The Secure Act 2.0 was recently passed bringing in hundreds of new retirement and investment account changes.
In this episode, we detail some of the most impactful changes for you. We’ll break down these changes to explore planning opportunities for your retirement planning strategies.
📬 Tips each month to help you reach your Ideal Retirement. Subscribe to the Financial Symmetry newsletter and receive a free Mega-backdoor Roth guide.
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As we come to the end of 2022, we reflect on some of our favorite reads and podcasts that we have highlighted in our monthly newsletter. If you’d like to check out what we’ve been reading or listening to on a more regular basis, sign up for our monthly newsletter to get the information delivered straight to your inbox.
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🎥 WATCH video recaps of the show here
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How often do you go back and question your retirement and investment decisions?
🎥 WATCH a video recap of the show here
When thinking through your personal financial decisions, it is common to be swayed by emotions rather than rational thoughts. However, your emotions could derail your wealth-building journey.
Today, we explore five of the most common behavioral financial biases and ways to combat them. If you are ready to get serious about making better financial decisions to build wealth, you won’t want to miss this episode.
📬 Actionable tips each month to help you reach your Ideal Retirement. Subscribe here are get a free copy of a Pre-Retirement Checklist ebook!
📰 DOWNLOAD our Investing Principles Guide
📬 Tips each month to help you reach your Ideal Retirement. Subscribe to the Financial Symmetry newsletter and receive a free Mega-backdoor Roth guide.
What if one of these ten tax tools could be the tax opportunity that you’ve been missing?
If you are looking to increase your wealth over your lifetime, you’ll want to ensure that you have the best tax planning strategies in place for long-term success.
Paying more taxes now to lower your lifetime tax rate may seem unconventional, but if you are serious about building wealth, this episode could include steps to help you get there.
From donor-advised funds, QCDs to Roth conversions and more. See if any of these 10 could benefit you.
📰 See the full show notes here
📬 Tips each month to help you reach Your Ideal Retirement. Subscribe to the Financial Symmetry newsletter & receive a free guide with 5 questions to ask your financial advisor!
So many conversations today are tied to the news. Hard to not find someone talking about the troubled economy, inflation, and the tumbling stock market.
How should you change your investments in light of all these issues? You may be wondering if you are invested too aggressively, or you might even be considering pulling out of the market and waiting out the storm.
Before you rush in to change your investment tactics, listen to this episode to compare our 10 investing principles to your investing blueprint.
🎥 WATCH video recap of the show here
📰 DOWNLOAD the General Investing Principles Guide
None of us know how long we will live, so it is important to prepare for the inevitable. Unfortunately, all that we have earned in this life won’t transfer into the next, so it is important that we have our wishes laid out appropriately.
An estate plan is a critical component of the retirement planning journey.
📬 Tips each month to help you reach your Ideal Retirement. Subscribe to the Financial Symmetry newsletter!
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How do you deal with a major financial transitions?
Video recap: https://youtu.be/2tWrduVAS14
When this happens there can be many choices that you need to make. Without the right decision-making framework, navigating these choices can lead to analysis paralysis.
Allison Berger joins me today to share some of what she has learned while studying for the CFT designation (Certified Financial Transitionist). The coursework for this professional title combines financial planning with cutting-edge research in neurology, sociology, and psychology. With her newfound knowledge, Allison will help us learn how to navigate the technical and personal side of major life decisions.
Listen in to learn how to build a framework that can help you navigate major financial decisions.
In a bear market, it can be easy to panic and forget that investor behavior drives results more than choosing the right investments. People tend to be their own worst enemy during these trying times. That’s why it is important to learn from those that have gone before you.
Video Recap: https://www.youtube.com/watch?v=VePid5UlQ1Y
Your Playbook to Market Volatility: https://www.financialsymmetry.com/staying-the-course-even-during-volatile-markets/
Check out this episode to discover the 4 typical investors that we encounter during market declines. As you listen consider who you have been like in the past. Which one are you feeling like now? Which one do you want to be in the future?
Most of us believe we’ll always have more time with our spouse, but when that time is cut short, we’re often left with too many questions and not enough answers.
Video recap: https://youtu.be/2jFmLDB3Xks
On today’s show, we tackle the emotionally challenging subject of losing a spouse.
Between planning a funeral, notifying people, and taking calls, it’s hard to find time to grieve, much less think about the financial consequences and tax changes you have to deal with in the coming weeks. Part of our responsibility during this difficult time is to walk you through the steps of navigating the administrative part of handling a loved one’s resources.
Listen to this episode to learn about the tax changes to consider when dealing with the death of a spouse.
Read more in the show notes here: https://www.financialsymmetry.com/tax-changes-to-consider-after-the-death-of-a-spouse-ep-166/
Do you have an estate plan?
Is it up to date?
Was it prepared by an estate planning professional?
Video link: https://youtu.be/c7XO462BOcg
If you answered "no" to any of these questions, this episode is for you.
On the show this week, we welcome Adam Tarsitano, an estate planning attorney in Raleigh, NC, to discuss why it is so important to have a professionally prepared estate plan in place.
Listen in to hear the difference between a professional estate plan and a DIY estate plan and what could happen to your assets if the state decides what to do with them.
Video recap: https://youtu.be/4FjSIJw8a6A
Listen in to discover how you can accelerate women’s equality by overcoming or breaking through these biases.
This first bias is simply untrue. Actually, women are more likely to take calculated risks than men. Women are also more likely to hold an appropriate amount of investments when compared with their cash savings.
Men and women are equally fearful at the beginning of their investing journeys. However, since women are more cautious about things that they are unfamiliar with they often become more educated about investing so that they feel more comfortable.
In the long term, women’s investments often outperform those of men. This could be due to women having more intentionality, self-control, and a higher savings rate than men. Since women are often playing catch up with their investing, they are usually excited to get started. Investment and retirement planning is especially important for women since there are so many preconceived notions that surround women and money.
On average, women make about $0.84 to a man’s dollar. This is often due to the way compensation is structured. Women often ask for less, negotiate less, or don’t negotiate at all. This means that women have less to contribute to their retirement savings.
Knowledge is the power to overcome this bias. To improve your salary it is important to understand the average salaries for your area of the country and, specifically, for your field. Use websites like Glassdoor or Salary.com to help you research. Don’t be ashamed to discuss this topic with friends, family, and colleagues to learn more.
Once you’ve done your research, consider your next salary negotiation. Set a range that works well for you and shoot for the top of that range. Remember that you are selling yourself, so consider the value that you have added to your role. Come up with a list of your accomplishments. Listen in to hear all the tips that this bright group of women brings to the table. With a bit of preparation, you may be pleasantly surprised by your next salary negotiation.
We’ve all heard this myth perpetuated; however, spending doesn’t have a gender. Either partner in a relationship can be the big spender, but since women are often the ones buying for the family, it can seem like they spend more than men.
Budgets are an important part of the financial health of any relationship so that both partners understand how much they can safely spend. Typically, one partner is more of a saver and the other is more of a spender, but the ideal is to strike a balance between the two.
Since women have been shut out of the financial conversation for so long, they often don’t know where to begin the conversation. Here at Financial Symmetry, we encourage both partners to come to the table, even if it takes an extra conversation to understand and address all of the issues or concerns.
As you approach International Women’s Day, consider whether any of these financial biases have come up in your life. You can research more biases surrounding women by using the hashtag #BreakTheBias.
Do you have concentrated stocks in your portfolio?
Video recap: https://youtu.be/g5oDev7Ns84
You may have inherited stocks from a loved one or maybe you receive stock options as part of your pay structure or a compensation package. Whatever the reason you have concentrated stocks, if you own more than you think you should of one company, it is important to understand what you could do with it. You may be surprised to hear all of the options that you have available, so listen in to hear what your choices are.
You may be wondering if any of the stocks that you own would be considered concentrated stocks. Deciding whether you own any is easy. You don’t need to look at the percentage of the stock in your portfolio. It doesn’t matter if that stock is 5%, 10%, or even 50% of your portfolio. What matters is what would happen if that stock went to zero. If that would affect your financial life then you do own a concentrated stock.
You may argue that the richest people in the world gained their wealth through concentrated stocks, but you don’t hear about all those that have lost their wealth from putting all their eggs in one basket.
Individual stocks are volatile. Over a 40 year time period, 40% of individual stocks experienced negative absolute returns. The reason we choose to have a balanced portfolio is to balance the winners with the losers.
There are different reasons that people choose to hold on to stocks for longer than they should. If the stock is from their employer, they may have a bit of bias thinking that they know their company and it will outperform the rest. Some people got into a position early and rode the wave. Others feel an emotional attachment to the stock and are hesitant to let it go.
Whatever the reason you may be hanging on, it is important to analyze your holdings to see if they fit into your overall financial plan. If not, it is time to find a strategy to divest from your position.
Coming up with a strategy that fits into your overall financial plan requires some thought. The easiest thing to do when you aren’t sure of the right choice is to do nothing, but that, of course, is the worst thing you can do.
There are 4 options available to you when you own concentrated stocks: sell, hedge, diversify, or transfer the wealth.
This episode has some advanced strategies to consider, so if you are wondering what you should do with your concentrated stocks you may want to listen twice or take notes as you listen so that you can discover what to do with your concentrated positions and how it could fit into your overall financial plan.
If you still think you need help coming up with a strategy, reach out to us so that we can help you come up with a financial plan that is right for you.
2021 has been a wild ride! But like with any roller coaster, we've learned that the most important thing to do is to stay in your seat so that you don't get hurt.
Video recap: https://youtu.be/4fuYYZNDALQ
On this episode, we recap our views on the top 10 economic stories from 2021 and the lessons they hold going forward.
Social Security remains a critical component of retirement income for most senior citizens. To ensure retirees maintain purchasing power through their golden years Social Security benefits are subject to an annual Cost of Living Adjustment (COLA) based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Due to rising prices and persistent inflation concerns, the COLA for 2022 will be 5.9%, the highest upward adjustment in decades.
If you are 62 or above and delaying benefits for your higher FRA or age 70 payment, you will also benefit from this adjustment. The Social Security COLA applies to estimated future payouts for anyone who is 62 or older in 2022, even if you have not yet filed for benefits.
While the higher COLA for 2022 is positive news for today’s Social Security recipients, retirees also need to consider how inflation may impact their other retirement income sources. Maintaining an investment portfolio with a healthy allocation to assets likely to outpace inflation over the long term remains critical to sustaining your standard of living.
Along with the rapid increase in energy and food prices, housing costs have contributed to an inflation rate that is at its highest level in more than 30 years. Low interest rates, low inventories and a strong increase in demand are driving home prices to record highs. The Raleigh housing market has been one of the hottest in the country. According to Zillow, the price of a home in Raleigh has gone up by 26% over the last twelve months! Large employers like Apple and Google have announced plans to expand their operations in the Triangle area which will add thousands of high paying jobs and bring even more demand to the local housing market. The last time housing prices were rising like this was in 2007 before the housing bubble popped. However, there are fundamental differences this time – lower interest rates, stricter loan underwriting standards and homebuyers with stronger balance sheets. Nonetheless, it’s likely that home price increases will stabilize, especially if we get a spike in interest rates. This will be a story to watch closely in 2022.
Almost every year there seems to be substantial concern over the amount of US government debt and 2021 was another one. It is notable that concerns tend to become louder when there is pending legislation or upcoming elections, but the concerns tend to involve some fundamental misunderstandings.
One of the most common arguments is that the US government should operate like a household and not have so much debt. Two of the problems with that argument are:
Another misunderstanding is that high government debt leads to hyperinflation. We can see that the argument is weak since Japan has had much higher government debt than the US for the last 20+ years with extremely low inflation.
But there are cases where high government debt and hyperinflation occurred and looking at the difference in those cases compared to Japan demonstrates the misunderstanding.
In Japan’s case, their debts are denominated in their own currency, the Yen. In the hyperinflation cases, the debt is owed in some other country’s currency. When a nation owes debts in another currency, if their own currency declines, the debt becomes bigger when translated back to their own currency.
This can lead to a spiral where the debt becomes harder to pay, which causes more loss of confidence in the borrower’s currency, which leads to falling currency and this spiral can continue until the borrower’s currency becomes effectively worthless and the foreign currency debt cannot be repaid.
Fortunately, the US government is a very reliable borrower, so all US government debt is denominated in US dollars.
Starting all the way back on the run on toilet paper to the shortages at your local Chick-Fil-A , supply chain scares have existed since the beginning of the pandemic. COVID outbreaks at various distribution centers and manufacturing plants sent ripple effects throughout the supply chain system which are continuously being felt to this day. Auto dealers lots have been empty of new cars for over a year now with the chip shortage, loaded cargo ships sit backed up off the coast of California, and basic items at your local grocery randomly seem out of stock (no individual packaged gold fish snacks is really bugging my two toddlers 😊). Of course with high demand and low inventory, prices have risen as you’ve seen if shopping for a car, or even just the increase in value of your current used car sitting in the driveway. The supply chain system that once seemed so smooth is now unpredictable and impacting every aspect of the lives of consumers.
Ahead of his inauguration, President Joe Biden proposed legislation that addressed funding for COVID-19 relief, social services, welfare, infrastructure, and the reduction of climate change effects – coined the Build Back Better Plan. The underlying components of this plan were much debated in Congress throughout 2021, with some parts of the plan passing through legislation after extensive negotiations from both sides of the political aisle. In March, Congress passed the American Rescue Plan, a COVID-19 relief package. In November, The Infrastructure Investment and Jobs Act was passed and included funding for broadband access, clean water, electric grid renewal and additional infrastructure maintenance and improvements. The Build Back Better Act, seen as the final component to the Build Back Better Plan, was passed by the House in November and now heads to the Senate to debate. In its current form, the Act includes additional funding for climate change provisions, increased funding for childcare, home care, housing and child tax credits, paid family leave, and extended Affordable Care Act subsidies. Much of this proposal would be paid for via a minimum corporate tax of 15% and increased taxes on the wealthiest taxpayers. As has been the case throughout the year, this Act will likely be much debated and revised in the Senate, and if passed, would then head back to the House for a second vote.
Inflation was the subject of many conversations in 2021 as well as one source of financial stress for many households. During the summer, monthly inflation started creeping higher, and many economists believed that the higher inflation would be short-lived. By October, 12-month inflation of 6.2% was at the highest rate since 1990 and higher than the Federal Reserve’s target of 2%. Some top contributors to this higher-than-desired inflation include supply chain issues, post-lockdown demand for goods and services, and increased prices on fuel and used cars. The effects of inflation will vary from household to household, with some feeling it more acutely than others. Inflation is a fact of life; no one can avoid it completely. Thankfully, stock growth has outpaced inflation over time. This is why it’s important to have your long-term savings invested in a well-diversified investing strategy to help your money grow faster than inflation.
GameStop is a company that sells video games, consoles, and assorted merchandise. It made headlines earlier this year when the stock price went from ~$20 to ~$483 in less than a month (January 2021). As of December 2, 2021, the stock down ~63% from earlier highs. What happened? Short story is a group of retail traders worked together (Redditt forum) to force professional money managers to buy the stock to cover their short position. This resulted in significant demand which drove the price up to levels no one expected. The summary is markets can be crazy and feel unfair in the short-run. The best way to reach your financial goals is not to avoid the markets, but to act and think long-term. Investment success is driven by patience and discipline, not gambling.
Yes, all-time stock market highs aren’t all that uncommon. In fact, we’re in the 9th year where the S&P 500 has set at least 10 new all-time highs during each of those years. In 2021, we’ve now seen 68 new highs as of November 20th. But, for many investors, all-time high prices can be a cause for concern. They worry if they’ve missed the run up. Or shy away because what goes up, must come down. While that tends to happen every six to seven years in the markets, what’s most important to remember is that all declines up to this point have been temporary. This is where evidence can help. Looking at the S&P 500 94 year history, even if you invested at all-time highs, you’d have enjoyed double-digit annualized returns one, three, and 5 years later. Another great example of how a durable, disciplined, and diversified portfolio can help you fight the temptation to try and time the markets based on headlines. We addressed this idea in a recent podcast and video here.
As we entered round two of the pandemic, headlines of yet another COVID-19 mutation known as the Delta variant took over our news and media feeds and quickly became a major economic topic of discussion for the year.
First detected in March of 2021 the highly infectious Delta variant became the predominant strain, eventually accounting for over 90% of confirmed cases across the globe this year. The variant's impact stretched across multiple economies causing businesses to scale back staffing capacity, delay workers returning to the office, and experience widespread supply chain disruptions worldwide.
Navigating an unprecedented pandemic remains a factor of concern for economic interruption as we adjust to new headlines daily. We look onward into 2022 for signs of improvement as our world economies adapt to strengthen economic resilience.
Bitcoin and Ethereum, the two largest cryptocurrencies, recently set new all-time highs in 2021. Although they’ve since experienced substantial drops in price, there is no argument that cryptocurrencies have continued to increase in popularity among investors, pop culture, institutions, as well as criminals. The first Bitcoin linked ETF made its debut on the NYSE in October and BlackRock, a global asset manager, added Bitcoin futures to two of its funds in January. Mainstream companies such as AMC will begin to accept Bitcoin payments and others like PayPal and Square are allowing users to buy it on their platforms while a number of companies have added it to their balance sheets. Lawmakers around the world and in the US continue to try to tackle laws and guidelines to make cryptocurrency safer for investors and less appealing to cyber criminals which could have varying effects on crypto in the future. One could speculate on the value of cryptocurrency could possibly hold for its investors in the short or long term but as a relatively new and speculative investment, its extreme volatility could take investors on a wild and bumpy ride.
Everyone is talking about inflation. You can’t open a newspaper, look at your phone, or go to a barbecue without hearing about it. With all this talk, it can be easy to worry about your financial future.
Video recap: https://youtu.be/iZoqhqEVR1I
On this episode of Financial Symmetry, we’ll explore the causes of inflation, historical inflation, and what you can do to hedge against this silent enemy. Press play to educate yourself and ease your worries.
Inflation is different from market risk: it doesn’t show up in your bank or investment accounts. Instead, inflation presents itself at the gas station and the grocery store, so you do feel it in your pocketbook. Since it eats away at your buying power, inflation is often referred to as retirement’s silent danger.
If you recall your college economy class, you’ll remember that inflation is caused by supply and demand. When there is a limited supply and a high demand, then prices go up. We see that happening now with auto sales due to the offline chip manufacturers and supply chain issues. During inflation, people worry that prices will continue to rise, so they want to rush out and make their purchases now.
Although it is frustrating to see your purchasing power erode so quickly, it is important to remember that there are worse things that can happen in the economy. Deflation is actually worse for the economy than inflation. Stagflation is a type of inflation that occurs when prices go up but the economy is slow and there is high unemployment. Thankfully, we have the opposite happening now since employers are having a hard time finding workers. Even though it is difficult to watch your purchasing power erode, there could be a worse economy.
The question on everyone’s mind is: will this inflation last? Over the past 10 years, we have had historically low inflation that averaged about 2%. When comparing that average to this past year’s average of 6%, it's easy to understand why people are concerned.
One way to contemplate the future is by looking at the past. In the 70s the US experienced some of the highest prolonged inflation rates that were punctuated by the shock in oil supply. After WWI Germany experienced crippling inflation when it had to repay its debts in foreign currency.
The good news about our current situation is that the supply chain issues will eventually be resolved. The bad news is that higher prices are often the best solution to higher prices. Listen in to see how that works out in the long run.
The reason we invest in companies is to hedge against inflation. A varied investment portfolio with global stocks is one way to ensure that you retain buying power down the road. In addition to creating a diversified portfolio, you should limit the amount of money that you retain in cash. Try to keep your cash to emergency savings since your purchasing power erodes over time. Another way that you can protect against this silent risk is by investing in TIPS, real estate, commodities, or crypto currency.
Whatever you do to protect your wealth, don’t let the media dictate your financial decisions. Stick to your financial plan. If you don’t have a financial plan, reach out to us to see how we can help you weather all kinds of financial storms.
Welcome to this bonus episode of Financial Symmetry with Allison Berger and Grace Kvantas. Grace and I bring you this episode as a special preview to the upcoming Women: A Force in Business Conference in Raleigh, North Carolina.
This episode and our presentation are targeted toward women professionals looking to build their retirement nest egg. Our goal is to help women achieve success and financial wealth. So if you are a woman or if you love a woman, listen in to hear how women can achieve more success and improve their financial well-being by harnessing their financial superpowers.
A recent study has shown that women are more worried than ever about their finances. ⅔ of women worry about money at least once per week and 40% suffer physically due to their financial stress. This is no surprise when you discover that the top emotion that women feel about money is overwhelm whereas for men it is confidence.
The pandemic has made women’s financial worries worse than ever since they were the hardest hit by layoffs. Once you compound women’s stress with the gender pay gap, a longer life expectancy, and a predominantly male financial industry then you realize that the odds are stacked against us.
It is a common misconception that men are better investors than women, however, this isn’t true. Women simply don’t talk about money in the same way that men do. Women are actually more likely to do well in the markets for several reasons.
Women typically spend more time researching investment choices which leads to better selections. Women also tend to buy and hold equities longer than men, this leads to less trading costs and fewer taxes on their investment income. Overall, women are more intentional investors than men.
You don’t have to carry so much financial worry. One way to ease that worry is by using your inner investing superpowers. Grace and I are here to help you to implement these superpowers so that you have a better investing experience and feel less stress when it comes to finances. If you can implement these superpowers you can come ahead financially and position yourself for a more secure retirement.
Listen in to hear what action items you need to take now to improve your financial well-being.
With Grandparents day around the corner, we're breaking down helpful financial planning strategies for grandparents. Many grandparents have dreams of sharing the fruits of their labor with their families. However, sharing your wealth effectively takes careful planning.
YouTube recap here: https://youtu.be/eGYLeS_8hNw
Listen to this episode to hear the best ways to plan effectively for your kids and grandkids.
Grandparents love spoiling the grandkids. One of the more memorable ways to do this, is by taking care of planning and paying for the whole family to take a bucket list vacation. After working and saving for years, retirement brings an excellent opportunity for grandparents to take everyone on this epic family trip.
Before taking your trip, understanding how much you have to spend and whether it will be a one-time event or an annual tradition. This is where financial planning can provide priceless perspective to help you understand how much you have to spend and at what level.
Another common planning strategy many grandparents begin to consider is direct gifting to their children and grandchildren. In 2021, the gift tax exemption is $15,000 per person, which means $30,000 per couple. This provides a more meaningful way for grandparents to enjoy seeing their children and grandchildren benefit from their hard work vs. waiting to inherit monies after they were to pass.
If you want to do even more to provide for the grandkids’ education you could contribute to their 529 plan or even start one of your own with the grandchild as the beneficiary. Many grandparents choose to pay the fees directly to the school.
Have you thought about ways to contribute to your grandkids' education?
Too many people put off their basic estate planning documents in place. Before planning anything else, make sure that you have a will, power of attorney, and healthcare power of attorney.
Once you have the basics in place then you can think more strategically about specific ways you can plan your estate.
One way to directly leave your wealth to those you love is by naming them as beneficiaries on your accounts. It’s important to remember that named beneficiaries supersede your will, so check your beneficiaries periodically to assure they still align with your wishes. Listen in to hear about trusts, per stirpes, and whether it’s better to give cash or appreciated stocks.
There is a common misconception that you can plan for a long-term care event by giving away your assets and waiting 5 years to be eligible for Medicaid. What many people don’t realize is that your household income could disqualify you from Medicaid. To qualify for Medicaid care, your household income must be less than $17,000 per year in NC and most people’s Social Security benefits would be higher than that.
Listen in to hear how important it is to create a plan to put in place and communicate your wishes to your family.
The Mega Backdoor Roth IRA could be the secret weapon you have yet to use in your retirement saving strategy. If you consider yourself a super saver, looking for alternative ways to save tax efficiently, this could be a great option.
This strategy is of most interest to those maxing out all other tax-efficient savings accounts. Including standard employee 401k contributions, Roth IRA, 529, and HSA. In this episode, you'll see why we call this the secret weapon for super savers, as we breakdown who the Mega Backdoor Roth is for, why you might be interested in it, and how it compares to other IRAs.
In order to take advantage of the Mega Backdoor Roth IRA, you first have to have access to a 401k that allows after-tax contributions. These are contributions on top of your regular $19k allowable contributions to a 401k in 2019. Hence the "Mega" moniker. So if you are already maxing out your 401K, Roth IRA, 529, and HSA contributions then the Mega Backdoor Roth IRA could be a great extra additional savings opportunity. Many get confused as to why it's called a Mega Backdoor Roth IRA when we are talking about your 401k. Good question. The name derives from where the money will be after you complete the consolidation process.
You're now seeing more larger companies and solo 401ks allow for "in-service" distributions. Meaning, you could withdraw portions of your 401k savings, while still employed. The real benefit with this savings strategy, is when you can save the extra after-tax contributions and then roll them to a Roth IRA in the same year. Meaning, you could get a larger amount in to a tax-free savings account to grow for years to come.
If done correctly, the Mega Backdoor Roth can allow you to contribute up to 6X what you can contribute to a regular Roth IRA. With a regular Roth IRA, you can contribute only $6,000 per year in 2019. The Mega Backdoor Roth allows you to contribute up to $37,000 extra each year on top of your normal employee 401k contributions.
Many people don’t know this, but the limit for 401K contributions is $56,000 or $62,000 and for those over 50. Many people assume that the limit is only $19,000. But this $19,000 limit is for pretax contributions. You can actually contribute up to $37,000 more after taxes are withheld (depending on your employer match amount). You can ask your employer if they contribute to after-tax contributions. If you aren’t sure then you should contact your HR department. They may not even know about the Mega Backdoor Roth, but if you communicate with them you could get it started in your company.
If your income for a married couple is over $203,000 then you are ineligible to contribute to a typical Roth IRA. Instead, you can implement the Backdoor Roth IRA strategy. But this strategy has multiple steps to assure it's done correctly which we wrote about in a previous post. To be a good candidate for this strategy, you need to first move existing pretax accounts to an existing 401K, if you have one. The next step is to contribute $6000 to a regular non-deductible IRA. After completing this, you can convert the non-deductible IRA to a Roth IRA. The issue with the Backdoor Roth is that you can only contribute $6,000 per year.
The Mega Backdoor Roth allows you to contribute much more and would be a provision of your 401k account. Essentially, it's the amount above your normal employee contributions ($19k in 2019; or $25k if over age 50) plus your employer match contributions. It’s important to consider all of your options to see if the Mega Backdoor Roth is right for your circumstances.
Stock options can be one of the most lucrative benefits of your job, but they can also be a tax land mine.
Video recap: https://youtu.be/qBovTreFv7E
Our resident tax professional, Will Holt, joins us this week to help you build a framework to consider your company’s stock options.
You’ll learn 3 key strategies you can use to make better decisions for managing your stock option holdings. Including:
If stock options are one of the perks of your job, you don’t want to get bit by the tax dog, so don’t miss this episode.
It is important to understand the type of stock options that you have. There are two primary types of company stock options: incentive and non-qualified. The difference between the two is how they are taxed.
Non-qualified stock options have no real risks until they are exercised since they aren’t worth anything until they are above the strike price, or “in the money.” You can exercise your right to purchase these stock options at the strike price, but they first have to vest over a period of time, typically 4 years. If choosing to exercise and not immediately sell, and the stock price is above the strike price, your shares are in the money. If choosing to sell while in the money, any gain would be taxed at ordinary income rates and come through your paystub in most cases.
Incentive stock options alternatively, offer the opportunity for preferential tax treatment compared to non-qualified stock options. To get preferential long-term capital gains tax treatment, you must be 2 years from the grant date and 1 year after you've exercised. This is known as a qualifying disposition.
The big risk if choosing this strategy is the potential for phantom income to be taxed at AMT rates. Before you reach the 12 month timestamp, the stock price could fall dramatically. If this occurs after the end of the calendar year when the exercise occurred, you would still be responsible for alternative minimum tax due on the 'bargain element," the difference between the strike price and fair market value of the stock when exercised. It's called phantom income, because the income effectively disappears, but the tax remains on gains that are no longer there due to a sinking stock price.
Understanding strategies to unwind your stock options can be complex, which is why it's helpful to work with a professional. A financial professional can help guide you through the challenging decisions that stock options present. Stock options can be a very valuable part of your net worth and you don’t want to make the wrong moves. Taxes and holding periods aren’t the only challenges that you face by owning stock options; the concentration that you might have can pose further risk.
The advantage of having stock options in your benefits package could end up being a sizable risk if not managed properly. You may end up holding a supersized concentration of one stock. Having your net worth tied up in one stock can lead to more risk vs. a diversified portfolio. But many people delay selling because of the potential negative tax impact of selling.
There are ways you can manage these risks. One way is to set target prices to time your exit. You won’t always make the right call, but if you set up a framework to help manage your decisions it can help take the emotions out of the sale. You’ll also want to consider the impact of your stock options on other areas of your financial plan.
There may be times when you are forced to sell before you are ready. This could be a large, infrequent income event that could change your tax situation. One of the best ways to see this impact is running a tax projection for the year.
You may be able to take advantage of tax-loss harvesting to offset some of your tax burden. If you are charitably minded, then another way to reduce your tax liability is to set up a donor-advised fund.
In the end, remember that stock options are a reward for your hard work. You don’t want to ignore them or get caught up in analysis paralysis. You can avoid this by building your decision-making framework or working with a financial professional that can help walk you through your choices.
Compared to 2020, the summer of 2021 has been exciting for most people. Many parts of the country are getting back to normal and there is plenty of fun to be had.
Video recap: https://youtu.be/aCuc4zsi3SE
But with that fun can come extra spending. Now that we are halfway through the year, this is a fantastic time to check in with your finances.
This week, we let Chad and Mike have time off to enjoy their summer fun, so Grayson Blazek joins me to discuss 10 financial tasks for you to complete before summer comes to an end. Don’t get caught unprepared, listen to this episode to hear which key financial areas you should focus your attention on before the end of the year.
Focusing on these ten areas now can set you off on the right foot for the fall. Listen in to learn how you can enhance today and enrich tomorrow.
Are you a super saver? If so, you may feel like you are doing a lot of the right things to save for retirement, but you are not sure where to go next.
Check out our Youtube channel for a short video recap: https://www.youtube.com/channel/UCw9vXJ3JyO-pHEcQ1p9O-Lw
In this episode of Financial Symmetry, we explore the different ways to save for retirement outside of your 401K. You’ll learn what each type of account is used for, how you should save in each one, when is the best time to save, and how to withdraw. Let’s explore the various ways that you can save for retirement.
If you have been maxing out your 401K, you are ready to move onto the next step in retirement savings, but with so many different types of accounts to choose from, it can be hard to know which one to choose. All you have to do is learn about them to choose from the different investment vehicles. To make the various types of accounts more memorable, we are equating these investment vehicles to actual vehicles. Listen in to hear how to use the right set of wheels to drive you to retirement.
The health savings account can be compared to a Jeep Wrangler. Like the Jeep Wrangler, the health savings account has a specific purpose, but it also has added benefits. The purpose of a health savings account is to be used for medical expenses, however, it also has a triple tax advantage. You must be enrolled in a high deductible health insurance plan to qualify for a health savings account, but if you can use one, this is a fantastic way to save and invest for future healthcare expenses.
The backdoor Roth is the Rolls Royce of retirement savings. Like the Rolls Royce, the backdoor Roth is unique and specifically designed for high-income earners. A regular Roth IRA maxes out at $6000 per year. With the Roth and the backdoor Roth, you will save so much in taxes that it will offset any fees that you incur.
The mega backdoor Roth can be compared to the Koenigsegg Gemera. Similar to the Koenigsegg Gemera, you may not have heard of the mega backdoor Roth. You’ll need to buckle up to drive both of these vehicles because the mega backdoor Roth will turbocharge your retirement savings. The mega backdoor Roth allows you to contribute an extra $35,000 in a Roth. You won’t see any tax savings upfront, but you will see it in retirement since this is a tax-deferred account. This account will provide a huge impact on your long-term saving for retirement. If you want to take your savings to the next level, check out the mega backdoor Roth.
Many people don’t even consider this account a retirement savings account, but like the trusty Honda Accord, a common brokerage account can be just as dependable. You can use a brokerage account like a super-charged savings account. Yes, there are more tax-efficient accounts, but the benefit of a brokerage account is that there are no restrictions which gives you more flexibility. If you feel restricted by the other retirement accounts, you may want to consider saving for retirement in a brokerage account.
You won’t want to miss our last comparison, the DeLorean. Listen in to hear which type of account we compared to this unique car.
Which investment vehicle sounds right for you?
Have you ever been on your way to an epic summer road trip and then all of a sudden you come upon a roadblock? That can ruin the excitement you feel for the upcoming trip. This can happen in retirement as well. In retirement, you may confront roadblocks on your journey and if you don’t know how to maneuver around them it can leave you feeling stuck.
On this episode of Financial Symmetry, Allison Berger joins me to discuss 3 not so obvious retirement roadblocks that you may encounter along your retirement journey. We want to be your GPS so that if you experience them you can find your way around them without too much hassle.
Your first years of retirement are so important when it comes to investment returns. Sequence of return risk is when you have several years of bad returns at the beginning of retirement when you are starting to withdraw your money. There is no way to control your market returns, but there are ways to mitigate this risk.
To combat sequence of return risk, you’ll need to maintain a balanced portfolio the way you maintain a balanced diet. Use the financial food groups! In retirement, you can no longer subsist solely on financial junk food (stocks). You’ll want to make sure that you have a healthy serving of vegetables (bonds and cash) thrown into the mix.
After maintaining a growth mindset in the accumulation stage of life by using mainly stocks, you may be hesitant to reduce your risk load in retirement. However, having a balanced portfolio can ensure that you won’t be forced to sell when prices are down.
You want to ensure that your money will be worth something in retirement, but inflation reduces purchasing power over time. We can visualize how inflation works by thinking about what the price of milk was 20 years ago. Inflation not only impacts the prices of goods but also impacts your retirement income. Even with the cost of living adjustments, your Social Security may not have the same buying power in 20 years.
Inflation is also known as the silent assassin. It is most dangerous for those who are overly cautious. To fight inflation you’ll need to make sure that there is some growth in your portfolio. You’ll need to take on some risk.
It is important to understand how different events can impact your taxes. The best way to combat unforeseen tax bombs is through multi-year tax planning. Most people are used to tax planning one year at a time, but retirement offers an opportunity to plan ahead. You can reduce your lifetime tax burden by thoughtful planning.
If you put together a financial plan for retirement you’ll have a road map for the years ahead. In retirement, you’ll want to become flexible and look for opportunities. This is part of what we do with our clients. If you are interested in using us as your GPS to help you through those retirement roadblocks then check out our website and click Learn More.
Have you been on the fence about hiring a financial advisor? This indecisiveness can cost you. This episode will help you decide whether hiring a financial advisor is right for you. You’ll learn the 5 C’s that you can expect when hiring a financial advisor. Press play to find out what you should expect from your financial advisor.
Video Recap: https://youtu.be/zuTdjdDkqUI
Have you been considering hiring a financial advisor? If so, then you may be seeking assistance in one of several areas.
Competence - You are looking for someone who knows more than you and is an expert in their field.
Coaching - You may know quite a bit, but knowing and doing are 2 different things. A financial advisor can be like a personal trainer and give you the push you need to get things done.
Convenience -A financial advisor can do what you don’t have time for.
Continuity - You may want someone to help you coordinate with others for family or legacy planning.
Do any of these reasons seem familiar to you? Keep listening to hear what a financial planner can do to help you.
Collaboration - Your financial advisor will co-create a plan that serves you and helps you reach your financial goals. This should be a collaborative process between the two of you. In your first meeting, you can expect to be asked a lot of questions so that they can learn about you and your goals. You want your financial advisor to lead with a planning focused approach. If you receive a sales pitch instead, this should raise a red flag.
Credentials - Many people are surprised to learn that you don’t have to have any qualifications to be a financial advisor. However, you may see a bit of an alphabet soup after a financial advisor’s name. It is important to understand what these letters mean. Are they real credentials or simply sales designations? Look for the gold standard CFP certification. CFA and CPA are two other certifications that may be relevant to your situation.
Communication - You can expect regular communication from your financial advisor. They may set up a communication calendar with you to help you set expectations in communication. This regular communication will help you stay updated. Your advisor may also reach out to discuss tax opportunities, set goals, and to review progress. Listen in to hear what red flags you should look out for in your advisor communications.
Compounding value - Are you better off after you pay your advisor than you would have been otherwise? This can be hard to quantify and may take a bit of introspection. Look at your return on life as well as the quantitative parts. Consider your investment returns, rebalancing, and tax deferral. If you think that your advisor is providing a free service then make sure to look for the hidden costs in your portfolio. A fee-only financial advisor discloses their costs upfront so that there are no surprises. If you are looking for a fee-only financial advisor you can find out more about our services at FinancialSymmetry.com.
The American Rescue Plan was recently passed, but do you know all the changes it will bring? You probably already know about the stimulus checks, but you may not know how it could affect your taxes and healthcare. This latest economic stimulus package could mean big things for your tax planning.
Video recap here: https://youtu.be/Vq8Y2CFYS6E
Since the American Rescue Plan has a heavy tax focus, I invited tax planning extraordinaire, Grayson Blazek, to brief us all on the risks and opportunities that we should be looking out for with the newest piece of legislation. He simplifies this complex topic down to 5 key areas. If you are looking for tax planning opportunities or want to know the risks to look out for, then make sure to tune into Grayson Blazek’s breakdown of the American Rescue Plan.
The third round of stimulus checks may be the most widely known part of the American Rescue Plan. These checks are capped at $1400 per person. Although the income range of those who qualify has narrowed, many people who were not previously eligible for stimulus checks will be eligible for round 3.
The age range for dependents has been expanded to those in college and older high school students, whereas with the previous rounds of stimulus, dependents were limited to ages 16 and under. Listen in to find out how the income bracket for stimulus checks has changed and learn how you could use this stimulus package as an opportunity for careful tax planning.
If you were laid off or terminated like many others last year, your company must continue to offer health insurance through COBRA. The drawback with COBRA is that the full cost of the insurance premium was placed solely on the participant without the employer absorbing a share. The American Rescue Plan will now fully subsidize the premiums of COBRA until September of 2021. This means that if you are on COBRA your premiums will be zero.
That wasn’t the only change in health insurance premiums through the ARP. Find out how the thresholds of the Affordable Care Act have changed with the bill as well. Press play to hear how.
Most people don’t pay attention to their taxes until the time comes for them to file. But maybe after listening to this episode you may want to start getting in front of your taxes and plan the year ahead rather than focus on the previous year.
If you have children, then this year is an especially good time to consider tax planning. You’ll want to take advantage of the expanded tax credit that went from $2000 to $3000 and $3600 for children under 6 years old. In addition to the child tax credit, the child dependent care tax credit was expanded to max out at $8000 per child.
Lastly, the American Rescue Plan has extended state and federal benefits to unemployment compensation until September 6. Lawmakers also chose to make unemployment compensation tax-free for 2020.
Listen in to hear all the details so that you can develop a plan to utilize these changes in your tax planning efforts. This may be a good year for you to consult a CPA to help you file your taxes.
Estate planning is one of the most overlooked and procrastinated upon areas of financial planning.
Video recap: https://youtu.be/NB2S1FWWH2s
While your legacy is important, it doesn’t generally take the front seat of your thoughts or your financial plan. There’s more to legacy planning than just having a will, but how much more depends on which stage of life you’re in. Find out what you should be doing to plan your legacy whether you’re in your 30s, 40s, 50s, or 60s by listening to this episode of Financial Symmetry.
When you’re in your 20s and 30s legacy planning starts with creating a will. A will gives you a good foundation and will get you thinking about electing your beneficiaries. You’ll also want to select your beneficiaries on your investment accounts.
Once you get married and start having children, then it’s important to keep your plans updated. It’s also a good time to get term life insurance. Make sure to revisit your will and the beneficiaries on your investment accounts periodically or with major life changes like a move or a new baby.
When you’re in your 40s you probably have more accounts and higher balances than you did in your 30s. Have you kept up with all of your retirement accounts from previous employers? The key to staying on the right track is to stay organized. Make sure to check in on your beneficiaries and estate documents from time to time.
If you are in your 50s and 60s you may be in the sandwich generation. This means you may have elderly parents and your own kids embarking on adulthood. This is an age when many really start thinking about their own legacy. It’s a good time to start thinking of Roth conversions. You can start tax planning not just for yourself but for your entire family. Think about how you can pass on your assets with the most after-tax value.
If you receive an inheritance there are different things to consider depending on your age and financial situation. You may want to consider paying off loans, buying a house, or even taking a mini-retirement. Having a financial plan in place can give you the confidence to do exactly what you want with those funds.
Estate planning is usually the last item on your financial planning list of things to do and it often takes another person to spur you on. A professional like an attorney or a financial planner often help guide you through this process. Let us know if you would like some help getting your estate planning in order. Plan today to make the most out of your retirement.
Have you checked out the new federal tax forms? You probably don’t want to wait until the last minute to prepare your taxes this year. With the new tax code here you’ll want to give yourself plenty of time to get familiar with the new federal tax forms. But before you get started you need to arm yourself with as much information as you can about the new tax code. That’s why today we brought our very own tax extraordinaire, Grayson Blazek to share his extensive knowledge of the new federal tax forms. Listen to this episode as Grayson helps us understand what the new tax forms look like, what’s changed, how to save and be more efficient on taxes, and what planning opportunities there are to prepare for next year.
Well, that time of year is here again, everyone’s favorite season: tax season! You may have heard that there are many new changes this year to the 1040. The idea behind the new federal tax form is to simplify the tax filing process. The new 1040 is touted as a postcard, while not exactly postcard sized, it is down from 79 lines to 23. Although there are only 23 lines on the new tax form there are several addendums which utilize a building block approach. There might be a touch of confusion for the first few years, but the new tax forms should be pretty easy to get used to. Listen as Grayson explains the new federal tax forms and takes us on a tour of the new 1040.
Obviously, the changes in the tax code are not only in the format. There are several other changes made as well. They eliminated personal exemptions which were $4500 per taxpayer on the 2017 return as well as dependents. The child tax credit used to be $1000 per child but has been increased to $2000 per child. The income threshold has been increased. There has also been a substantial change to standard and itemized deductions. And it is estimated that the number of people that will itemize their deductions will lower from 20% to 5%. Although there are fewer deductions your overall tax burden may be similar. Listen to this episode to hear what else has changed with the new tax code.
When preparing your taxes each year you have the opportunity to reflect on what you could have done to decrease your overall tax burden and what you can do in the future to ease your tax burden. Consider whether you should be taking advantage of your retirement savings accounts or health savings accounts. You can also think about your deductions and how efficiently you can space your charitable deductions. Decide whether you could donate every other year to get past the new threshold for itemized deductions. A donor-advised fund is a great tool to use when planning for your taxes. There are many other planning opportunities to consider so listen in to discover how you can begin planning next year’s taxes.