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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: November, 2018
Nov 19, 2018

As the holidays near, visions of new tax savings dance in our heads.  But knowing how to spot them is what really matters. With all the new tax law changes, Will Holt joins us again to guide you through seven tax opportunities you can take advantage of before year-end. Some of these tips can save you thousands of dollars, so listen in to see how you they may benefit your personal situation.

7 Tax Opportunities to Take Advantage Of

1. Tax Harvesting (Loss or Gain) – This hasn’t changed with the new tax law, but depending on your tax bracket, that percentage of tax you pay may have. If you’re facing a significant amount of capital gains or expect large capital gain distributions, with the rough October performance, you may want to consider tax loss harvesting. This allows you to offset some of those gains and even go a step further, by using $3,000 of net losses against your income. It may seem counterintuitive to sell at a loss, but it could be an opportunity to offset high taxes. If you are in the new 12% federal tax bracket and lower, realizing more gains could be an opportunity instead, as these could be realized at 0%. But knowing your tax rate and all expected income is required. Discuss with a professional to know for sure.

2. Max Retirement Contributions – Understanding how close you are to the max of your retirement accounts, could present extra tax-advantaged savings at the end of the year. Maxing your 401K contribution is the first place to check. If you get a big year-end bonus, this could be a good trigger. Don’t forget your HSA, as this account provides a triple threat of tax savings (tax deduction, tax deferral, tax-free withdrawals).

3. Convert a Roth IRA? – Doing a Roth conversion can help you stay in your tax bracket by moving an IRA into a Roth. With the new lower tax rates, this could be an opportunity to lower the inevitable tax you were going to pay on this savings. Additionally, you will be taking money out of a tax-deferred account and moving it into a tax-free account. This is a good option for early retirees with large taxable accounts. But you’ll need to be more precise going forward, as the opportunity to recharacterize if you overshoot is gone.

4. Bunching Charitable Contributions – The new tax law has increased the standard deduction for individuals to $12,000 and for married couples from $12,000 to $24,000. This means around 90% of people will now be taking the standard deduction according to the Tax Policy Center. If you forecast your itemized deductions could be higher than the standard amount, consider bunching your charitable contributions into 2-year bundles. One way to do that is by using a bunching tool called a donor-advised fund.  The donor-advised fund allows for more flexibility in taking the deduction now, but still allowing for spreading contributions throughout the year. For more information about donor-advised funds, refer to episode 59 for more details.

5. Look at a Qualified Charitable Distribution Early in the Year – One of the opportunities, that hasn’t changed but is getting more attention, is the QCD or qualified charitable distribution. To enjoy this opportunity you are required to be age 70.5 and older as you can designate a portion of your required annual distribution directly to a charity. This takes some precision and should be targeted for earlier in the year when the RMD still needs to be taken as it must come directly out of an IRA and go directly to the charity of your choice.

6. 20% Deduction for Qualified Business Income – If you are a small business owner or entrepreneur the qualified business income deduction will be of interest. What’s come to be called the QBI deduction, or 199A deduction, is used for any business that is not a C corporation. If you have self-employed income or are an S Corporation, you can receive a deduction of 20% on your profit. However, there are income limitations. After you listen to this tip you’ll want to sit down with your tax professional and plan your taxes. We wrote a more detailed article on potential savings with QBI here.

7. Watch the Tax Torpedos – To truly understand your own tax planning, you have to watch specific income thresholds. We refer to these as tax torpedos. For example, if receiving a premium tax credit for health insurance, you could lose your entire subsidy if you surpass the income limitations by even $1. These are set according to the amount of family members (up to 4). A great example of why tax planning matters throughout the year as well. We discuss other important income thresholds dealing with the medicare premium surcharges, child tax credit cutoffs, and roth IRA limits.

As you prepare for the holiday season, make sure you take a second look at your tax planning. By watching out for these financial opportunities, you could end up saving yourself thousands of dollars in taxes. It’s important to have a multi-year tax strategy and always consider the big picture, not just what is happening now.  Being financially smart means considering all aspects of your financial life.  This time of  year, that begins with looking for ways take advantage of new tax laws for your personal situation.

Outline of This Episode

  • [2:47] Tax loss harvesting
  • [6:51] Retirement accounts tax savings
  • [9:00] The Roth conversion
  • [12:09] The new tax law increased the standard deduction
  • [15:36] Qualified charitable distribution
  • [19:43] The qualified business income deduction
  • [22:37] Specific thresholds to look out for

Resources & People Mentioned

Connect with Will Holt

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

Podcasts <> Stitcher <> Google Play

Nov 5, 2018

If you've paid any attention to financial news recently, then you didn't have to look far, as stock market noise was at a peak. Media headlines were filled with phrases like: epic turmoil, getting crushed and no place to hide.

Emotionally charged words that make you feel like you need to do something to prevent losing more of your nest egg. But following our instincts when investing, can lead to dangerous outcomes.

In times like this, we need a strategy to give us proper perspective. On this episode of the Financial Symmetry podcast, we’ll discuss why market fluctuations are incredibly normal and provide techniques to help you cope with short-term volatility and keep your focus on long-term goals instead. If you’re getting nervous about the direction the market is taking, you’ll want to listen for steps to confront the inevitable next occurrence.

How to Deal with the Emotional Roller Coaster of Investing

When listening to financial news it's important to remember that the media’s ultimate job is to sell advertisements. It's not their job to help you see the long-term picture or help you reach your financial goals. Easier said than done when markets around the world experience a 10-15% drops.

But if we back up, history provides a different perspective. Market volatility is reliably normal, but it can still make you feel nervous. To truly understand the ups and downs, take a look at the chart below from the Capital Group. There have been 12 full-blown bear markets since 1945. A 5% or more decline in the market typically occurs 3 times a year. And a 20% drop usually occurs about every 4 years. The past 10 years have actually been the anomaly. It is important to remember that a bear market isn’t a bad thing.

It’s actually a great time to reassess your investment plan and evaluate your risk tolerance.

Fight Stock Market Noise with Facts

With breaking news coming at us as quick as we want it with social media, it's even harder to block out the noise. Whether tweets or 24 hour cable news, today's financial news is near immediate compared to 30 years ago when you may not hear it until the next day.

In Jason Zweig's book, Your Money and Your Brain, he provides some powerful questions to prevent your feelings from overwhelming the facts. Instead of listening and reacting to the financial news du jour, stop to pause and think about if anything else has changed in your financial picture, other than price of your investment. 

  • Consider if your reasons for investing in that investment is still valid? 
  • If I liked this investment enough to buy it at a much higher price, shouldn't I like it even more now that the price is lower? 
  • What other evidence do I need to evaluate in order to tell whether this is really bad news?
  • Has this investment ever gone down this much before?
  • If so, would I have done better if I had sold out-or if I had bought more?

What Should you Do Next?

To successfully navigate a bear market, you have a long-term strategy in place. Cliche? Sure, but considering where you are in life now is instructive in developing your treatment plan for market short-term sickness.

If you're in your 20’s and 30’s don’t worry, there is still plenty of time. Investment choices still matter at these ages, but not nearly as much as your actual savings amounts. Choose and stick with an investment plan so you can steadily take advantage of the drop in stock prices, a fantastic long-term sale.

If in your 50's and 60's, it's much more important to focus on your overall investment strategy. How does your asset allocation match your retirement timeline? For many in this walk of life, investment returns will be larger than your annual savings amounts. You'll also be facing the sequence of return risk which can eat a big portion of your retirement without a strategy.

Professional help at this point, can help you respond accordingly to market events and more importantly, act as an accountability partner. Having a buffer between your emotions and the markets may be the most important financial decision you can make. 

Outline of This Episode

  • [1:17] Examples of fearful headlines in the news this month
  • [4:01] Why you should not be worried about market fluctuations
  • [7:32] Stick to your strategy and investment plan
  • [12:26] What are your emotions telling you to do?
  • [18:26] What should you do next?
  • [23:45] Fight fear with facts
  • [29:04] Next time on Financial Symmetry. . .

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

Apple Podcasts <> Stitcher <> Google Play

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