Why Having a Financial Professional Matters

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Why Having a Financial Professional Matters

A good financial professional provides important guidance and insight through the years.

What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting.

A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions.

Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake.

No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.

This is when irrational exuberance creeps in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is overweighted in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.

Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence: according to investment research firm DALBAR, the S&P 500 returned an average of 8.91% annually across the 20 years ending on December 31, 2015, while the average equity investor’s portfolio returned just 4.67% per year.(1)       

The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term.

A good financial professional helps a committed investor and retirement saver stay on track. He or she helps the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.

As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.

This is the value a financial professional brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.

 

 

Blake StreetBlake Street, CFA, CFP®
Chief Investment Officer
Founding Partner
Warren Street Wealth Advisors

Blake Street is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.
1 – zacksim.com/heres-investors-underperform-market/ [5/22/17]

Handling ESOP Shares & Taxes

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Cary Facer
Partner Emeritus
Warren Street Wealth Advisors

Sometimes an employer’s benefits program can include an employee stock ownership plan, commonly referred to as an ESOP plan. An ESOP plan is an employee benefit that allows its company’s participants to purchase the common stock of their company. Those who participate often receive tax benefits for purchasing these shares, and companies believe that allowing their employees to purchase shares of the company will incentivize employees to perform well and boost the share price.

This is an excellent program to take advantage of if your company provides it, but there is something to be mindful of, which is: How can these shares impact my tax liability?

Well, the tax issue doesn’t become relevant until you approach retirement and begin to think about taking your balance out of the plan. When you become ready to do this, you are presented with two options on how to handle the balance.

Option 1 is to take the shares from the ESOP program and roll them into an IRA. Taxes do not come due, but you will be liable for the taxes when you take a withdrawal from the account. The amount will be taxed at your current ordinary income rates.

Option 2 is to move the shares into a non-retirement account. In this method, the ESOP shares are moved in-kind and you pay ordinary income tax rates on the average cost basis of the shares, which is the average price you paid for all the shares you own and typically below market value. Then when the shares are sold within the account, the amount in excess of cost basis is taxed at long term capital gains rates.

(1)

It may seem like you’re paying taxes twice in the second option, but by taking advantage of net unrealized appreciation (or NUA), you might be able to save yourself on taxes in the long run. You see, long term capital gains rates are typically lower than a person’s income tax rates with capital gains being 0, 15, or 20%, so a person would be paying ordinary income tax on a portion, then long term capital gains on the remainder, again assuming the shares have been held for 1 year or longer.

This can be a tricky process, and most employee benefits programs only allow you to execute this process once. Make sure you have it right.

Warren Street Wealth Advisors has worked with employee ESOP shares before and executed NUA strategies. Contact Us today and schedule a free consultation on how to best handle your ESOP shares.

  1. This item is only used as an illustration of the strategy. The illustration does not indicate how all tax liabilities could play out. All investments carry specific risks and please consult your financial professional before making investment decisions.

Warren Street Wealth Advisors are not Certified Public Accountants (CPA), and this is not considered personal or actionable advice. Please consult with your accountant or financial professional for further guidance on whether an NUA strategy is right for you.

Disclosure: Cary Facer is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his 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 commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

It’s Your Stream, Your Money

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As many have come to learn, taxes can be the most complicated part of being a full time content creator, streamer on Twitch or professional gamer. With some people being considered contractors or employees of a team, or both, it can be difficult to navigate your tax liability and learn how to reduce it.

However, there are solutions available. The biggest solution for those receiving a majority of their income via 1099 is the Solo 401(k) option, or “Solo(k)”. The Solo(k) is essentially a 401(k) plan but for a single person, and potentially a spouse, giving them the ability to defer their taxes and profit share themselves to help reduce tax liability come April.

So what can the Solo 401(k) do for a streamer or pro player?


solo projectionTable provided by Robert McConchie, CPA/PFS®

This example shows a streamer/player earning $225,000 in 1099 income, assumes $30,000 in business expenses across the year, a standard deduction (single person, 2016), and standard exemption (single person, 2016). Additionally, California state tax rate was used in conjunction with the Federal tax, and you can see the savings between utilizing and not utilizing the Solo 401(k), a $20,000 savings to be exact.

The savings comes from the $18,000 personal deferral then a profit share from the business of $35,000 for a max total deferral of $53,000 income within the year. Establishing a Solo 401(k) account is beneficial on multiple fronts; it allows you to set money aside for your retirement date, reduces your tax liability today, and can even be borrowed against should you find yourself in a pinch.

Now, for some streamers who are married, you have the ability to put your spouse on to your business’ payroll. How can that impact your tax savings come year end? Here’s a conservative estimate below.

solo projection spouse
Table provided by Robert McConchie, CPA/PFS®

Using the same amount of income, we can see that tax savings can also be found by correctly setting up your business to include your spouse on payroll, a 401(k) contribution for them and take advantage of additional tax savings.

Opening a Solo 401(k) is one thing you can do, but you can see the immediate impact it can make for full time content creators.

The Solo 401(k) is one of many things that every content creator should do to help minimize their tax liability into the future. Don’t wait to open one. In order to receive the tax benefit, the account must be opened within the calendar year.

Contact us today to set up a free consultation and learn what you can do to maximize your tax savings for 2016 and into 2017.

 

Joe Occhipinti

Joe@Warrenstreetwealth.com
714.823.3328
www.warrenstreetwealth.com/esports

 

The contents of this article are not meant to be personal or actionable tax advice. Please consult a tax professional or your personal advisor before making any decisions. IRS & DOL guidelines must be carefully considered before choosing the retirement plan or tax advantaged savings vehicle that is right for you. The illustrations above are of hypothetical scenarios and are meant strictly for informational purposes.

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his 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 commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.