The average person will have 12 jobs in their lifetime over a span of three to four decades (Zippia.com, May 19, 2021, Chris Kolmar). During this time, a lot can happen in a person’s life. Other than career moves, someone may get married, have children, move residences multiple times, divorce, remarry, inherit money or property, and encounter other serious life events that shape who we are as a person. All these things cost money too. While you cannot plan for some of these things, you could be better prepared by what you are doing beforehand.
One way to be better prepared is to consider consolidating your accounts as you go through life, such as when you change jobs or retire. There are many types of financial accounts. There are taxable accounts such as Single, Joint, and Trust, which are not retirement accounts. There are retirement accounts like Traditional and Roth IRAs (Individual Retirement Account) which the individual manages. These have more options for investments, more strategies available and, ultimately, more control. There are also employer sponsored plans like 401Ks, 403Bs, 457s and SIMPLE IRAs, all depending on where a person works. Not all these accounts should be consolidated into one. For example, when a person retires, they may not want to withdraw their 401K and deposit it into their savings account at their bank, unless they enjoy paying taxes. However, there are many benefits to consolidating accounts as you go through life. When money is invested, it’s usually done with a goal and timeframe in mind; a retirement date, buying a home, paying for grad school, children’s or grandchildren’s education, and so on. When accounts are consolidated, they may be easier to manage and could be implemented into an efficient strategy to reach your goal. For instance, if you plan to retire by a certain date, do you know how much you will need to save by then in order to live life on your terms? Congratulations if you do know this amount because that is the first step. Now that you know that, what is the return you will need from your investments to transform the amount you currently have into the amount required to enjoy retirement and be financially secure? What is the dollar amount you need to contribute on a regular basis to make this happen? If you have multiple accounts at multiple establishments working towards one goal it could be difficult to manage, inefficient and probably more costly. If you do not know the answers to the questions above then there really isn’t a plan, may be more like winging it. The value of a financial advisor is evident in this situation. It is usually in a person’s best interest to have one trusted advisor or team of advisors at one location where everyone is on the same page and knowledgeable of the client’s goals and financial situation. They can give answers to these questions specifically for you and your goals, and that’s just on the planning aspect of financial success. The benefits of consolidating accounts are paramount when it comes to the actual investments and how they are chosen and diversified to seek the returns that are required to reach your goals while also reducing your risk in volatile and precarious times. If you have two 401Ks and three IRAs floating around, all those accounts are supposed to be working to prepare you for retirement and your goals associated with it. But are the individual investments in each of those accounts actually doing that? Are they diversified or are you invested in a lot of the same companies and/or sectors? When money is left in employer sponsored plans after you have left that company there are strategies available that may be a huge benefit to you that are being missed. Some employer plans do not offer Roth options within their plan. When a rollover occurs from a 401K or 403B into a Traditional IRA, it may be beneficial to convert portions each year to a Roth IRA to take advantage of tax-free income in retirement. This must be determined on an individual basis and a person’s tax advisor should be included in the conversation, but it is well worth talking about. Another strategy that many people are not aware of is a 72T. This allows a person to avoid the early withdrawal penalty of 10% tax when a person wants to use their retirement money before they are 59.5 years young. This is extremely helpful for people that want to retire early. At Majestic Financial we take great pride in giving our clients advice and educating them to develop and implement plans and strategies that are in their best interest. It would be prudent to share the following information to align with these priorities. If you've changed jobs or are retiring, rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. Be sure to consider all your available options and the applicable fees and features of each option before moving your retirement assets. For additional information and what is suitable for your particular situation, please consult us. 1. Leave money in your former employer's plan, if permitted.
Lastly, consolidating accounts reduces the stress that comes from keeping track of multiple accounts at numerous places. Reducing excessive statements and paperwork, tax reporting and a plethora of calls (sometimes to 800 numbers where the investor is a number and not a person with a family with wants and dreams) goes a long way. Having one source for your financial planning is also helpful as an investor ages. Keeping track of Required Minimum Distributions (RMDs), which start when a person turns 72, is easier when accounts are organized with a trusted financial advisor. Also, when the time comes to pass these accounts and the wealth within them, families are very grateful to talk to one source that knew their family member rather than hunting around for statements and making many calls to make sense of things, especially at an already stressful time for everyone. It could make a lot of sense to consolidate accounts in an organized manner that is designed to optimize the resources that are available. A person’s life savings is a resource that requires responsible stewardship. That stewardship should come from one trusted advisor or a team of advisors that truly have the client’s best interest in mind. Please let Majestic Financial know if you, or someone you care about, have questions about this process or could benefit from a conversation regarding this. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. *Please be aware that the early distribution penalty tax exception, substantially equal periodic payments, available via Section 72(t) of the Internal Revenue Code, is subject to very specific guidelines, and thus, various factors should be carefully considered. Investors should understand the account value (net equity and/or principal balance) could potentially be exhausted if the distributions exceed the earnings and growth of the investment(s) in the account. Also, the ability to sustain substantially equal payments can be compromised if the account is exposed to higher volatility through higher risk or growth-oriented products. Always consult the advice of an independent tax professional prior to initiating 72(t) substantially equal periodic payments. We hope everyone had a terrific time over the holidays making memories with family and loved ones. Also, we hope people had opportunities to connect with the special people in their lives that they may not have been able to in the recent past. The holidays can be hectic and stressful, and we can often forget the truly meaningful times and traditions that make this time of year what it should be. These times of year can also bring about important conversations. These discussions can be hard and/or uncomfortable, but still extremely important and worth having.
This is a great time of year to reflect on how your financial plan may impact your family in the future. Do you have an estate plan? Do you have a strategy for what happens to your money when you are no longer here? Have you spoken to your loved ones about these things? We don't often like to think about these things, but it is important for you and your family to know exactly how your money gets distributed and spent when you are not here to make these decisions. Do you want an inheritance to go to your grandchildren even if they are young at the time of your death? Or would it be more prudent for you to determine that they get their inheritance at an older age, say 18 years old or even after college? Do you want to help guide how they use your inheritance by stating that you want it to be used for their education or as a down-payment on a home? Are there special charities that you would like to donate to? These are all things that can be laid out in an estate plan. My goal is not to try to explain estate planning and to do a deep dive into the subject in this post. I did not go to law school, and you probably do not have the time to read a compendium on the topic anyway. However, I would like to bring awareness to the importance of having an estate plan. Talk with any financial advisor and they probably have more than one story about a time when an estate plan should have been in place but wasn’t, which caused unnecessary stress, upset, possible turmoil and extra costs. Estate planning has many benefits, some are financial, and some are not. An estate plan can protect young children by possibly selecting a guardian if the parents pass at a young age, protect a person’s wealth from excess taxes and families from arguing amongst themselves. No family thinks the last one will happen to them until it does unfortunately. If an estate plan is in place, these issues can be avoided. Estate planning creates a strategy for either an individual or family that predetermines the transfer of assets in anticipation of death or incapacitation. The goal of an estate plan is to preserve the maximum amount of wealth possible for the beneficiaries while also taking into consideration the best interests and/or wishes of the account owner(s) while they are alive. An "estate" includes assets of money and property, both real estate and personal (for example cars, household items and bank accounts), owned by an individual prior to distribution through a trust or will. Depending on the individual or family, their financial situation, and the intentions they have for their assets, the estate planning process can be anywhere in between simple and very complex, and people should always consult a trusted and qualified estate attorney. There are many aspects that come together in a well thought out estate plan that include not only legal but also tax and cost considerations, both for the person making the estate plan and the beneficiaries. From a 30,000-foot view, an estate plan is created by taking inventory of everything a person or family owns and where it is. This, in itself, is a great exercise and hugely beneficial for people. It still surprises me how many accounts people have in various places for various reasons rather than being consolidated (not to mention the retirement accounts that are left stranded sometimes, and outright forgotten at times). Once inventory has been taken, then it can be determined what goes where when you are unable to make those decisions, either because of death or incapacitation. An estate plan can be implemented through things that most people have heard about such as wills and trusts but there are different types of trusts and certain strategies used within estate planning based on what the individual wants to achieve. Certain options are Revocable vs Irrevocable Trusts, Charitable Trusts (which go deeper with Charitable Lead Trusts vs Charitable Remainder Trusts), Special Needs Trusts and AB Trusts among others. Again, please speak with an estate attorney to explain more about each of these and others that I have not mentioned. The type of trust chosen depends on what the person wants to accomplish, and certain investments are better in some trusts compared to others, which is a perfect example of why a client’s estate attorney, tax advisor and financial advisor should all be part of the conversation. It is obvious that life is not stagnant. Once an estate plan is created, it is paramount to review your estate plan when your circumstances change. Life changes make it necessary to adjust or amend your estate plan. Things change during a lifetime, and we all need to be flexible and adjust, this is certainly no different for your estate plan. One of the biggest mistakes in estate planning that I encounter is when a person has a will or trust made decades ago and thinks everything is in good order without reviewing it. Life is busy and things change, and it can be easy to forget that you have an estate plan to update when very important things in life occur, for better or for worse. When you look back on when that legal document was made compared to when it is needed, what could have changed? A lot. Were people added to the family through birth, adoption, marriage, etc.? Are there people that were included in the estate planning document that are not present anymore due to divorce or death? How many times did that person move since the plan was made? Are there assets still included that shouldn’t be? Has the individual changed their wishes of what goes where? If that person is a business owner or has stake in a business, what has changed in that respect? It is extremely important to keep this aspect of your life current and up to date. Life changes fast and your estate plan should keep up with those changes. Lastly, once these documents are created, please let your loved ones or someone you trust know where they are in case you aren’t around, and the documents need to be used for the exact reason that they exist. Depending on family dynamics, include everyone that you feel needs to be part of the conversation. At Majestic Financial, we feel it is important to work as a team with your estate attorney. This way we can all be on the same page, all for your benefit. We strive to work well with all the professionals in your life to enable you the best probability to reach the goals in your life. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. When people hear "holistic financial planning," what does that mean? Most people know about retirement planning, preparing a monthly budget, life insurance, and tax returns each year. But most people may not know about how they all work together, and equally important, how do you personally do each part well to positively impact the others? A person can have a great retirement plan and sufficient money in it, but lack of emergency savings could ultimately drain a retirement account when an unexpected health issue arises, or a car breaks down. No one intentionally puts themselves or their family in a tough situation financially. It usually comes down to lack of knowledge due to not being interested, not knowing options, or not knowing that this important information exists. The advantage of having a financial advisor is to put these parts together, to create a plan that prepares you for life’s challenges and to discuss the options that are best for you to reach your goals.
Another professional that I would recommend is a tax advisor or CPA. They play a significant part of financial planning called tax planning. Having your financial advisor and your CPA partner together can improve your tax situation. Your tax situation is affected by your investments and all the other variables that make up your holistic financial plan. Therefore, having a partnership between your CPA and your financial advisor considers your bigger financial goals and ultimately benefits you more. There is information that you should be aware of to improve your tax, and overall, financial picture. This includes: 1) Knowing Your Tax Bracket: Knowing your tax bracket for the year is a good place to start for tax planning. There are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The tax bracket you are in depends on your taxable income, which is usually different than your annual salary. There is a calculation involved to determine this number which includes deductions, among other things. A common misconception regarding tax brackets is that your full taxable income is taxed at your tax bracket. Instead, the government divides your taxable income into portions and each portion is taxed at its related rate. 2) Tax Deductions versus Tax Credits: The difference between tax deductions and tax credits could mean a significant difference in taxes you owe, or tax returns you receive. Tax deductions are items that subtract from your taxable income. Tax credits are even more advantageous. They reduce your tax bill dollar for dollar. The best way to understand the difference is to think about how taxes are calculated and the order it is done. First, your Adjusted Gross Income, or AGI, is calculated, then your deductions are subtracted from this. Next, the rest of the tax equation is completed using this number. Tax credits, on the other hand, are subtracted last, usually resulting in a bigger reduction from your tax bill. 3) Standard versus Itemized Deductions: Regarding the difference between standard and itemized deductions, this is fairly straightforward and depends on the person and, often, their occupation. Standard deductions are a dollar amount that is set for each tax bracket and is adjusted each year for inflation. This amount is subtracted from your AGI as previously discussed. Itemized deductions consist of adding up each individual tax deduction for which you qualify. The trick is knowing which deductions you qualify for and keeping accurate and organized records of it to prove it. If these deductions are greater than the standard deduction you qualify for, then itemizing may be a better option for you. There are strategies available to make this an attractive option for some people, namely the self-employed. As with most important decisions, knowing your options is paramount. Knowing useful tax deductions and credits falls into this category. There are lists available to reference but some of the commonly known ones are: adoption, capital losses, charitable contributions, child tax credits, credit for the elderly or disabled, home office expenses, mortgage interest, medical expenses, property taxes, residential energy tax credits, and saver's credit. Using a tax advisor or CPA is extremely helpful in compiling this information specific to your situation. 4) Knowing Strategies Specific to Your Situation: The first strategy that can apply specifically to you is adjusting your W-4. The W-4 tells your employer how much tax to withhold from your paycheck. Depending on certain variables and previous tax bills, you may want to increase or reduce your withholding. This can be adjusted throughout the year. Contributing into a 401K, if it is offered to you, is another way to reduce your taxable income. For 2021, $19,500 is the limit for yearly contributions to these accounts and if you are 50 or older you can contribute up to $26,000. Contributing to an IRA can allow for tax deductions for certain eligible people. Six thousand dollars is the maximum amount for IRA accounts with $7,000 permissible to those 50 and older. Contributing to a Flexible Spending Account (FSA) or Health Savings Account (HSA) may also be beneficial for reducing taxable income depending on your unique situation. As with most things in life, a successful holistic and comprehensive financial plan relies on multiple components working together well. A financial plan can be thought of as an orchestra or sports team. There are roles for each investment and financial aspect of your life, and they must all be coordinated to best serve your ultimate financial goals. Tax planning is one important part of your holistic financial plan. It is important to know specific things about it that benefit your taxes and what to do about it. Tax planning doesn't take place only during tax season. Items you and your financial advisor can be aware of during the entire year include tax loss harvesting and capital gains being passed down by investments to investors, namely mutual funds. Being cognizant of what you can do throughout the year to improve your tax situation will ultimately benefit you and your loved ones in the immediate future and potentially for generations to come. Please let us know how we at Majestic Financial can help you or someone you care about. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Change happens. But these days it seems to be happening more.
Does your financial plan have you prepared for these potential changes in your life? Do you have a trusted advisor who you can turn to when change happens? At Majestic Financial, we understand that as you progress through life, your situation can change in many ways. Priorities change with each chapter of your life. Needs, wants, and wishes change as well. Others’ needs, wants, and wishes sometimes replace your own. At Majestic, we take a holistic approach to financial planning, from knowing your exact financial needs and future wants, to advising you in all "what if scenarios". For example, you plan on retiring in five years but suddenly get laid off. What is your best strategy moving forward that still lets you reach your retirement goals? Your adult child needs sudden help with major health care bills. Are you prepared? You want to be able to support your grandchild who fell on hard times after college. How do you do this while still allowing your assets to cover the retirement you desire. These are just some situations in which it pays to both have a comprehensive financial plan and a group you can trust. We help clients reach their goals by developing plans specifically for them and their situation. There is no one size fits all when it comes to investing. Everyone is different with unique goals, tolerances to risk, income levels, debts and various other ingredients that make up not only your financial picture but life situation as well. When we develop a plan, we discuss the financial numbers in your life, and even more importantly, we want to know about you personally, your family, goals and what is important to you. When we partner together to work in this way, a financial plan is no longer just a plan, it comes alive and can adapt with you as you experience inevitable changes. This hopefully makes the plan a lot more successful and the unexpected a lot less stressful. Change is inevitable in life. Life is not stagnant. We help you become aware of possible life changes that you will go through on your journey so you can be prepared and understand the options available to you to best navigate these situations. These changes could very well be opportunities. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Who remembers investing class in school? When did you learn exactly how much is adequate for you to have in emergency savings or the ideal amount you personally should invest in your retirement plan to pay for the life you dreamed of?
If you have answers to these questions, I am happy for you and very impressed. You are in the minority. Also, please let me know where you went to school because I wasn't aware investing class existed unless you were in a program to join my industry. The truth is that most people, if they are lucky, get this information from a caring parent telling them the importance of starting contributions to their work plan - "You'll never miss it" - or when they decide the time is right to seek professional advice. The unlucky find advice from conversations at the water cooler or, worse yet, from the internet which may not be as horrible as I am making sound, but I am certain this information is rarely personalized, which can be downright dangerous, especially with someone's life savings. All clients have heard me say "there is no one size fits all when it comes to investing or financial planning." No two people (or families or institutions or businesses) have the same tolerance to risk, goals in life, income, debt or any number of other variables that are needed to be taken into consideration when providing responsible financial advice. What do you want for yourself, your loved ones, business, legacy and/or charity in the future? When do you want it? Achieving your goals starts with a conversation that focuses on the answers to these questions and what is important to you. Please let us know if you want to learn more about our process, team and approach to help you be the best steward for the wealth you have or are building. Written by Leon Bennett, Chief Operating Officer, Majestic Financial, Financial Consultant, RJFS *Any opinions are those of Leon Bennett and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. |
This blog is a collective effort from the Majestic consultant trio, Sean Budlong, Brandon Wilkins, and Leon Bennett.
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