Where Tax & Retirement Planning Come Together
Taxes, Taxes Taxes. None of us like to hear that word, especially in retirement, but it’s something we all accept. Did you know it’s possible to enjoy a tax-free retirement? Yes, you could spend 20-30 years of your retirement in a tax-free world, with no withholdings needed and no tax bill on April 15th. Accomplishing this feat just takes some planning with a firm dedicated to tax reduction strategies. The earlier we can begin the planning process the better. To accomplish this feat there are some things you need to know. IRA distributions (from a 401(k), 403(b), or TSP) are all fully taxable and reportable income. If those distributions range from $32,000 to $44,000, 50-85% of your social security will become taxable. For example, if your IRA distributions were $45,000 and your combined social security benefits were $30,000, your taxable income would be $70,500 after the standard deduction (married filing jointly), you would owe tax on $46,500. With a little time and planning you can find the Roth IRA to be a very powerful tool. Let’s look at the same income but reduce the IRA distributions to $20,000 and add $25,000 in Roth distributions, with the same social security benefits of $30,000. In the scenario, none of the social security benefits are taxable, none of the Roth distributions are taxable, and only the $20,000 IRA distributions are taxable. That income is completely offset with the standard deduction of $24,000. That’s how you live a tax-free retirement. Click here for a no-cost consultation. Tax and Retirement planning go hand in hand. You can’t do one without the other. So how do you get there? First, it’s vital to establish a Roth IRA. A Roth must be established for at least five years in order to receive the tax-free benefits. Next, we want to research the viability of conversions from your traditional IRA into the Roth. This is high-level of planning and should only be done with the help of a CPA or tax professional. The process works like this. Our financial advisors create an income plan for our clients that include a corresponding tax plan. That tax plan tells us what your taxable income is going to be and what is the next tax bracket. The difference is the maximum amount we would want to convert in that year. Taking it a step further, our in-house CPA mocks up a complete tax return to help us choose the precise amount of withholdings we need to do in the conversion process to ensure you will not owe taxes come the next April 15th. Call our office today to schedule a no-cost consultation to see if a tax-free retirement is possible for you. Call (480) 428-8005 or CLICK HERE to request your no-cost consultation.Written by Marc Montini, licensed fiduciary and IAR.
Did you see what happened to the stock market this week? Was it up or was it down? More importantly, what effect did it have on your retirement savings? If you are like most people, you probably do not know because you don’t care to watch. Sometimes it can be a little scary. This is very common, but why? It’s your money and your future. If you’re not willing to watch it and ensure it’s available when you need it, then make sure a licensed professional is watching for you. Fear is the main motivator for a person’s lack of involvement with their portfolio. Fear of not saving enough, fear of losing what you have, fear of just not knowing what you’re doing.What if your haven’t saved enough? Wouldn’t it be best to know that now so you can get back on track? Lack of knowledge of the financial markets is to be expected. I don’t know how to drive a semi-truck, insert a picc line, or develop a classroom curriculum, but I have trust and faith in professionals in those industries that do. Partnering with a licensed fiduciary who is legally bound to work in your best interest can give you the peace of mind that someone is proactively ensuring you’re invested in the assets that are poised to do well during the current economic cycle. A licensed fiduciary doesn’t charge a commission or have an agenda. A fiduciary will work with you to develop the game plan you need to prepare yourself for your eventual retirement. Click here to meet with a fiduciary. It’s not uncommon for a prospective client to tell me they never plan to retire. That’s what I admire about working with baby-boomers; their unrelenting work ethic. Unfortunately, life is never as consistent as we would like. Job positions change or are downsized. An unexpected health issue could arise for you or a loved one. You can chose to continue to work, but with a customized retirement income plan in place, you now assume control and can choose to work on your terms. As a tax advisory firm, we specialize in building retirement income plans in the most tax efficient manner possible. Image living a tax-free retirement! It is possible, but it takes time to position your assets in a way so that you pay NO tax in the future. Additionally, you could be currently paying unnecessary taxes from capital gains and dividend income simply because no one is watching your portfolio. By combining the benefits of a tax advisory firm with a licensed fiduciary, we bring those two worlds together under one roof. Our Tax Director is intimately involved in the planning process. Remember tax and retirement planning go hand in hand. You can’t do one without the other. Don’t put this off another day, month, or year. You don’t need to be watching your portfolio, but you need to have confidence that an experienced, licensed professional is watching for you. We welcome you to schedule a no cost consultation to meet with both our licensed fiduciary as well as our tax director. Click here to schedule a consultation. or call (480) 428-8005.Tell a friend.Let’s face it, retirement is a lot more fun when you can do it with friends. You may be reading this as an existing client with Montini & Co, or you may only know us for the classes we teach and the low cost tax returns we offer. Regardless, if you are losing sleep, it’s possible your friends are too. Let us help put you and your friends at ease. Finally, real wealth is not necessarily made in the upswings in the markets. Real wealth is made in not taking a tremendous loss once the markets move from correction to recession. Written by Marc Montini, IAR, and Managing Partner of Montini & Co Tax Advisory Group.
Mutual Funds with Marc Montini. Few people are aware that this may not be the best approach to asset management. Here are a few problems with mutual funds that we have identified. No flexibility for the mutual fund manager.If you purchase a large cap value mutual fund, the fund manager is legally obligated to only purchase stocks that meet those criteria. What if that asset class is not poised to perform well in the current economic cycle? In 2016, large capital value companies did very well. In 2017, the economic cycle shifted and large cap value companies under performed while large cap growth funds performed very well. Passive management or buy and holdThe economic cycle should dictate how your money should be invested. The traditional stockbroker model of buy and hold may not allow you to capitalize on market up trends and could result in losses when the market trends downward. With that being said, asset management today means that someone is watching your money and prepared to make adjustments as long as those adjustments are done in your best interest. This is the fiduciary standard. Under performing the bench marksRecent data from S&P Dow Jones Indices showed that for the last 10 years 85.1% of large cap fund managers under performed against the S&P 500. For the last 15 years that percentage jumps to 91.6%. Cheaper indexed funds may provide more opportunity for upside earnings. The challenge is knowing which index fund best matches your goals. Fees Few people understand that mutual funds have two types of fees. The first is the expense ratio, which is how the fund manager is compensated. The second is 12-B 1 fee, which is what the fund manager charges to market and sell more of their fund. This is in addition to the management fees you are being charged by the bank, brokerage firm, or broker. These additional fees could add up to .5%-2% depending on the specific mutual fund. TaxesFor non-qualified assets, mutual funds may not be the most tax advantageous way for you to invest. A fund manager can adjust the holding of the fund by buying new assets and selling older assets. If the buy and sell occurred in less than a year, short term capital gains are triggered and taxed at ordinary income tax rates. If the assets were held for more than one year long term capitol gains taxes will range between 0-20% depend on your income level. So what’s the solution? It depends on what is trying to be achieved. Remember to always have a clear-cut goal and make sure that goal matches the way you are invested. We welcome you to schedule a no cost consultation with our licensed fiduciary to help you evaluate whether mutual funds are right for you. Call (480) 428-8005 or CLICK HERE to schedule your one-hour appointment.Written by Marc Montini, IAR and licensed fiduciary.
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