Hi there and thank you for stopping by today. We are going to talk about year end financial planning.
My name is Tina Anders. I am the Fee Only Certified Financial Planner for my wealth management firm in Petaluma, California, Anders wealth management, serving primarily Sonoma and Marin counties. Thank you again for stopping by.
So, let’s talk about year end financial planning. One thing you can do check your flexible spending account balance. If your employer plan does not allow you to roll the money over to the next year, make sure you spend the balance on qualified expenses, so you don’t lose out on that money.
Another thing you can look at, make a qualified charitable distribution from your IRA. See my video on that particular topic. If you make a QCD, qualified charitable distribution, from your IRA you may reduce the amount of tax that you owe on your IRA distribution.
Third thing prepay your charitable gifts. Thinking ahead about next year’s charitable gifts may allow for a larger tax deduction this year if you donate this year. So, prepay if you can, and you want to.
Number four review your employer sponsored retirement plan and IRA contributions. Maximizing the amount you contribute takes advantage of available tax deductions and employer matching contributions.
Five, consider a Roth conversion. Check out my video on this topic. If you’re unable to contribute to a Roth IRA directly because you don’t qualify, you might benefit from contributing to a traditional IRA and then converting the funds to a Roth IRA.
Number six harvest your tax losses. See my video on tax loss harvesting. If you have losing stock positions, and that’s quite possible this year 2020. Consider selling them to offset some of your gains and reduce your taxable income.
Number seven, plan for life events. A job change, a new home, a car purchase, surgery or any other life event requires financial planning ahead, if possible. So, think about that.
Number eight review your estate plan. Ensure your overall estate plan including your will, your trust, your powers of attorney, advanced directives are all current and reflect your current wishes.
Number nine review your insurance policies. Review your home insurance policy, your auto, your umbrella, your flood, your earthquake, your long term care, your life and other insurance policies to determine if you have enough coverage, and if you have the correct terms reflecting your desires.
Number ten review your beneficiaries. Double check that changes or updates are not needed on your accounts and I will highlight especially for people who are divorced. Sometimes, people mistakenly leave ex, former spouses, on their beneficiary list. So, consider that.
Number eleven, and most importantly, as the year comes to a close checking with your financial professional to ensure that everything’s in order with your overall financial situation. Again, a fee only certified financial planner is an excellent bet.
Thank you for listening. If you have comments or questions or topics you’d like to see me cover in a future video please comment below. I will be happy to respond. Tina Anders, Anders wealth management in your corner. Thank you very much for stopping in today.
Hi there and thank you for stopping by. Today I’m going to talk about converting dollars from your traditional IRA to your Roth account, also known as Roth IRA conversions. My name is Tina Anders. I am the fee only Certified Financial Planner for my wealth management firm, located here in Petaluma, California, Anders Wealth Management serving clientele primarily in the Sonoma and Marin counties. Thank you again for stopping by.
So, let’s talk about Roth conversions. So, Roth conversions turn traditional IRA dollars into Roth IRA dollars. Which can bring long term tax benefits, but you may face a tax bill in the year you convert. Why would you do a Roth conversion? You would do a Roth conversion to have avoid having to take RMD’s, also known as a required minimum distributions at age 72 mandated. And then you would end up paying ordinary income taxes on the RMD’s. So, a Roth conversion allows you to avoid that, also to avoid having to pay any taxes on your Roth IRA distributions, moving traditional to Roth. And then also, if you think your tax rate in retirement will be higher than it is now. Those are some reasons to do a Roth conversion.
Here’s how it works. Say you have a traditional IRA funded. Move your traditional IRA dollars, the desired amount, to your Roth IRA. Pay taxes on your IRA contributions and gains. So, when you move money from a traditional IRA to a Roth IRA, you will be taxed. If the contributions to the traditional IRA are tax deductible, you will be taxed on the money that has moved over from traditional to Roth.
To reduce the taxes you’ll owe on the rollover. Time your conversion in a year for instance that you’re in a lower tax rate, perhaps your income is going to drop or has dropped, and you anticipate a lower tax bracket in that year. Good time to do a Roth conversion or when your traditional IRA account is down. Because, for instance, in the COVID volatile market, perhaps your IRA balance is lower. Thereby when you move the balance over to the Roth, it’s not as high as it would have been, so your tax liability will also be reduced. Also, time it as you can afford to pay the taxes. You don’t have to convert your full balance. Think about converting only the mount on what you can afford paying taxes.
So, how do you convert traditional IRAs to Roth IRAs? There are three different ways. One is an indirect rollover, in which case, you personally and I don’t recommend this. But you personally take a distribution from your traditional IRA, and then you contribute it to your Roth IRA within a 60-day window. Be careful, I don’t recommend doing it this way. That is one way you can do it.
Another way is a trustee to trustee transfer. You tell your financial institution that has your traditional IRA to transfer money directly to your Roth IRA, perhaps at a different institution. That’s a trustee to trustee or direct rollover.
And another way to do a Roth conversion is to do a same trustee transfer which if your traditional IRA and your Roth IRA are held at the same institution, just call your institution and tell them I want to roll or convert this much from my traditional to my Roth, and they will handle that for you.
So, a Roth IRA, conversion might be wrong for you, if you lack the cash to pay the likely tax bill is generated by the conversion. Some people pay the tax bill with part of the conversion, the converted balance, but that sacrifices some of the tax-free investment growth.
If you’re under 59 and a half, you might not want to do a Roth conversion because you might have to pay a 10% penalty on the money that you convert. You also might not want to do a Roth conversion if you need the money in the next five years. Because withdrawals of money from the conversion of a traditional IRA or a 401k to a Roth are subject to a five-year waiting period to avoid a penalty. So, each conversion or rollover you make is subject to a separate five year waiting period. So, be careful about that.
Another reason not to do on is if the rollover will subject you to a higher marginal tax bracket in the year that you make the conversion. So I have clients send me a password protect protected PDF of their recent tax returns, so that we can pop it into my software to project how much they can afford to convert to a Roth IRA without putting them into a higher tax bracket. So, please be sure to run these projections before you make your decision. Because a larger than necessary tax bite can really hurt. In some a Roth conversion could be right for you if you like the idea of your investment earnings growing tax free. If you want the ability to lower your taxable income in retirement. If you think maybe your tax rate in retirement will be higher than it is now. Or and or if you want to avoid required minimum distributions, which the IRS mandates at age 72 from a traditional IRA.
Thank you for stopping by. If you have a comment or a question, if there’s a topic on which you’d like me to do a video, please comment below and I will do my best to accommodate you. Tina Anders here in your corner. Thanks again.
Hi there and thank you for stopping by today. I am going to talk about annuities in part one of two videos on annuities. My name is Tina Anders. I am the fee only Certified Financial Planner for my firm located here in Petaluma, California, serving primarily clientele in Sonoma, and Marin counties.
And I’m here again to talk to you about part one of two videos on annuities. Excuse me. So, what is an annuity? An annuity is a financial product that pays out a fixed stream of payments to an individual. And these financial products are primarily used as an income stream for retirees.
Annuities are contracts issued by insurance companies which invest dollars from individuals and they help individuals address the risk of outliving their savings, which is a very significant risk. So, while annuities can be beneficial in some specific circumstances, they are less than optimal investments. And most individuals are likely to benefit more from a well diversified portfolio of stocks and bonds in a portfolio that is for capital and wealth preservation.
Despite how they’re often sold, annuities are insurance contracts and not investments. An annuity transfers a portion of the risk of investing from the client to the insurance company and the insurance company charges annual fees, sometimes upwards of 5 to 7% from the account balance in order to take on the investment risk.
So, annuities have four basic fees within the contract.
They have an investment management charge, which is much like what a mutual fund company charges to manage the investments.
They have an administrative charge that covers the insurance company’s operating expenses and profit.
They have a mortality and expense risk charge to pay for the life insurance built into the annuity, as well as other risks to the insurance company.
And finally, they have what’s called a surrender charge, which is a fee to encourage you to keep the annuity contract for a period of time without having to surrender any of your account balance. And the period is usually up to about 10 years. So, this the surrender charge is there to allow the insurance company to make enough money to pay for the salespersons commissions, oftentimes. If you want to pull your money out before the surrender charge period, you will have to give up some of your account balance in order to pull your money out.
So, when does it make sense to own an annuity? Well, if you have maxed out your tax advantaged retirement plans, your Roth IRA, your traditional IRA, your health savings accounts, your 529 College Savings Accounts, your 401k or 403B or other employer sponsored retirement plan, then it may make sense to then take additional funds that you have to invest and put them into an annuity contract so that you have another income stream in retirement.
Another reason it might be good to have an annuity. If you’re dealing with a lot of stress because of the volatility of the market, and I would include the COVID related volatility, then it might be helpful to take a portion of your portfolio and put it in an annuity contract so that you can rely on an income stream down the road, thereby removing some of your stress. Because financial peace of mind is of the utmost importance.
Another reason to own an annuity is if you need to provide for basic living expenses. Now, Social Security is designed to do that but if Social Security isn’t going to be enough, it might behoove you to place a portion of your portfolio in an annuity contract in order to help provide for basic living expenses in retirement.
If you have comments, questions, topics on which you would like me to provide a video, please comment below and I will be sure to do my best to help out. Thanks for stopping by again and always I am in your corner
Hi there and thank you for stopping by. My name is Tina Anders and I am the Certified Financial Planner for my firm here in Petaluma, California, Anders wealth management. I appreciate you taking the time to learn a little bit today about Backdoor Roth IRAs, and even better Mega Backdoor Roth IRAs. First, let me just tell you, we’re filming at home because of COVID. So, please bear with me.
Backdoor Roth IRA contributions. Okay, so that’s an IRS sanctioned method for high income taxpayers to fund a Roth IRA even if their income is higher than the maximum IRS allows for regular Roth IRA contributions. Non-deductible traditional IRA contributions can be rolled to your Roth IRA. That’s a backdoor Roth IRA.
If your income exceeds the limits the IRS is placing on you so that you can’t contribute to a Roth IRA. That’s okay. Because you could put in non-deductible traditional IRA contributions in your traditional IRA, and then you can roll that to your Roth. That’s one way to do a backdoor Roth IRA contribution.
But let’s talk about something else called the Mega Backdoor Roth IRA contribution, which is amazing. So, let me ask you a couple questions. Do you know if your 401k plan, this is a plan at work, employer sponsored retirement plan? Do you know if your 401k plan allows you to make after tax 401k contributions? I’m not talking about Roth contributions; I’m talking about after tax non tax deferred traditional 401k contributions. If so, does your employer do separate accounting of the pretax and post-tax contributions? If so, are you allowed to take in service withdrawals during your employment? Okay, so if you answer yes to these questions, you may want to consider a Mega Backdoor Roth. Because really, I like for you to get as much money into a Roth IRA as soon as possible to get as much tax free growth for as long as possible. And the way to do this is to make after tax payroll deferrals into your 401k.
Regarding these after-tax contributions or deferrals to your 401k account, if your after tax contributions accumulate investment earnings, the IRS said it’s okay to split up the money between the contributions and their earnings. So, you can put the contributions, you can roll them straight into a Roth IRA, and the earnings go into a traditional IRA. Okay?
Now let’s remember Roth IRAs are tax free with a few rules, one of which is you have to have held it for at least five years. You can’t take money out penalty free before the age of 59 and a half. There are other rules that go along with these rules, but I’m not going to go into those today, I want to talk about who’s prohibited from doing a Mega Backdoor Roth conversion and that is a highly compensated employee. And that’s a person who either owns more than 5% of the interest in the business at any time during the year or the preceding year, or they receive compensation from the business for more than $125,000 in 2019 or $130,000 in the year 2020. And if the employer so chooses, they can say that the top 20% of employees ranked by compensation are highly compensated employees. So just be careful if you’re highly compensated employee, you don’t want to do a Mega Backdoor Roth IRA.
The other thing I want to mention is, and this is the good news, when you find a traditional or a Roth IRA under normal circumstances, you’re putting in $6,000 a year $7,000 a year, right in there depending on what year it is and what the rules are. But in 2020, the maximum you and your employer combined can put in your 401k is $57,000. If you’re under the age of 50, guess what? If you’re 50 or older, you can put in a total of $63,500 into your employer sponsor 401k accounts, which includes all contributions to include employer contributions. So, don’t go over the limits. Talk to your employer, HR department about this, and see if there are ways for you to do a Mega Backdoor Roth IRA. A fantastic saving tool, a fantastic tax liability relief tool.
Thank you again for stopping by today. Hey, if you would like me to speak about any particular topic on a video or if you have a question or a comment, please go to my website, anderswealth.com. Go to the contact page. Fill out as much or as little as you want. But in the bottom of the contact page, there’s a text box, fill out anything you would like to share with me that you could use my help on. You want to have me speak on a video and I will do what I can to help out. Thanks again. I am in your corner.