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Most people have a hobby of some kind. Something they do that isn’t work-related, that makes them feel inspired, and makes their free time more fulfilling. Investing in your hobby may be a way to create another touch point between you and your real passion. Plus, you may have some insight that gives you an advantage over other investors.
The traditional investment markets offer limited opportunities for any creativity or means of self-expression. Mutual funds, exchange traded funds, easy access to information, low-cost trading, and turn-key platforms make traditional investing an administrative endeavor. This traditional investing, done consistently, is the real key to long-term investing success. However, it doesn’t usually ignite anyone's zeal for investing or zest for living. (Unless, of course, you're an investment advisor trying to keep clients on track for retirement. Hi.) Why not look for investments that align with your real passions? These non-traditional investments may offer the possibility of investment returns, but they’ll also keep you engaged with your total investment portfolio. Check your asset allocation, and while you’re at it…how’s that new vineyard coming along? Did the young golfer you sponsored get their tour card? What if your favorite new song also paid you royalties? Tell your friends to go see this cool indie film because it’s really good, and also because you helped with the financing. Several platforms offer access to non-traditional assets that are targeted toward enthusiasts. Some of these platforms are: Vinovest - Wine & whiskey Yieldstreet - Staggering number of alternative investment opportunities Masterworks - Art Fundrise - Real estate, private equity, private credit Kickstarter - Crowdfunding, early-stage venture capital Carry - Young professional golfers FarmTogether - Farm land SongVest - Music royalties Royalty Exchange - Music royalties Wefunder - Broad range of opportunities in technology, manufactured goods and entertainment MovieInvestor - Independent films Many more platforms offer access to other hobbies and areas of interest. A few sports teams offer fans a means to be part of the owners group. You can purchase shares in your favorite football (soccer) club. Manchester United, Arsenal, Celtic, Borussia Dortmund, AS Roma and Juventus all have stock that you can purchase (with varying degrees of difficulty for US-based investors). Oddly, the Atlanta Braves and Green Bay Packers are the only major American sports franchises that offer any sort of direct investment. One would think American sports team owners would jump at the chance to sell some non-voting shares to rabid fans. Investing in your passion can be fun and interesting, but these investments do have some risks.
It's important that you go into these investments with your eyes wide and expectations in check. This type of investing may align with your real passions, but that doesn't always translate to investment returns. Keep your passion investments to a reasonable allocation of your overall investment portfolio. The best attitude is a realization that investment returns aren't the only, or even primary, goal. Investing is another means to enjoy the hobby, interest, or team that makes you feel alive. For passion investing, you are your own best counsel. Be smart, be brave, be careful, be passionate. For more traditional investing to meet your retirement goals, Windham Wealth Management is here to help. It’s rarely exciting, but it is important. Reach out to us to learn more. Cash Balance Plans are a retirement plan that was largely unknown for years, but has gained popularity in recent years, especially among high-income professionals, small business owners and self-employed individuals. This type of plan provides a fixed contribution by the employer that is calculated based on a percentage of an employee’s salary, and a guaranteed interest rate on that contribution.
A Cash Balance Plan is a type of qualified retirement plan with attributes of both a defined benefit and a defined contribution plan. A Cash Balance Plan combines the high contribution limits of a defined benefit plan with the portability and flexibility of a defined contribution plan. In a Cash Balance Plan, each participant has an account that grows annually in two ways: first, an employer contribution and second, an interest credit, which is guaranteed rather than dependent on the plan’s investment performance. Unlike traditional defined benefit plans, which promise a specific monthly benefit amount in retirement, Cash Balance Plans seek to provide a specific account balance. Employers contribute to the Cash Balance Plan targeting this account balance. When the employee reaches retirement age, they can choose to take the account balance as a lump sum or as an annuity payment. Cash Balance Plan High Contribution Limits One of the main advantages of Cash Balance Plans is that they allow employers to make larger contributions on behalf of their employees than they would be able to with a 401k plan. This can be particularly beneficial for business owners who are nearing retirement and want to make larger contributions to their own retirement accounts while minimizing the tax burden on their business. The employer contribution is determined by a formula specified in the plan document. It can be a percentage of pay or a flat dollar amount. A person’s age and 3-year average income also impact how much can be contributed to a Cash Balance Plan. Here’s two examples of how much could be contributed to a Cash Balance Plan:
Cash Balance Plan Key Benefits An essential benefit of Cash Balance Plans is that employer contributions are 100% tax deductible. Cash Balance Plan contributions are an above-the-line tax deduction, which means they reduce business income dollar-for-dollar. Another key benefit is that Cash Balance Plans are protected from creditors. Like all IRS-qualified retirement plans, Cash Balance Plans are protected by the anti-alienation provisions of ERISA, which states that “each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” This provision, which provides important protections to retirement assets, may be especially attractive to professionals working in litigious fields, like doctors. Cash Balance Plans are easier to understand and administer than traditional defined benefit plans. This is because Cash Balance Plans provide a simple account balance that employees can track, rather than a complicated formula that determines their monthly benefit amount. Cash Balance Plan - Ideal Candidate Cash Balance Plans are not appropriate for everyone. Like other corporate plans, Cash Balance Plans have some set-up costs, ongoing administration costs, and contribution mandates. Really, Cash Balance Plans should be considered only by companies that are consistently profitable and have the means to cover these costs. That being said, these are the perfect candidates for a Cash Balance Plan: High-Income Professionals with Support Staff – Many professional businesses are organized around relatively well-paid professionals, with support staff. In these cases, a business can have a Cash Balance Plan for high-earning professionals, plus a 401(k)-only plan for all staff members. Business Owners – Business owners typically focus on business growth and staff benefits to the detriment of their own retirement savings. A Cash Balance Plan may be the right retirement plan to increase the retirement savings of business owners. Late Savers – Cash Balance Plans can also be a good option for business owners who are close to retirement age and may not have as much time to save for retirement as younger workers. This is because the contribution limits generally increase with age, allowing for potentially higher retirement savings rates by older business owners. Business Buyout – Cash Balance Plans can be used fund or enhance a business buyout. If the acquiring partners are willing to forgo a portion of their income, this income could be allocated to a selling partner via a Cash Balance Plan. The entire buyout could be funded this way, or used to “sweeten” a buyout deal. Cash Balance Plan Risks There are some potential drawbacks to Cash Balance Plans that must be considered. One of the main disadvantages is that Cash Balance Plans may not be as flexible as other types of retirement plans, such as 401(k)s or individual retirement accounts (IRAs). This is because the contributions to the plan are determined by the employer, rather than the employee, so employees may not have as much control over their retirement savings. Changes can be made to contributions; however frequent changes are not permitted. Additionally, Cash Balance Plans may not be suitable for all types of businesses, as they can be more expensive to administer than other types of retirement plans. This is because they require actuarial calculations to determine the interest rate and contribution amounts, which can be time-consuming and costly. Businesses should be profitable with robust margins. It is important to note also that income taxes are deferred, not eliminated. As with other tax-deferred retirement accounts (e.g., IRA, 401(k) and SEP IRA accounts), the tax bill eventually comes due. Like any other qualified Plan, a Cash Balance Plan is subject to nondiscrimination testing. 401(k) contributions are typically 5% to 7.5% of pay for staff if the owners or partners receive the maximum Cash Balance Plan contribution. The exact percentage required for employees depends on the number of employees included in the plan and the results of nondiscrimination testing. Cash Balance Plans can be a valuable retirement planning tool for right company and person. Small business owners, self-employed individuals, highly compensated professionals, and older workers looking to maximize their retirement savings in a shorter period of time, should all consider a Cash Balance Plan. Reach out to Windham Wealth Management to see if a Cash Balance Plan is right for you and your business. Investing in the stock market is one of the most popular ways of building wealth. However, it is not without risks. One such risk that is often overlooked is the sequence of returns risk. In this blog post, we will discuss what sequence of returns risk is, how it can impact your investments, and some strategies you can use to mitigate this risk.
What is Sequence of Returns Risk? Sequence of returns risk is the risk that an investor faces when they start withdrawing money from their investment portfolio during a market downturn.. During your first 10 years of retirement, it is highly likely that you will experience at least two down years in the stock market. The order in which investment returns occur, especially negative returns, can significantly impact the final portfolio balance. For example, let's say you retire with a portfolio of $1 million and plan to withdraw $40,000 each year for living expenses. If your portfolio experiences a 30% loss in the first year of your retirement, your portfolio's value would drop to $700,000. To maintain your $40,000 annual withdrawal, you would now need to withdraw 5.7% of your portfolio, which is higher than the generally safe withdrawal rate of 4%. If you experience a second down year in the market, plus a proportionately higher withdrawal rate, you will have significantly depleted your portfolio in the first few years of retirement. The market losses and higher withdrawal rate means that your portfolio may not last as long as you need. On the other hand, if you experienced a 30% loss in the 10th year of your retirement, your portfolio value would have had time to grow, and the impact of the loss would be comparatively less severe. Sequence of Returns Impact Sequence of returns risk matters because it can impact the longevity of your investment portfolio. If you experience significant losses (plus withdrawals) early in your retirement, it can be challenging to recover your portfolio's value, and it may not last as long as you need it to. This risk can also impact your investment strategy. For example, if you plan to invest aggressively in stocks during the early years of your retirement, you may be at higher risk of experiencing a significant loss that impacts your portfolio's longevity. Mitigate Sequence of Returns Risk One way to mitigate sequence of returns risk is to adjust your investment strategy as you near retirement. As you get closer to retirement, consider shifting your portfolio from high-risk investments to lower-risk investments, like bonds. This can help protect your portfolio's value in the event of a market downturn. Another strategy is to maintain an emergency cash buffer in your taxable accounts. A cash buffer can provide you with a source of income during a market downturn, so you do not have to sell your investments at a loss. The amount of the cash buffer will depend on your individual circumstances, but a good rule of thumb is to maintain enough cash to cover six to 12 months of living expenses. Consider a cash value life insurance policy. A cash value life insurance policy like Indexed Universal Life (IUL”) is shielded from stock market volatility. The growth of the cash value of an IUL policy is tied to a specified stock market index, like the S&P 500. However, when the market turns negative, the IUL simply credits “0” for the year. You participate in the upside, but none of the downside. This allows your savings to grow with an index, without suffering any market losses. Finally, consider using a dynamic withdrawal strategy that adjusts your withdrawal rate based on market conditions. For example, if your portfolio experiences a significant loss, you may adjust your withdrawal rate to preserve your portfolio's value. Sequence of returns risk is an important consideration for investors, especially those nearing retirement. By understanding this risk and implementing strategies to mitigate it, you can help ensure the longevity of your investment portfolio. Work with a financial professional to help ensure your retirement is safe and secure. Longevity risk is the risk that you will outlive your retirement savings. It is an important consideration for retirees because people are living longer than ever before, and retirement can last 20, 30, or even 40 years! Let's discuss what longevity risk is, how it can impact your retirement, and some strategies you can use to mitigate this risk.
What is Longevity Risk? Longevity risk is the risk that you will outlive your retirement savings. Certain events may cause your retirement assets to deplete faster than planned, compounding longevity risk. This can happen if you live longer than expected, if you experience unexpected health issues that require significant medical expenses, or if you experience a downturn in the economy that impacts the value of your retirement savings (especially early in retirement). How Does Longevity Impact Retirement? It sounds like a nice problem to have, but longevity can have a significant negative impact on retirement savings. If you outlive your retirement savings, you may be forced to rely on Social Security or other sources of income that may not be sufficient to maintain your standard of living. Additionally, unexpected health issues can lead to significant medical expenses that can deplete retirement savings. Mitigate Longevity Risk in Retirement One strategy to mitigate longevity risk is to work longer and delay retirement. Working longer can help retirees accumulate more savings and delay the need to withdraw from retirement accounts. Additionally, delaying retirement can increase Social Security benefits, which can provide a reliable source of income in retirement. Another strategy is to consider purchasing an annuity. An annuity is an insurance product that provides a guaranteed stream of income for a set period or for the rest of your life. An annuity can provide retirees with a reliable source of income and protect against the risk of outliving their savings. An annuity sets a floor - that is, minimum guaranteed income - that can help ensure a secure retirement. Retirees can also consider using a fixed withdrawal rate as a guideline. A well-known withdrawal rule is the 4% withdrawal rule. This rule suggests that retirees can withdraw 4% of their retirement savings each year and adjust for inflation. This can help retirees balance their income needs with the risk of depleting their savings too quickly. A dynamic withdrawal rate is another strategy. A dynamic withdrawal rate, like a “guardrails” strategy, allows for a fixed withdrawal amount that is adjusted annually in relation to changes in the value of retirement assets. So long as the value of retirement assets stays within a certain range (the guardrails) no adjustments are made. However, if the value of retirement assets moves outside the guardrails, either up or down, a corresponding change is made to the amount withdrawn. Finally, retirees may want to consider working with a financial advisor to develop a retirement plan that takes longevity risk into account. A financial advisor can help retirees understand the risks they face and develop a plan that balances their income needs with their risk tolerance. Longevity risk is an important consideration for retirees. By understanding this risk and implementing strategies to mitigate it, retirees can help ensure that their retirement savings last as long as they need them to and maintain their standard of living in retirement. As people approach retirement age, they often start to think about their future and what kind of care they may need as they age. Long-term care is an important consideration for retirees, as it can be costly and can quickly drain their retirement savings. In this blog post, we'll discuss the risk of long-term care in retirement and what steps retirees can take to mitigate this risk.
What is Long-Term Care? Long-term care refers to a range of services that help people to meet their daily needs when suffering with a chronic illnesses or disability. This type of care can be provided in a variety of settings, including nursing homes, assisted living facilities, and in the home. Long-term care can include help with daily activities such as bathing, dressing, and eating, as well as medical care and supervision. The risk of needing long-term care is high, particularly as people age. According to the U.S. Department of Health and Human Services, almost 70% of people turning 65 will need some form of long-term care in their lifetime. The risk of needing long-term care is also higher for women, as they tend to live longer than men. Long-Term Care Costs Long-term care can be expensive, and the cost varies depending on the type of care needed and if care is in a facility or in the home. According to a recent survey (2021), the median monthly cost of a private room in a nursing home in the United States is $9,125. The median monthly cost of assisted living is $4,300, and the median hourly rate for a home health aide is $25. These figures will vary depending on geographic location and level of desired care. However, no matter where you live, long-term care is expensive. Long-Term Care Insurance One way to mitigate the risk of long-term care in retirement is to purchase long-term care insurance. This type of insurance can help cover the costs of long-term care, including nursing home care, assisted living, and in-home care. However, long-term care insurance can be expensive, and not everyone will qualify for coverage. Retirees should consider purchasing long-term care insurance earlier rather than later, as the premiums tend to be lower for younger individuals. Additionally, some employers offer long-term care insurance as a benefit, so retirees should explore their options before retiring. Long-term care insurance has one significant drawback, though. Most long-term care policies are a “use it or lose it” proposition. It can feel disheartening to pay for something for a long time, that you hope you never have to use. Using Life Insurance to Pay for Long-Term Care A cash value life insurance policy may be a better option to pay for long-term care ex0nese. One option that many people may not be aware of is the life insurance accelerated death benefit, which can be used to pay for long-term care. An accelerated death benefit is a provision in a life insurance policy that allows policyholders to access a portion of their death benefit while they are still alive. This benefit is typically available to policyholders who have been diagnosed with a terminal illness or a condition that requires long-term care. The amount of the accelerated death benefit will depend on the terms of the policy and the severity of the illness or condition. Long-term care is a significant risk in retirement, and retirees should take steps to mitigate this risk. This may involve purchasing long-term care insurance, planning for long-term care costs in their retirement plan, and considering alternative options for care. By taking these steps, retirees can help ensure that they are prepared for the potential costs of long-term care and can enjoy a secure retirement. Inflation is a significant risk for retirees. Inflation can erode the purchasing power of retirement savings and reduce the standard of living in retirement. In this blog post, we will discuss what inflation risk is, how it can impact your retirement, and some strategies you can use to mitigate this risk.
Inflation Risk Explained Inflation is an overall increase in the prices of goods and services. When prices rise, each dollar buys fewer goods and services. Inflation equates to a decrease in the purchasing power of your dollars in the future. Inflation risk is the risk that the value of money will decrease over time due to inflation. Inflation can have a significant impact on retirement savings, as it reduces the purchasing power of money over time. Inflation’s Impact Retirement Inflation is a massive headwind for your retirement savings. If your retirement savings do not keep pace with inflation, you may find that your standard of living decreases over time. For example, if you retire with $1 million in savings and inflation averages 3% per year, after 20 years, the purchasing power of your savings would be reduced to $540,000. Inflation can also impact the cost of healthcare in retirement. Healthcare costs tend to increase at a faster rate than the general rate of inflation, which can put a significant strain on retirement savings. Mitigate Inflation Risk in Retirement Adjust your investing with inflation in mind. Keep your portfolio invested such that your returns are keeping pace with inflation at a minimum. One strategy to mitigate inflation risk in retirement is to invest in assets that tend to increase in value with inflation. One such asset is existing real estate. Also, raw materials and precious metals (collectively, “commodities”) generally increase in value during inflationary times. Certain assets are designed with inflation protection, such as Treasury Inflation-Protected Securities (TIPS). TIPS are a type of U.S. Treasury bond that is indexed to inflation, so the principal value increases with inflation. Another strategy is to consider delaying Social Security benefits. Delaying Social Security benefits can increase your monthly benefit amount, and the benefits are adjusted annually for inflation, providing some protection against inflation risk. Consider creating a retirement budget that includes a cushion for inflation. Your budgeting does not need to be strict. Rather, a general awareness of how your money is spent should be enough to keep your retirement on track. You may want to consider creating a retirement account withdrawal plan. By having a plan, and committing to it, you can protect yourself from over-spending. A set withdrawal amount may encourage discipline in your spending. A withdrawal plan, in concert with a budget, will help ensure that your retirement savings sustain you in retirement. Inflation risk is an important consideration for retirees. By understanding this risk and implementing strategies to mitigate it, you can help ensure the longevity of your retirement savings and maintain your standard of living in retirement. Talk to a financial professional about whether your current savings rate and/or retirement plan meet your needs. It is advisable to seek professional counsel before investing in anything, especially in commodities. Tax rate risk is an often-overlooked risk that can have a significant impact on retirement savings. Let’s discuss what tax rate risk is, how it can impact your retirement, and some strategies you can use to mitigate this risk.
What is Tax Rate Risk? Tax rate risk is the risk that tax rates will increase in the future, which can impact the value of retirement savings. Tax rates can impact retirement savings in several ways, including how much tax you pay on distributions from retirement accounts and the value of tax deductions. No one can predict the future of tax rates. However, two forces working together would argue that tax rates will almost certainly be higher in the future. First, the US is saddled with crushing debt that only grows year after year. Second, tax rates are historically low. The US will never pay its debt at current tax rates. It’s simply mathematically impossible. At some point, tax rates will need to rise. Tax Rate Impact Retirement Tax rate can impact retirement savings in several ways. One way is through distributions from retirement accounts. Withdrawals from tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, are taxed as ordinary income. If tax rates increase, the amount of taxes paid on distributions from retirement accounts will also increase, reducing the amount of retirement savings available for living expenses. Many investors are unaware that withdrawals are taxed at the tax rate at the time of withdrawal, not tax rate at which the money was deferred. You could save at a low tax rate, only to have the money withdrawn at a much higher tax rate. Mitigate Tax Rate Risk in Retirement One strategy to mitigate tax rate risk is to diversify retirement savings wisely across different types of accounts based upon the intended use of the money. For example, keep a minimum of money, short-term and emergency savings only, in a taxable account. The vast majority of savings intended for use as retirement income should be kept in accounts completely unaffected by tax rates. These include Roth IRA and Roth 401(k) accounts, and cash value life insurance. The money held in these two types of accounts is not subject to capital gains taxes or income taxes. Plus, distributions have no impact on your AGI, which means your social security remains tax-free. Another strategy is to use tax-efficient withdrawal strategies. For example, retirees may want to withdraw funds from taxable accounts in years with lower tax rates or early in retirement. Withdraw from Roth accounts and cash value life insurance in later years to give that money more time to grow or when taxable income is higher. Retirees can also consider deferring Social Security benefits. Social Security benefits are taxed based on the retiree's income. By deferring Social Security benefits, retirees can reduce their taxable income and potentially reduce the amount of taxes paid on Social Security benefits. Tax rate risk is an important consideration for anyone planning to retire. Understanding this risk and implementing strategies to mitigate it helps ensure that retirement savings last as long as necessary to maintain a reasonable standard of living in retirement. Finally, retirees may want to consult with a financial advisor or tax professional to develop a tax-efficient retirement plan. A financial advisor can help retirees understand the tax implications of different investment and withdrawal strategies and develop a plan that meets their unique needs and goals. Deciding how much life insurance to purchase is an important one that will provide a safety net for your survivors in the event of an untimely death. When left to their own devices, people tend to make a haphazard decision based upon their own biases regarding insurance, maybe some rules of thumb, and whatever online tool they found.
Buying too much or too little life insurance can have catastrophic financial consequences. If you buy too much, you will spend too much of your present-day cash flow paying insurance premiums for life insurance you don’t need. If you buy too little, your heirs and beneficiaries may be left in a devastating financial position. Therefore, it is essential that you buy just the right amount of life insurance. (Insert your favorite Goldilocks analogy here.) Decide Your Life Insurance Goals The first consideration when making any financial decision is quite simply this… what are your principles and goals? What is it you hope to achieve by purchasing life insurance? For most people the goal is to put their family on the road to financial well-being in the event of an untimely death. The purpose of life insurance is to relieve your beneficiaries of financial burdens. What does that mean? Let’s explore some ideas. Pay off any mortgages. Mortgage balances are based upon the income level and expenses of a person, or in the case of a couple, two people. In either case, the death of an individual creates an imbalance in this equation. Therefore, paying off your mortgage, a significant long term debt obligation, is a terrific use of life insurance. Pay off other debts. In addition to mortgages, you may want to consider all other debts that need to be paid off. For example, you may be carrying car loans, you may have sizable credit card balances, you may have personal lines of credit, or a myriad of other debt obligations. Consider adding enough life insurance to pay off all outstanding debts. Provide income for your surviving spouse or beneficiaries. The income you provide will need to be replaced. Consider how long you would like to replace your income. It is advisable to provide at least five years of income for your survivors. You may also consider a longer time period, like 10 years or however many years until you theoretically would have lived until you retired. The intent here is to provide enough income for the survivor to get back on their feet. At a minimum, provide enough income to allow them to reestablish themselves financially. Consider your survivor’s ability to earn income. If your survivor has not worked or earned significant income, consider a higher amount of insurance on the higher earning person. Provide for children. Children are expensive. Consider how much the surviving parent will need to cover the cost of raising children until they are out of the home. You may want to add life insurance to cover the cost of college for each of your children, if appropriate. An additional consideration for some parents is children there have special needs or require ongoing care. Be sure to include enough in your life insurance policy to cover the costs associated with special needs and/or ongoing care. Extra money to smooth some of life’s bumps. Life has a way of throwing challenges our way. While life insurance is not intended to be a financial windfall for your survivors, consider adding enough value to your life insurance policy to help your survivor with life’s challenges. Life insurance is intended to create some financial security for your family in the event of your death. There is no amount of money that can replace your love and support. But, with life insurance, it is possible to provide financial support even when you’re gone. How To Actually Determine Your Life Insurance Needs First, think about your goals and principles. What is that you want to achieve? Zero debt? Income for 5 years? 10 years? College pre-paid? Maybe it’s a financial security blanket for the ones you love most. Think about what’s important to you. Think about what you want to achieve with life insurance. These thoughts will guide the next part of your decision. Next, consider all debts. What would it take to pay off everything – every last penny – such that every single debt is completely eliminated. This includes all mortgages, loans, medical bills, credit cards, personal lines of credit….everything. At the very least, pay off mortgages, cars and credit cards. Write it all down. Roundup to the nearest $1,000. Then, consider how much income you’ll want to provide. Ideally, you’ll want to replace the income you would have earned had you worked until retirement age. Multiply your annual salary by the number of years until your reach age 65. At a minimum, calculate a few years of your annual salary. Consider any children living at home. How much will it cost to raise them through their college years. How much should be allowed for college costs? A good estimate is $50,000 per minor child, plus college costs. Write that down. Will you have final expenses? Depending on your final wishes, final expenses can be as much as $10,000 or more. Don’t leave your survivors with this bill. Think about how much your final expenses might cost. Write it down. Lastly, consider how much additional coverage to include as a lifetime gift to your beneficiaries. How much can reasonably afford to add that will help take care of some of life’s financial worries? So, that’s…
Do some quick math and you should have a decent picture of how life insurance you need. You're probably looking at a sizable figure. Please know that this figure represents a lifetime of earning and spending in a single financial transaction. Working With a Life Insurance Professional The caricature of an insurance agent is the aggressive salesperson with a witty retort for every possible objection. This caricature may still exist, but most insurance agents are thoughtful people doing right by their customers. They know a good experience will lead to more business. A good insurance agent will work with you in a comprehensive manner. Any insurance sold would only be sold as part of a comprehensive financial plan. How do you know if you’re working with a good agent?
Buying life insurance is an important consideration. This blog could not possibly answer all your questions. Let us know how we can help with your life insurance needs. If you're a property owner looking to sell an asset such as real estate, you may be facing a significant tax bill on the capital gains you'll realize from the sale. However, there's a little-known tax strategy called a deferred sales trust that can help you defer those taxes and potentially reduce your overall tax burden.
Deferred Sales Trust Basics So, what is a deferred sales trust? A deferred sales trust is a type of tax strategy that allows property owners to defer capital gains taxes on the sale of assets, typically real estate (but could also be a business interest). The seller transfers the ownership of the property to a third-party trust, which then sells the property to a buyer. The trust holds the proceeds from the sale and pays out a stream of income to the seller over a specified period of time. By using a deferred sales trust, the seller can defer the payment of capital gains taxes until they receive payments from the trust. This allows the seller to spread out the tax liability over time and potentially reduce their overall tax burden. Additionally, the seller may be able to invest the funds held in the trust and potentially earn a higher rate of return than if they had paid the taxes upfront. Simply put, it's a type of trust that allows you to defer the payment of capital gains taxes on the sale of an asset by transferring ownership to a third-party trust. Here's how it works:
By using a deferred sales trust, you can defer the payment of capital gains taxes until you receive payments from the trust. This allows you to spread out the tax liability over time and potentially reduce your overall tax burden. Investing Deferred Sales Trust Assets Once funds are in the trust and awaiting distribution, you may use them to invest. The money that would have ordinarily been sent to the IRA is now yours to invest the funds held in the trust and potentially earn a higher rate of return than if you had paid the taxes upfront. You can invest in stocks, bonds, funds, ETFs…anything. Additionally, a deferred sales offers far more investment flexibility than a 1031 exchange. In a 1031 exchange, you are locked into another “like kind” property. No such restrictions exist for a deferred sales trust. In fact, with proper guidance, a deferred sales trust can help you get out if a bad 1031 exchange. As with many financial problems, it is best to seek the advice of a financial planning or tax professional before entering into any transaction. A deferred sales trust set-up improperly can have dire consequences. However, when set-up correctly you can safely defer capital gains taxes. Contact us for guidance. Saving for retirement is an important part of any wealth management plan. A Roth IRA is a popular retirement savings option that offers many benefits. It allows you to save after-tax dollars and enjoy tax-free growth and, most importantly, income tax free withdrawals in retirement. However, if you have a traditional IRA, you may be considering converting it to a Roth IRA. In this blog post, we'll explore Roth IRA conversions and what you need to know before making the switch.
What is a Roth IRA Conversion? A Roth IRA conversion is the process of moving funds from a traditional IRA to a Roth IRA. Unlike traditional IRAs, Roth IRAs do not provide a tax deduction for contributions. However, Roth IRAs offer tax-free withdrawals in retirement, making them an attractive option for many investors. Converting a traditional IRA to a Roth IRA can provide a tax-free retirement income stream. Roth IRA Conversion Benefits By converting your traditional IRA to a Roth IRA, you enjoy these benefits available only in a Roth IRA:
The Tax Implications of a Roth IRA Conversion Converting a traditional IRA to a Roth IRA is a taxable event. The amount of the conversion is added to your taxable income for the year. It's important to understand the tax implications of a Roth IRA conversion and plan accordingly (which we’ll discuss in another blog post). If you are considering a Roth IRA conversion, it's recommended to consult with a financial advisor or tax professional to determine if it's the right decision for your financial situation. It's also important to note that there are income limits for Roth IRA contributions. If your income exceeds the limits, you may not be able to contribute directly to a Roth IRA. However, there are no income limits for Roth IRA conversions, so anyone can convert their traditional IRA to a Roth IRA. Consult a Professional A Roth IRA conversion can be a smart financial move for many investors. It offers tax-free growth and withdrawals, flexibility in retirement planning, and estate planning benefits. However, it's important to carefully consider the tax implications before making the switch. If you're considering a Roth IRA conversion, be sure to consult with a financial advisor or tax professional to determine if it's the right decision for your financial situation |
