Tag Archive for: taxes

Your 2024 Year-End Planning Guide

/in , , , /by

As the year winds down, the hustle and bustle of the season can leave little room for financial reflection. But taking some time to review your finances now can help you close out the year on a strong note—and get your new year off to a great start. 

Here are some key items to consider before December 31 rolls around:

Unstick Your Cash … and Put It to Work

We all try to make the best decisions we can around money, but we’re not perfect. Despite our best efforts, we can miss things from time to time. 

Consider the “flypaper effect.” Jason Zweig, of The Wall Street Journal, uses the term to describe how money has a tendency to stick where it lands, even when we had other ideas for where it should end up. For many, this can happen when rolling over their employer-sponsored 401(k) retirement account into a personal IRA. According to research from Vanguard, nearly a third of savers who transferred their 401(k) balances into IRAs in 2015 still had those funds sitting in cash seven years later. This inertia can be costly. Vanguard estimates that cash-heavy IRAs cost Americans $172 billion annually in missed growth opportunities. 

As the end of the year approaches, take some time to review all your accounts to make sure all your savings have landed where you wanted them. 

It’s also okay—and in fact, often wise—to keep some money in cash, such as an emergency fund. But even these accounts are worth a review. If cash in your emergency fund is just sitting in a basic, zero-interest checking account, consider placing it in a money market, high-yield savings, or similar FDIC-backed account. There, the money should remain safe and readily accessible, while still offering a bit of interest income—especially while interest rates are still relatively high. 

Stay Updated on Retirement Account Rules

Typically, any required minimum distributions (RMDs) from your own or an inherited retirement account are due by year-end—so there’s no time to waste if you’ve not yet made any RMDs due. However, there are new rules for 2024 that could delay, or even eliminate, the need to make an RMD. As always, we recommend consulting with a tax specialist before taking any tax-planning action.

  • Roth 401(k) changes: Starting in 2024, RMDs are no longer mandatory for Roth 401(k) accounts. This was already true of Roth IRAs. If you don’t need income from your Roth 401(k) this year, leave it alone and let your savings continue to grow tax-free for as long as you like.
  • New spousal IRA benefits: If a younger spouse with an IRA passes away, the surviving spouse can now delay RMDs until the deceased would have turned 73. This allows for more years of tax-deferred growth, which can make a big difference in retirement savings over time.
  • RMD age increasing: For younger investors looking ahead, the age for RMDs will rise to 75 in 2033, again providing more time for tax-deferred growth as well as more flexibility in withdrawal strategies.

Maximize Your Gifts to Charity with Higher QCD Limits

December is a peak time for charitable giving. It’s the holidays, after all, and giving offers a meaningful way to support causes you care about while potentially reducing your 2024 tax bill. 

If you have RMDs due, one way to participate in tax-wise year-end giving is to replace some or all of your RMDs with qualified charitable distributions (QCDs) from your IRA directly to charity. This year, you may give up to $105,000 in QCDs, according to the IRS. This in turn, can lower or eliminate your RMDs, which would otherwise have been taxed at ordinary income rates. Lowering your reportable income may also help you avoid being pushed into a higher income tax bracket or subject to other tax deduction phaseouts.

Important Date Reminders

Some best practices are perennial, including keeping an eye on important dates. Naturally, there are a number of deadlines associated with year-end. For those who are itemizing deductions, it’s the deadline for 2024 tax-deductible charitable contributions. It’s also the last day you can fund your 401(k). You can contribute up to $23,000 in a 401(k) this year, and next year that limit increases to $23,500. Catch-up contributions for 401(k)s for individuals aged 50 and older is $7,500 for 2024. It will remain that way in 2025, but there will also be a higher catch-up contribution limit of $11,250 for those aged 60 through 63. 

IRAs and health savings accounts allow you to make 2024 contributions up until April 15, 2025. You’ve got a little bit of time, but the sooner you invest, the quicker you can put your money to work and take advantage of the power of compounding returns.

Rest and Recharge

While financial planning is essential, don’t overlook the importance of self-care. Amid the year-end flurry, a good night’s sleep might be one of the best investments you can make in your overall well-being, especially during the holidays. In fact, research suggests that better sleep health can reduce loneliness, spark stronger social connections, and foster positive emotional experiences.

And if it’s not better sleep, please take some time for yourself, whether it’s curling up with a good book, having dinner with friends, or taking a long walk with the dog. After all, one of the most important reasons we put so much effort into financial well-being is so we can build a more fulfilling life for ourselves and the ones we love. 

Wondering how else you can wind down 2024 and prepare for a fruitful 2025? Reach out and let’s talk.

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.

Mastering Tax Season: Top 5 Tips for a Smooth Filing Process

/in , , /by

Tax season is upon us, and while it may not be everyone’s favorite time of the year, being well-prepared can make the process much smoother. To help you navigate the complexities of tax filing, here are our top 5 tax season tips:

1. Download Your Tax Documents Online

In the digital age, many financial institutions issue tax documents exclusively online, skipping the traditional postal route. As you gear up for tax season, ensure that you’ve received a tax form from every expected institution. Log in to your online accounts and download the necessary documents. Stay proactive and make sure nothing slips through the cracks.

2. Gather Documents Early 

Most tax documents are available by mid-February, so start gathering them early. This proactive approach gives you ample time to review the information, identify any discrepancies, and seek clarification from the issuing institution if necessary. Being ahead of the game can significantly reduce stress as the filing deadline approaches.

3. Embrace E-File and Direct Deposit

E-filing and direct deposit have become the preferred methods for both filing returns and receiving or paying tax refunds. The IRS can be sluggish when it comes to processing paper mail, leading to delays in refunds or acknowledgments. Save time and expedite the process by opting for electronic filing and direct deposit for a more efficient and secure experience.

4. Keep Copies for Seven Years 

Once your tax return is filed, keep copies of your tax returns and all supporting documents for a minimum of seven years. This ensures that you have a comprehensive record of your financial history in case of audits, inquiries, or future financial planning. 

5. Review Previous Returns

Look out for specific items such as Capital Loss Carryforwards and Form 8606 (IRA Basis). If you’ve changed tax preparers or tax software in recent years, there’s a chance that crucial information may have been overlooked. Rectify any discrepancies and ensure that your current return reflects the most accurate and up-to-date financial information

By incorporating these top 5 tax season tips into your filing routine, you’ll not only streamline the process, but also gain confidence in the accuracy of your returns. So, gear up, gather those documents, and tackle tax season with ease! 

Emily Balmages, CFP®

Director of Financial Planning, 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.

Do I Have Enough to Sell My Business?

/in , , /by

As a business owner, you’ve spent your life’s work growing your business, taking care of employees, managing your product or service, and looking after your people. Now, you may be getting to a point where your spouse tells you you work too much. Or perhaps you’re watching the clock more than you used to, counting down the minutes until you can head home and unplug from your “boss” responsibilities.

Whatever your reasoning, if you’re starting to ask questions like, “Do I have enough to sell?” and “Will that be enough?” then it’s time to focus on you for a change.

Why Business Owners Need Specialized Financial Planning

Business owners face a unique set of financial challenges and opportunities. Whether you are a small business owner or running a large corporation, the following considerations are critical:

  • Maximizing tax efficiency
  • Choosing the most appropriate retirement account type
  • Evaluating your retirement account options
  • Managing 401(k) and pension investments
  • Considering a defined benefit plan, i.e., “pension”
  • Aligning company benefits offerings with company goals

Our team specializes in helping business owners handle these and other issues while they’re still working. During those years, we help you work through proper planning techniques to diversify your assets, reduce risk, optimize your taxes, and offer competitive benefits. All of these steps help streamline and strengthen your business at the time — but they also set you up for a successful transition into retirement or your next business opportunity.

When you do get to the point of exiting, we help you bring all of this planning together into one critical decision: whether or not you have what you need to move on from your business and into your ideal retirement, whatever that looks like for you. 

Creating a Dream Retirement

At Warren Street, we’ve helped many business owner clients over the years answer the “Do I have enough to sell?” question and develop their exit strategies accordingly. 

If you choose to work with us during your own exit process, we’ll play a key role on your professional team alongside your attorney. While your attorney looks after the legal structure of the deal, we’ll handle related asset management and tax mitigation. For example, if you’re involved in an all-cash sale with multiple payments coming in the next few years, we will discuss tax deferral opportunities to add into your transition plan. Or, if you’re struggling with a go/no-go decision, we’ll conduct scenario planning to help you make an informed choice based on your current financial situation, projected future state, and personal goals.

No matter where you are in the exit planning process, we can help evaluate your current assets, investments, estate planning, and legacy goals, so you can make a clear and confident decision on what next steps are right for you.

If this sounds like you and you’re a current Warren Street client, please mention your interest to your Lead Advisor! Or, if you’re not a client but are interested in learning how we can help, schedule a complimentary introductory call with us. We hope to hear from you and look forward to exploring how we can make your post-exit dreams a reality.

Cary Facer

Partner Emeritus, 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.

3 Financial Best Practices for Year-End 2023

/in , , /by

Scan the financial headlines these days, and you’ll see plenty of potential action items vying for your year-end attention. Some may be particular to 2023. Others are timeless traditions. Here are our three favorite items worth tending to as 2024 approaches… plus a thoughtful reflection on how to make the most of the remaining year.  

1. Bolster Your Cash Reserves

With some high yield savings options currently offering ~5%+ annual interest rates, your fallow cash is finally able to earn a nice little bit while it sits. Sweet! Two thoughts here: 

Mind Where You’ve Stashed Your Cash: If your cash savings is still sitting in low- or no-interest accounts, consider taking advantage of the attractive rates available in other options. If you’re unsure where to start, we can help you figure out whether a high yield savings account, a CD, or treasury bonds may make sense for you. Your cash savings typically includes money you intend to spend within the next year or two, as well as your emergency, “rainy day” reserves.

Put Your Cash in Context: While current rates across many accounts are appealing, don’t let this distract you from your greater investment goals. Even at today’s higher rates, your cash reserves are eventually expected to lose their spending power in the face of inflation. Today’s rates don’t eliminate this issue … remember, inflation is also on the high side, so that 5% isn’t as amazing as it may seem. Once you have your cash stashed in those high-interest savings accounts, you’re likely better off allocating your remaining assets into your investment portfolio—and leaving the dollars there for pursuing your long game.  

2. Polish Your Portfolio

While we don’t advocate using your investment reserves to chase money market rates, there are still plenty of other actions you can take to maintain a tidy portfolio mix. For this, it’s prudent to perform an annual review of how your investments are growing. Year-end is as good a milestone as any for this activity. For example, you can: 

Rebalance: In 2023, year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within your tax-sheltered accounts. If you are an existing Warren Street client, this is already being handled on your behalf.

Relocate: With your annual earnings coming into focus, you may wish to shift some of your investments from taxable to tax-sheltered accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For many of these, you have until next April 15, 2024 to make your 2023 contributions. But you don’t have to wait if the assets are available today, and it otherwise makes tax-wise sense. 

Redirect: Year-end can also be a great time to redirect excess wealth toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the assets to work right away. 

3. Minimize Your Taxes

Speaking of taxes, there are always plenty of ways to manage your current and lifetime tax burdens—especially as your financial numbers and various tax-related deadlines come into focus toward year-end. For example:

RMDs and QCDs: Retirees and IRA inheritors should continue making any obligatory Required Minimum Distributions (RMDs) out of their IRAs and similar tax-sheltered accounts. With the 2022 Secure Act 2.0, the penalty for missing an RMD will no longer exceed 25% of any underpayment, rather than the former 50%. But even 25% is a painful penalty if you miss the December 31 deadline. If you’re charitably inclined, you may prefer to make a year-end Qualified Charitable Distribution (QCD), to offset or potentially eliminate your RMD burden. 

Harvesting Losses … and Gains: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2023, to offset current or future taxable gains from your account. As long as long-term capital gains rates remain in the relatively low range of 0%–20%, tax-gain harvesting might be of interest as well. Work with your tax-planning team to determine what makes sense for you. If you are an existing Warren Street client, we will automatically tax loss harvest for you.

How else can we help you tend to your 2023 plans and till the soil for 2024? Please be in touch for additional ideas and best-practice advice. 

Cary Facer

Partner Emeritus, 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.

Why We Believe Social Security Will Endure

/in , , , /by

In planning for retirement, one topic is often top of mind: whether or not Social Security will still be around when we retire.

As we covered in a related post, When Should You Take Your Social Security, most of us have been paying into the program our entire working life. We’re counting on receiving some of that money back in retirement. 

But then there are those headlines, warning us that the Social Security trust fund is set to run dry around 2034. 

Does this mean you should grab what you can, as soon as you’re able? Let’s explain why we agree with Social Security specialist Mary Beth Franklin, who suggests the following: 

“While there may be good reasons to file for reduced Social Security benefits early, claiming Social Security prematurely out of fear is a bit like selling stocks in a down market: All you’ve guaranteed is that you’ve locked in a loss. And if future benefit cuts did materialize, the benefits of those who claimed as soon as possible would be reduced even further.” 

— Mary Beth Franklin, InvestmentNews

Still, Social Security Will Likely Change 

While we don’t expect Social Security to go bust, we do expect it will need to change in the years ahead. As its trustees have reported:

“Social Security is not sustainable over the long term at current benefit and tax rates … [and] trust fund reserves will be depleted by 2034.”

But let’s unpack this statement. First, “depleted” does not mean the Social Security Administration is going to turn out the lights and go home. It means it could run out of trust fund reserves by then, which are used to top off the total amount spent on Social Security benefits. There are still payroll taxes and other sources to cover more than 77% of the program’s payouts. So, worst case, if we did nothing but wait for the reserves to run out, we’d be forced to make hard choices about an approximate 23% shortfall starting around 2034.  

Admittedly, Social Security is between a rock and a hard place. Nobody wants to lose benefits they’ve been counting on or spend significantly more to maintain the status quo. But if we don’t do something to shore up the program’s reserves, our options will likely only worsen. 

In this context, the political will to reform Social Security seems strong, and bipartisan. As Buckingham Strategic Partners retirement planning specialist Jeffrey Levine has observed: 

“My gut sense is that practically no politician in America would ultimately be happy having to explain to voters why they let Social Security collapse on their watch … That’s not a great message to have to bring to voters, especially older voters who show up at the polls in the greatest numbers.”

As members of Congress wrangle over the “best” (or least abhorrent) solutions for their constituents, they have been submitting proposals behind the scenes, and the Social Security Administration has been weighing in on the estimated effect for each. 

Time will tell which proposals become legislated action, but the range of possibilities essentially falls into two broad categories: We can pay more in, or we can take less out. Most likely, we’ll need to do a bit of both. 

Possible Ways to Pay More In

To name a few ways to replenish Social Security’s reserves, Congress could: 

  1. Raise the cap on wages subject to Social Security tax: As of 2023, earnings beyond $160,200 per year are not subject to Social Security tax. There’s been talk of increasing this cap, eliminating it entirely, or reinstating it for income beyond certain high-water marks.
  1. Increase the Social Security tax rate for some or all workers: Currently, employers and employees each pay in 6.2% of their wages, for a total 12.4% up to the aforementioned wage cap. (This does not include an additional Medicare tax, which is not subject to the wage cap.) As cited in a September 2022 University of Maryland School of Public Policy report, “73% (Republicans 70%, Democrats 78%) favored increasing the payroll tax from 6.2 to 6.5%.” 
  1. Increase the tax on Social Security payouts, and direct those funds back into the program: Currently, if your “combined income” exceeds $44,000 on a joint return ($34,000 on an individual return), up to 85% of your Social Security benefit is taxable, as described here. Anything is possible, but taxing retirees more heavily seems less politically palatable than some of the other options. 
  1. Identify new funding sources: For example, one recent bipartisan proposal would establish a dedicated “sovereign-wealth fund,” seeded with government loans. Presumably, it would be structured like an endowment fund, with an investment time horizon of forever. In theory, its returns could augment more conservatively invested Social Security trust fund reserves. Other proposals have explored a range of potential new taxes aimed at filling the gap. 

Options for Taking Less Out

We could also cut back on Social Security spending. Some of the possibilities here include:

  1. Reducing benefits: Payouts could be cut across the board, or current bipartisan conversations seem focused on curtailing wealthier retirees’ benefits. 
  1. Extending the full retirement age: There are proposals to extend the full retirement age for everyone, or at least for younger workers. This would effectively reduce lifetime payouts received, no matter when you start drawing benefits. 
  1. Tinkering with COLAs: There are also bipartisan conversations about replacing the benchmark used to calculate the Cost-of-Living Adjustment (COLA), which might lower these annual adjustments in some years. 

These are just a few of the possibilities. Some would impact everyone. Others are aimed at higher earners and/or more affluent Americans. It’s anybody’s guess which proposals make it through the political gamut, or what form they will take if they do. 

Should You Take Your Social Security Early? 

So, given the uncertainties of the day, should you start drawing benefits sooner than you otherwise would? An objective risk/reward analysis helps guide the way. 

Many investors feel “safer” taking their Social Security as soon as possible, to avoid losing what seems like a bird in the hand. However, the appeal of this approach is often fueled by deep-seated loss aversion. Academic insights suggest we dislike the thought of losing money about twice as much as we enjoy the prospect of receiving more of it. Thus, we tend to cringe more over a potential loss of promised benefits than we factor in the substantial rewards we stand to gain by waiting. Put another way: 

You’re not reducing your financial risks by taking Social Security early. You’re only changing which risks you’re taking. In exchange for an earlier and more assured payout, you’re also accepting a permanent, cumulative cut to your ongoing benefits. 

If this still seems like a fair trade-off, consider that Social Security is one of the few sources of retirement income ideally structured to offset three of retirement’s greatest risks: 

  1. Life expectancy risk: In an annuity-like fashion, Social Security is structured to continue paying out, no matter how long you and your spouse live. 
  2. Inflation risk: The payouts are adjusted annually to keep pace with inflation. 
  3. Market risk: Even in bear markets, Social Security keeps paying, with no drop in benefits.  

In short, if you are willing and able to wait a few extra years to receive a permanently higher payout, you can expect to better manage all three of these very real retirement risks over time. 

This is not to say everyone should wait until their Full Retirement Age or longer to start taking Social Security. When is the best time for you and your spouse to start drawing benefits? Rather than hinging the decision on uncontrollable unknowns, we recommend using your personal circumstances as your greatest guide. Consider the retirement risks that most directly apply to you and yours, and chart your course accordingly. 

But you don’t have to go it alone. Please be in touch if we can assist you with your Social Security planning, or with any other questions you may have as you prepare for your ideal retirement.

Emily Balmages, CFP®

Director of Financial Planning, 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.

When Should You Take Your Social Security?

/in , , , /by

Ever since President Franklin D. Roosevelt signed the 1935 Social Security Act, most Americans have pondered this critical question as they approach retirement: 

“When should I (or we) start taking my (or our) Social Security?”

And yet, the “right” answer to this common query remains as elusive as ever. It depends on a wide array of personal variables, including how the unknowable future plays out. 

No wonder many families find themselves in a quandary when it comes to taking their Social Security benefits. Let’s take a closer look at how to find the right balance for you.

Social Security Planning: A Balancing Act

For Social Security planning purposes, you reach full retirement age (FRA) between ages 66–67, depending on the year you were born. However, you can generally begin drawing Social Security benefits as early as age 62 (with the lowest available monthly starting payments) or as late as age 70 (for the highest available monthly starting payments). 

Retirees are often advised to wait at least until their full retirement age, if not until age 70 to begin taking Social Security. In raw dollars, waiting to take your Social Security often works out to be the best deal for many families. Plus, these days, many of us choose to work well into our 60s, 70s, and beyond. Some analyses have even factored in the cost of spending down other assets while you wait, rather than using them for continued investment growth. The conclusion is the same. 

However, you’re not “many families.” You’re your family. Your personal and practical circumstances may mean this general rule of thumb won’t point to your best choice. Following are some of the most common factors that may influence whether to start taking Social Security sooner or later. 

  • Alternative Income Sources: First, and perhaps most obviously, if you have few or no alternative income sources once your paychecks stop, you may not have the luxury of waiting. You may need to start taking Social Security as soon as possible. 
  • Life Expectancy: If you’re considering the benefits of waiting until age 70 to take Social Security, remember that this strategy assumes you live to at least the average age someone your age and gender is likely to reach. Even if you can afford to wait, you’ll want to factor in whether your health, lifestyle, and family history justify doing so. 
  • Estate Planning: Have you placed a high or low priority on leaving as much as possible to your heirs and/or favorite charities after you pass? Your preferences here may influence how, and from where you’ll spend down your inheritable estate, which in turn may influence the timing of your Social Security enrollment. 
  • Employment: How likely is it you’ll keep working until your FRA? Once you reach it, you can collect full Social Security benefits, even if you’re still working. But until then, your earnings may reduce your Social Security benefits.
  • Marital Status: If you’re married, one of you has probably paid in more to Social Security. One is likely to live longer. You may retire at different times, and your ages probably differ. All these factors can complicate the equation. You’ll want to consider the timing, rules, and outcomes under various scenarios—such as when and whether to take Social Security as an earner, the spouse of an earner, the widow or widower of an earner, or an ex-spouse of an earner—while also factoring in whether you and/or your spouse are still working prior to your FRAs, as described above. Ideal start dates for one scenario may not be ideal for another. 
  • Other Circumstances: Beyond your marital status, there are other factors that may influence your timing decisions if they apply to you—such as if you’re a business owner, you live abroad, you qualify for Social Security Disability, or your children qualify for Social Security benefits under your account. 
  • Income Taxes: We find many pre-retirees don’t realize that up to 85% of their Social Security income may be taxable. Your annual Social Security income also figures into your modified adjusted gross income (MAGI), which can push you past thresholds for incurring Medicare surcharges (beginning at age 65, based on your MAGI from two years prior). Bottom line, broad tax planning may influence your timing as well. 

Degrees of Control 

Clearly, there’s a lot to think about when deciding when to start taking Social Security. Whether you’re going it alone or with a financial planner, here’s one piece of advice that should help: 

Control what you can. Let go of what you can’t.

What do we mean by that? There are many known factors you can include in your Social Security planning. You know your marital status. You can access your Social Security account and/or use a calculator to estimate your benefits. You can make educated guesses about your life expectancy, how long you’ll work, and so on. Also, if you’ve delayed taking Social Security past your FRA, you may be able to change your mind … to a point. You can file to collect up to six months of retroactive benefits if you end up needing the income sooner than planned. 

You can use all of this planning information and more to make reasonable assumptions and timely decisions about when to take your Social Security. 

After that, we recommend going easy on yourself if (or more realistically, when) some of your plans don’t go as planned. Come what may, you’ve done your best. Instead of channeling energy into regretting good decisions, use it to make judicious adjustments whenever new assumptions arise. By consistently focusing on what we know rather than what we hope or fear, we remain best positioned to shift course as warranted in the face of adversity. 

Whether you’re planning to file for Social Security or you’re already drawing it, we appreciate the opportunity to help you and your family make good choices about when, and how to manage your available options. We hope you’ll contact us today to learn more.

Cary Facer

Partner Emeritus, 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.

Five Financial Best Practices for Year-End 2022

/in , , , /by

To say the least, there has been plenty of political, financial, and economic action this year — from rising interest rates to elevated inflation to ongoing market turmoil. 

How will all the excitement translate into annual performance in our investment portfolios? The answer remains to be seen. But, while we wait to find out, here are five action items worth tending to before 2022 is a wrap. 

  1. Revisit Your Cash Reserves

Where is your cash stashed these days? After years of offering essentially zero interest in money markets, savings accounts, and similar platforms, some banks are now offering higher interest rates to savers. 

Shop around: If you have significant cash saved up, now may be a good time to compare rates on cash accounts. We can help if you need guidance exploring the options.

  1. Put Your Money to Work

If you’re sitting on more cash than you need in your emergency reserve, you may be able to put it to even better use under current conditions. Consider the following:

Lighten your debt load: Carrying high-interest debt is a threat to your financial well-being, especially in times of rising rates. Consider paying off credit card balances or other debts. Avoid accruing new debt during the holiday season. 

Invest: Reach out to your lead advisor to determine what your opportunities are to put some cash to work in the markets.

  1. Make Some Smooth Tax-Planning Moves 

Another way to save more money is to pay less in taxes. Here are a couple of year-end ideas: 

It’s still harvest season: Market downturns often present opportunities to engage in tax-loss harvesting by selling taxable shares at a loss, and promptly reinvesting the proceeds in a similar (but not identical) fund. You can then use the losses to offset taxable gains, without significantly altering your investment mix. If you have a non-retirement brokerage account with us, we’ve already been doing this on your behalf.

Maximize tax opportunities: Make sure you are taking advantage of your 401(k) and other tax-deferred investment opportunities. With only a few paychecks left in 2022,  you’ll want to make sure your contributions are optimized.

  1. Check Up on Your Healthcare Coverage 

As year-end approaches, make sure you and your family have made the most of your healthcare coverage. Take a moment to examine all your benefits. For example, if you have a Health Savings Account (HSA), have you funded it for the year? If you have a Flexible Spending Account (FSA), have you spent any balance you cannot carry forward? If you’ve already met your annual deductible, are there additional covered expenses worth incurring before the meter resets in 2023? If you’re eligible for free annual wellness exams or other benefits, have you used them?   

  1. Get Set for 2023 

Why wait for 2023 to start anew? Year-end can be an ideal time to take stock of where you stand and consider what you’d like to achieve in the year ahead.  

Audit your household interests: What has changed, and what hasn’t? Have you shifted careers or decided to retire? Added new hobbies or encountered personal setbacks? How might these and other significant life events alter your ideal investment allocations, cash-flow requirements, insurance coverage, or estate plan?

How Can We Help?

How else can we help you wrap 2022 and position you and your loved ones for the year ahead? 

Whether it’s helping you manage your investment portfolio, optimizing your tax planning, considering your cash reserves, weighing insurance offerings, or assessing any other components that contribute to your financial well-being, we stand ready to assist — today, and through the years ahead. 

Cary Facer

Partner Emeritus, 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.

What Is Custom Indexing, and Is It Right for Me?

/in , /by

If you’ve ever felt that mutual funds and ETFs don’t give you enough control over the individual stocks you want to invest in — or don’t want to invest in — you’re not alone.

Clients over the years have shared with us that they want to own individual stocks. However, one of the hidden benefits of owning individual stocks are the after-tax returns generated through tax-loss harvesting. You may ask, “why are we hearing about this now?” Well, the reality is the technology did not exist.

The Freedom of Custom Indexing

We have good news: with the addition of Warren Street’s new custom indexing platform, you now have the ability to “custom index” — in other words, set the parameters on the exact types of stocks you’d like to invest your money.

Unlike ETFs and mutual funds that only offer pre-packaged asset mixes, custom indexing lets you personalize your investments to your individual values, preferences, and goals. Custom indexes are implemented through separately managed accounts (SMA), which allow you to directly own a mix of individual securities rather than indirectly owning positions through shares of funds and ETFs.

This can be an especially helpful option for individuals who may want to:

  • Reduce concentrated stock risk (e.g., employer stock)
  • Custom-build a portfolio to support ESG stocks
  • Offset embedded gains with cash or tradable securities
  • Invest in an individual stock portfolio with factor tilt

If custom indexing is a good fit for you, your advisor will discuss your goals, preferences, risk tolerance, and tax positioning. Then, he or she will help you design your custom portfolio from scratch, based on considerations such as asset allocation, factors, tax-loss harvesting, and values-based screens.

Ideal Clients for Custom Indexing

While custom indexing offers you some great advantages in selecting individual stocks, it only really benefits clients that meet certain account levels and qualifications, due to tax and expense considerations.

Ideal clients for custom indexing generally include those with:

  • At least $500,000 in a taxable, non-retirement account
  • Recurring cash contributions
  • A high-income tax bracket (Fed/State)
  • Preferred individual stock exposure over funds

Through direct indexing, custom indexing can replicate broad market exposure by investing in the underlying positions of an index fund or ETF. This helps us efficiently manage your taxes (if you meet the above qualifications) and gives you virtually infinite portfolio customization capabilities.

Interested in learning more? For a full deep-dive into our custom indexing platform, check out the attachment linked below. And feel free to reach out to your lead advisor if you think you might be a good fit!

Custom Indexing Tear Sheet

Blake Street, CFA, CFP®

Founding Partner and Chief Investment Officer, 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.

Six Financial Best Practices for Year-End 2021

/in , , , /by

Believe it or not, another year has rounded third base, and is dashing toward home plate. That said, there’s still time to make a few good plays in 2021, while positioning yourself to score more in the year ahead. Here are six financial best practices for the record books.

1. Keep Your Eye on the Ball. While there are always distracting trading temptations, it seems as if 2021 has had more than its fair share of them. Remember the January excitement over GameStop and its ilk? That frenzy was soon followed by “SPAC-Man” Chamath Palihapitiya, tweeting out “Shooters shoot” to his disciples, as SPACs started flying every which way. Tradeable memes and non-fungible tokens (NFTs) became a thing around then too, followed by the pursuit of fluffy little dogecoins.

Our Best-Practice Advice: Instead of swinging at fast fads, we encourage you to lean into the returns our resilient global markets are expected to deliver over time. As always, this means looking past the wild throws and building a low-cost, globally diversified portfolio, tailored for your personal financial goals and risk tolerances. Isn’t that your aim to begin with?

2. Revisit Your Saving and Spending. COVID changed a lot of things, including our saving and spending patterns. Stimulus and unemployment checks offered cash flow relief for many families. Business owners received generous loans. Moratoriums on paying off college debt or being penalized for dipping into retirement savings helped as well. Retirees were permitted to skip taking Required Minimum Distributions (which is NOT the case in 2021).

Our Best-Practice Advice: As these and similar relief programs wind down, now is an excellent time to recalibrate your own financial plans. If you borrowed from your future self by withdrawing from or not adding to your retirement reserves, please establish a disciplined schedule for paying yourself back. If you became accustomed to spending less on items you used to think you couldn’t live without, try directing those former expenditures to restoring your retirement and rainy-day funds. Work with a financial planner to assess other ways your budgeting may benefit from a fresh take. Every little bit counts!

3. Watch for Fund Distributions. Even as we’ve continued to weather the pandemic storm, our forward-looking, global markets have been delivering relatively strong returns year-to-date for many foreign/U.S. stock funds. That’s good news, but it also means mutual funds’ capital gain distributions may be on the high side this year. Capital gain distributions typically occur in early December, based on the fund’s underlying year-to-date trading activities through October. For funds in your tax-sheltered accounts, the distributions aren’t taxable in the year incurred, but they are for funds held in your taxable accounts.

Our Best-Practice Advice: Taxable distributions aside, staying put to earn all potential market returns is the more important determinant in our buy-and-hold approach. With that said, in your taxable accounts only, if you don’t have compelling reasons to buy into a fund just before its distribution date, you may want to wait until afterward. On the flip side, if you are planning to sell a fund anyway—or you were planning to donate a highly appreciated fund to charity—doing so prior to its distribution date might spare you some taxable gains.

4. Consider Tax Gain Harvesting. Along with relatively strong year-to-date market performance, many Americans are also benefiting from historically lower capital gain and income tax rates that may or may not last. Often, taxpayers view each tax season in isolation, seeking to minimize taxes owed that year. We prefer to view tax planning as a way to reduce your lifetime tax bill. Of course, we can’t know what your future taxes will be. But it can sometimes make good, big-picture sense to intentionally generate taxable income in years when tax rates seem favorable.

Our Best-Practice Advice: If you have “room” to take some taxable capital gains this year—and if it actually makes sense for you to take them—you may want to consider working with your tax planning team to do so. 

5. Seize the Day on Your Charitable Giving. Unlike many other pandemic-inspired tax breaks, several charitable-giving incentives still apply for 2021, but may not moving forward. This includes the ability for single/joint filers to deduct up to $300/$600 in cash contributions to qualified charities, even if they’re already taking the standard deduction on their tax return. If you’re so inclined, you also can still donate up to 100% of your AGI to qualified charities.

Our Best-Practice Advice: Charitable giving remains another timeless tactic for offsetting taxable capital gains you may want or need to report, as well as any other extra taxable income you may be incurring. And charitable organizations need our contributions as sorely as ever. So, if you’re charitably inclined, you may as well make the most of your generosity by pairing it with your 2021 tax planning.

6. Plan Ahead for Estate Planning. Holiday shoppers may not be the only ones facing supply chain shortages this year. Estate planning attorneys, CPAs, and similar planning professionals may also be in shorter supply toward year-end and beyond. In addition to the usual year-end crunch, many such service providers have been extra busy responding to a “COVID estate planning boom,” as well as to the fast-paced action in Washington.

Our Best-Practice Advice: If you’ve been thinking about revisiting your estate or tax planning activities, know that the process may take longer than usual. Especially if you’re planning for changes that are up against a hard deadline (such as year-end or April 15th), you’ll benefit yourself by giving your attorney, accountant, and others the time they need to do their best work for you. High-end estate planning in particular is best approached as a months-long, if not years-long process.

How else can we help you wrap 2021 and position yourself and your wealth for the year ahead? As always, we stand ready to assist!

Cary Facer

Partner Emeritus, 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.