High Net-Worth Individuals: Are You Missing Opportunities in Your Financial Planning?

High Net-Worth executives and those that have been self-employed, can experience common problems in their financial planning journey. Often, they have missed opportunities in their financial planning because they haven’t planned adequately for their retirement even though they make a high income. It’s easy to think that everything will work out with their retirement plan, and it can, but a high-income often masks the reality of having a deficit once a career ends. Just like average income earners, failing to save in the early working years can lead to a retirement savings shortfall. Retirement today means independence for many Americans. Flexible retirements are desirable when retirees can work, volunteer, golf, or do anything they choose because they have saved enough to decide when to retire and on their own terms. Many high-income, self-employed executives often focus on the business being their retirement nest egg to get them financially through the rest of their lives. The sale of their business funding their entire retirement is an unknown until the liquidation event actually happens. Financial planning for the ‘what-ifs’ can put the executive in a better position if they take the opportunity to save through these retirement savings options: Creating Your Own Deferred Comp Plan (DCP) allows you to defer a much larger portion of your compensation to supplement your retirement later on.  A strategically planned DCP creates beneficial options when it comes to choosing between the employer’s corporate lower tax bracket and the employee’s higher personal tax bracket. Maximizing Your Own Solo 401(k) or SEP IRA each year allows you to save more than a traditional 401(k), with some additional requirements. For the self-employed, these retirement plan options are an obvious

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College Funding: Planning Ahead for Financial Security

In recent years, the cost of higher education has risen well ahead of inflation. At some private colleges and universities, the net cost for one year’s full-time education, including tuition, fees, and room and board, tops $40,000 (Trends in College Pricing—2013, The College Board). At these prices, the final cost of a bachelor’s degree from a private institution could exceed $160,000. In addition, with many professions requiring graduate degrees, it quickly becomes apparent that very few families may be able to cover education expenses with their current incomes. With only one child, the costs can be prohibitive; for families with three or more children, college and graduate school costs could easily be hundreds of thousands of dollars. How can parents and grandparents build a fund for college? They need to look ahead and prepare a “blueprint” as early as possible, and there are a number of ways to do this. The best method will depend on the age of the child, the family’s resources and cash needs, and a number of other considerations. No matter what the age of the child, there are legal techniques for placing money and property in a child’s name. Since it is generally inadvisable for minors to own property or have large bank accounts in their own names, gifts to minor children are usually made either to a custodian or to a trust. The Custodial Account While some of the tax advantages of a custodial arrang­ement have been affected by tax law changes, the technique is still worth investigating. It is the simplest method to give money or property to a child, involving very little paperwork, hassle, and legal fees. All states have adopted either the Uniform Gift to

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What Should Grandparents Know About 529 Savings Accounts?

Grandparents can often find themselves in a better financial position to save for their grandchildren’s education than their own children are. The parents of prospective students may still be contending with competing priorities like their own student loans, high-interest credit card debt, or a hefty mortgage. One way to help save for a grandchild’s college education is by contributing money to a 529 savings account, an account where funds can be saved or invested and are withdrawn to be used exclusively for college-related expenses.[1] What else should grandparents know about 529 college savings accounts? Grandparent-Held 529 Accounts Won’t Increase the Expected Family Contribution Every family who fills out the Free Application for Federal Student Aid (FAFSA) receives an “expected family contribution” (EFC) calculation. The EFC is designed to measure how much the family can afford to pay per year for the child’s college education; the lower the EFC, the more need-based aid may be available. While parent-held 529 college savings accounts will count as an asset for EFC purposes, grandparent-held 529 accounts don’t; this may allow the child to be eligible for more financial aid than they would be if the account was held by a parent.1 An Income Tax Deduction May Be Available More than 30 states (and the District of Columbia) offer a state income tax deduction or credit for contributions to a 529 account (even one that is owned by someone else, such as the child’s parent).2 This means that if a grandparent contributes $5,000 to their grandchild’s 529 in a given tax year, they can receive a tax credit of anywhere from a few hundred dollars to $1,000 or more, depending on the state’s tax treatment. For

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10 Tips for Small Business Owners

Small business owners should conduct an annual assessment of their personal finances. Owners of small businesses have much the same concerns as everyone else, except they are personally responsible for the fortunes of their enterprise. In a sense, a small business is like a family. And these are important families in American economic life. After all, small business is vital to the U.S. economy, employing half of private-sector workers and creating two-thirds of net new jobs, according to federal data. Here are 10 tips to follow in weighing a small business owner’s financial plan: Budget/Saving. The general financial planning rule is that you should save AT LEAST 10% of your income on an annual basis. You should also review short-term and long-term goals to ensure you are saving enough to meet your objectives. Maximize Contributions to Retirement Plans. Depending on the size of the company and number of employees, there are many different methods to save for retirement. On an annual basis, business owners should work with their accountants and financial professionals to determine the most appropriate savings vehicle. Retirement plans include: 401(k)s, individual 401(k)s, individual retirement accounts, Simplified Employee Pension (SEP) IRAs, Roth IRAs, defined benefit and defined contribution plans. This will not only help achieve the goal of saving 10% of your income, but it also can help minimize taxes. Create/Review Estate Planning Documents. It is important to create wills, living wills, medical and financial power of attorney documents. These documents should be reviewed annually as your personal goals and estate laws change. Life Insurance. Various types of life insurance are available, including whole life, variable life, universal life, universal variable life and term policies. They provide a

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4 Reasons to Consider a Life Insurance Policy

Buying a life insurance policy is something that many people push off, sometimes until it is too late. For many people, the thought of buying life insurance means thinking about their death, which is something that most people wish to avoid. Life insurance is not about death, but instead about the future and security of your loved ones. If you have not yet made the jump to purchase your life insurance policy, below are four reasons you should consider one.[1] It Assists With Your Income If your family members are dependent on the income that you bring to the household, a sudden loss of it may add intense stress to their grief. Life insurance can typically cover your income at least long enough for your loved ones to gain stability or make up for the loss of monthly funds.[2] It Will Help With Funeral Expenses Funeral arrangements can cost thousands of dollars for even simple services. Your life insurance policy may help your loved ones to cover these expenses without placing any extra financial burden on them.[3] It Will Help With Your Debt There is a common misconception that all your debt will be erased in the event of your death. While this may be true for some debts, it is not true for all; most of the time, it tends to not be true of the largest debts like anything left to pay on a home. If you have a spouse for is a co-signer on your mortgages or other loans, they may become responsible for the entire debt. Debtors may also come after the assets in your estate, which can significantly reduce the amount of estate that will

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Key Considerations as You Start Receiving Social Security Benefits

As your retirement draws closer, you will probably start to have lots of questions such as: How much Social Security will I receive? When should I retire? How will I know when to retire? Do I have enough saved? What will I need to do to maintain health insurance after I retire? The answers to these questions can vary widely depending on your income, your job duties, and your assets. However, there are a few factors that everyone should keep in mind when you begin making your retirement decisions. Keep reading to learn more about three key considerations relating to your future Social Security benefits. Your Full Retirement Age (FRA) If, like many, you are planning to rely on Social Security benefits as a key component of your retirement income, your FRA may dictate your retirement age. Those born in 1954 and earlier can reach FRA at age 66, while those born 1960 and after will not reach FRA until age 67.1 Claiming your Social Security benefits before you reach FRA will lower your monthly benefit for life, so it’s not a decision that should be entered into lightly. If you like your job and can keep it through your FRA, it may make sense to do so. Not only will it increase your monthly retirement benefit, but it will also provide you with a longer earnings history and allow you to save more and/or pay off debt before you retire. Your Health and Projected Lifespan Your decision on when to retire (and when to begin claiming Social Security retirement benefits) can often depend on how long you expect to receive these benefits. If you have a family history of longevity,

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Retirement Planning: To Roth or Not to Roth?

When saving for retirement, it often makes sense to contribute to employer-sponsored retirement plans to take advantage of any available employer match opportunities. However, not everyone has access to an employer-sponsored plan. Even if you do, there are reasons you may want to consider using Traditional and/or Roth IRAs to supplement your retirement savings. There are important differences between the two types of accounts.[i] Understanding the potential benefits and drawbacks of each type of IRA can help you make more informed decisions. Potential Benefits and Considerations Regardless which type of IRA you choose, the contribution limits are the same, although Roth IRAs contributions are subject to income limits.[ii] Traditional IRA contributions are not limited by income levels unless you or a spouse was covered by an employer-sponsored plan during the year of the contribution. In 2021, the total amount you can contribute to your Traditional and Roth IRA accounts is the lesser of your taxable compensation for the year or $6,000 ($7,000 for those age 50 or older.)[iii] However, there are important differences in tax treatment for these accounts. If your income is below certain thresholds, you may be able to deduct some or all of your contributions to traditional IRAs, reducing your taxable income in the year of the contributions.[iv] Taxes on contributions and any growth are deferred until you begin withdrawing them. So, if your tax bracket in retirement is lower than in your earning years, you may pay less in taxes on your retirement dollars. In contrast, you cannot deduct contributions to a Roth IRA – those are after-tax contributions.[v] However, qualified distributions from Roth IRAs are not subject to federal income taxes, potentially lowering your tax

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How to Increase Your Financial Literacy

Unlike verbal literacy, financial literacy isn’t often taught in schools—which means that many people may enter adulthood without having all the tools they need to make informed and effective financial decisions.[1] Fortunately, gaining financial literacy doesn’t need to be a long or complicated process. Read on for three simple things you can do to work toward increasing your financial literacy. Subscribe to Reputable Financial Publications and Newsletters As with just about any topic, the more you read about investing, budgeting, and analyzing financial strategies, the larger your base of knowledge will be. A strong knowledge base in a particular subject can make it easier to make wise decisions in the future—you should already have a good feel for the “do’s” and “don’ts” of certain financial questions. There are a variety of high-quality financial publications, newsletters, and daily digests that can be emailed to you for free. You can also opt to become a paying member of one or more financial websites in order to get advice that’s better tailored to your interests and goals. Manage Your Assets and Debts Financial literacy doesn’t exist in a vacuum—in other words, the purpose of increasing your financial literacy is to put yourself in a position to make better financial decisions. Two key parts of this include: Putting your assets to their highest and best use; and Reducing your debts and minimizing your “burn rate.” Investing in the stock market is often a key component of the first prong. Although the stock market is more volatile and less “safe” than cash, each dollar you invest now, at a modest six percent rate of return, will grow to $5.74 in 30 years.1 By putting even a

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4 Tips for a Healthier Financial Outlook

With Public Health Week on the way,[1] it is not only time to consider your physical and mental health but also your financial health. When your financial outlook is healthier, you will be less stressed and enjoy what all your hard work has given you. Start this Public Health Week by trying out a few tips to help create a healthier financial outlook for the future. Be Mindful When You Spend When it comes to spending money, be aware of what you need versus what you want. That doesn’t mean you should not buy the things you want, but it does mean making sure your needs and responsibilities are accounted for first. Thinking along these lines can help you make better spending choices and prevent you from regrets when you making a purchase. Save Early Saving early is important for many reasons. First, if you save for retirement early, your money is more likely to grow faster and could provide you with what you will need to enjoy your retirement. What you put aside will continue you be reinvested and hopefully snowball into a larger retirement fund when the time comes.[2] But retirement is not the only savings to focus on. Putting money aside for emergencies such as losing a job will better prepare you financially and alleviate stress when problems arise. Get a Handle on Debt Burying yourself in debt may lead to significant financial problems down the road and might even prevent you from obtaining some of your financial goals. If you already have debt, create a plan to pay it down as quickly as possible. Limit spending on items that are not necessary. Then budget in an

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What to Know About Roth IRA Conversions

A Roth IRA is a retirement savings vehicle like no other. Not only can account holders withdraw their contributions at any time without taxes or penalties, but also these accounts aren’t subject to required minimum distributions (RMDs)—and all earnings are tax-free.[1] Investors who feel they are too heavily steeped in pre-tax retirement contributions may decide to convert some traditional IRA contributions into a Roth, repaying any tax credits received for the contributions while allowing future gains to grow tax-free.[2] However, the Roth conversion process can sometimes be complex, and a misstep can cost you money in taxes, fees, and penalties. How does a Roth conversion work, and what should you know before getting started? What is a Roth IRA Conversion? A Roth conversion involves transferring pre-tax or tax-deferred retirement assets (from a traditional, SIMPLE, or SEP IRA) into a Roth IRA. This creates a taxable event, which means that you will likely owe taxes on the amount converted in the year of conversion—but after that, these contributions are treated as though they had originally been put into a Roth in the first place. You also shouldn’t owe any early withdrawal penalties, as the conversion simply moves these assets from one retirement account to another. When you reach retirement age, you can withdraw any earnings and contributions without paying a dime of tax. How are Roth Conversions Executed? The IRS has described three different ways to convert a traditional IRA to a Roth.1 A rollover allows you to take a distribution from your traditional IRA—usually by check or online transfer—and move that money into your Roth within the next 60 days. A trustee-to-trustee transfer requires you to instruct the financial institution that holds

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