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Have You Heard of the “Mega Backdoor Roth IRA”?

Chances are if you are reading this, you’re already at least somewhat familiar with a Roth IRA. While the contribution limit will vary over time, in 2019 the limit is $6,000, plus an additional $1,000 catch up contribution for individuals over the age of 50. This limit is per individual, allowing married couples to contribute up to a maximum of $12,000-$14,000 depending on their age. Direct contributions to a Roth IRA also have an income phase-out limit that you’ll need to be aware of, which starts at $122,000 for single filers and $193,000 for joint filers.

What if I told you there was a way to contribute to a Roth IRA well beyond these limits, regardless of your income level? At some employers, you can.

The typical “backdoor Roth IRA” is a strategy for individuals to contribute to a Roth IRA that are over the income phase-out limitation for a direct contribution. This can be beneficial for many people, but still caps your contributions at only $6,000 or $7,000 per year. In some cases, your 401(k) may allow the ability to contribute on an “after-tax” basis, which opens up a world of possibilities for additional Roth contributions.

Roth contributions are contributed on an after-tax basis(meaning no current tax deduction), but earnings grow tax-free as long as you meet all the withdrawal eligibility rules set by the IRS. This means you must be at least age 59 ½ and meet the IRS’ “5 year rule” at the time of withdrawal.

An “after-tax” contribution works similar to a Roth contribution, but the taxation differs slightly. A pure after-tax contribution also provides no current tax deduction, but earnings associated with the money grow only tax-deferred and are later taxable at ordinary income rates upon distribution. As you can see, Roth dollars are generally more valuable than pure after-tax dollars.

The good news is, there is a fairly easy way to convert your pure after-tax dollars into Roth dollars so that all earnings grow tax-free. Once you hit the $19,000(plus $6,000 catch up for individuals over the age of 50) annual limit for your pre-tax and/or Roth contributions into your 401(k), you will want to begin contributing on an after-tax basis.

Pure after-tax contributions are not subject to the typical annual contribution limit of $19,000 or $25,000. Instead, they are capped at an overall 401(k) contribution limit of $56,000 or $62,000. This overall limit includes all of your pre-tax, Roth, employer matching, and after-tax contributions combined. In other words, if you make $100,000 per year and are under the age of 50, your pre-tax/Roth contributions are $19,000, your employer match is $6,000, and your maximum after-tax contributions are $31,000. ($56,000 – 19,000 – 6,000 match = $31,000 of remaining after-tax contribution ability). This additional $31,000 could then be rolled into a Roth IRA, allowing for the “mega backdoor Roth” contribution. This means you can potentially get up to $37,000 per year into a Roth IRA!

There is one caveat to this however. When you convert your after-tax contributions to a Roth IRA, any earnings that are associated with the after-tax contributions that enter the Roth IRA will be taxable. If you contributed $10,000 after-tax and that money has since grown to $12,000, you will pay tax on the $2,000 should you put the full $12,000 into the Roth IRA. This can be circumvented by removing only the pure after-tax contributions(basis) and leaving account earnings in the 401(k) account to grow tax-deferred and be withdrawn at a later date. For this reason, the sooner you can get the money from the after-tax 401(k) to the Roth IRA, the sooner your money will be growing for you tax-free. Once the money is in the Roth IRA, you are open to the entire world of investing beyond what is offered in the 401(k) plan. You have the ability to have the money invested in mutual funds, ETFs, stocks, bonds, and with the oversight of professional management should you choose.

This is a great savings strategy for individuals who are looking to increase the amount of their retirement savings and want to do so in a tax-advantaged way. For individuals who have the excess cash flow and budgetary means of doing so, the “mega backdoor Roth” is a no brainer. While this strategy can be complex, once initially set up the ongoing maintenance is minimal. Warren Street Wealth Advisors is here to assist and facilitate after-tax contributions, conversions to Roth accounts, and the underlying investment management. For individuals looking to take advantage of this huge tax savings opportunity, be sure to contact us for help getting this strategy implemented for your situation. Please bear in mind this strategy is only applicable to individuals who are already maximizing their current pre-tax or Roth contributions in the 401(k).

If you have any questions on the strategy or investments and tax planning in general, be sure to reach out and contact us as we are happy to help. As with nearly everything financial planning, specific rules and details will need to be implemented on a case by case basis, so be sure to contact us with the specifics of your case.

Justin D. Rucci, CFP®

Wealth Advisor

Warren Street Wealth Advisors

 

Justin D. Rucci, CFP® is an Investment Advisor Representative, Warren Street Wealth Advisors, a Registered Investment Advisor. Investing involves the risk of loss of principal. Justin D. Rucci, CFP® is not a CPA or accountant and the information contained herein is considered for general educational purposes. Please seek a qualified tax opinion or discuss with your financial advisor as nothing in this publication is considered personal actionable advice.

The Retirement Handbook

The Retirement Handbook  (click to download)

Retirement is coming soon, and you should be excited. However, you might have so many questions and concerns about retirement that you’re more nervous than anything else.

We get it.

At Warren Street Wealth Advisors, we’ve helped countless people, from families to business owners, plan for their retirement and reach their financial goals. We put together this Retirement Handbook to help you on your way to a successful retirement.


 

1. Have a Plan

Nothing else on this list matters if you don’t have a personalized financial plan.

Having a plan not only lays out the destination, but it shows you the steps you need to take along the way. It’s your roadmap to a successful retirement.

2. No Seriously, Have a Plan

Having a plan is half the battle. 

You can be tax savvy and an investment genius, but if you don’t have a plan for retirement or any financial goal, chances are you’ll miss the mark.

3. Say “Goodbye” to Debt

Excess debt is the biggest destroyer of retirement dreams. 

If you have excess debt, then formulate a plan to eliminate it as soon as possible. It’s not the end of the world, but it might be time to roll up your sleeves and get to work.

Imagine how rewarding it will be once you have freed yourself from excess debt.

4. Budget it Out

Targeting your annual expenses is key to understanding if you have enough money to retire.

It’s no fun to build a budget. We get it.

However, knowing where your money is going on a monthly basis may help you identify where you can save. Get rid of the stuff you hate and keep more of the things you love. Love your bowling league? Keep it. Hate your cable or phone bill? Shop it around or eliminate it all together.

Not sure where to start with your budget? No problem. Download our retirement toolkit and utilize the Budget Template to help get you started.

5. Build Up Emergency Savings

We’re always optimistic about the future, but sometimes life takes surprising and difficult turns. Wise financial planning means being prepared for those situations.

Having cash available can help you through some of these hard times. Maybe the car breaks down or you need to find a new job. Having six months of cash on hand in a savings account can help out and keep you prepared for life’s ups and downs.

6. Save ’til it Hurts.

401(k). 403(b). 457(b). IRA. SEP. Simple. Deferred Comp. Roth.

Max it out.

Are you putting money aside for the long term? Does your employer have a 401(k) program? Do you have a personal investment account you contribute to?

Whatever it is, make sure you continue to think long-term for that beautiful retirement you’ve been dreaming of.

7. Wait Until Full Retirement Age to Take Social Security

There are all kinds of articles out there about what to do about your Social Security. Let us boil it all down: you don’t have to take it at 62!

When we build a financial plan, we calculate all options for optimizing Social Security, no matter how many times we do it, one thing becomes clear every time: it’s usually best to wait until your full retirement age to take Social Security.

There is also plenty of evidence to support wait until age 70 too as the 32% increase in benefit can be worth the wait. It’s ultimately your decision, and we suggest weighing your options before committing to collecting a 25-30% reduced benefit at age 62.

8. Have a Plan

Yep. Said it again.

If you’re not sure where to start with your financial plan, that’s OK. We can help.


 

Schedule a free consultation to talk through your finances and take the first step toward building a confident retirement.

Warren Street Wealth Advisors LLC. is a Registered Investment Advisor. The information posted 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 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.

The IRA and the 401(k)

The IRA and the 401(k)

Comparing their features, merits, and demerits. 

How do you save for retirement? Two options probably come to mind right away: the IRA and the 401(k). Both offer you relatively easy ways to build a retirement fund. Here is a look at the features, merits, and demerits of each account, starting with what they have in common.

Taxes are deferred on money held within IRAs and 401(k)s. That opens the door for tax-free compounding of those invested dollars – a major plus for any retirement saver. (1)

IRAs and 401(k)s also offer you another big tax break. It varies depending on whether the account is traditional or Roth in nature. When you have a traditional IRA or 401(k), your account contributions are tax deductible, but when you eventually withdraw the money for retirement, it will be taxed as regular income. When you have a Roth IRA or 401(k), your account contributions are not tax deductible, but if you follow Internal Revenue Service rules, your withdrawals from the account in retirement are tax-free. (1)  

Generally, the I.R.S. penalizes withdrawals from these accounts before age 59½. Distributions from traditional IRAs and 401(k)s prior to that age usually trigger a 10% federal tax penalty, on top of income tax on the withdrawn amount. Roth IRAs and Roth 401(k)s allow you to withdraw a sum equivalent to your account contributions at any time without taxes or penalties, but early distributions of the account earnings are taxable and may also be hit with the 10% early withdrawal penalty.1  

You must make annual withdrawals from 401(k)s and traditional IRAs after age 70½. Annual withdrawals from a Roth IRA are not required during the owner’s lifetime, only after his or her death. Even Roth 401(k)s require annual withdrawals after age 70½. (2)

Now, on to the major differences.

Annual contribution limits for IRAs and 401(k)s differ greatly. You may direct up to $18,500 into a 401(k) in 2018; $24,500, if you are 50 or older. In contrast, the maximum 2018 IRA contribution is $5,500; $6,500, if you are 50 or older. (1)

Your employer may provide you with matching 401(k) contributions. This is free money coming your way. The match is usually partial, but certainly, nothing to disregard – it might be a portion of the dollars you contribute up to 6% of your annual salary, for example. Do these employer contributions count toward your personal yearly 401(k) contribution limit? No, they do not. Contribute enough to get the match if your company offers you one. (1)

An IRA permits a wide variety of investments, in contrast to a 401(k). The typical 401(k) offers only about 20 investment options, and you have no control over what investments are chosen. With an IRA, you have a vast range of potential investment choices. (1,3)

You can contribute to a 401(k) no matter how much you earn. Your income may limit your eligibility to contribute to a Roth IRA; at certain income levels, you may be prohibited from contributing the full amount, or any amount. (1)

If you leave your job, you cannot take your 401(k) with you. It stays in the hands of the retirement plan administrator that your employer has selected. The money remains invested, but you may have less control over it than you once did. You do have choices: you can withdraw the money from the old 401(k), which will likely result in a tax penalty; you can leave it where it is; you can possibly transfer it to a 401(k) at your new job; or, you can roll it over into an IRA. (4,5)

You cannot control 401(k) fees. Some 401(k)s have high annual account and administrative fees that effectively eat into their annual investment returns. The plan administrator sets such costs. The annual fees on your IRA may not nearly be so expensive. (1)

All this said, contributing to an IRA or a 401(k) is an excellent idea. In fact, many pre-retirees contribute to both 401(k)s and IRAs at once. Today, investing in these accounts seems all but necessary to pursue retirement savings and income goals.


J Rucci

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors

 

 

 

Justin D. Rucci is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The 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 the content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.

1 – nerdwallet.com/article/ira-vs-401k-retirement-accounts [4/30/18]
2 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions [5/30/18]
3 – tinyurl.com/y77cjtfz [10/31/17]
4 – finance.zacks.com/tax-penalty-moving-401k-ira-3585.html [9/6/18]
5 – cnbc.com/2018/04/26/what-to-do-with-your-401k-when-you-change-jobs.html [4/26/18]

72(t) Distributions

72t Distributions

Sometimes you can take penalty-free early withdrawals from retirement accounts.

Do you need to access your retirement money early? Maybe you just want to retire before you turn 60 and plan a lifelong income stream from the money you have saved and invested. You may be surprised to know that the Internal Revenue Service allows you a way to do this, provided you do it carefully.

Usually, anyone who takes money out of an IRA or a retirement plan prior to age 59½ faces a 10% early withdrawal penalty on the distribution. That isn’t always the case, however. You may be able to avoid the requisite penalty by taking distributions compliant with Internal Revenue Code Section 72(t)(2).(1)

While any money you take out of the plan will amount to taxable income, you can position yourself to avoid that extra 10% tax hit by breaking that early IRA or retirement plan distribution down into a series of substantially equal periodic payments (SEPPs). These periodic withdrawals must occur at least once a year, and they must continue for at least 5 full years or until you turn 59½, whichever period is longer. (Optionally, you can make SEPP withdrawals every six months or on a quarterly or monthly basis.)(1,2)

How do you figure out the SEPPs? They must be calculated before you can take them, using one of three I.R.S. methods. Some people assume they can just divide the balance of their IRA or 401(k) by five and withdraw that amount per year – but that is not the way to determine them.(2)

You should calculate your potential SEPPs by each of the three methods. When the math is complete, you can schedule your SEPPs in the way that makes the most sense for you.

The Required Minimum Distribution (RMD) method calculates the SEPP amount by dividing your IRA or retirement plan balance at the end of the previous year by the life expectancy factor from the I.R.S. Single Life Expectancy Table, the Joint Life and Last Survivor Expectancy Table, or the Uniform Lifetime Table.(1,2)

The Fixed Amortization method amortizes your retirement account balance into SEPPs based on your life expectancy. A variation on this, the Fixed Annuitization method, calculates SEPPs using your current age and the mortality table in Appendix B of Rev. Ruling 2002-62.(1,2)

If you use the Fixed Amortization or Fixed Annuitization method, you are also required to use a reasonable interest rate in calculating the withdrawals. That interest rate can’t exceed more than 120% of the federal midterm rate announced periodically by the I.R.S.(1,3)

A lot to absorb? It certainly is. The financial professional you know can help you figure all this out, and online calculators also come in handy (Bankrate.com has a good one).

There are some common blunders that can wreck a 72(t) distribution. You should be aware of them if you want to schedule SEPPs.

If you are taking SEPPs from a qualified workplace retirement plan instead of an IRA, you must separate from service (that is, quit working for that employer) before you take them. If you are 51 when you quit and start taking SEPPs from your retirement plan, and you change your mind at 53 and decide you want to keep working, you still have this retirement account that you are obligated to draw down through age 56 – not a good scenario.(1)  

Once you start taking SEPPs, you are locked into them for five consecutive years or until you reach age 59½. If you break that commitment or deviate from the SEPP schedule or calculation method you have set, a 10% early withdrawal penalty could apply to all the SEPPs you have already made, with interest. (Some individuals can claim exceptions to this penalty under I.R.S. rules.)(3,4)

The I.R.S. does permit you to make a one-time change to your distribution method without penalty: if you start with the Fixed Amortization or Fixed Annuitization method, you can opt to switch to the RMD method. You can’t switch out of the RMD method to either the Fixed Amortization or Fixed Annuitization method, however.(2)

If you want or need to take 72(t) distributions, ask for help. A financial professional can help you plan to do it right.


J Rucci

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors

 

 

 

Justin D. Rucci 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 – irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments [12/19/17]
2 – fool.com/retirement/2017/05/19/use-your-retirement-savings-early-with-substantial.aspx [5/19/17]
3 – thebalance.com/how-to-use-72-t-payments-for-early-ira-withdrawals-2388257 [9/20/17]
4 – military.com/money/retirement/second-retirement/early-retirement-options.html [5/7/18]

The Solo 401k

The Solo 401k

A retirement savings vehicle designed for the smallest businesses.

A solo 401(k) lets a self-employed individual set up a 401(k) plan combined with a profit-sharing plan. You can create one of these if you work for yourself or for you and your spouse.(1)

Reduce your tax bill while you ramp up your retirement savings. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

*As an employee, you can defer up to $18,500 of your compensation into a solo 401(k). The yearly limit is $24,500 if you are 50 or older, for catch-up contributions are allowed for these plans.(1)

*As an employer, you can have your business make a tax-deductible, profit-sharing contribution of up to 25% of your compensation as defined by the plan. If your business isn’t incorporated, the annual employer contribution limit is 20% of your net earnings rather than 25%. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make using the methods in Internal Revenue Service Publication 560.(1,2)

*Total employer & employee contributions to a solo 401(k) are capped at $55,000 for 2018.(1)

Are you married? Add your spouse to the mix. If your spouse is a full-time employee of your business, then he or she can also make an employee contribution to the plan in 2018, and you can make another profit-sharing contribution on your spouse’s behalf. (For this to happen, your spouse must have net self-employment income from the business.)(2,3)

The profit-sharing contributions made by your business are tax-deductible. Annual contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) per year.(2,4)

You can even create a Roth component in your solo 401(k). You can direct up to $5,500 annually (or $6,500 annually, if you are 50 or older) into the Roth component of the plan. You cannot make employer contributions to the Roth component.(3)

Rollovers into the plan are sometimes permitted. Certain plan providers even allow hardship withdrawals (loans) from these plans prior to age 59½.(5)

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 full-time employees, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. There are no compliance testing requirements, and you will only need to file a Form 5500 annually with the I.R.S. once the assets in your solo 401(k) exceed $250,000.(4)

If you want to hire more employees, your solo 401(k) will turn into a standard 401(k) plan per the Internal Revenue Code. The good news is that you can present your new hires with an established 401(k) plan.(2,3)

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.(5)


J Rucci

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors

 

 

 

Justin D. Rucci 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 – irs.gov/retirement-plans/one-participant-401k-plans [10/25/17]
2 – mysolo401k.net/solo-401k/solo-401k-contribution-limits-and-types/ [2/13/18]
3 – doughroller.net/retirement-planning/solo-401k-best-retirement-plan-self-employed/ [5/21/17]
4 – tdameritrade.com/retirement-planning/small-business/individual-401k.page [2/13/18]
5 – thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/ [12/11/17]

Why Having a Financial Professional Matters

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]

Your Year-End Financial Checklist

Check ListSeven aspects of your financial life to review as the year draws to a close.

Provided by: Warren Street Wealth Advisors

                       

The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next…

 

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

 

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. Be sure to take your Required Minimum Distribution (RMD) from your traditional IRA(s) by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2015, that forces you into taking two RMDs next year, both taxable events.)1

   

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). The rise in the top marginal tax bracket for 2014 made fewer high-earning executives and business owners subject to the AMT, as their ordinary income tax liabilities grew. That calls for a fresh look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options and certain types of tax-advantaged investments.2

 

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

 

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2014 and 2015, meaning a taxpayer can gift as much as $14,000 to as many individuals as you like in each year without tax consequences. A married couple can gift up to $28,000 tax-free to as many individuals as they prefer. The gifts do count against the lifetime estate tax exemption amount, which climbs to $5.43 million per individual and $10.86 per married couple for 2015.3

 

You could also gift appreciated stocks to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

 

Besides outright gifts, you can plan other financial moves on behalf of your family – you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

 

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

 

Speaking of life events…did you happen to get married or divorced in 2014? Did you move or change jobs? Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, and even the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

 

Lastly, did you reach any of these financially important ages in 2014? If so, act accordingly.

 

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 62 this year? If so, you’re now eligible to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, and you retired during this year, you may now take distributions from your 401(k) account without penalty.

Did you turn 50 this year? If so, “catch-up” contributions may now be made to IRAs (and certain qualified retirement plans).1,5,6

 

The end of the year is a key time to review your financial well-being. If you feel you need to address any of the items above, please feel free to give me a call.

 

Warren Street Wealth Advisors

190 S. Glassell Streeet, Suite 209

Orange, CA 92866

Direct: 714-876-6200

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.
Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered
Investment Advisor. Warren Street and Cambridge are not affiliated.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   

Citations.

1 – irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29 [4/30/14]

2 – tinyurl.com/o7wqk7z [3/27/14]

3 – forbes.com/sites/ashleaebeling/2014/10/30/irs-announces-2015-estate-and-gift-tax-limits/ [10/30/14]

4 – philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]

5 – nolo.com/legal-encyclopedia/getting-retirement-money-early-without-30168.html [12/2/14]

6 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Tax-Tips-After-January-1–2015/INF12070.html [12/2/14]