my philosophy on incorporating cryptocurrency ETFs into investment portfolios.
Timing and Allocation:
Timing and controlling the amount of exposure you are considering for cryptocurrency ETFs will be extremely important over the next few years. Rather than rushing into this high-volatility market, the approach should be strategic and measured. In general, clients are advised to view this investment as like an alternative asset class, and further limit risk by not taking a large position relative to the client's total portfolio value. This ensures that investors are well-positioned to weather the inherent volatility.
Defensive Play and Risk Management:
Cryptocurrency may offer a potential hedge against traditional asset classes like fixed income and equities. The inverse relationship between cryptocurrency movements and the broader market dynamics is seen as a key factor in limiting downside losses during periods of economic uncertainty. It is a similar parallel to how precious metals move, which is another alternative asset class and can aid in further diversifying a portfolio away from downside risk.
Risk / Reward Considerations:
Crypto, more specifically bitcoin for this discussion, has proven the potential for both incredible upside and as well as unbelievable losses. So yes, you may be able to have a substantial short-term windfall (and the tax consequences that come with that) but there is also a very real possibility that by over-exposing your funds to this asset at this level of volatility, you may have to delay retirement for several years beyond current expectations. I feel that is an extremely important perspective in this conversation.
Entry Timing:
Sensible investors have seen some great successes in recent years, all without exposure to cryptocurrency. I feel there's still plenty of room to observe how cryptocurrency ETFs perform over a longer period. This cautious approach aims to let things settle a bit more and ensures that clients can enter this asset with a clearer understanding of its dynamics.
Takeaways:
The key takeaway is a thoughtful and measured approach. The strategic incorporation of these alternative assets involves considering timing, how the rest of a portfolio is positioned, and being able to effectively communicate why we should be moving into a position. The "wait and see" philosophy provides us a buffer against hasty decisions, allowing for a more informed entry into this newly created asset class.
I will always advocate that patience and strategic planning often prove to be the bedrock of successful investment journeys. As cryptocurrency ETFs continue to make waves, maintaining a philosophy rooted in careful consideration and client education will undoubtedly pave the way for a resilient and well-balanced investment strategy.
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.
MoneyGeek Feature: Women’s Guide to Financial Independence
Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “Women’s Guide to Financial Independence”.
Leanne discusses challenges women face when it comes to their finances and how they can maximize their cash flow to support their financial independence.
Fiduciary Financial Advisors, 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.
Your business is a rocket ship; an unparalleled engine for wealth creation. But relying on it for 100% of your net worth creates a dangerous concentration risk and is one of the biggest financial mistakes an owner can make. The single most important move for your family's long-term security is to consistently and strategically move money out of your business. This video is not about being less committed to your company; it’s about building a financial fortress around it. We break down the four critical strategies for building your family's "Mission Command": a structure of outside assets that protects your wealth, funds your life, diversifies your tax strategy, and secures your legacy for generations to come. Are you the CEO of your business, or the CEO of your family's future?