July 3, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

This Week’s Podcast – You Have Enough to Retire, but How Do You Create an Income.

Listen in to learn the importance of starting a withdrawal strategy in the first few years of retirement to avoid a sequence of return risks. You will also learn about all the things you should be thinking about if you want to retire early or at any age to keep your life fun and exciting in retirement.

What’s the importance of having a financial professional to help you with the withdrawal strategy to avoid the stress of the deaccumulation phase? Learn here…

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – You Have Enough to Retire, but How Do You Create an Income.

In this scenario, the couple wants to retire at 55 – one year from now. They want to know the best way to take their distributions. The couple plans not to touch the qualified money until they hit age 59.5.

They go on to say that they understand the 4% rule, but they don’t…

CLICK HERE TO READ THE BLOG

You Have Enough to Retire, but How Do You Create an Income?

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An article came across our desk from MarketWatch about a couple in their 50s who want to retire early. They have $4.5 million in savings and don’t know what to do to withdraw the money in retirement. 

Breaking down the couple’s assets, they have:

  • $2.3 million in taxable accounts
  • $2.2 million in retirement assets

The couple has the assets to retire, but this article resonates strongly with us at Peace of Mind Wealth Management. How do you build a plan that will last 20 – 30 years and take care of your family?

The article’s response was pretty standard: seek professional advice instead of trying to do it yourself because everyone and their circumstances are different.

With that setup, let’s dive into the meat of the topic and explain how we recommend you create an income stream.

What the Couple Lets Us Know About Their Situation and Ideas

First, the couple wants to retire at 55 – one year from now. They want to know the best way to take their distributions. The couple plans not to touch the qualified money until they hit age 59.5.

They go on to say that they understand the 4% rule, but they don’t know whether to take money monthly, quarterly, or annually. The couple planned to take money off the table after the 2021 peak, but waited until 2022 for tax purposes, and that backfired.

They also want to know how often they should withdraw money from their accounts.

From our perspective, we love the idea of a retirement focused financial plan. As you grow up you are told to save. Save as much as you can, and dump the money into 401(k), IRA, life insurance, brokerage accounts, emergency funds, and so much more.

Suddenly, you’ll exit the accumulation phase of life and need to enter the distribution phase.

The money you’ve built up needs to last the rest of your lifetime. This is where the anxiety phase seems to kick in:

  • Did I save enough?
  • Did I plan enough?
  • Do I have enough money to last the rest of my life?

We see clients that have less than $4.5 million for retirement and some with substantially more.

How Do You Start Withdrawing?

Based on the article, we know that the individual who wrote into MarketWatch understands the 4% rule. This rule is simple: if you withdraw 4% of your assets annually, you should maintain your assets throughout retirement.

Let’s say that you have $1 million in an account and take $40,000 out of the account annually. In a “predictable” market, this means you’ll replenish the money you take out each year.

We saw in 2022 that the market fell 20% – 30%, depending on the index. In 2020, the market fell over 30% in just a few weeks.

Markets are not predictable. Every few years, we do see volatility and corrections.

While the 4% rule is slightly off and is more like 3.3%, meaning for every $1 million you have in retirement accounts, you can confidently take out $33,000. Rates of returns have gone down, and inflation has gone up.

The times when 7% – 10% gains were almost certain in the markets are, in our opinion, not in our future. You’ll have years of gains in this range or higher, but on average, the market fluctuates too much for it to be predictable.

Based on this information, you should speak to a financial professional and look at all the pieces of retirement and how they fit together.

The person who responded to the question mentioned something else that was important: sequence of returns risk.

What is Sequence of Returns Risk?

If you start your retirement in a down scenario, your return risk goes up. For example, if you wanted to retire in January 2022 and wanted to withdraw $5,000 a month for retirement, it was a bad time.

The markets went on a steady 12-month decline with no recovery phases in the middle.

A person may have had $1 million at the start of the year, but when the year experiences a downturn like 2022, the $5,000 you take out is turning into a higher percentage of your portfolio.

The portfolio stress becomes higher when you withdraw on a down asset.

If the first early years were down 10% or 20%, you could get into a very tricky situation where you might receive 7% returns a year now. However, those initial down years really hurt your chances of the account lasting through retirement.

For us, it makes more sense to consider where you’re withdrawing the money and think about withdrawing money from accounts with less risk.

You may even need to adjust the number of withdrawals you have during down years.

Gap Between the 55 and 59.5 and Funding Retirement

Since the person is retiring before 59.5, they do risk being penalized if they touch their retirement accounts before the age of 59.5. The person writing in understood this fact, but they will need to fund retirement for 4.5 years in some other way.

You can tap into your non-retirement accounts, and there are strategies to tap into a 401(k) at age 55.

The other thing to identify if you’re retiring early is:

  • How much do you need to spend every month? These are “needs”, including food, utilities, mortgage and so on.
  • How much do you want to spend every month? “Wants” include things like vacations, visiting grandkids and so on.

We also need to think about pensions and any income that may be coming in that is not tied to your retirement account. Since the person is 55, we’re not considering Social Security. Early retirement age means thinking about heightened health insurance costs of around 10 years until the person reaches age 65.

When retiring at 55, the person also has opportunities to understand where to withdraw money from to make their money last.

Between the age of 55 and 75, when the person needs to take required minimum distributions, they have 20 years where they can do some pretty cool stuff. For example, they can:

  • Convert pretax to tax-free accounts
  • Reduce taxes through conversions

If the person has all their money in a traditional 401(k), they can start converting these assets through Roth conversions over these years. The ability to grow assets tax-free is a beautiful concept.

We recommend the person spend time understanding where money is coming in, where money is going out, and when various milestones in retirement will be hit.

A person can begin taking Social Security early, at retirement age or at age 70. The additional income may help pad their income needs later in retirement.

Medicare also needs to be considered and is a massive topic because of IRMAA, or surcharges for making too much money in retirement. You may take out more money from one account, but you’ll be penalized in some way:

  • Tax bracket change
  • Taxable Social Security
  • Medicare surcharges

When it comes to a withdrawal strategy, we follow a bucket approach that follows a “why” scenario for spending by breaking your money into:

  • Cash
  • Safety
  • Growth

Bank money and emergency funds are cash. This money is easy to access and will not impact retirement. Safety buckets speak to the idea of the safety of return risks. If we have a safety bucket with low risk and make a return, it brings predictability to our plan.

Finally, the growth bucket is the long-term bucket that is in the stock market and will go through ups and downs. If we can avoid tapping into this bucket, it will be allowed to grow long-term and can circumvent volatility because you don’t need to take money out of the account during down periods.

You can tap into the growth bucket when you need it for things like a vacation. It is a liquid bucket but allowing it to grow over time makes sense for our clients.

We aim to create a withdrawal strategy that minimizes risks and allows you to live comfortably through retirement. Everyone’s retirement plays out differently because your needs are unique and will change over time.

Working with someone who lives and breathes retirement strategies can help you create a withdrawal plan that minimizes risks and tax burdens, and considers volatility in ways that “general” rules, like the 4% rule, do not.

Do you have questions about retirement and want to speak to a professional?

Click here to schedule a 15-minute call with us today to discuss your retirement concerns.

June 5, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 5, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – Does The Rule 100 Work in Retirement?

The conversation around risk is extremely important for you to have an investment structure you’re comfortable with.

Listen in to learn why investment risk is subjective and should be looked at as an individual. You will also hear us perform an exercise to help you understand our numerically driven system that measures risk comfort.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Does The Rule 100 Work in Retirement?

A rule of thumb around risk is the “Rule of 100.”  If you haven’t heard of this rule before, we’ll outline everything for you below so that you have a better understanding of it. Keep in mind that risk in investing is somewhat subjective, and needs to be discussed on a case-by-case basis.

We have people ask, “What is my risk based on my age?” And this isn’t something that we really recommend. The “Rule of 100” is the rule of risk based on age.

CLICK HERE TO READ THE BLOG

Does The Rule of 100 Work in Retirement?

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A rule of thumb around risk is the “Rule of 100.”  If you haven’t heard of this rule before, we’ll outline everything for you below so that you have a better understanding of it. Keep in mind that risk in investing is somewhat subjective, and needs to be discussed on a case-by-case basis.

We have people ask, “What is my risk based on my age?” And this isn’t something that we really recommend. The “Rule of 100” is the rule of risk based on age.

What in the World is the “Rule of 100?”

The Rule of 100 takes your age and subtracts it to help you determine how much risk you can take when investing. For example, let’s assume that you’re 50. The equation would be: 100 – 50 = 50.

In this case, “50” is how much risk you can take.

So, based on this figure, you should keep 50% of your money at risk. If you’re like many 50-year-olds who feel like they have plenty of years left, it doesn’t make sense to stop 50% of your money from its growth potential. You can still have good risk control and keep this 50% of your money growing with relatively little risk.

Now, imagine you hit 70. You take 100 – 70 = 30, so 30% of your money can be at risk and in the market. For some people, this formula works well, but there are many people who want more risk.

You can have two people who earn the same money, accrued the same debts, and are the same age but have different risk tolerance based on their individual situations. One person may be fine with 4% growth per year, while another wants to achieve 12% growth and invest in riskier investments because they want to pay for their grandkids’ education.

What’s right for you?

We’ve adopted our own method of risk calculation that looks at the bigger picture to help you better understand your goals and what risks you must take to reach them.

Walking Through Our Conversation on Risk with Our Clients

Retirement planning is truly unique to each person. You may want to travel the world, while another person wants to spend their golden years tending to their garden. The goals and aspirations that you have for life in retirement must, in our belief, be a major contributing factor to your risk tolerance.

Our system is numerically driven and asks:

  • How do you feel about risk in a six-month window?
  • Say you have $1 million and lose 10%. Are you comfortable losing $100,000 in six months?

Many people believe that they’re comfortable with losing 10% of their investments until they see the hard figure in front of them. Let’s walk through an example of how we help our clients understand and determine their risks.

$1 million Retirement Roleplay

In this example, Radon has $1 million and has just walked into our office. 

Murs

Radon, you have $1 million to work with. We want to set you up for your retirement. We want to take risks and earn you money, but we want to create a portfolio that allows you to sleep well at night. We need to understand what that number is for you because everyone is different. 

If you look at the screen, Radon, we’ve put your million dollars here and have a slide rule in place that allows us to adjust your investment risks.

The slide starts in the middle here, and the middle is 14%. At this percentage, you have a risk of losing $140,000, but you can also have a nice gain, too.

Radon, I am going to move the slide all the way to the left, which is –4%, or $40,000. What I want you to do is, as I start moving the slider to the right, tell me where you think you feel uncomfortable with your losses.

We’re at 7%, or around $68,000 of loss. We’re now at 10%, or a $100,000 loss.”

Note

What we find happens during this example is that the client starts to talk to themselves. For example, they may say that they didn’t feel good about losing 20% in 2022. The person then weighs their risk on what happened last year.

We recommend trying to look forward because the losses last year may never happen again. We often see clients tend to stop at 10% because losing $100,000 is tough to swallow. However, most people realize they need to let the market breathe a bit and can sleep at night with a 10% loss.

We’ve established our baseline at 10% because that’s our initial gut reaction, where we become uncomfortable with any further losses. The screen that is in front of the client will have the 10% in the middle and then have numbers on the left and right, which show lower and higher risk figures.

Now, let’s get back to our example discussion from above.

Radon

Radon, during this discussion, determines that he’s comfortable with a 10% loss on his $1 million, and this is the figure he doesn’t want to pass. 

Murs

Radon, you told me 10% on the downside is your limit, but what if we can improve that? Let me tell you. It’s different for different families. 

  • One person may receive the same reward of 10% while only having a 6% loss potential, or $60,000. This would be the left side.
  • One person may be comfortable with a 10% loss, but what if I can increase my gain potential to 16%? This would be the right side.

Radon, what looks better to you?

Radon

In this case, I think I am comfortable with the risk. I feel confident with a 10% risk, and if I had more reward, I would move to the right.

Note

This exercise is thought-provoking because some people are comfortable with going to the right to have more reward, but others find it a no-brainer to lower their risk.

Keep in mind that Radon wouldn’t mind earning a little more at 10% risk. The software shows us that we can stay where we are at –10% downside, or we can go 16% – 19% growth. However, this would mean a 12% risk, or $120,000 potential loss.

Murs

Radon, which one looks better to you? Would you like to stay in the middle or take a little more risk for a lot more potential?

Radon

The rationale that I’m looking at right now is that I get quite a bit more upside for a little more risk, which is kind of in my comfortable range. Again, I am kind of nervous, but I think I can take it a little higher to make up for some of the losses in 2022. I don’t want to miss out on the potential that’s coming.

Let’s take it up one notch and see what happens.

Murs

Great. Pushing it up one notch, we’ve moved from a –10% to a –12% comfort level. Now, the last one is, what if we can earn better by going to –14% downside in a 6-month window?

Radon

I was already pushing it with the 12% risk, so I think I feel most comfortable staying in this range and not pushing my downside any higher.

Summing Up

These few questions and scenarios show a client the hard figures, which makes it possible to really identify their risk tolerance and the losses they feel most comfortable with in their portfolios.

Using these figures, we can create an investment plan that is within a risk category and create a growth plan that doesn’t exceed the client’s risk tolerance.

We will then use our bucket strategy to allocate all the clients’ funds to help them achieve the growth they want from their retirement accounts. The three buckets include: cash, income and safety, and then a growth bucket.

Risk tolerance allows us to create a one-page investment strategy that we give to our clients that helps them understand exactly how their portfolio will look.

We find that using this type of risk tolerance assessment works much better than saying a “moderately conservative” plan that may be losses of 10% or 20%. Moderately conservative is a subjective term, and we take the subjectiveness out of the equation with the assessment we create.

Click here to schedule a call with us to help you better understand your retirement risk tolerance.

April 17, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for April 17, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast -Retirement Withdrawal Strategy

Learn how to determine your spending during retirement and which accounts the money will come from. You will also learn the importance of being flexible to make changes to your strategy as things and priorities shift over time.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Retirement Withdrawal Strategy

If you’re like most people, you’ve worked a lot, put money into retirement and relied on your paycheck to pay the bills. A lot of time goes into retirement planning, and then there’s this cosmic shift where you’ll find yourself spending your retirement money.

You have all of these accounts that have grown as you tried to secure your retirement, and you may be wondering: Which accounts do I take money from? 

CLICK HERE TO READ THE BLOG

Retirement Withdrawal Strategy

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If you’re like most people, you’ve worked a lot, put money into retirement and relied on your paycheck to pay the bills. A lot of time goes into retirement planning, and then there’s this cosmic shift where you’ll find yourself spending your retirement money.

You have all of these accounts that have grown as you tried to secure your retirement, and you may be wondering: Which accounts do I take money from? 

The steps below can help you create a retirement withdrawal strategy that works well for you:

5-step Retirement Withdrawal Strategy

1. Determine Your Retirement Needs

We work and save for so long that when retirement comes, most of us don’t know our needs. You’ve built up a nest egg, and now it’s time to understand your needs:

  • Essential income: What do you need to stay relatively happy? You’re not having all of the fun yet, but you need to pay your mortgage, eat and enjoy life a little bit, such as going out to dinner. Calculate this expense, which may be $3,000 to $4,000 or less and maybe even more, depending on your lifestyle.
  • Wants in retirement: Do you want to travel, play golf, or spoil your grandkids? What will make retirement fun for you? It’s important to come up with your own bucket list and then put a dollar figure on each item.

Social Security is unlikely to cover all of your needs, and this is where the coming steps will help you create a withdrawal strategy.

2. Understand the Different Types of Retirement Accounts

Many people know a lot about their 401(k) accounts because they’ve paid into them for so long. Their employers may have contributed to these accounts, and it is where many people have the bulk of their wealth.

However, you may be involved with:

  • Traditional or Roth IRA
  • Traditional or Roth 401(k)

If you have a traditional IRA or 401(k), there is a rule that you have to take what is known as a required minimum distribution. Currently, at age 72, you need to begin taking withdrawals from these accounts every year. This age is set to increase to over the years, but right now, it’s 72.

We have a few clients who didn’t realize that they needed to take this distribution and don’t need the money. However, since these accounts are traditional, you’ll need to take your withdrawals and pay taxes on this money, creating a lot of interesting scenarios.

For example, you may have to deal with:

  • Health benefit changes that are based on income
  • Paying into a higher tax bracket because your income is now higher

Roth accounts do not require you to take a required minimum distribution. In many cases, we’ll discuss doing things early, such as in your 50s and early 60s, when you still have time to convert the traditional account earlier to avoid potential drawbacks in the future.

Everyone with a traditional or Roth IRA must sit down and figure out the rules of each account type that they have.

3. Figure Out Your Priorities

Year by year, your retirement withdrawal strategy can change. Nothing is set in stone, but we find a yearly strategy provides our clients peace of mind. With that said, you do need to determine your priorities.

For example, you may want to prioritize:

  • Roth conversions to get into a tax-free scenario
  • Tax strategies to lower future taxes

Roth conversions will trigger taxes and can impact you in the future. 

We have one client who is trying to leverage a very low tax year, live on cash in the bank and do a Roth conversion. He plans to live on the cash he has saved so that the Roth conversion can happen at a rate of just 12%.

Since he is converting into a Roth account, he benefits from:

  • Allowing the money in the account to grow
  • Not having to take withdrawals

He is making it a priority to get his money into accounts that can grow tax-free and not have to worry about future withdrawals.

Another priority that we have seen in recent years is staying under IRMAA. IRMAA is a Medicare surcharge, and if you go over a certain threshold, you’ll need to pay higher premiums as a result.

Don’t know what IRMAA is or why it matters? Read through our guide: IRMAA Medicare Surcharges and 

If you never want to go above the IRMAA threshold, this can be a priority and achieved by creating the right withdrawal strategy.

4. Manage Investment Risk

Investment risks can be complicated, but we like to keep it simple with a three-bucket strategy. The strategy includes:

  1. Cash in the bank that you can use as emergency money any time you need it.
  2. Investment bucket, which is the money that you want to grow. Some risk is involved here.
  3. Income or safety bucket. Let’s assume that we have an income or safety bucket, this will cover your expenses and allow your investment bucket to rise and fall without worrying about market downturns.

You can read more about our retirement bucket strategy here.

5. Be Willing the Adjust

The final step in a retirement withdrawal strategy is that you should be able to adjust the strategy at any time. Unfortunately, there is no one-size-fits-all approach or rule of thumb to follow with your withdrawal strategy.

Retirement-focused financial plans are “living and breathing.”

We want to have the ability and flexibility to adjust your plan when it benefits you the most or when priorities change. For our clients, we recommend going through their plans at least once a year.

A quick review helps you understand if you have everything to cover your life for 30+ years in retirement. If you get caught in autopilot, you may miss important changes that need to occur.

If you prioritize your withdrawal strategy, you’ll find that it’s a lot less complex than it is if you scramble to create a strategy too late.

Do you want help with your retirement planning?

Click here to schedule a call with us about your retirement withdrawal strategy.

Implementing Your Retirement Plan

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Last month, we started a conversation on the retirement planning process, which you can read here or listen to on our podcast. In that episode, we discussed:

  • Preparing for an introduction meeting with our team
  • Obtaining documents for the meeting (financial statements, retirement statements, etc.)
  • What happens on our end before the second meeting
  • Bucket sheet (cash, safety and growth)

At this point, a lot of work has been done on both sides of the table: you provide a wealth of information, and we give you a recommendation and insight into your retirement. Now, you have to decide whether or not you want to work with us as a client.

If you love everything and want to work with us to secure your retirement, we will move forward through a new process.

Meeting and Figuring Out Any Additional Information We Need

We’ve gathered a lot of information from you up until this point, but there are still some documents we’ll need to open up accounts. For example, we’ll need:

  • Beneficiary information
  • Dates of birth
  • Addresses
  • Phone numbers
  • Contact information

We’ll spend time filling in documentation with all of your information to open up a Charles Schwab account in your name. Once all of this paperwork is signed, we’ll submit it to Schwab. In most cases, it will take 1 – 3 business days to open the account, depending on the type of account in question.

This is when:

  • Transfers take place
  • Nick reaches out to you about the account being opened
  • Verify that everyone can access the new account (including you)
  • Etc.

If you’re already a customer of Charles Schwab, we only need to provide a single form to access the account. 

Understanding Our Relationship with Charles Schwab

It’s crucial for you to understand that we don’t work for Charles Schwab. In fact, we’re not connected with the company in any way other than using them as a custodian. Custodians can be:

  • Fidelity
  • TD Ameritrade (not for much longer as Schwab acquired them)
  • Charles Schwab
  • Vanguard
  • Any place where you have your accounts

Charles Schwab doesn’t have a financial relationship with us.

When we transfer your accounts from your existing custodian to Schwab, something called an “in kind” occurs. This is a simple term, meaning that all of your assets are moved from one account to another and remain unchanged.

We don’t have to sell and repurchase anything when transferring your accounts to Schwab.

Until we come up with a strategy around the investments, nothing changes in your accounts during the transfer. The transfer doesn’t cause tax liability or anything like that.

What Happens If I Transfer My Monthly Distribution from One Custodian to Another?

If you have a custodian account with, say, Fidelity and you’re taking a $1,000 monthly distribution, what happens when you transfer to Schwab? We’ll need to fill out one additional form on your behalf and make sure the same exact thing happens at Schwab for you.

In essence, we’re just changing bank accounts when moving to Schwab, and we replicate everything for you effortlessly.

What Happens with a Company Plan, Such as a 401(k), 403(b), 457, etc.?

If you have what is called a “company plan,” the transfer happens a little differently. We require one less form to file and we’ll need to contact the company, such as the 401(k) company.

When we contact the company, we’ll request that the company send a check for the balance of your account. The check will be made out to Charles Schwab for the benefit of you. The check can be sent to you or to Charles Schwab directly.

The process varies and depends on how fast the company cuts the check.

Note: When we work together, we do a trustee-to-trustee turnover so that you don’t trigger a taxable event. 

Tax Planning Over the Next Few Months

During the first few months of working with us, we’ll dive into tax planning. If you want to secure your retirement, you must not pay a dime more in taxes than is necessary. First, we’ll need your most recent tax return.

We’ll analyze these returns to learn where you can save money.

For example, perhaps you can benefit from a Roth conversion, so we’ll have a conversation around this to see if it’s something you’re interested in doing.

Of course, we may be able to leverage:

  • Qualified charitable distributions
  • Donor-advised funds
  • Any opportunity to lower your taxable income

We want to lower your current taxable income and future taxes, too.

Clients Over the Age of 65

If you’re over the age of 65, you may be concerned about selling something with a gain or a Roth conversion. Clients who are paying Medicare premiums, or will be shortly, need to worry about something called IRMAA.

Don’t know what IRMAA is? Read our guide on it here.

Essentially, once your adjusted gross income reaches over a certain level, there’s a possibility that your Medicare premiums may start increasing. The goal is to keep your premiums at a level where whatever we do on our end, such as a Roth conversion, isn’t negated.

Our clients who work with us, we will:

  • Introduce you to a CPA we work with
  • Help you gather all of your tax forms
  • Ensure that your return is filed on time

Taxes have a lot of moving parts, and we do our best to ensure that we take as much of the burden off of you as we can.

Communication With Clients

On our end, there’s so much going on quickly that it can feel overwhelming and confusing. We communicate as much as we can with our clients so that you’re never left wondering: what’s going on with my accounts?

We provide updates, often via email or a phone call, to tell you about accounts opening, ensure that you have access to each account, transfer estimates and then when the transfer is complete.

We also keep in close contact with you during this time to ensure that if you have any questions, they’re all answered in a timely manner.

401(k) Transfers

If we’re transferring a 401(k), we often do not have an estimated date for this completion. However, we do see when the check is sent to Charles Schwab and when it is deposited into the account.

When the check goes to you, we’ll be in frequent contact with you to ensure everything goes smoothly.

At this point, we’ve done a lot of the process needed for our “45-day meeting.”

45-Day Meeting

In most cases, the 45-day mark is when we have everything in-house, and all of your assets have been properly transferred. We’ll be getting together to:

  • Ask you questions about logging into your account, statements and ensuring that you’re comfortable with the setup in place
  • Finalize anything that is left to talk about for the investment strategy
  • Deliver anything left in the investment strategy to you

We provide you with a one-page document on how everything is laid out for your multiple buckets. These buckets include your cash, safety, and growth accounts. During the visit, you’ll have time to ask us any questions about the way we devised these buckets.

Next, we’ll move on to the important part of estate planning, which will include a few things, such as:

We have a relationship with a partner firm, and we take care of this expense for our clients. The estate plan ensures that your retirement planning accounts for those times when you’re incapacitated or no longer living.

Since so much is going on during the first year of working with us, we will plan on meeting with you quite a bit so that we can get everything in place. You’ll also be able to see all of the work that we’ve done up until each meeting so that you can have peace of mind that your retirement is in good hands.

Do you want to learn more about our approach to retirement planning? Contact us today.

Do You Need a Trust in Retirement?

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Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

We teamed up with Andres Mazabel at Trust & Will to streamline the process for everyone, and it has worked out well for so many of our clients.

Andres was a special guest on our most recent podcast to answer a question many of you may have: do you need a trust in retirement?

Why Trust & Will was Founded

Trust & Will, Andres’ company, was founded five years ago because more than 60% of families do not have an estate plan. Traditionally, financial advisors that wanted to help their clients with estate planning had to use an attorney for this process.

Now, Trust & Will offers estate planning documents in all 50 states, making the process:

  • Easier
  • More accessible
  • More affordable

While Trust & Will doesn’t replace an attorney, they make the process easier for people to set up their estate plans from the comfort of their own homes. You can even update your plan through the platform and consult with some of the attorneys on the Trust & Will team.

If you have 30 minutes to an hour, you can have your estate plan in place, which is something our clients love. By removing the friction and procrastination in estate planning, we find more of our clients have these important documents in place to protect everything they worked for in life.

Documents Everyone Needs in Retirement

One survey found that the biggest gaps people have when working with a financial advisor are:

  1. Wealth transfer advice
  2. Estate planning advice

Unfortunately, there’s a big gap in consumer knowledge of probate, wills and what happens when they’re no longer around.

With all of this in mind, we believe everyone should have a:

In addition, some of you reading this may also need a trust.

Trust vs Will in Estate Planning

Basic will documents outline, on paper and in legal documents, your assets and how you want them to be divided up upon your death. Then in the middle of this is something called “probate.” 

Probate, or the court process of a judge settling the estate, allows the judge to make the decision of what happens to your assets if you don’t have a will. Let’s look at an example of this:

  • You die without a will
  • You have no contact with your children
  • You wish for your assets to be transferred to your fiancée

In the above scenario, your estate would be settled in probate. The judge, who has no knowledge of your family dynamics, will split the assets in accordance with the law, and a large portion will go to the children you haven’t heard from in years.

Of course, your parents and siblings may also receive some portion of your estate.

A trust helps your estate avoid probate.

Depending on the state you live in and the assets you have, you may or may not need a trust. In California, if you have taxable accounts above $184,500 (this figure can and does change), these assets will go through probate.

Without an estate plan, a person who exceeds these amounts would have their assets go into probate and then keep the family in probate for 12 months or more.

You don’t want to keep these assets from your family for a year or more.

A trust can be set up to allow you to direct your assets the way you want and at the time that you want. Additionally, the details of the trust are private, but probate is a public matter that anyone can see.

For example, with a trust, you can:

  • Give your kids all of the funds at once
  • Give your kids a percentage of a fund at certain age or life milestones
  • Set money aside for charity

What You Should Know About Creating a Trust

A trust, in its most simple form, is a legal agreement, in which some ways, creates a legal entity. A revocable living trust is the most common form of a trust, and while you’re alive, you can manage the trust, update beneficiaries and have a successor trustee in place.

When the trustee is no longer around, the successor trustee will step in and then be in charge of executing your wishes for the trust. You have a lot of options on who you can choose as your successor trustee, such as:

  • Family member
  • Spouse
  • Someone you trust

You also have the option of hiring a corporate trustee who you pay to execute the plan that you have for your trust. 

If you have an estate under $5 million, most people don’t need a corporate trustee. However, if your estate is worth more than this amount, it may be worthwhile to use a corporate trustee to manage the trust when you’re gone.

Trusts and estate plans can be modified and adjusted while you’re alive because your plans will change over time.

Example Situation of a Trust in Action

Visualizing the benefit of a trust in retirement is easier with an example. Let’s say that a person has:

  • An IRA with beneficiaries in place
  • A house or vacation home

Logistically, with the houses, they would go through probate if you didn’t have a will in place – if the asset was in your name only. Perhaps the asset was purchased before you were married, so it’s not part of your marital property either.

If you pass away suddenly, the real estate will go through probate because no one else is on the deed.

A trust would “own” the real estate, which transfers the deed of the property to the trust, and in a good number of states, you can do a deed transfer, too. Deed transfers allow you to pass the property to someone else without a trust.

However, a trust ensures that the property is transferred before your death so that you can leave it to someone else via your trust’s plan.

You may also have taxable accounts that would undergo a very similar process, such as:

  • Bank accounts
  • CDs
  • Investment accounts (not under an IRA or Roth IRA)

Proper titling of these accounts (such as having named beneficiaries) can help you protect these assets.

A trust allows you to either transfer the asset to the trust or leave the trust as the beneficiary if you wish. Retirement accounts are often not included in a trust. Instead, these accounts often have a beneficiary listed who takes over an account.

Trusts can also help you with business succession, allowing you to pass your business to someone else or have it liquidated.

Do You Need a Trust?

You may or may not need a trust, but you always want to avoid probate. If you have cash assets that can have beneficiaries added to them, the account avoids probate. However, if you have real estate, a business or other assets that do go through probate, a trust may be in your best interest.

We find that a trust is in your best interest in certain states and not others.

Texas is a state that offers fast and efficient probate, so you likely don’t need a trust if you live in Texas. With that said, we recommend that you take the time to talk to your financial advisor or estate planning attorney to determine if a trust is in your best interest.

Our clients have access to Trust & Will as part of our service, but you can also visit https://trustandwill.com/ to set up your own trust and will online.

If you have any questions about your trust, will or financial future, contact us and we’ll help you in any way that we can.

March 13, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 13, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – Do You Need a Trust in Retirement?

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the importance of having a trust as part of your retirement plan with Andres Mazabel. Trust & Will provides an “easy and secure” way to create estate plans and settle estates online, with the ability to customize legal documents.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Do You Need a Trust in Retirement?

Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

CLICK HERE TO READ THE BLOG

March 6, 2023 Weekly Update

Written by

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 6, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – How Secure Act 2.0 Could Affect Your Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have Denise Appleby to discuss how the Secure Act 2.0 can affect your retirement plan. Denise is the CEO of Appleby Retirement Consulting Inc., a firm that provides IRA tools and resources for financial and tax professionals.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – How Secure Act 2.0 Could Affect Your Retirement

Denise Appleby was our special guest this past week. She’s our consultant for IRA and 401(k) planning, and she is an invaluable asset for our clients. However, this week she’s sharing her insights into the Secure Act 2.0, which could affect your retirement in a few significant ways.

CLICK HERE TO READ THE BLOG

How Secure Act 2.0 Could Affect Your Retirement

Written by

Denise Appleby was our special guest this past week. She’s our consultant for IRA and 401(k) planning, and she is an invaluable asset for our clients. However, this week she’s sharing her insights into the Secure Act 2.0, which could affect your retirement in a few significant ways.

Quick Background on the Secure Act 2.0

The Secure Act 2.0 was passed the last week in December 2022, and everyone is scrambling to:

  • Learn the rules
  • Changes that we need to know about
  • Who we need to contact

With thousands of pages to go through, the Act has a lot of significant rules that everyone needs to understand. Denise is here to help us understand some of the changes in 2.0.

Note: Even though the Act was signed very late in the year, the changes went into effect on January 1, 2023. 

Secure Act 2.0 Updates You Need to Know

Secure Act 1.0 changed the required minimum distribution (RMD) age from 70 ½ to 72. Secure Act 2.0 changes these dates further, but now there’s a calendar to deal with. If you have already reached 72 before 2023, you should be taking your RMD. However, if you turn 72 after 2022, the RMD starts at 73.

The problem is that a lot of custodians sent out letters stating that people turning 72 could wait to take their RMD until 73. Custodians simply weren’t given enough time to make changes on their end to stop these mails from going out.

What Happens If You Took Your RMD Even Though You Needed to Take It at 73 Instead?

The good news is that the distribution isn’t an “RMD” in this case. Instead, you can roll it over to next year. If you reach 72 in 2023, you have the option to roll the money that you take out.

Typically, when you take an RMD, you have to include it in your income for the year unless an exception applies.

In this case, the exception is that you can take the RMD and roll it back into your IRA or 401(k). You normally need to do the rollover within 60 days of receiving the funds. A rollover isn’t taxed, so you don’t need to claim this money. The IRS does permit a self-certification procedure that will allow for a rollover even if 60 days have passed.

There’s one issue: you can only perform one rollover per 12 months. If you rollover a traditional to a Roth account in the past 12 months, then you cannot rollover the RMD.

Missing the Deadline and an Excise Tax

Secure Act 1.0 had an excise tax of 50%. If you missed your RMD of $10,000, you would pay a 50% tax or a $5,000 penalty. Thankfully, Secure Act 2.0 has changed this excise tax to 25%. Additionally, there’s a correction period in place under the new Secure Act modification.

If you take your RMD during this correction period, you only pay an excise tax of 10%.

There’s also a chance that you can have the excise tax waived completely, and this is obviously something to pursue because you should never be paying more taxes than absolutely necessary.

We never want you to pay an excise tax. If you’re unsure whether you need to take an RMD or not, be sure to call your advisor.

Annuity and IRA Aggregation

Secure Act 1.0 states that if you have an annuity that has been annuitized and a regular IRA, you cannot aggregate these accounts. 

What does aggregation mean?

You calculate the RMD for IRA A and IRA B, and you can take the RMD that you want from these. However, in Secure Act 2.0, you can now aggregate these amounts, meaning you can aggregate your annuity and IRA now.

For many people, it’s a break if you have more than enough from an annuity and don’t need to take the RMD. Now, the person doesn’t need to take the RMD.

Designated Roth Account RMD Changes

Many people question why they need to take an RMD on their Roth accounts. Now, the beneficiary of the account needs to take an RMD but now the owner. Designated Roth accounts no longer need to take an RMD, starting in 2024.

Terminally Ill Provision

If you’re terminally ill and a doctor certifies that you have an illness that can result in death in 84 months, the 10% penalty for withdrawing funds early is eliminated under a special tax treatment.

Domestic Abuse Provision

In 2024, penalty-free distributions to anyone who experiences domestic abuse are now possible. Unfortunately, this rule only comes into effect in 2024, but it can help anyone in a domestic abuse situation find relief.

529 Provision to Rollover into a Roth IRA

One exciting change is with a 529 plan used for college savings. However, when you’re putting money into these accounts, it’s impossible to know whether the person will receive a scholarship. Under the Secure Act 1.0, any additional money left over that is not used for education expenses is subject to income tax and a 10% early distribution penalty.

A change in the Secure Act 2.0 allows you to rollover $35,000 (lifetime) into a Roth IRA account from a 529.

There are a few stipulations:

  • Annual amounts moved cannot be more than what you put into your regular IRA contribution
  • Contributions to traditional or Roth IRA must be added up to know how much you can rollover from the 529
  • Funds must be a direct transfer from the 529 account to the Roth account
  • Funds transferred from the 529 account must have been in the account for the past five years in hopes of stopping people from gaming the system

If you have the 529 company deposit the money into your account and then you transfer it to the Roth account, this will not count. You need the transfer to go from one institution to another without it ever touching your account.

Transferring the money from a 529 to a Roth account must be transferred back into the beneficiary’s account. You cannot transfer the funds from this account back into your own unless you’re going back to school and have the funds transferred to a 529 for you.

Biggest Mistakes in IRA Planning

We couldn’t help but ask Denise about the biggest mistakes she sees in IRA planning. She tells us that the biggest mistake she sees, which doesn’t happen often, is moving assets. Many people rollover their accounts multiple times in a single year, breaking the once-a-year rule for rollovers.

Once these multiple rollovers happen, it’s often too late to correct this year.

You’re allowed one 60-day rollover per year. However, this only happens if you have the check made out to you, the funds hit your bank account and then you put it into a new account via a rollover.

However, if the rollover goes from one institution to the next, such as Schwab to Fidelity, these types of transfers can happen as many times as you want.

Often, there are solutions that the IRS allows if something happens and you cannot meet deadlines. It’s important to speak to your advisor to understand your options and how you may be able to prevent penalties, taxes or other issues along the way.

Click here to schedule a call with us if you have any questions about the Secure Act 2.0.

P.S. If you want to learn more about changes to the Secure Act 2.0, head over to RetirementDictionary.com, where Denise shares her insights with readers.

February 27, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 27, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – The Retirement Planning Process

What does the financial retirement planning process looks like? How does it work? What information do you need to present?

Maybe you haven’t worked with a financial advisor before and don’t know the financial planning process. In this episode of the Secure Your Retirement podcast, we have a large part of our team take you through our retirement planning process.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – The Retirement Planning Process

The retirement planning process is intense, and we have people contacting us all the time asking about it. After all, you want to do everything you can to secure your retirement with as few hiccups along the way as possible.

We brought everyone from our team together to outline everything you need to do in the midst of planning your retirement.

CLICK HERE TO READ THE BLOG

The Retirement Planning Process

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The retirement planning process is intense, and we have people contacting us all the time asking about it. After all, you want to do everything you can to secure your retirement with as few hiccups along the way as possible.

In our recent podcast, we took an in-depth look at the retirement planning process with an A-Z guide on the topic.

We brought our team together to outline everything you need to do in the midst of planning your retirement. Grab a cup of coffee, tea – or whatever you’re drinking – and allow yourself 10 – 20 minutes to go through this guide.

Visit 1: Preparing for a Personalized Introduction Meeting with Our Team

First, we will send over a financial snapshot document to you via email. This is an important document that has a lot of questions about:

  • Current employment
  • Level of income
  • Estimated or current Social Security benefits
  • Pension (if you have one)
  • Expenses

If you’re not ready to share all of your information with us, we understand that you can be apprehensive about giving a stranger all of your financial info. However, for us to provide you with sound advice, we need to know where you stand financially.

We do want to mention that as Certified Financial Planners, we must operate under a fiduciary standard. What this means is that we need to put our client’s best interest above our own. If there’s a property that someone doesn’t want to tell us about or another source of income, it is a major red flag for us.

We can’t do the following without you providing us with a full financial disclosure:

  • Make proper recommendations
  • Understand your true financials

Aside from basic information about yourself, we’ll need information on a lot of your accounts. 

Data Gathering and the Accounts You’ll Be Submitting

Some of the many accounts that we’ll need information on are:

You should understand and provide us with the account information and the specific type of account that you have, such as a Roth or Traditional. We will need to also know your tax status.

We have a three-appointment process.

During your initial sit-down with us, we will need to have a general understanding of your financials and the accounts above. The first visit is a baseline visit where we both determine whether we’re a good fit for each other.

However, we’ll also need some information about your income.

Income Information We’ll Need from You

We need to know what income you have coming in every month, and this will include:

  • Salary, if you’re currently working
  • Social Security benefits (if you are retired and claim them) or what the benefits would be based on your plans
  • Pension 
  • Any other forms of income (sale of a business, rental income, etc.)

On top of your income, we also need to understand what your current expenses are, too.

Expense Information We’ll Need from You

We know the income that you have coming in, but we need to complete this financial picture by also understanding your expenses. Some of the information that we’ll need includes:

  • Mortgage
  • Credit cards
  • Current living expenses
  • Auto loans
  • College expenses for kids, grandkids
  • Goals in retirement
    • Travel
    • Home renovations
    • Purchase a second home
    • Donating to charity

Knowing your inflows and outflows every month is crucial to the retirement planning process. When a lot of clients come to us, they’re close to retirement and are earning good money. Many times, a lot of people don’t know the dollars that are going out of the door.

When you retire, you go from the accumulation phase of life to having to live off of the money you’ve saved.

Often, clients will then start to categorize their expenses and really sift through them. They may even stop paying for things that they’ve been holding on to that they don’t use.

Additional Information We’ll Need from You

We’re still in the snapshot phase right now, and we’re almost ready to move forward to the fun stuff. However, we do need to gather some more data from you, including:

Estate Plan

We’ll need to know if you have an estate plan, a will or a trust. We’ll also need to know where these documents were drafted for you.

Taxes

Do you do your own taxes or work with a tax planner? 

Goals

What are your goals in retirement? Perhaps you have a trip planned around the world or you want to pay for your grandkid’s retirement? We need to know all of this information, too.

During the first visit, we worked to build a retirement-focused financial plan, which is why we need all of this data from you. Once we have this information down during the first appointment, we’ll then move on to the second visit.

Visit 2: Preparing for Your Second Meeting

If you’re a good fit for us and we’re a good fit for you, we’ll move on to our second visit. The second visit does require a bit of preparation, too. However, there’s good news: most of the prep is on our end.

We will need some information for our team, such as:

  • Most recent account statements for your assets
  • Most recent tax returns

Ideally, you will provide us with your most recent tax return and account statements for your 401(k), IRA and so on. Once you hand this over to Taylor, she’ll then start to go through the account statements to:

  • Verify the balance of accounts so that we can make appropriate recommendations
  • Review your account holdings to know exactly what you’re invested in so that we can prepare an analysis of your holdings, along with a risk assessment

Taylor will use the data she gathers to analyze them further to meet your risk goals. We’ll also look through your tax statement to see if there are ways to plan for your taxes better and save you money.

We use a secure portal that allows you to upload all of these documents to us.

Taylor researches this information behind the scenes, but what you see is your:

  • Entire financial plan
  • Step-by-step review of your plan
  • Income and expenses

We’ll have all of this information in our software, where we can instantly make adjustments and also run you through different scenarios. For example, we can visualize what will happen to your retirement accounts if you do buy a vacation home or renovate your home.

Part 1 of the Visit

Our team will walk you through each step of the process, and then at the end of the meeting, we can print or send you:

  • The entire plan
  • Scenarios we went through

We create an in-depth plan that helps answer all of the questions you may have, such as:

  • What happens if you retire early?
  • What happens if you need to enter long-term care?
  • What happens if you live to 95 – 100+?

You’ll receive a lot of value during this second visit, and you’re not even officially working with us yet.

Part 2 of the Visit

Risk exposure is what we cover in the second part of the visit, and there is a questionnaire here, too. The questionnaire is different from what most people have experienced before because it truly makes it clear for people to understand what risk they’re really willing to take with their retirement.

One question we have for you is: would you be okay with losing 10% of your retirement?

When people with $1 million in retirement hear this question, they often think: it’s not that bad. However, how would you feel losing $100,000?

Between our first and second visits, we’ll create a full analysis of your accounts so that you know what your risks are currently.

We’ll also walk you through what the risk is based on investments that you may want to dabble in and then show you:

  • Risk in your current investments
  • Risks we can tame back

At the end of this visit, you go home with your financial plan and the data we collect. We will then come back for a strategy meeting. 

Visit 3: Strategy Meeting

After the second visit, we take some time and then come back for a third meeting, which is all about strategy. You’ll be given a bucket sheet, and this breaks everything down into:

  1. Cash: The amount of cash that you feel comfortable holding. Some people want to have a lot of cash and others do not. 
  2. Safety: The safety or income bucket includes a few different products which will provide safe and reliable income during retirement.
  3. Growth: Money that is in growth buckets will grow during retirement. The funds in this bucket will be liquid, but the goal is to avoid touching this money as much as possible.

Using the three-bucket strategy does one thing easily for our clients: it brings clarity. When we show you all three buckets personalized to you, it will help you visualize your retirement in an entirely new way.

You’ll have a clear view of what money you’ll need in retirement, how your growth bucket will grow and how long your money will last.

For many people, it’s easier to visualize three buckets rather than a 40 – 50-page plan that you never look through. Year after year, we update and adjust these buckets for you so that you can visualize your retirement in a new and exciting way.

At this point, you’ll have a great idea of your retirement and it’s truly just the start of the process.

Now, the next step is to decide if you want to become a client or not.

In an additional episode at the end of next month, we’ll go into more detail on this topic, including what comes next and how we’ll initiate the plan that we put in place.

Click here for our 4 Steps to Secure Your Retirement video course.

February 21, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 21, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – Planning For Taxes in Retirement

We know nobody likes to talk about taxes, but there are things you must have your head wrapped around. Thinking and preparing for taxes throughout the year makes the whole scenario easier when tax season is here.

When preparing for tax season, there are some things that you need to compile for your CPA, and it’s easy to forget a document or two.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Planning For Taxes in Retirement

Filing your taxes in retirement is important. You may have worked diligently your entire life, but the IRS still wants you to pay your taxes in retirement. However, there are many ways that you can combine your tax and retirement planning to save money.

Now, if you’re stressed when thinking about this topic, don’t be.

We’re going to walk you through the documents that you’ll need to make planning for taxes in retirement as simple and straightforward as possible.

CLICK HERE TO READ THE BLOG

Planning For Taxes in Retirement

Written by

Filing your taxes in retirement is important. You may have worked diligently your entire life, but the IRS still wants you to pay your taxes in retirement. However, there are many ways that you can combine your tax and retirement planning to save money.

Now, if you’re stressed when thinking about this topic, don’t be.

We’re going to walk you through the documents that you’ll need to make planning for taxes in retirement as simple and straightforward as possible.

What to Do If You Have Self-Employed Income

If you’re self-employed, you’ll likely receive your 1099. A 1099 means that taxes have not been paid on these dollars yet, so you’ll need to have this document when filing your taxes. If you’re still involved in a partnership, you may receive a K1 as well.

Investments can also generate a K1.

Unfortunately, K1s often do not get generated quickly. Many people get their tax returns done, file them and then have to start all over to incorporate this form into their taxes.

If you’re self-employed, you also need to keep everything in order to claim deductions, such as:

  • Check registers
  • Credit card statements
  • Business use asset information
  • Receipts

Anyone with a home office will want to consider whether or not they want to claim their office as a tax deduction, too.

If you’ve been paying your taxes quarterly, you’ll want to gather this data to give to your CPA so that they know what you’ve paid so far. 

Ideally, you’ll keep these documents in a folder throughout the year to make tax season less stressful. If you have everything in order beforehand, you won’t have to deal with the stress of getting everything in order come tax time.

Making estimated quarterly payments online on the official IRS website will be very useful, too. At the end of the year, you can log in to the website and print off a statement showing the taxes you paid throughout the year. This will make it very easy to supply your accountant with these important figures so that you’re not paying more taxes than necessary.

Note: If you happen to file an extension, the site only keeps records for 14 – 16 months. You need to print out these payments because they will include filing dates, which need to be filed to make sure that you don’t get penalized.

Rental House Income

If you have rental income coming in, you need to keep track of:

  • Rental income and payments
  • Expenses relating to the properties

You want to keep a record of every possible expense you made relating to these assets, along with the dates of these transactions and why these expenses occurred. You will need to file these taxes quarterly, so also keep this in mind.

Retirement Income

Retirement income is going to revolve around your 1099, and there are multiple forms of this document that you need to collect before filing your taxes. Most financial institutions have all the way until the end of February to get these documents to you.

You’ll typically have a 1099 sent to your mailing address, but a lot of institutions are putting these files online for you.

If you’re currently working, you’ll also receive a W2.

The W2 will show your:

  • Wages
  • Taxes withheld
  • 401(k) contributions

If you receive income from any of the following, they will generate a 1099:

  • Pension
  • 401(k)
  • IRA
  • Social Security

These documents will show how much you withdrew within a calendar year, how much taxes are withheld and more. Collecting these files will make it much clearer how much you’ll owe at the end of the year in taxes.

Traditional IRA basis is more complicated because these are non-deductible.

It’s important to gather all retirement income-related 1099s so that you can file your taxes properly. However, there is another form of 1099s, which you’ll need to know about before filing your taxes or handing your documents over to an accountant.

Note: 401(k) rollovers to an IRA will generate a 1099. The 1099R is a non-taxable distribution, so you can rest easy that you won’t be hit with a major tax liability. It’s important to work with a professional to ensure that these rollovers are done properly so that you don’t get hit with a major tax liability.

Savings, Investments and Dividends

Your custodian, such as Charles Schwab, will send you a 1099 for money that you have in savings, investments and dividends. Most custodians will have these files for you on their online portals.

In most cases, the file is ready around February 15, but this date can vary.

These 1099s will include:

  • Interest earned for any interest-bearing accounts
  • Dividends from a stock or ETF that paid an actual dividend
  • Capital gains, whether a short-term or long-term, which have different rates

You need to ensure that you receive this 1099 before filing your taxes. If you forget about this 1099, you’ll find yourself with a huge amount of taxes that the IRS says that you owe, which will then need to be cleared up by amending your taxes.

It’s better to wait until you have all the documents before filing your taxes, or you’ll have to deal with the stress and headache of making a tax amendment.

Tax-deferred accounts, such as an annuity, will generate a 1099 if you take a distribution through the annuity. You may have to pay taxes on interest here, too.

Home Ownership

Offsetting some of your taxable income is possible through deductions. If you have a mortgage or loan on your home, you may be able to write off this interest. You want to keep detailed documentation of your real estate and property tax records, receipts for energy-saving appliances and any other 1098s you receive in the mail.

Note: A lot of these deductions that we’re talking about will require you to itemize your deductions. If you don’t itemize, a lot of what we’re talking about in this section and the next may not relate to your situation.

Charitable Deductions

If you are charitably inclined, you can make the most out of your donations by itemizing your tax returns. We do this with many of our clients by using donor-advised funds, where we combine multiple years of donations into one year.

When you use this type of deduction, you can reduce your taxes dramatically.

You’ll need to reach out to us if you want to discuss using donor-advised funds to reduce your taxes. Donor-advised funds will require you to preplan because you cannot utilize this tax strategy for past taxes.

Medical Expenses and Health Insurance

If you itemize your tax return, you want to keep track of expenses for:

  • Healthcare
  • Insurance
  • Doctors
  • Dentists
  • Hospitals

Depending on these expenses, it may or may not make sense to itemize. Your CPA will help guide you on whether or not taking the standard deduction or itemizing is in your best interest.

Health insurance form 1095A will be generated and sent to you as proof that you have insurance. 

Additionally, HSA contributions will generate a 5498, which your CPA will need to receive credit for these contributions.

State and Local Taxes

Any time you pay state and local taxes, be sure to keep records of these payments. These taxes include:

  • Property tax
  • State income tax

Your CPA can use these taxes to try and save you money on your taxes.

Contributions to your traditional IRA can also be deducted from your taxes.

There’s a lot to go through here, but we recommend starting early and keeping track of these documents to make taxes less stressful. If you prepare for your taxes throughout the year, it will make tax season a lot less chaotic for you.

Click here if you would like to speak to us about donor-advised funds.