Thanks to your feedback, we've put together a workshop that will cover the top mistakes I see in my practice and how you can avoid them. We'll be hosting the workshop this coming Thursday, 4/26, from 10-11am PST / 1-2pm EST.
This workshop will be live, and if I manage the time correctly we'll have room for an open Q&A at the end. So come prepared with retirement planning & investment related questions.
This event will be free, but space is limited so grab your spot now while there's availability.
If you’ve been paying any kind of attention to the markets over the last two months, you’ve probably noticed a new trend: volatility. Consistent market volatility isn’t something we’ve seen in quite some time. Other than the market’s brief reaction to the Brexit, we really haven’t seen much upheaval since the depths of the financial crisis.
With tighter monetary policy from the Federal Reserve and both feet on the gas of our fiscal policy here in the U.S., there’s a good chance the choppy waters are here to stay.
Since I’ve been getting a ton of questions recently about how to handle market volatility, I figured it’d be a good subject for an online training. So, this Tuesday, March 6th, from 10-11am PST / 1-2pm EST, I’ll be hosting a free online training on how to protect your retirement accounts during market corrections. Here’s the link to register.
Topics We’ll Cover:
The single BEST strategy to protect your retirement portfolio when markets crash
The secret to surviving the next bear market
The top 5 mistakes you should avoid when saving in workplace retirement accounts
How to tune out the noise and identify what news you should actually pay attention to
This will be a free online event, but seating is strictly limited to 100 attendees. Feel free to spread the word to your friends/family members/colleagues who might be interested, but make sure you reserve your spot before the spaces are filled.
If you asked me to choose my FAVORITE type of account to invest in, it would definitely be the Roth IRA. Roth IRAs allow you to save money tax free for the rest of your life. They’re not subject to mandatory withdrawals in your 70’s, and your kids won’t even owe taxes on their withdrawals if they inherit the account from you down the road. In my opinion the Roth IRA is just about the best deal out there.
Problem is, they’re not accessible to everyone. The IRS considers Roth IRAs such a good deal that they won’t let you contribute to one if you make too much money. Fortunately, there’s a work around: the backdoor Roth IRA conversion. The backdoor Roth conversion allows you to get money into the Roth IRA by making non-deductible contributions to a traditional IRA. Don’t worry if this sounds complicated. We’ll go over the strategy step by step in this post. Read on to learn more.
The Backdoor Roth IRA Conversion Strategy
So here’s how it works. I’ll break it down into two-distinct steps. But to start, let’s review the income limitations for direct contributions to a Roth IRA. If your modified adjusted gross income on the year (MAGI) falls below the “Full Contribution” threshold, you can contribute to a Roth IRA directly. If your MAGI falls into the phaseout region your contribution limit for the year begins to fall. When it reaches the “Ineligible” threshold, you’ll be prevented from contributing to a Roth IRA altogether (at least in 2018). If this is you, the backdoor Roth conversion might be a good fit. (Here’s a review of how to calculate modified adjusted gross income).
I’m a believer that the biggest factor contributing to the returns in your portfolio is asset allocation. The amount of your portfolio you choose to invest in stocks, bonds, real estate, or anything else will ultimately have the biggest effect on how your portfolio does over the long run.
In other words, the decision of whether to buy Lowe’s or Home Depot isn’t nearly as important than the decision to be in large cap stocks or international bonds.
If you’re being strategic about your saving, you’ll probably try to utilize tax advantaged accounts like IRAs, Roth IRAs, and 401(k)s as much as you can. If you’re using them (like most people), after a while your total portfolio will probably be spread across several different types of these accounts.
Today’s post covers asset location. Rather than replicate the exact same asset allocation in each of your individual accounts, placing your investments across them strategically can work to reduce your tax bill and enhance your after tax returns.
Since some asset classes are more likely to distribute taxable income & capital gains, parking them in the accounts you don’t pay tax on (like a Roth IRA), only seems logical. When done thoughtfully, asset location can as much as 0.25%-0.75%per year to your portfolio’s returns.
Taxes are frustrating to nearly every small business owner I speak with. Most people agree that we should all pay our fair share. But after working countless thousands of hours to build a viable business, it’s easy to feel like Uncle Sam’s reaching into our pockets too far. That’s why I focus on helping my clients who own businesses make sure they’re not paying more in taxes than they need to. One great tool we can use in this endeavor is a defined benefit retirement plan. Whatever you want to call it, DB plan, defined benefits pension plan, etc., it can be a killer way to defer a huge portion of your income from taxation.
I realize you might cringe when you read the words “pension” or “defined benefit”. The idea of promising employees a monthly check throughout their retirement may not foster warm and fuzzies. But if you don’thave employees, or only have a few, a defined benefit plan can offer some pretty major tax advantages.
Read on to learn how you might take advantage of them.
For business owners starting to think about the next generation, the phrases”estate tax” or “transfer tax” almost seem like curse words. The bad news is that when you build an estate of a certain size, the IRS wants to get in your pockets regardless of what, when, or how you transfer your assets to beneficiaries. The good news is that there are plenty of strategies available to help you minimize these taxes. The grantor retained annuity trust is one of them, and will be the topic of today’s post. We’ll cover what they are, why they’re beneficial, and how you might go about using one.
Gift Tax Review
Ok – before we dive into the details, let’s review what taxes typically apply when you gift an asset to someone else.
First off, you’re allowed to give away $14,000 per year, per person tax free. If you’re married, you and your spouse are both allowed $14,000 per person per year, or $28,000 total. So, if you and your spouse want to gift each of your kids $28,000 for their birthday every year, you could do so tax free. (It’d be one heck of a birthday present, too).
You also have a lifetime gift exclusion. This is the amount that you can give away, either while you’re alive or after you die, without incurring any federal estate or gift taxes. Anything that exceeds the $14,000 annual limit (or doesn’t qualify) works against your lifetime exclusion. The lifetime gift exclusion in 2017 is $5.49 million, which inches higher with inflation over time. Here again you can combine your lifetime exclusion with your spouse, for a total of $10.98 million.
So let’s say that one year you and your spouse decide to gift your oldest child $128,000. The first $28,000 would be covered under your annual allowance and excluded from tax. The remaining $100,000 would work against your lifetime exclusion. Neither you nor your child would owe tax on the gift, but you’d have worked your lifetime exclusion from $10.98 million down to $10.88 million. If your future gifts (either while you’re alive or after death) exceed $10.88 million, they’ll be subject to the federal gift/estate tax:
“How can I know for sure my savings will last after I stop working?”
“I”m concerned I’ll spend through my savings too fast and run out of money when I’m 80.”
These are a few common phrases I hear from people who are approaching retirement. Many people I speak with in the their mid 50s and early 60s these days have saved diligently for years for their own retirement. But now as they approach the transition from accumulating wealth to spending their savings, the question of whether they’ve saved enough becomes extremely important.
Plus, when you mix in longer life expectancies, rising health care costs, and expensive stock and bond markets, there’s a lot of uncertainty surrounding the issue.
So in today’s post, I’ll cover some of the leading ways you can determine whether you have enough saved up to stop working. Without putting you and your family’s future at risk, that is.
Inheriting an IRA is quite a bit different than inheriting any other asset. Unlike cash or investments in a traditional investment account, if you inherit an IRA you’ll need to start withdrawing from the account in order to avoid hefty penalties. In this post we’ll cover what your options are when you inherit an IRA, and how you can best manage it for you & your family.
How IRAs are Passed After Death
Whereas many of your assets will be distributed to heirs according to your will, IRAs are instead distributed by contract. Your custodian (the brokerage firm that holds your account, like Vanguard or TD Ameritrade) lets you designate as many beneficiaries and contingent beneficiaries as you like. Once you die, your account bypasses your will, the probate process, and is distributed according to this beneficiary designation.
When account holders don’t designate any beneficiaries things get a little murkier. When the account holder dies, their account is distributed according to their custodian’s default policy. At most custodians this default policy diverts the IRA back to their estate (and goes through probate) but at some it’s diverted to their spouse first. Unfortunately, if the account holder didn’t designate a beneficiary while they were alive, you’re at the mercy of your custodian’s policy.
If the account is indeed diverted back to their estate, it’ll be distributed according to your state’s interpretation of their will. And if they didn’t have one (meaning they died intestate), the state will make its own decision on who should inherit the asset.
The moral of the story? Take advantage of the opportunity to bypass probate, and designate your beneficiaries formally while you’re still alive.
You’ve heard it before: life changes once you have kids. As the proud parent to a six month old baby boy, I can attest that the rumors are true.
Having kids brings a quite a bit of chaos to your life. And to try to get a handle on things we’ve read several of the popular contemporary baby books. In most of them the message is the same: apply a consistent routine. When your baby knows when to expect sleep time, feeding time, or play time, they gain confidence and often start to excel. In other words, routine = fewer moving parts, less chaos, and more confidence.
I think our personal finances have a lot do with this as well. When you have a kid your financial picture changes. You have different and greater obligations, and need to start thinking about college costs. The fewer “loose ends” you have with family finances, the less chaotic your family life will be and more you’ll thrive.
Today’s post is another on the topic of financial independence. We’ve had several of these recently, but since that’s the focus of this blog I guess that’s not surprising.
Rather than discuss the fundamental components of financial planning like insurance or investing, today’s focus is entrepreneurship. Specifically, how entrepreneurship can be a wonderful way to align your career with your lifestyle and become financially independent on your own terms.
Forewarning: today’s post is another that falls on the philosophical side of the spectrum. I normally don’t write too many of these posts, and realize there’s already been several to start the year. Read on if you’re OK indulging my abstract (and possibly poor quality) musings.