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Taxes in Retirement – Planning and Coordination

Planning your income during retirement requires focusing on the different tax characteristics of your assets and income sources. If you aren’t careful, your tax liabilities could be higher than you anticipated, leaving you with much less money than you expected during a time you need it the most.Rather than letting your tax liabilities reduce your retirement income, consider these strategies for taxes in retirement.

Taxable Income During Retirement

Everyone has different sources of income, but some of the most common taxable income sources during retirement include:

  • Social Security
  • Pre-tax IRA funds
  • 401K withdrawals
  • Pensions
  • Inherited IRA withdrawals
  • Annuities
  • Interest
  • Dividends
  • Capital gains
  • Passive income from sources like real estate

The only income that likely won’t incur a tax liability is income from a Roth IRA or 401K. As long as you’ve owned the account for at least five years and withdraw funds after age 59 ½, your withdrawals are tax-free.All other sources of income discussed above, though, will incur tax liabilities. So how do you strategically receive income during retirement to reduce your tax liabilities?

Minimizing Taxes During Retirement

To minimize your taxes in retirement, here are a few strategies.

Social Security Claiming Strategy

Avoiding taxes on your Social Security income is legal, but it requires careful planning. The only way to avoid paying taxes on Social Security is to ensure your combined annual income doesn’t exceed $25,000 if you’re filing single and $32,000 if you’re married filing jointly.To determine your combined annual income, you must consider the following:

  • Adjusted gross income from any earnings except Social Security
  • Tax-exempt interest income
  • 50% of your Social Security income

If you can keep your income lower than $25,000 or $32,000, whichever applies to you, then your social security benefit is not taxed.You will pay income tax on the following portion of your benefits once your income exceeds those amounts:

  • 50% of your benefit if income is between $25,000 – $34,000 if you’re filing single or $32,000 – $44,000 for married filing jointly.
  • 85% of your benefit if your income is above $34,000 if filing single and $44,000 if married filing jointly.

To manage this, try to limit how much you withdraw from taxable retirement accounts or wait to take your Social Security income until you’ve hit the years when your other income is lower.

Diversify your Investments into Different Tax Buckets

When you invest for retirement, you have different avenues you can take. Not everything must go into an IRA or 401k. If you want to lower your tax burden during retirement, consider Roth accounts if your income isn’t too high to qualify for it. The limits are $138,000 for single filers and $218,000 for married filing jointly couples to contribute the full amount allowed. As you go above those amounts, the amount you can contribute to a Roth IRA decreases, phasing out completely at $153,000 and $228,000 respectively.When you have Roth accounts, you can withdraw when you want because you’ve already paid the taxes due on the income. Don’t forget about taxable brokerage accounts. These accounts offer liquidity, flexibility and different tax characteristics than Roth and Traditional retirement accounts.

It’s important to have your retirement funds in different tax buckets so you aren’t stuck with Required Minimum Distributions and paying large amounts of tax when you can least afford it.

Focus on Long-Term Capital Gains

Try keeping your investment gains to only be taxed at long-term capital gain rates. All this required is holding an investment for more than 1-year before selling it at a gain. Short-term capital gains are taxed at ordinary income rates based on your current taxable income, but long-term capital gains are taxed at preferential lower rates, saving you money.

Consider Roth Conversions

If your income exceeds the limits to contribute to a Roth account, or you didn’t consider it when you opened your retirement account, consider a Roth conversion.With a Roth conversion, you convert your existing traditional retirement account to a Roth account to get tax benefits and avoid RMDs. When you convert, you pay taxes on the income today but can withdraw contributions and earnings tax-free during retirement.While you’ll pay a lump sum for the taxes owed today, you won’t pay taxes in retirement, which diversifies your income and allows you to avoid excessive taxation during retirement. Roth conversions should be strategically timed to ideally be done in years that you are in a lower tax bracket than when you made the tax deductible retirement contribution.

Tax Efficient Investing

Tax-efficient investing is just as it sounds – owning specific types of investments in the most appropriate account in order to reduce tax implications. Rather than losing a large portion of your earnings to taxes, learn how to minimize your taxes and maximize your earnings.While there’s no guarantee how investments will perform, the following strategies can help minimize your tax liabilities during retirement.

For example, in taxable accounts, consider holding:

  • Stocks you own for more than a year to take advantage of long-term capital gains, which are usually taxed at a lower rate than short-term capital gains
  • High growth potential investments
  • ETFs and index funds that limit capital gain distributions
  • Investments that pay qualified dividends
  • Municipal bonds

In tax-advantaged accounts, consider the following:

  • Income oriented investments
  • High growth potential investments (in Roth accounts)
  • Actively managed funds
  • Taxable bond funds
  • REITs

Strategize your Retirement Account Withdrawals

To minimize your tax liabilities in retirement, you need to strategically choose what accounts you take withdrawals from and when.Traditional retirement accounts require you to withdraw a minimum amount of money annually starting at age 73. This is to ensure you pay taxes on the funds you deferred. However, before then, you can withdraw funds how you please.Following your RMD – Required Minimum Distribution – you can supplement any additional income needs from taxable accounts followed by tax-free accounts. If you have not yet reached the age for RMD’s then you may consider drawing first from taxable accounts, followed by tax-deferred accounts then tax free. You want to try timing your tax-deferred withdrawals for the years that you are in the lowest tax bracket.

Final Thoughts

Planning your taxes in retirement is just as important as saving money for retirement. If you’re not careful, your taxes could overtake your earnings, leaving you with much less than anticipated in retirement.Instead, strategize your tax plans during retirement so you don’t have any unpleasant surprises or are left without the funds you need. Diversifying your accounts, withdrawing from funds that tax the least, and carefully withdrawing funds from taxable accounts during years when you’re in a lower tax bracket are the best ways to ensure you have maximum earnings and the lowest tax burdens during retirement.

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The Secure 2.0 Act

The SECURE 2.0 Act made many changes to retirement savings, making it easier and more motivating for people to save for retirement.Some changes are immediate, and others occur in the next couple of years. Here’s how the SECURE 2.0 Act may help you.

What is the Secure 2.0 Act?

The SECURE 2.0 Act became law in late 2022, making many changes to the current SECURE Act, which was signed in 2019. The SECURE Act rules how you can save (and use) your retirement funds.The SECURE 2.0 Act made changes to retirement and savings rules to make the rules more flexible and potentially make it easier to save for retirement.Almost everyone will be affected by the changes. Here are the most significant changes.

Required Minimum Distribution Changes

The RMD changes increased the age that you must take the required minimum distributions from traditional IRAs from 72 to 73. This means you can wait until April 1 of the year after you turn 73 to take your first distribution. From there, you must always take a distribution by December 31 of each year.Another change is the penalty charged for not taking RMDs. Individuals will now pay 25% of the undistributed funds rather than the previous 50% penalty. The delay in RMDs allows you more time to grow your funds tax-deferred. It also allows more time to do Roth conversions if you’re eligible to convert your traditional IRA to a Roth IRA for more tax savings.However, there’s a downside. You will need other assets to supplement your income while you aren’t withdrawing funds from your retirement account. So it requires more careful financial planning to make it happen.

Roth Contribution Limits

Before the SECURE 2.0 Act, employees didn’t have the option to have employer-matching contributions sent to their Roth plan. However, the new plan allows individuals to choose this option giving more tax-free income during retirement.If you choose to send your employer contributions to your Roth account, they will become a part of your taxable income because Roth contributions are after-tax. The SECURE 2.0 Act also eliminates RMDs for workplace Roth accounts, but this begins in 2024.

Higher Catch-Up Contributions

Before the SECURE 2.0 Act, people aged 50 and older could only contribute an additional $1,000 to their retirement account annually. With the new laws, catch-up contributions increase starting in 2025 to $10,000 or 50 percent of the standard catch-up amount, whichever is greater. This applies to anyone ages 60 – 63 years old.Also, all catch-up contributions will be after-tax, so you won’t get the tax benefits when you contribute unless you earn $145,000 or less yearly.These changes will increase the ability to save by deferring more money for retirement. It may also decrease your tax bracket by deferring more funds to retirement if you make $145,000 or less per year.

Auto Enrollment in 401Ks

As of right now, employers can offer automatic enrollment in their 401K plan, but they aren’t required to do so. With automatic enrollment, employees are automatically enrolled in the company’s 401K unless they opt-out.The SECURE 2.0 Act ensures that all major employers must have automatic enrollment in their 401K plan.Companies can automatically defer the amount between 3 – 10% of each employee’s income. Employees aren’t required to participate, but it may increase the number of people who participate and save for retirement. Being automatically enrolled eliminates the extra step required to sign up for the company’s 401K. More employees may be willing to save for retirement when it’s done for them.Certain companies are excluded from this law, including companies with fewer than ten employees and those in business for fewer than ten years.

529 Rollovers to Roth IRA

Typically, any 529 savings plan funds not used can be withdrawn and used for other purposes but face a 10% penalty plus income taxes. However, in 2024, you can roll over your unused 529 funds into a Roth IRA.There are a few provisions, though.You can roll over up to $35,000 in your lifetime and only funds in a 529 plan for at least 15 years. The funds must also be rolled over into a Roth IRA in the same name as the beneficiary of the 529 savings plan funds.Any funds deposited in the last five years and any earnings on those funds cannot be rolled over, and the rollover amount must fall in line with the current year’s IRA contribution limits.This new law motivates more people to use the 529 plan, getting the state income tax deduction (if applicable) and the ability to get tax-free funds through conversion in the future.

Retirement Plan Contributions for Employees with Student Loans

Many employees with student loans forgo the 401K contributions to pay off their student debt. However, the SECURE 2.0 Act allows employers to contribute to employees’ 401K accounts with student loan debt, even if they don’t make contributions.The amount an employer can contribute equals the amount of student loan debt the employee repaid that year.This new law allows employees to save for retirement and eliminate student debt. It’s a win-win for employees.

Final Thoughts

The SECURE 2.0 Act offers motivation and opportunities for more people to save for retirement. With an increased age for RMDs, a larger amount for catch-up contributions, higher Roth contribution limits, and the ability to roll over 529 savings into a Roth IRA, saving for retirement are more accessible.The new changes make it easier to save for retirement, allowing more people to enter their golden years with enough money to last their lifetime. The changes are gradual, and not every change will affect everyone, but most people are affected in some way by the new changes.


Retirement Plans Likely Need A Review

We are just coming out of an unprecedented time in history after massive disruptions in just about every facet of our lives due to the Covid-19 pandemic. While it appears things are finally back to near normal, most of us would be wise to take an extra close look at our retirement plans in 2023 to ensure we are on the best path forward.Most of the stock market roared to new highs in the second half of 2020 and 2021 as much of the world leaned on technology to do everything from attending work meetings virtually to ordering groceries and restaurant meals while preserving social distancing. This greatly benefited certain parts of the stock market.

Since then, much of the stock market has returned to Earth while the world economy deals with supply chain issues, high inflation, rising interest rates, a war in Eastern Europe and fear of a pending global recession.Taking everything into account, investors should not only take a close look at their retirement portfolios in the coming year but also be aware of law changes that will drastically impact the planning landscape.Investors must make sure they are properly allocated and have the necessary cash available to both weather oncoming storms and take advantage of potential opportunities, while being aware of changes to social security, retirement contributions, tax brackets and Medicare.

Changes to Social Security

The federal government recently announced an 8.7% hike in social security. While this is good news, it is in large part due to the increased rate of inflation that we have experienced, meaning the “real” effect is much smaller if your total spending has also risen.

Due to the increase, an average benefit check will increase around $140 to $1,827 a month, compared with the typical benefit of $1,681 in 2022. 

Those currently drawing on their retirement savings may need to make an adjustment to their withdrawal rate. If spending has not increased commensurate with the rate of inflation then the increase in social security may allow for a decrease in portfolio withdrawals, allowing more money to remain invested.

IRMAA Adjustment

There is also an adjustment to the Medicare Income-Related Monthly Adjustment Amount (IRMAA), which is the amount you may pay in addition to your Part B or Part D premium if your income is above a certain level.In 2023, surcharges for Medicare Part B range from an extra $65.90 per month to $395.60 per month per person on top of the standard Part B premium of $164.90 per month. While these numbers are not insignificant, they are actually slightly down from 2022 premium and surcharge levels.

Keep in mind that the Social Security Administration (SSA) determines if you owe any IRMAA based on the income you reported on your IRS tax return two years prior, meaning the income reported in 2021 will determine if and how much IRMAA is owed.IRMAA related planning can have a significant impact on your health costs in retirement.

Tax Bracket Changes

While tax brackets aren’t changing, the incomes associated with each tax bracket are increasing for 2023. For example, a married couple in the 22% marginal tax bracket can earn up to $190,750 in 2023 before moving into the next bracket, an increase of $12,600 from 2022 income thresholds.

 How does this impact taxpayers?

  • Tax bills may be lower assuming equal income
  • Withholding may need to be adjusted, providing higher monthly cash flow
  • Increased opportunity for Roth conversions before crossing into a higher bracket
  • Ability to earn more without moving into a higher marginal bracket

Review your expected 2023 income to see if you need to make any adjustments to your income and conversion plan.

Take Advantage of Contribution Limit Increases. 

As we know, one of the best assets investors have is time, which allows for compounding. For those nearing retirement, it is especially important to make sure that your portfolio is properly allocated to not take on losses right before or in the early years of retirement.Recessions and bear markets are a natural part of the economic and investment cycle, albeit uncomfortable as they occur. If you are nearing retirement or already retired, keeping cash on hand to cover living expenses is especially important during periods of volatility and a potential recession and market downturn.

However, if you are nearing retirement then you still have the opportunity to continue saving and invest in the market at lower prices. The years leading up to retirement are a great time to be maxing out retirement contributions and taking advantage of the catch-up contribution.

 Here is a list of retirement contribution changes for 2023: 

  • IRA contribution limit increased to $6,500
    • Catch up contribution for those over 50 remains the same at $1,000
  • 401(k) employee contribution limit increased to $22,500
    • Catch up contribution for those over 50 increases to $7,500
  • Income thresholds for Roth IRA contributions or deductible Traditional IRA contributions increased
  • SEP IRA contribution increased to $66,000

Maximizing retirement contributions is one of the most important steps one can take to save for retirement and plan current and future taxes.

Proper Asset Allocation in a Volatile Market 

Proper asset allocation is always important, especially in a volatile market. As disciplined, long-term investors, our philosophy is that the allocation among different asset classes should not change due to temporary market conditions. Timing the market by sliding in and out of the investment at the perfect time has proven to be a fool’s errand over and over. Remaining steadfast in a well planned strategy tends to work out much better.The primary driver when deciding on a proper allocation of assets depends largely on when money will be needed. If you are close to retirement, your best portfolio looks much different than it would have looked decades prior.

In 2023 we know we are facing high inflation and a potential recession. Our best strategy is to build a diversified portfolio of funds that stretch across sectors, market capitalization, and geographic locations with a proper mix of stocks, bonds, and cash.Generally speaking, we recommend rebalancing the portfolio at most every quarter to take advantage of the ebbs and flows of this volatile market. There is no reason to make drastic, extraordinary changes to a portfolio based on temporary market swings due to volatility, especially if there are some low risk assets in your portfolio, as we advise everyone.

Higher Interest Rates Present an Opportunity

The higher interest rates are having a huge impact on retirement plans as well. The higher rates make it much more difficult for companies to earn a profit leading to a shrinking stock market.However, for those in or near retirement, higher rates are not necessarily bad. It will be easier to generate a guaranteed income with a portion of your retirement assets. For years, savings and CD interest rates have been practically zero in many cases, but going forward, it will be easier to earn a decent return with those assets. Those with certain types of life insurance or annuities are likely to be pleasantly surprised by higher future dividends.

While 2023 will be a year full of uncertainty as we deal with the waning pandemic, high inflation, and rising rates, it is important to remember it is just one year in a very long game. Successful investors keep their focus on the long-term, understanding that there will be difficult periods to weather.If you are nearing retirement or just want to ensure you are as prepared as possible for what may come, now would be an excellent time to make and implement a solid plan for your financial future.


What to do with your 401k when changing jobs

A job change can be an exciting time. Hopefully your switch was for good reasons such as a promotion, a higher salary, more upward potential, increased responsibilities, a reduced commute. The list could go on.

And even if it was for unexpected reasons, there is still a lot of change occurring.

But once you say goodbye to your former colleagues, pack up your things and head out the door, there is still one major decision that must not be forgotten…

What to do with your 401(k)!

You have several options when determining what to do with your old 401(k):

1.Leave your 401(k) where it is -Offers less flexibility and most people forget to pay attention to their account
2.Rollover your 401(k) to a new retirement account-Most often your best option for numerous reasons
3.Cash out your 401(k) plan–Avoid this option if possible due to negative tax consequences!

What Is A 401(k) Rollover?

A 401(k) rollover is when you request a direct transfer out of your old 401(k) plan to an IRA or your new 401(k). You will need to check with your new 401(k) provider to see if they accept rollover contributions. Not all do.

When you request a 401(k) rollover, all of your investments will be sold and converted to cash. You cannot transfer the investments “in-kind” in a 401(k)-rollover transaction.

Some 401(k) plans may be able to transfer the funds electronically directly to the new custodian where you want the money going. However, in many cases the 401(k) administrator will issue a check made payable to the new retirement account but sent to you, which you then have to forward along to the new account custodian.

Be aware of the 60-day rollover period! If your old 401(k) administrator issues you a check then you must take responsibility and send those funds to your IRA account within 60 days from the date the check was issued in order to avoid any taxation. If you miss this 60-day window, then you will incur federal and state income tax on the entire traditional 401(k) portion and potentially an additional 10% penalty if you do not meet other requirements.

Tax Implications Of A 401(k) Rollover

Assuming that you rollover your old 401(k) into an IRA or to your 401(k) plan with your new employer then there are no tax implications. This is a transfer from one tax-deferred account to another, allowing the money to be reinvested and continue to benefit from tax-deferred growth.

If you had different types of contributions into your old 401(k), such as pre-tax, Roth, or after-tax contributions, then you must be sure that you transfer each type of contribution to the appropriate account. This is to ensure that the account is treated appropriately once you do start withdrawing funds in retirement.

For example, Roth 401(k) contributions need to be rolled over into a Roth IRA or Roth 401(k). After-tax contributions should be rolled into a separate account for contribution tracking purposes.

Again, if you receive a check when going through the rollover process then be sure to satisfy the 60-day rollover requirement to avoid taxation. The importance of this cannot be stated enough.

Benefits of a 401(k) Rollover

There are many variables to consider when deciding what to do with your old 401(k). Here are 4 benefits of rolling over your plan to an IRA.

1.Increased investment options. Most 401(k) plans have a limited menu of investment options –typically in the range of 20-30 investments. The quality of these investments and the fees associated with each fund can vary greatly from plan to plan. When you rollover your 401(k) into an IRA you open yourself up to a much larger investment universe and therefore the potential to achieve better returns.

2.Simplify your life. Do not burden yourself later in life by trying to figure out where you have old 401(k) accounts and how to access those funds. By rolling over your 401(k) account you will have less accounts to worry about and you will have your assets in fewer locations,making it easier to stay up-to-date on your portfolio strategy. This also has the potential to boost investment returns since you will not have any old accounts sit stagnant and ignored.

3.Reduce fees. Your 401(k) may have fees that you are not even aware of. This includes fees such as account maintenance fees, administrative fees, potentially higher fund expenses and perhaps even a fee to a 401(k) advisor who you no longer get to benefit from by not being an active participant. You may not even be aware of these fees depending on how they are reported, but you can be certain that they are there.

4.Continue to contribute to the new account. Once you leave your employer, you are no longer able to contribute to the 401(k) if you leave it where it is. Therefore, the account will not benefit from future contributions. Taking your account with you to an active retirement account where you can continue to contribute, such as an IRA or new 401(k), allows you to continue making contributions.

Avoid Cashing Out Your 401(k)

It might be tempting to cash out your 401(k) and use that money. Unless you are in a serious financial situation where you need the money for very good reasons, it is best to avoid this option.

Not only will you owe federal & state income tax on the entire amount that is cashed out of a traditional 401(k), but you may also owe an additional 10% penalty depending on your specific situation. That means taxes and fees could add up to over 40% in some situations!

Most importantly, by cashing out of your 401(k) are foregoing two of the greatest benefits of retirement accounts: time and tax deferred compound growth. These two forces can make your money multiply significantly! Do not interrupt them!

Additional Considerations

401(k) plans are customizable by the employer and therefore each plan may have different characteristics. That is why it is important to understand the following:

1.Will your old 401(k) plan even allow you to keep your account there after you are no longer with the company?
2.Will your new 401(k) plan allow for rollover contributions?
3.Are the investment options in your new 401(k) plan any good?
4.Do you have the time and desire to personally manage your investment portfolio in an IRA or should you seek professional assistance?
5.Do you have employer stock in your old 401(k) plan? This requires much more planning as to the most appropriate strategy.Every persons situation is different and therefore there is no one size fits all answer. Rolling over your 401(k) to an IRA has many benefits, as discussed here, but the decision requires thoughtful analysis and consideration.

Final Thoughts

Do not take this decision lightly. There are a lot of factors to consider and there is a lot on the line with this decision. But not making any decision at all and simply forgetting about your account and letting it sit dormant for years could turn out to be one of the worst decisions.

If the thought of all of this overwhelms you then seek professional guidance. A financial advisor can assist you in analyzing this decision and facilitating the process. Additionally, an advisor will help you manage the Rollover IRA account if this is not something you have the time or interest in taking on yourself.Schedule a call today to discuss how to best navigate your old 401(k) options.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved

What to consider when receiving an inheritance

Receiving an Inheritance from a non-spouse individual

Receiving an inheritance can be a very emotional period. Not only are you coping with the loss of a loved one, but you also have to properly navigate a potentially major financial transition.

You are likely to feel a sense of responsibility when receiving an inheritance, as that parent, relative or friend who left money to you trusted you to use and manage that money effectively. Therefore, it is important to understand the rules around inheriting different types of assets.

With an estimated $68 trillion expected to change hands by 2030, there is a lot on the line.

So, what are common types of accounts you can expect to inherit?

Bank accounts
Retirement accounts (IRA’s, 401k’s, 403b’s, etc.)
Trust accounts
Brokerage accounts (non-retirement investment accounts)

First, a word about probate. Probate is the legal process of administering someone’s estate. Certain assets will avoid the probate process, such as those in trust, with beneficiary designations, or jointly owned. Assets that are not accounted for in any other way, or are only accounted for in a will, will have to go through the probate process. In either case, the executor of the estate will play an important role in distributing assets to beneficiaries.

Now, lets explore some important things to understand when inheriting different types of financial accounts.

Inheriting a Bank Account

Money in the bank is the simplest type of asset to inherit as it is simply cash. There are no investments to be concerned about or rules to be aware of. The executor of the decedents estate will have to inform the bank of the account owners passing to get the process going.

If you are listed as a beneficiary, under what is called a “Transfer on Death” designation, then your share will be directly distributed to you to do with what you wish.

If you are not listed as the beneficiary, but you are the heir in the will, then the accounts will have to go through the probate process. Once that process is complete, you will receive your share of the bank accounts that you are entitled to.

Inheriting Retirement Accounts Things start to get complicated when inheriting retirement accounts. You are now dealing with investments and distribution rules imposed by the IRS.

If you are listed as a beneficiary on a person’s IRA, then you will need to open an Inherited IRA account in your name to receive your share of the account. The administrator of the decedent’s estate will inform you that you are a beneficiary, if you were not already aware.

There are 3 important things you need to be aware of when receiving an inheritance from a retirement account:

1.Investments–You may receive cash or investments into your Inherited IRA. In either case, you should review the account holdings and make any necessary changes to create an investment portfolio that is appropriate to your financial situation. The sale of an investment in a retirement account is a non-taxable event, so do not be concerned about selling investments with large gains.

2.Required Distributions–Per IRS rules, if you inherit an IRA account after January 1, 2020 then you are required to distribute the entire account within 10 years of the original account owners passing. There are certain exceptions to this rule that only apply to a small group of people.

3.Taxes–If you inherited a “Traditional” IRA, 401k or other type of pre-tax retirement account, then the distributions that you take from your Inherited IRA will be taxable to you as ordinary income. If you inherit a Roth IRA, then luckily the distributions you take are tax-free. Because there is flexibility as to when you take the distributions within the 10-year period, there should be tax planning and coordination in order to make your distribution strategy as tax efficient as possible.

Inheriting a Brokerage Account

A brokerage account is a non-retirement investment account. You may have heard this type of account referred to as a “liquid” account or “non-qualified” account.

If you inherit a brokerage account that contains investments, then you are entitled to receive a step-up in cost basis. The cost basis impacts the tax consequences when selling an investment.

Rather than maintaining the original owners cost basis, the step-up rule allows for the cost basis to be adjusted to the date of death valuation of the investment.

The use of this rule can amount to some serious tax savings when you decide to sell the investments!Remember that you are not taxed on withdrawals from a brokerage account, but you are taxed upon the sale of an investment at either short-term or long-term capital gain rates depending on the holding period.

Inheriting a Trust Account

Trust accounts may come with an entirely different set of requirements. Although a trust account is a form of a non-retirement account, it is specifically designed by the person who created it in order for the money within the trust to be used in a manner that they see fit.

If you inherit money through a trust, then you will need a copy of the trust document in order to understand what you are and are not allowed to do with the money. You may be able to access this money free of restrictions, however there may be certain rules in place that you must adhere to.

For example, you may only be allowed to withdrawal a certain amount of money from the trust per year with the approval of the trustee, who may or may not be you.

Final Thoughts

As stated at the beginning, receiving an inheritance can be an emotional and overwhelming time period. Therefore, the best move you might be able to make initially is just to take a step back and process the situation before you start getting into the thick of financial issues.

And because this can be a significant financial transition in your life ensure that you are navigating it in the most prudent way possible and know what is required of you moving forward. If it is all too overwhelming to handle on your own, then seek out assistance from a financial professional who is knowledgeable about handling an inheritance. Schedule a call today to learn how Crest Wealth Advisors can help you navigate this tricky time period.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

Mid-Year Financial Check-Up

It is amazing to think that we are already half way through 2023.While you may be caught up in the hectic summer schedule, it’s crucial to pause and perform a mid-year financial check-up. Just like a regular health check-up ensures your physical well-being, a financial check-up helps you assess your financial situation and understand what adjustments need to be made over the next 6-months. In this blog post, we’ll explore why it’s important to perform a mid-year financial check-up and highlight key areas to review. So, let’s dive in!

First, download these FREE RESOURCES to assist in reviewing your finances



Investment Allocation: Maintain Prudent Balance

☑ Take stock of your investment portfolio: Review your investment accounts, including retirement accounts, brokerage accounts, Health Savings Accounts and any other investment accounts you have. Review your investments to understand what you own, why you own it and whether you still want to be invested in it moving forward.
☑ Assess your risk tolerance: Determine if your investment allocation aligns with your risk tolerance. Has your risk tolerance changed over time due to shifting priorities? While it is not prudent to try to time the market or adjust your allocation due to current conditions, you may find that your risk tolerance has changed due to personal reasons.
☑ Diversify your investments: Ensure that you have a diversified investment portfolio. Diversification helps spread risk and protects against potential losses in any particular investment. Evaluate if your investments are well-diversified across different asset classes, sectors and geographic regions.

Saving Progress: Are You on Track?

☑ Track your saving goals: Revisit your financial goals and assess your progress. Are you on track to meet your short-term and long-term saving targets? Analyze your spending patterns and identify areas where you can cut back to save more.
☑ Evaluate your emergency fund: Check the status of your emergency fund. Aim to have at least three to six months’ worth of living expenses saved in case of unexpected events. If you haven’t reached this milestone, make a plan to boost your emergency savings. The amount of emergency funds you maintain will be partly dependent on your personal comfort level as well as your income level and job security.
☑ Automate savings: Set up automatic transfers from your checking account to your savings or investment accounts. This simple step can make a significant difference in building your savings over time. Review your automated savings plan and adjust the amount if needed.

Cash Flow: Balancing Income and Expenses

☑ Evaluate your budget: Review your monthly income and expenses. Are you sticking to your budget or overspending in certain areas? Identify any unnecessary expenses and find ways to reallocate those funds toward your financial goals.
☑ Reduce debt burden: If you have outstanding debt, such as credit card debt or student loans, evaluate your progress in paying it off. Consider consolidating or refinancing your loans to lower interest rates and accelerate your debt repayment plan. Don’t forget, federal student loan payments resume in October, which may have a significant impact on your monthly expenses.
☑ Assess insurance coverage: Check your insurance policies, including health, life, home, and auto insurance. Ensure your coverage is adequate and up to date. Life circumstances can change, and your insurance needs may evolve as well. Insurance premiums have also been on the rise, so perhaps its time to shop around and find the best possible rates.

Maxing Out Retirement Contributions: Investing in Your Future

☑ Review retirement contributions: Examine your retirement savings contributions, such as 401(k), IRA, or pension plans. Are you maximizing the available tax-advantaged contribution limits? If not, consider increasing your contributions to take full advantage of the tax benefits and secure your financial future. Don’t forget, you can save in an employer based retirement plan as well as a personal IRA. Brokerage accounts are also great for saving any additional money above retirement account limits.
☑ Explore catch-up contributions: If you’re 50 years or older, you may be eligible for catch-up contributions to retirement accounts. Take advantage of these additional contribution limits to accelerate your retirement savings.
☑ Don’t forego any employer match: If you max out your 401(k) contributions before the end of the year then you may be missing out on a portion of your employer matching. Review the details of how your employer matches based on your contributions and make sure you setup your contributions to get every dollar available to you.

Final Thoughts

Performing a mid-year financial check-up is an essential step to maintain your financial well-being. By reviewing your investment allocation, saving progress, cash flow adjustments, and retirement contributions, you can make necessary adjustments to stay on track and achieve your financial goals. Remember, your financial situation is dynamic, and regular check-ups ensure you adapt to any changes and make informed decisions. So, take some time to assess your finances and secure a brighter future for yourself and your loved ones.

Everything you Must Know About Choosing a Financial Advisor

Choosing a financial advisor is a big decision. Financial advisors can provide various services, from helping with investments to planning for retirement, managing cash-flow to selling insurance and so much in between. Therefore, knowing what financial advisors can do, what certifications they require, and what to watch out for is important.

What are Financial Advisors?

The term financial advisor is a blanket term for just about any professional that helps with your money. The services they offer vary by specialty and certification. Many ‘advisors’ don’t need certification, so it’s important to research and know what you want from a professional before hiring them and trusting them with your money.Unfortunately, there isn’t any standardization across the industry for the titles, so there can be confusion when determining which professional is right for you. The key is to learn everything about an advisor you’re considering, including his/her certifications, services, and pricing module.

Services Financial Advisors can Provide

Financial advisors can provide many services, including the following:

• Help better manage your cash-flow and saving strategy
• Advise on how to achieve your short and long-term financial goals
• Plan for retirement
• Plan your estate
• Help with tax planning
• Create a debt payoff plan
• Manage your investments

The services an advisor can provide depend on their background, expertise and certifications. You could speak with two financial advisors who offer completely different services, but without asking the right questions and taking time to understand their model, you may not fully understand what you are getting into.

Types of Financial Advisors

The list of types of financial advisors is long, but here are the most common types.

• Certified Financial Planner
CFPs have undergone rigorous training, achieving several educational requirements such as obtaining a college degree and passing extensive tests. Their background can be in insurance, investment, and real estate, including many years of experience in each industry.CFPs are best for individuals looking for complex investment or financial advice because you know the advice you’re receiving is from an educated individual that can help you achieve your goals.

• Investment Advisors
A Registered Investment Advisor can help with your investments. They can provide advice and manage portfolios for you. However, RIAs must act as fiduciaries, which means they must recommend investments with your best interests in mind and will not expose you to unnecessary risk.

• Registered Representative
A Registered Representative sells assets, such as life insurance and mutual funds. They work for a specific broke but are overseen by FINRA. You don’t pay RRs; instead, they earn commissions from the assets they sell you, so they aren’t fiduciaries and should be used cautiously.

• Financial Coach
A financial coach is the best option when you’re looking for someone to give you budgeting advice or to help you save more. They can’t give investment advice or manage your investments but can help you with many other financial scenarios to help you achieve your financial goals.

• Robo-Advisors
Robo-advisors are computers handling your investments, so they aren’t a human offering advice; however, they can be a cost-effective way to get help with your investments. Some robo-advisors also offer the option to get human advice for a flat fee.

What do Financial Advisors Charge?

The cost is something that stops most people from considering a financial advisor. Unfortunately, many mistakenly assume you need a lot of money to use a financial advisor, but you don’t. The industry is adapting to provide more varied service models and fee structures to accommodate a wider range of consumers. A financial advisor can help anyone who has goals and wants to reach them. So whether you have a little more or a lot, help is available.

So how do they charge? It depends on the type of advisor, but here are some common ways.

Commission-Only Advisors

Financial advisors that work on commission, such as Registered Representatives, so they may seem ‘free’ to you because you don’t pay them a fee. Instead, they earn commission on the assets they sell you, so their commission is built into the cost of your investment. This fee structure can lack transparency unless it is made clear exactly the commission they earn and how it compares to other types of products they could use for you.

Assets Under Management

Investment advisors usually charge a percentage of your assets under management annually. For example, if they charge 1% AUM and you have $250,000 invested, it would cost $2,500 per year for their services. Some firms may have a minimum amount you have to invest with them to be a client. This fee can be all inclusive of the other services the advisor may provide such as retirement planning, tax planning and more. But be sure to ask, because what is included will vary from one advisor to the next.


Some advisors charge a flat fee, whether per month, per hour, or per plan. This type of fee tends to make the service more readily available to those who may not have a large amount of assets or may want to manage their investments on their own while using an advisor for other planning work. Always ask what’s included in the fee and what additional fees they may charge if any.

Fees are not the only thing to take into account.

How to Choose the Right Financial Advisor

So how do you choose the right financial advisor for you? Here are some key considerations:

Consider your Goals

Think about the reasons you want to use a financial advisor. For example, do you need help with basics like budgeting and saving, or are you looking for more complex investment advice to build your wealth. You want your needs to align with your advisors services and expertise.

What Level of Support do you Need?

Think about the level of service you want out of the relationship. Are you looking for guidance or someone to do everything for you? The more help you need, the more important it is that you find an advisor who provides ongoing support and access, which many CFP® professionals do.

What can you Afford?

All financial advisors cost money, but you can minimize the costs by choosing an advisor that charges a flat fee or even free robo-advisors that do your investing for you but don’t charge any commissions.

Final Thoughts

Choosing a financial advisor is a big decision you shouldn’t take lightly. Decide what you need help with the most and how to best achieve your goals. Then, do your research before choosing a financial advisor to ensure they have the desired certification and are authorized to help at the level you need to achieve your financial goals.

What is a fee-only financial advisor

Fee-Only Advisor

Have you heard the term before? Perhaps you have and that is what brought you to this article. But perhaps it is a new term you came across in searching for your first financial advisor.

It is a phrase being used more frequently in the financial services industry as more advisors are making a transition to operate under the fee-only model. In my opinion this is great!

But to be an informed consumer you should understand the options available to you in order to determine what is most appropriate. There is no one size fits all solution and even among fee-only advisors there are several different service models.

What Exactly is a Fee-Only Advisor?

A fee-only financial advisor is compensated only by fees that the client directly pays to the advisor.

This may seem intuitive. You hire someone to do a job and they get paid by you. But this is not always the case. Alternative service models include:

1.Commission Based–All compensation to the advisor comes from commissions on products they sell.This can appear to cost you nothing, but don’t kid yourself, there are certainly fees behind the scenes.

2.Fee-Based–Different from fee-only! In a fee-based relationship, the client pays some sort of fee to the advisor, but the advisor is still allowed to earn commissions through the use of specific products.

With a fee-only advisor you also know that you are working with a true FIDUCIARY who must operate in your best interest.

Again, you would naturally think that your advisor is always operating in your best interest, but under other types of arrangements an advisor may only be required to offer recommendations that are SUITABLE.

Let me fill you in on a little secrete…there is a BIG difference between what is in your best interest and what is suitable.

This is not to say that anyone who operates under a different structure cannot be trusted, but you should know the ins and outs of the relationship you are entering.

What Are the Common Fee Structures of a Fee-Only Advisor?

The term fee-only applies to several different types of fee structures. What is important to remember is that under any of these structures, the only compensation being received by the advisor is the fee being paid directly by the client. Fee-only models include the following fee structures.

1.Asset Under Management (AUM)

  1. Fee: Based on a percentage of AUM, with the median fee being around 1%. Fees are deducted directly from a clients account rather than paid out of cash flow.
  2. Services: An ongoing relationship with investment management and possibly financial planning depending on the advisor’s service offerings.
  3. Notes: Two advisors with the same percentage fee may have vastly different services. Do your research and determine the services provided and the value you will receive.


  1. A set fee paid monthly or quarterly.
  2. Services: An ongoing relationship with financial planning and typically investment management. Investment management may be limited to a certain level of assets.
  3. Notes: A retainer fee removes the asset minimum barrier that some firms have under the AUM model.3.Hourly1.Fee: An hourly rate paid only for the amount of time needed.


  1. Fee: An hourly rate paid only for the amount of time needed.
  2. Services: Not an ongoing relationship. The advisor will provide assistance on the topics that you request
  3. Notes: The implementation of recommendations remains with the client. This type of arrangement is more reactive in nature rather than proactive.

4.Project Based

  1. Fee: A flat fee determined at the beginning of the project. 50% of the fee is often paid at the start of the engagement with the remaining 50% upon completion.
  2. Services: Not an ongoing relationship. The advisor will create a comprehensive plan, or a plan based on the limited scope needs of the client.
  3. Notes: The implementation of recommendations remains with the client.

Each one of these structures is appropriate for different situations and you should understand the type of engagement you are looking for prior to hiring an advisor. Not all fee-only advisors operate under each structure. For example, Crest Wealth Advisors operates under an AUM or a retainer structure depending on the clients needs and situation.

Benefits of Working with a Fee-Only Advisor

Let me start by saying that no model is perfect. And no model is inherently wrong. What is important is that you go into the working relationship with a complete and transparent understanding of how the advisor’s compensation is earned.

The goal of a fee-only relationship is to limit conflicts of interest that are inherent in other models. Notice that I did not say “eliminate” the conflicts of interest. That is almost impossible within any model.

By removing a product-based commission, the client-advisor relationship becomes more about what is best for the client in achieving their goals. A fee-only advisor is not looking for ways to earn commissions, but rather is looking for solutions to the clients’ problems.

Are there any conflicts that exist in a fee-only relationship? Yes.

One of the most commonly talk ed about conflicts is that an advisor operating under an AUM model has an incentive to keep assets under the firm’s management rather than provide recommendations that may result in some of a client’s assets being used elsewhere, such as paying down a mortgage.

It is true that a firm operating under an AUM model has more incentive to keep assets “in-house”. And this is where trust becomes so important. If you trust the person you are working with then you should feel confident knowing that if a situation such as this arises, that your advisor will operate in your best interest by informing you of all relevant information and determining the best path forward for you.

Where Can I Find a Fee-Only Advisor?

You should first understand that anyone can call themselves an “advisor”. There is no requirement to use that title.

However, there are requirements for an advisor to call themselves “fee-only”, which results in reliable databases for where you can find a fee-only advisor in your area.

Some of the most reputable sources include:

1.NAPFA–National Association of Personal Financial Advisors
2.CFP Board
3.Fee-Only Network
4.XY Planning Network
5.Garrett Planning Network

Final Thoughts

As a fee-only firm in Annapolis, Maryland I may have a personal bias toward the fee-only model. But again, the correct model for you will depend on your specific needs. The next time you interview an advisor who you may work with ask them the tough questions. Make sure they are transparent in their answers and that you fully understand how the relationship will operate.

If you are interested in learning more about Crest Wealth Advisors services, then Schedule A Call!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’ Acqua, and all rights are reserved.

Choosing Roth or Pre-Tax Savings Retirement Accounts

When saving for retirement, you have several options, but two of the most common are a Roth or traditional IRA/401K. Both help you save for retirement and have tax advantages, but a Roth offers tax advantages during retirement, while a traditional retirement account offers them now.There’s a big difference between the two; not strategizing your retirement plan could leave you with less money than anticipated.So, it’s important to understand how to choose between the two. In a perfect world, most people have both, but it’s important to understand the differences and how they affect your retirement income and taxes.

What is a Roth Retirement Account?

A Roth retirement account offers tax-free growth and withdrawals. You contribute funds after paying taxes on them, and the money you contribute and the earnings grow tax-free.When you withdraw the funds in retirement, you don’t pay taxes. This can make a tremendous difference in your retirement money, especially if you’re in a higher tax bracket. There is one downside. You can’t contribute to a Roth IRA account if you make too much money. In 2023, the income limits are $138,000 – $153,000 for single filers and $218,000 – $228,000 for married filing jointly couples. The contribution amount is phased out in that range. Roth 401k’s on the other hand do not have any income limitations, however not all employer retirement plans offer a Roth feature.

Other Benefits of Roth Accounts

• No Required Minimum Distributions
• You can contribute for as long as you want, as long as you have earned income
• Your beneficiaries will benefit from tax-free withdrawals from inherited Roth accounts

What is a Traditional Retirement Account?

A traditional retirement account allows you to contribute funds on a pre-tax basis. You get the tax break today, and your earnings and contributions grow tax-deferred. However, there’s a catch. When you withdraw traditional funds in retirement, you pay ordinary income tax rates on the amount withdrawn.This means you’ll have much less money in retirement than anticipated and may have to save more to reach your retirement goals. If you’re in a high tax bracket during retirement, it could foil your retirement plans, leaving you with much less money in retirement.

Benefits of Traditional Retirement Accounts

• You lower your tax liabilities today
• You can contribute to a traditional retirement account no matter your income

The Goal with Retirement and Taxes

The key when investing for retirement is to reduce your taxes over your lifetime, not just the year you contribute. Yes, that tax deduction can feel great at the moment, but it’s a one-time deduction. When you withdraw traditional funds during retirement, you’ll pay tax at your ordinary income tax bracket, which decreases the funds you receive for your daily cost of living. So not only will you have less money in hand, but you’ll also have a big future tax problem that could have been avoided if you strategized your retirement plan early on.

Why Tax-Free Income is Better

So why is tax-free income better? It’s simple.

You’ll need to take less money from your retirement accounts when you have a Roth account. This is because when you don’t have to account for taxes, you withdraw what you need. For example, if you have $1 million saved for retirement and need $40K per year to supplement your other retirement income, you’d withdraw $40K per year if you have a Roth account.However, the amount needed to be withdrawn from a traditional retirement account to generate $40k look much different. For example, let’s say you’re in the 22% federal and 5% state tax bracket. You’d need to withdraw $54,795 yearly to net $40K for living expenses. Suddenly, that $1 million retirement account won’t go as far, and you might need to find ways to supplement your retirement income to live comfortably.

Ways to Take Advantage of Both

In a perfect world, you’ll utilize a traditional and Roth retirement account to take advantage the current and future tax benefits that each account type offers. Here are a few ways to make it happen. Backdoor Roth Conversions If you didn’t qualify for a Roth IRA or wanted the tax deduction in the year you contributed, consider converting your traditional retirement accounts to Roth accounts in the future. This gives you the best of both worlds. You get the pre-tax contributions now and then pay the taxes in the future to convert the account before retirement. To get the largest benefit out of this strategy, you should plan your conversion in a year when you’re in a lower tax bracket and can save money on your tax liabilities while setting yourself up for a more financially stable retirement.

New Employer Roth Matching

Under the new SECURE Act 2.0, employers may permit employees to elect matching contributions to be made to Roth accounts. This is a drastic change from the old rule that only allowed matching to be made to traditional pre-tax accounts. Employer matching made to a Roth account is taxable to you in the year the matching contribution was made, but this will help boost your tax-free bucket of money for retirement when you won’t have to pay taxes on the amounts withdrawn.

Mandatory Roth Catch-up Contributions for High Earners

If you’re over 50, your catch-up contribution requirements will change. In 2024, if you are over the age of 50 earning more than $145,000 and make catch-up contributions, they must be in a Roth account, not a traditional retirement account. This means the catch-up contributions will be after-tax. While this doesn’t provide tax relief now, you’ll enjoy it during retirement when you can withdraw the funds tax-free as long as you’ve held the account for five years.

Final Thoughts

Choosing Roth or pre-tax savings retirement accounts is a big decision. Finding a way to maximize both accounts gives you the best of both worlds and increases your chances of having enough money in retirement.The last thing you want to spend time worrying about is if you’ll have enough money in retirement, so careful retirement planning now will increase your chances of success in retirement. Consider Roth and pre-tax accounts, taking into consideration the pros and cons of each, but maximizing your retirement funds that are tax-free, so you have more money in your pocket and less financial strain from tax liabilities.

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