Equity Compensation: Benefits and Risks You Need to Know

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A small slice of equity compensation can boost your income, while a larger slice might bring a significant financial windfall. However, luck and careful management play crucial roles. Balancing the risks and rewards of your equity compensation is essential. Understanding how it fits into your overall financial plan can help you maximize benefits and avoid concentration risk—the danger of having too much wealth in one stock.

Equity Compensation Basics 

Equity compensation comes in various forms, such as stock options, restricted stock units, or employee stock purchase plans. The equity package you receive might come with a vesting schedule, which determines how quickly you’re able to take ownership of your shares. For companies, these vesting schedules accomplish an important goal: They help keep you around longer.

Understanding every part of your equity compensation package is essential. This includes vesting rules, types of shares, expiration dates for exercising stock options, and tax implications. Missing an expiration date can mean losing the chance to buy company stock at a discount, and knowing the tax details can help you manage your tax burden and retain more of your hard-earned equity. While you don’t need to master every detail, it’s crucial to understand your equity compensation offer.

At Warren Street, we guide clients through the wealth-building potential of their executive compensation packages. We help you maximize opportunities, integrate the package with your broader financial goals, and collaborate with other resources. For example, your company’s HR department or benefits administrator can provide details, your accountant can advise on taxes, and a lawyer can help with legal aspects and estate planning related to your equity compensation.

Understanding the Risks of Equity Compensation

One downside of equity compensation is that it can tie up a large portion of your wealth in a single stock. This is known as concentration risk. 

Not all risk is bad. In fact, a foundational part of investing is taking on risk in exchange for potentially higher returns. This is systemic risk—the risk inherent in the financial markets at large. However, concentration risk means your wealth is closely tied to one company’s performance, posing significant danger if the company faces issues like scandals or competitive disruptions.

Relying on your employer for income and savings can be risky. If the company performs poorly, you could lose both your job and a significant part of your wealth. For example, during the 2020 pandemic, ridesharing company stock prices tended to lose value as ridership plummeted. These companies laid off thousands of workers, and employees lost both jobs and equity value.

“But” you may counter, “I know my own company, and I’m confident its future is bright.” This is a common reaction—and may be a sign you’re falling into a common behavioral tendency known as familiarity bias. It can lead you to the false assumption that your own company is safer, and your familiarity may actually be keeping you from making a level-headed investment decision. Instead, lean on objective data and research rather than feelings to inform your investment decisions. 

Solving Concentration Risk 

Minimize concentration risk by diversifying, carefully divesting company shares, and investing in broad market funds. This approach smooths out volatility, maximizes long-term returns, and manages systemic risks.

If you work for a privately held company, selling your shares can be more tricky—and perhaps not possible. In that case, we can help you explore options to reduce risk. For example, that may mean building a larger emergency fund to give you more protection from the unexpected or exploring financial strategies to hedge your equity position. 

No matter your equity compensation package, you don’t have to navigate its complexities alone. Contact us to discuss your options and maximize your financial potential.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Young Investor’s Guide to Building a Financial Future—Part 2: Investing for Your Goals

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In the first installment of our Young Investor’s Guide to Building a Financial Future, we looked at avoiding credit card debt to set you off to a healthy start, the benefits of investing over the long term and the advantages of doing so in a retirement account, such as a 401(k) or IRA.

In the second part of this two-part series, we discuss three more investment concepts every young investor may want to embrace:

  • The importance of diversification
  • The dangers of market timing and stock picking
  • The benefits of investing according to a plan that fits your personal goals

Get Diversified

Short-term market swings can challenge even the most resilient investors. However, history shows that over the long term, markets tend to smooth out and trend upward. Diversifying your investments involves spreading risk across various types of assets, not just increasing the number of holdings.

While this may make intuitive sense, many investors come to us believing they are well-diversified when they are not. They often hold numerous stocks or funds across multiple accounts, yet upon examination, their portfolios are heavily skewed towards large U.S. companies or narrow market sectors. Diversification is effective because various investments respond differently to market shifts. When one falters, others may thrive, balancing overall portfolio performance. However, if holdings are too similar, the benefits of diversification diminish over time.

In short: 

Investing in a wide range of assets from different sectors, sizes, and geographies can create a robust portfolio that is better equipped to handle market fluctuations over time.

Avoid Speculating

Focusing on broad market indices helps avoid detrimental speculative behaviors that can harm long-term returns. 

Market timing—buying and selling stocks based on breaking news and short-term market movements—often turn out poorly. Because you’re typically buying into hot trends and selling when conditions are scary, you end up buying when prices are high or selling when prices are low. In both cases, that behavior can significantly impact savings and hinder financial goals

In fact, research consistently shows that investors’ attempts at market timing generally underperform broader indices like the S&P 500, with average equity fund investors trailing by approximately 5.5% in 2023 due to poor timing decisions according to a long-running annual survey of investor behavior by DALBAR.

Similarly, stock picking can reduce diversification and increase concentration risk, where a few stocks can heavily influence your portfolio’s performance. Investors are typically rewarded for taking on systematic risk, or risk inherent to the entire market. Concentration risk is not systematic. It is specific to individual stocks and doesn’t reliably yield rewards. Holding a significant portion of your portfolio in a few stocks exposes you to outsized impacts; for example, a single company’s bankruptcy could lead to substantial losses.

It’s also exceedingly difficult to pick stocks that will outperform the broader market over time. In 2023, over 70% of companies in the S&P 500 Index underperformed the index. These results vary from year to year. But since a handful of companies often drive most of the stock market’s returns, choosing just when to sell the future losers and buy the next big winners can end up becoming an impossible—and often losing—game. 

In short: 

Timing the market can lead you to buy stocks when they’re expensive and lock in losses by selling during downturns. When it comes to stock picking, it’s exceedingly difficult to pick single stocks that will be winners, and holding concentrated stock positions can introduce uncompensated risk to your portfolio. Instead, build a diversified portfolio as part of your long-term financial plan. 

Follow a Plan That Fits Your Goals

So how should you divide up your diversified investments? Start with your asset allocation, which is how your portfolio is spread among asset classes including stocks, bonds and cash. Then base your asset allocation on your personal goals, tolerance for risk and the length of time you have to invest. 

In short:  

Build your portfolio based on your personal goals, risk tolerance and time horizon rather than chasing or fleeing hot or cold investments or focusing on generalized rules of thumb.

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk. 

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Young Investor’s Guide to Building a Financial Future—Part 1: Where Do You Start?

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The future looks bright for younger investors. A 2024 analysis by the Investment Company Institute found that, adjusted for inflation, Gen Zers have nearly three times more retirement assets than Gen Xers did at the same age. This shift is largely due to improvements in the retirement system, such as 401(k)s and employee stock purchase plans.

For new investors, getting started can be overwhelming. With so much information out there, it can be hard to know where to start. The good news is that understanding a few basic principles can set you on the path to a healthy financial future.

In this first of a two-part series, we’ll cover three key concepts for young investors:

  • Getting started on the right foot by avoiding debt
  • Embracing the power of long-term investing
  • Making the most of tax-advantaged accounts

Avoid the Vicious Cycle of Credit Card Debt

Debt impacts your financial life, reducing money available for future growth. Every dollar spent on paying down a credit card bill or car loan is one less dollar that can grow for your future. Minimizing bad debt is essential for a strong financial future.

Not all debt is bad. Low-interest student loans and reasonable mortgages can be beneficial as you can follow a career path or build equity. However, high-interest credit card debt can quickly become expensive and hinder your ability to save and invest.

Credit card debt is particularly harmful due to high interest rates, often around 20% or more. If you carry a balance, interest accrues, and making only minimum payments means your debt grows over time. For example, let’s say you have $1,000 in debt on a credit card with a 20% interest rate. If you only make minimum payments of 2%, it will take you 195 months—more than 16 years—just to pay off this single debt. In that time, you will have paid $2,126.15 in interest—more than double the amount of your original debt. 

In short: 

Use high-interest debt cautiously and pay off your credit card balance quickly. This avoids debt cycles and frees up cash for saving and investing.

Stay Invested for the Long Haul

As a young investor, you may have limited funds, but you have plenty of time. Decades until retirement mean your modest investments can grow significantly.

This growth is due to compounding returns—earning returns on your returns. The longer your money is invested, the more it benefits from exponential growth.  In tax-advantaged retirement accounts, these benefits are magnified as tax-deferred and tax-free growth allows even more money to compound over time. 

In short: 

The longer you stay invested, the more your investments can grow exponentially, thanks to compounding returns.

Make the Most of Tax-Advantaged Retirement Accounts 

The government incentivizes saving for the future by offering substantial tax benefits through retirement savings plans like 401(k)s and individual retirement accounts (IRAs). 

Employer-sponsored plans such as 401(k)s allow you to contribute pretax income, with a maximum contribution of $23,000 in 2024. Additionally, many employers match your contributions, essentially offering free money. Contribute enough to receive these matches to maximize your benefits. 

During tax season, neither your contributions nor your employer’s contributions are taxed as income, and investments within the account grow tax-deferred. You won’t have to pay any taxes until you start taking withdrawals from that account, encouraging the growth of your savings through compounding. Eventual withdrawals are taxed at ordinary income tax rates and withdrawing before age 59½ may incur a 10% penalty on top of regular taxes.

If you want to save even more, consider traditional IRAs, which also permit pre-tax contributions (up to $7,000 in 2024). Like 401(k)s, investments in traditional IRAs grow tax-deferred, with withdrawals taxed as ordinary income. 

Alternatively, there is one other account: Roth IRAs. Unlike traditional IRAs, Roth IRA contributions are after-tax, meaning contributions aren’t tax-deductible, but withdrawals in retirement are tax-free. This arrangement is advantageous, especially for younger investors in lower income tax brackets, as investments grow tax-free.  After your account has been open for five years, you can access your principal contributions penalty-free. However, withdrawing investment gains before age 59½ may incur penalties. Nonetheless, it’s essential to view retirement funds as a last-resort resource and prioritize long-term saving goals over short-term needs.

In short:  

Maximize contributions to retirement plans to leverage their tax-sheltered growth. and take full advantage of employer matching contributions to optimize benefits.

Next up, we’ll take a look at the importance of building a diversified investment portfolio, why speculating can harm your long-term prospects, and how to build an investment plan that meets your individual goals. 

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Tax-Loss Harvesting: Opportunities and Obstacles

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So much of investing is beyond our control (picking stock prices, timing market movements, and so on) that it’s nice to know there are several “power tools” that can potentially enhance overall returns. Tax-loss harvesting is one such instrument, but — like many tools — it’s best used skillfully, and only when it is the right tool for the task. 

The (Ideal) Logistics 

When properly applied, tax-loss harvesting is the equivalent of turning your financial lemons into lemonade by converting market downturns into tangible tax savings. A successful tax-loss harvest lowers your tax bill, without substantially altering or impacting your long-term investment outcomes. 

Tax Savings

If you sell all or part of a position in your taxable account when it is worth less than you paid for it, this generates a realized capital loss. You can use that loss to offset capital gains and other income in the year you realize it, or you can carry it forward into future years. We can realize losses on a holding’s original shares, its reinvested dividends, or both. (There are quite a few more caveats on how to report losses, gains, and other income. A tax professional should be consulted, but that’s the general premise.)

Your Greater Goals 

When harvesting a loss, it’s imperative that we remain true to your existing investment plan. To prevent a tax-loss harvest from knocking your carefully structured portfolio out of balance, we reinvest the proceeds of any tax-loss harvest sale into a similar position (but not one that is “substantially identical,” as defined by the IRS). Typically, we then return the proceeds to your original position no sooner than 31 days later (after the IRS’s “wash sale rule” period has passed). 

The Tax-Loss Harvest Round Trip

In short, once the dust has settled, our goal is to have generated a substantive capital loss to report on your tax returns, without dramatically altering your market positions during or after the event. Here’s a three-step summary of the round trip typically involved: 

  1. Sell all or part of a position in your portfolio when it is worth less than you paid for it. 
  2. Reinvest the proceeds in a similar (not “substantially identical”) position. 
  3. Return the proceeds to the original position no sooner than 31 days later. 

Practical Caveats

An effective tax-loss harvest can contribute to your net worth by lowering your tax bills. That’s why we keep a year-round eye on potential harvesting opportunities, so we are ready to spring into action whenever market conditions and your best interests warrant it. 

That said, there are several reasons that not every loss can or should be harvested. Here are a few of the most common caveats to bear in mind. 

  • Trading costs – You shouldn’t execute a tax-loss harvest unless it is expected to generate more than enough tax savings to offset the trading costs involved. As described above, a typical tax-loss harvest calls for four trades: There’s one trade to sell the original holding and another to stay invested in the market during the waiting period dictated by the IRS’s wash sale rule. After that, there are two more trades to sell the interim holding and buy back the original position. 
  • Market volatility – When the time comes to sell the interim holding and repurchase your original position, you ideally want to sell it for no more than it cost, lest it generate a short-term taxable gain that can negate the benefits of the harvest. We may avoid initiating a tax-loss harvest in highly volatile markets, especially if your overall investment plans might be harmed if we are unable to cost-effectively repurchase your original position when advisable. 
  • Tax planning – While a successful tax-loss harvest shouldn’t have any impact on your long-term investment strategy, it can lower the basis of your holdings once it’s completed, which can generate higher capital gains taxes for you later on. As such, we want to carefully manage any tax-loss harvesting opportunities in concert with your larger tax-planning needs. 
  • Asset location – Holdings in your tax-sheltered accounts (such as your IRA) don’t generate taxable gains or realized losses when sold, so we can only harvest losses from assets held in your taxable accounts. 

Adding Value with Tax-Loss Harvesting

It’s never fun to endure market downturns, but they are an inherent part of nearly every investor’s journey toward accumulating new wealth. When they occur, we can sometimes soften the sting by leveraging losses to your advantage. Determining when and how to seize a tax-loss harvesting opportunity, while avoiding the obstacles involved, is one more way we seek to add value to your end returns and to your advisory relationship with us. Let us know if we can ever answer any questions about this or other tax-planning strategies you may have in mind. 

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

How to Cultivate Financial Literacy in Children and Create a Pathway to Lifelong Success

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At the core of financial literacy lies a set of values and behaviors that extend beyond mere dollars and cents. As parents, caregivers, and educators, we have the unique opportunity to shape the financial mindsets of the next generation by imparting timeless wisdom that transcends monetary transactions. 

As we celebrate Financial Literacy Month this April, let’s commit to empowering our children with the knowledge, skills, and values they need to thrive in an increasingly interconnected world. Teach your children these  four fundamental lessons that build financial savviness over time.

  1. Believe in Yourself: Confidence is the cornerstone of success in any endeavor. Encourage children to believe in their abilities and to recognize the value they bring to the table. By fostering a sense of self-assurance, we empower our youth to navigate the complexities of the financial landscape with poise and resilience.
  1. Listen to Others: Effective communication is a two-way street that involves not only speaking but also actively listening. Teach children the importance of lending an ear to others, as every voice has the potential to impart valuable insights. By honing their listening skills, children cultivate a sense of empathy and discernment that serves them well in both personal and professional spheres.
  1. Put in the Hard Work: Success seldom comes without effort. Encourage children to embrace the virtue of hard work by involving them in household chores, encouraging academic diligence, or exploring part-time employment opportunities. By instilling a strong work ethic, we equip children with the tools they need to pursue their goals with diligence and determination.
  1. Budget, Save, & Invest: Introduce children to the concepts of budgeting, saving, and investing in a manner that is accessible and relatable. Emphasize the connection between hard work and financial resources, illustrating how responsible financial management enables individuals to achieve their aspirations. Encourage children to set aside a portion of their earnings for savings and explore the possibilities of investment, laying the groundwork for a secure financial future.

By integrating these principles into everyday interactions and activities, you can nurture a generation of financially literate individuals who are equipped to navigate the complexities of an ever-evolving economic landscape. Together, we can pave the way for a brighter, more prosperous future for generations to come.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

It’s Open Enrollment Season: Here’s How to Optimize Your Benefits

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Open enrollment season is upon us, with most plans allowing individuals and families to make changes to their 2024 benefit enrollments this fall. Now is the best time to make sure you are optimizing your benefits.

  1. Consider Your Health Insurance Options – When was the last time you reviewed your health insurance options? A lot can happen in a year, and each life change may mean your current health care plan may no longer be the best option. Whether you are on employer coverage, exchange coverage, or Medicare, we can help you review your options. 

Pro tip: If your medical plan allows it, consider utilizing a health care tax-advantaged account like an Health Savings Account (HSA) or Flexible Spending Account (FSA).

  1. Explore All Available Benefits – Many employer and retiree plans offer additional benefits beyond traditional health care options. Exploring these alternative benefits to see if any are applicable to your situation can save you time and money. Don’t forget about vision, dental, life, disability, excess liability and any other unique insurance being offered to you. This will ensure you are taking full advantage of the benefits available to you.

Pro tip: Employer-sponsored life and disability insurance can be cost effective and easy to obtain compared to buying your own private policies. 

If you are looking for guidance, Warren Street is available to assist in interpreting your health care and benefits package information as part of the 2024 open enrollment season. Let us know how we can help!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Probate: 3 Easy Ways to Avoid it

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Probate is the court process used to determine who gets an inheritance. In the eyes of a financial planner, it is a court process that most clients should try to avoid for many reasons. The probate process is time-consuming, usually lasting about a year depending on how backed up the courts are. The expense for probate is very high, which includes thousands of dollars going towards attorney and court fees. Probate is also a public court event in which potential heirs can object to the ruling pretty easily, causing privacy concerns and more attorney costs. While probate can have its time and place, there are some simple ways to avoid probate. 

Let’s take a look at three easy steps you can take now to keep your loved ones from having to deal with probate.

  1. Primary Beneficiary Designations – If a 401(k) account or life insurance policy lists a primary beneficiary, the account avoids probate and passes directly to the listed beneficiary. For brokerage accounts this is usually referred to as a Transfer-On-Death (TOD) account, and for bank accounts this is referred to as a Payable-On-Death account.
  1. Contingent Beneficiary Designations – Setting a contingent beneficiary is also an easy way to help avoid probate. The contingent beneficiary is the person(s) next in line to inherit if the primary beneficiary has already passed away at the time of the account holder’s passing. 
  1. Retitle Your Automobile & House – Don’t forget about your car and home! If your vehicle or house are listed in your name alone, they would turn into probate assets at the time of your passing. Some states have introduced TOD car and house titling as a way to avoid needing probate if the owner passes away. Also, you and your spouse should consider owning the car and house jointly with rights of survivorship, as another way to avoid probate.

These planning points provided today are just some of the easy actions you can do yourself.  There are more ways to avoid probate, but they get a little more complex and depend on your personal situation. 

With legal matters like this, it is always a good idea to start working with an estate planning attorney, as well as with a financial advisor. Work with a Warren Street Wealth Advisor today to get your personalized financial plan and more guidance on estate planning.

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

It’s Time to Revisit Your Student Loans

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Last week, the Supreme Court voted against the White House Administration’s plan to eliminate up to $10,000 of student loans for non-Pell grant recipients and up to $20,000 of loans for Pell grant recipients. This news comes just as the three-year pause on student loans is coming to an end, with loan interest accruing again in September and payments beginning in October. 

The Administration plans to propose other types of aid to borrowers, such as reducing the income-driven repayment plan from 10% to 5% of disposable income and not reporting missed payments to credit rating agencies for 12 months. Still, the timeline on these proposals could take months to get approved — so it looks like it is time to prepare for paying back your student loans.

At Warren Street Wealth Advisors, we want you to take the necessary actions to feel confident about your next steps. Start with the considerations below, and feel free to reach out to your financial advisor with any questions.

1. Update your information on studentaid.gov.

Check that  your current contact and billing information are up-to-date with the Education Department on studentaid.gov. If you’ve moved, for example, the Education Department will need your updated address to contact you with loan status updates.

2. Determine how much outstanding student loan debt you have.

Work with your loan provider to see how much student loan debt you have remaining and how much the monthly payments will be. Once you know how much to expect each month, it will be easier to manage your spending.  

3. Factor student loan payments back into your budget.

Whether you use software to help analyze your budget or the back of an envelope to do your calculations, it is time to add up all of your expenses and compare them to your take-home pay. This will let you know if you will be running a surplus, breakeven or deficit each month going forward.

4. Explore income-driven options.

If you determine you might be at a monthly deficit with student loan payments, an income-driven repayment plan could be an option for you. However, while this option could help your monthly budget, it usually involves you paying more interest in the long-term and extends your payments well past the 10 year standard repayment plan.

5. Shore up your emergency fund.

It’s always a good idea to count your liquid cash savings, especially in a time like this. Having a three to six month emergency fund to fall back on will be important if you have a student loan bill you need to pay again. Now is a good time to start an emergency fund if you don’t have one. 

These are some of the most important steps to ensure you make payments on time and know what to expect in the near future when it comes to your debt management. Please reach out if you’d like to discuss these planning points with a Warren Street advisor!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Secure Act 2.0: Tax Planning Tips

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Tax planning for your retirement savings is also important. To help with that, you can typically choose between two account types as you save for retirement: Traditional IRA or employer-sponsored plans, or Roth versions of the same. 

All Things Roth

Either way, your retirement savings grow tax-free while they’re in your accounts. The main difference is whether you pay income taxes at the beginning or end of the process. For Roth accounts, you typically pay taxes up front, funding the account with after-tax dollars. Traditional retirement accounts are typically funded with pre-tax dollars, and you pay taxes on withdrawals. 

That’s the intent, anyway. To fill in a few missing links, the SECURE 2.0 Act:

  • Eliminates Required Minimum Distributions for employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, to align with individual Roth practices (2024)
  • Establishes Roth versions of SEP and SIMPLE IRAs (2023)
  • Lets employers make contributions to traditional and Roth retirement accounts (2023)
  • Lets families potentially move 529 plan assets into a Roth IRA (2024 – as described above)

There’s one thing that’s not changed, although there’s been talk that it might: There are still no restrictions on “backdoor Roth conversions” and similar strategies some families have been using to boost their tax-efficient retirement resources. 

Speaking of RMDs

Not surprisingly, the government would prefer you eventually start spending your tax-sheltered retirement savings, or at least pay taxes on the income. That’s why there are rules regarding when you must start taking Required Minimum Distributions (RMDs) out of your retirement accounts. That said, both SECURE Acts have relaxed and refined some of those RMD rules. 

  • Extended RMD Dates (2023): the original SECURE Act postponed when you must start taking taxable RMDs from your retirement account—from 70 ½ to 72. The SECURE 2.0 Act extends that deadline further. If you were born between 1951–1959, you can now wait until age 73. If you were born after that, it’s age 75. 
  • Reduced Penalties (2023): If you fail to take an RMD, the penalty is reduced from a whopping 50% of the distribution to a slightly more palatable 25%. Also, the penalty may be further reduced to 10% if you fix the error within a prescribed correction window. 
  • Aligned RMD Rules for Personal and Employer-based Roth Accounts (2024): As mentioned above, RMDs have been eliminated from employer-based Roth accounts. If you’ve already been taking them, you should be able to stop doing so in 2024. 
  • Enhanced RMDs for Surviving Spouses (2024): If you are a widow or widower inheriting your spouse’s retirement plan assets, you will be able to elect to determine your RMD date as if you were your spouse. This provision can work well if your spouse was younger than you. As described here: “RMDs for the [older] surviving spouse would be delayed until the deceased spouse would have reached the age at which RMDs begin.”

An Addendum For Charitable Donors

One good thing hasn’t changed with SECURE 2.0: Even though RMD dates have been extended as described, you can still make Qualified Charitable Distributions (QCDs) out of your retirement accounts beginning at age 70 ½, and the income is still excluded from your taxable adjusted gross income, as well as from Social Security tax and Medicare surcharge calculations. Plus, beginning in 2024, the maximum QCD you can make (currently $100,000) will increase with inflation. Also, with quite a few caveats, you will have a one-time opportunity to use a QCD to fund certain charitable trusts or annuities. 

Next Steps

How else can we help you incorporate SECURE 2.0 Act updates into your personal financial plans? The landscape is filled with rabbit holes down which we did not venture, with caveats and conditions to be explored. And there are a few provisions we didn’t touch on here. As such, before you proceed, we hope you’ll consult with us or others (such as your accountant or estate planning attorney) to discuss the details specific to you. 

Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning. Please don’t hesitate to reach out to us today with your questions and comments.

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Reference Materials and Additional Reading:

Secure Act 2.0: Spending Today, Saving Tomorrow

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It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance. 

  • Student Loan Payments Count as Elective Deferrals (2024): If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as elective deferrals in your company plan. This means, whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account. 
  • Transferring 529 Plan Assets to a Roth IRA (2024): This one is subject to a number of qualifying hurdles, but SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA. With proper planning, this may help families “seed” their children’s or grandchildren’s retirement savings with their unspent college savings.
  • New Emergency Saving Accounts Linked to Employer Plans (2024): SECURE 2.0 has established a new employer-sponsored emergency savings account, which would be linked to your retirement plan account. Unless you are a “highly compensated employee” (as defined by the Act), you can use the account to save up to $2,500, with your contributions counting toward matching funds going into your main retirement plan account. 
  • Relaxed Emergency Plan Withdrawals (2024): SECURE 2.0 relaxes the ability to take a modest emergency withdrawal out of your retirement plan. Essentially, as long as you self-certify that you need the money, you can take up to $1,000 in a calendar year, without incurring the usual 10% penalty for early withdrawal. Once you’ve taken an emergency withdrawal, there are several hurdles before you’re eligible to take another one.
  • Additional Exceptions to the 10% Retirement Plan Withdrawal Penalty (Varied): SECURE 2.0 has established new exceptions to the 10% penalty otherwise incurred if you tap various retirement accounts too soon. For example, there are several new types of public safety workers who can access their company retirement plans penalty-free after age 50. Various exceptions are also carved out if you’re terminally ill or a domestic abuse victim, or if you use the assets to pay for long-term care insurance. The Act also has modified how retirement plan assets are to be used for Qualified Disaster Recovery Distributions. Many of the new exceptions are fairly specific, so check the fine print before you proceed. 
  • Relaxed Emergency Loans from Retirement Plans (2023): If you end up living in a Federally declared disaster area, SECURE 2.0 also increases your ability to borrow up to 100% of your vested plan balance up to $100,000, with a more generous pay-back window. 
  • Expanded Eligibility for ABLE Accounts (2026): ABLE accounts help disabled individuals save for disability expenses, while still collecting disability benefits. Before, you had to be disabled before age 26 to establish an ABLE account. That age cap increases to 46. 
  • A Tax Break for Disabled First Responders (2027): If you are a first responder collecting on a service-connected disability, at least a portion of your disability payments will remain tax-free, even once you reach full retirement age and begin taking a retirement pension. 

Next Steps

If you missed the first part of the blog series, we discussed key provisions in the newly enacted SECURE 2.0 Act of 2022, including updates that impact (1) savers/investors and (2) employers/plan sponsors. Check in next week for the last part of this blog series, where we share tax planning tips under this new Act. 

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Reference Materials and Additional Reading: