Should You Use 529 Plan Funds on K-12 Education?

Should You Use 529 Plan Funds on K-12 Education?

Federal law says you can, but you may want to think twice about it.

Provided by Lake Hills Wealth Management

When President Trump signed the Tax Cuts & Jobs Act into law late in 2017, new possibilities emerged for the tax-advantaged investment vehicles known as 529 college savings plans. Funds from these accounts may now be used to pay for qualified elementary and secondary school expenses under federal law.1    

Unfortunately, some state laws for 529 college savings plans are just catching up with federal law or treat such withdrawals differently from a tax standpoint. Hopefully, these differences will be resolved with time.2     

Federal law permits you to spend up to $10,000 of 529 funds on K-12 tuition per year. Under the Tax Cuts & Jobs Act, you can use these funds to pay tuition at private and public elementary and secondary schools. If you do this, the withdrawal from your 529 plan is tax free or at least free from federal taxation.1 

The question is how the state hosting the 529 account treats the withdrawal. Some states, such as Missouri and Tennessee, quickly indicated they would allow 529 plan withdrawals for qualified K-12 education expenses and treat the withdrawals in the same fashion as the new federal law. Other states took a different approach. Louisiana’s state legislature, for instance, complemented the state’s 529 college savings plan with new K-12 education savings accounts in June.3  

While your state’s 529 plan may allow you to withdraw funds to pay for qualified K-12 education expenses, the state and federal tax treatment of the withdrawal may differ. The distribution could be taxed at the state level, even if untaxed at the federal level. That is the case in Oregon, for example.2,4

You may or may not want to use 529 plan funds in this way. The Tax Cuts & Jobs Act basically redefined 529 savings plans as education savings accounts rather than solely college savings accounts. The added versatility is nice, but chances are, you have been saving money for a college education in a 529. Do you really want to draw down a tax-favored account capable of compounding to pay K-12 education expenses today instead of college costs tomorrow? Like an early withdrawal from a retirement account, this may be a decision that you come to regret.   

If you are independently wealthy or anticipate having the financial ability to cover college costs in some other way, then partly or wholly reducing your 529 plan balance might be bearable. If your household is middle class, it could simply be a bad idea.  

Of course, 529 plans are just one of the ways available to save for college. You should explore your options to build education savings. A chat with a financial professional well versed on the topic may give you some ideas.


1 - [6/12/18]

2 - [3/8/18]

3 - [6/14/18]

4 - [3/8/18]

Should You Leave Your IRA to a Child?

What you should know about naming a minor as an IRA beneficiary.

Provided by Lake Hills Wealth Management   

Can a child inherit an IRA? The answer is yes, though they cannot legally own the IRA and its invested assets. Until the child turns 18 (or 21, in some states), the inherited IRA is a custodial account, managed by an adult on behalf of the minor beneficiary.1,2  

IRA owners who name minors as beneficiaries have good intentions. Their idea is to “stretch” a large Roth or traditional IRA. Distributions from the inherited IRA can be scheduled over the (long) expected lifetime of the young beneficiary, with the possibility that compounding will partly or fully offset them.2  

Those good intentions may be disregarded, however. When minor IRA beneficiaries become legal adults, they have the right to do whatever they want with those IRA assets. If they want to drain the whole IRA to buy a Porsche or fund an ill-conceived start-up, they can.2 

How can you have a say in what happens to the IRA assets? You could create a trust to serve as the IRA beneficiary, as an intermediate step before your heir takes possession of those assets as a young adult.

In other words, you name a trust as the beneficiary of your IRA, and your child or grandchild as a beneficiary of the trust. When you have that trust in place, you have more control over what happens with the inherited IRA assets.2

The trust can dictate the how, what, and when of the income distribution. Perhaps you specify that your heir gets $10,000 annually from the trust beginning at age 30. Or, maybe you include language that mandates that your heir take distributions over their life expectancy. You can even stipulate what the money should be spent on and how it should be spent.2

A trust is not for everyone. The IRA needs to be large to warrant creating one, as the process of trust creation can cost several thousand dollars. No current-year tax break comes your way from implementing a trust, either.2

In lieu of setting up a trust, you could simply name an IRA custodian. In this case, the term “custodian” refers not to a giant investment company, but a person you know and have faith in who you authorize to make investing and distribution decisions for the IRA. One such person could be named as the custodian; another, as a successor custodian.2

What if you designate a minor as the beneficiary of your IRA, but fail to put a custodian in place? If there is no named custodian, or if your named custodian is unable to serve in that role, then a trip to court is in order. A parent of the child, or another party who wants guardianship over the IRA assets, will have to go to court and ask to be appointed as the IRA custodian.2

You should also recognize that the Tax Cuts & Jobs Act reshaped the “kiddie tax.” This is the federal tax on a minor’s net unearned income. Required minimum distributions (RMDs) from inherited IRAs are subject to this tax. A minor’s net unearned income is now taxed at the same rate as trust income rather than at the parents’ marginal tax rate.3,4

This is a big change. Income tax brackets for a trust or a child under age 19 are now set much lower than the brackets for single or joint filers or heads of household. A 10% rate applies for the first $2,550 of taxable income, but a 24% rate plus $255 of tax applies at $2,551; a 35% rate plus $1,839 of tax, at $9,151; a 37% rate plus $3,011.50 of tax, at $12,501 and up.3,5

While this is a negative for middle-class families seeking to leave an IRA to a child, it may be a positive for wealthy families: the new kiddie tax rules may reduce the child’s tax liability when compared with the old rules.4

One last note: if you want to leave your IRA to a minor, check to see if the brokerage holding your IRA allows a child or a grandchild as an IRA beneficiary. Some brokerages do, while others do not.1       


1 - [6/19/18]

2 - [5/17]

3 - [5/8/18]

4 - [5/31/18]

5 - [3/7/18]


Why Do People Put Off Saving for Retirement?

A lack of money is but one answer.

Provided by Lake Hills Wealth Management 

Common wisdom says that you should start saving for retirement as soon as you can. Why do some people wait decades to begin?

Nearly everyone can save something. Even small cash savings may be the start of something big if they are invested wisely.

Sometimes, the immediate wins out over the distant. To young adults, retirement can seem so far away. Instead of directing X dollars a month toward some far-off financial objective, why not use it for something here and now, like a payment on a student loan or a car? This is indeed practical, and it may be necessary. Even so, paying yourself first should be as much of a priority as paying today’s bills or paying your creditors.

Some workers fail to enroll in retirement plans because they anticipate leaving. They start a job with an assumption that it may only be short term, so they avoid signing up, even though human resources encourages them. Time passes. Six months turn into six years. Still, they are unenrolled. (Speaking of short-term or transitory work, many people in the gig economy never get such encouragement; they have no access to a workplace retirement plan at all.)

Other young adults feel they have too little to start saving or investing. Maybe when they are further along in their careers, the time will be right – but not now. Currently, they cannot contribute big monthly or quarterly amounts to retirement accounts, so what is the point of starting today?   

The point can be expressed in two words: compound interest. Even small retirement account contributions have potential to snowball into much larger sums with time. Suppose a 25-year-old puts just $100 in a retirement plan earning 8% a year. Suppose they keep doing that every month for 35 years. How much money is in the account at age 60? $100 x 12 x 35, or $42,000? No, $217,114, thanks to annual compounded growth. As their salary grows, the monthly contributions can increase, thereby positioning the account to grow even larger. Another important thing to remember is that the longer a sum has been left to compound, the greater the annual compounding becomes. The takeaway here: get an early start.1  

Any retirement saver should strive to get an employer match. Some companies will match a percentage of a worker’s retirement plan contribution once it exceeds a certain level. This is literally free money. Who would turn down free money? 

Just how many Americans are not yet saving for retirement? Earlier this year, an Edward Jones survey put the figure at 51%. If you are reading this, you are likely in the other 49% and have been for some time. Keep up the good work.2

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


1 - [6/21/18]

2 - [2/28/18]


The Case for Women Working Past 65

Why striving to stay in the workforce a little longer may make financial sense.

Provided by Lake Hills Wealth Management

The median retirement age for an American woman is 62. The Federal Reserve says so in its most recent Survey of Household Economics and Decisionmaking (2017). Sixty-two, of course, is the age when seniors first become eligible for Social Security retirement benefits. This factoid seems to convey a message: a fair amount of American women are retiring and claiming Social Security as soon as they can.1    

What if more women worked into their mid-sixties? Could that benefit them, financially? While health issues and caregiving demands sometimes force women to retire early, it appears many women are willing to stay on the job longer. Fifty-three percent of the women surveyed in a new Transamerica Center for Retirement Studies poll on retirement said that they planned to work past age 65.2 

Staying in the workforce longer may improve a woman’s retirement prospects. If that seems paradoxical, consider the following positives that could result from working past 65. 

More years at work leaves fewer years of retirement to fund. Many women are worried about whether they have saved enough for the future. Two or three more years of income from work means two or three years of not having to draw down retirement savings. 

Retirement accounts have additional time to grow and compound. Tax-deferred compounding is one of the greatest components of wealth building. The longer a tax-deferred retirement account has existed, the more compounding counts.

Suppose a woman directs $500 a month into such a tax-favored account for decades, with the investments returning 7% a year. For simplicity’s sake, we will say that she starts with an initial contribution of $1,000 at age 25. Thirty-seven years later, she is 62 years old, and that retirement account contains $974,278.3

If she lets it grow and compound for just one more year, she is looking at $1,048,445. Two more years? $1,127,837. If she retires at age 65 after 40 years of contributions and compounded annual growth, the account will contain $1,212,785. By waiting just three years longer, she leaves work with a retirement account that is 24.4% larger than it was when she was 62.3

A longer career also offers a chance to improve Social Security benefit calculations. Social Security figures retirement benefits according to a formula. The prime factor in that formula is a worker’s average indexed monthly earnings, or AIME. AIME is calculated based on that worker’s 35 highest-earning years. But what if a woman stays in the workforce for less than 35 years?4

Some women interrupt their careers to raise children or care for family members or relatives. This is certainly work, but it does not factor into the AIME calculation. If a woman’s work record shows fewer than 35 years of taxable income, years without taxable income are counted as zeros. So, if a woman has only earned taxable income in 29 years of her life, six zero-income years are included in the AIME calculation, thereby dragging down the AIME. By staying at the office longer, a woman can replace one or more of those zeros with one or more years of taxable income.4

In addition, waiting to claim Social Security benefits after age 62 also results in larger monthly Social Security payments. A woman’s monthly Social Security benefit will grow by approximately 8% for each year she delays filing for her own retirement benefits. This applies until age 70.4    

Working longer might help a woman address major retirement concerns. It is an option worth considering, and its potential financial benefits are worth exploring.


1 - [6/11/18]

2 - [4/17/18]

3 - [6/14/18]

4 - [6/9/18]

Are Financial Advisory Fees Tax Deductible?

The miscellaneous itemized deduction is gone, but effective tax breaks remain.

Provided by Lake Hills Wealth Management

Before 2018, you could partly or fully deduct investment advisory fees on your federal income tax return. When the Tax Cuts and Jobs Act was passed, however, the miscellaneous itemized deduction for investment fees and expenses vanished.1  

This deduction seldom mattered for taxpayers in the highest brackets, as they could only deduct miscellaneous items on Schedule A once those expenses exceeded 2% of their adjusted gross incomes. Other investors took advantage of it; some, frequently.1

Are there any tax breaks relating to investment fees left? Sort of. While they are not formal tax deductions, they are certainly worth noting.

If you own a traditional IRA, you may effectively arrange a tax break. You can elect to pay the account fees right out of the IRA’s balance. In doing so, you are essentially giving yourself a tax deduction because you are paying the IRA fees with pre-tax dollars. (As a Roth IRA is funded with post-tax dollars, it makes no sense to pay Roth IRA account fees out of a Roth IRA balance.)1

Commissions linked to investment trades also basically constitute a deduction. A commission on an investment transaction effectively decreases an investor’s taxable gain – or alternately, increases an investor’s loss.1  

Itemized deductions may still be claimed for fees paid for certain financial services. According to Internal Revenue Code Section 212, you are permitted to deduct expenses not associated with a business provided they directly relate to the production of income.2

What expenses meet this definition? Investment management fees charged to you by a Registered Investment Advisor (RIA). Tax preparation fees. Also, tax planning that is linked directly to the calculation or collection of a tax (whether in an income tax planning or estate planning context).2    

How about financial planning fees or fees that financial professionals charge for per-project or hourly consulting? Unfortunately, none of these fees are directly connected to income production or investment transactions, so nothing like a deduction can be derived from these expenses.1

This is the reality through 2025. At that date, things may change, as the suspension of miscellaneous deductions under the Tax Cuts and Jobs Act may end. In the present, taxpayers have far less ability to deduct expenses linked to investing, asset management, and tax and financial planning.2


1 - [5/4/18]

2 - [3/7/18]


How New Tax Laws Affect Small Businesses

A recap of the major changes impacting corporations and closely held firms. 

Provided by Lake Hills Wealth Management

The Tax Cuts & Jobs Act changed the tax picture for business owners. Whether your company is incorporated or held closely, you must recognize how the recent adjustments to the Internal Revenue Code can potentially affect you and your workers.   

How have things changed for C corps? The top corporate tax rate has fallen. C corps now pay a flat 21% tax. For most C corps, this is a big win; for the smallest C corps, it may be a loss.1

If your C corp or LLC brings in $50,000 or less in 2018, you will receive no tax relief – your firm will pay a 21% corporate income tax as opposed to the 15% corporate income tax it would have in 2017. Under the old law, the corporate income tax rate was just 15% for the first $50,000 of taxable income.1,2  

Another notable change impacting C corps involves taxation of repatriated income. Prior to 2018, American companies paid U.S. tax rates on earnings generated in foreign countries; those profits were, essentially, taxed twice. Now they are being taxed differently – there is a one-time repatriation rate of 15.5% on cash (and cash equivalents) and 8% rate on illiquid assets, and those taxes are payable over an 8-year period.2

By the way, the 20% corporate Alternative Minimum Tax (AMT) is no more. The tax reforms permanently abolished it.2  

What changed for S corps, LLCs, partnerships, and sole proprietorships? They can now deduct 20% of the qualified business income they earn in a year. Cooperatives, trusts, and estates can do the same. This deduction applies through at least 2025.2,3  

The fine print on this deduction begs consideration. If you are a lawyer, a physician, a consultant, or someone whose firm corresponds to the definition of a specified service business, then the deduction may be phased out depending on your taxable income. Currently, the phase-out begins above $157,500 for single filers and above $315,000 for joint filers. Above these two thresholds, the deduction for a business other than a specified service business is limited to half of the total wages paid or one quarter of the total wages paid plus 2.5% of the cost for that property, whichever is larger.2 

Salaried workers who are thinking about joining the ranks of independent contractors to exploit this deduction may find it a wash: they will have to pay for their own health insurance and absorb an employer’s share of Social Security and Medicare taxes.2

What other major changes occurred? The business depreciation allowance has doubled and so has the Section 179 expensing limit. During 2018-22, the percentage for first-year “bonus depreciation” deductions is set at 100% with a 5-year limit and applies to both used and new equipment. The maximum Section 179 deduction allowance is now $1 million (limited to the amount of income from business activity) and the phase-out threshold begins $500,000 higher at $2.5 million. Also, a business can now carry forward net operating losses indefinitely, but they can only offset up to 80% of income.4

The first-year depreciation allowance for a car bought and used in a business role is now $10,000; it was $3,160. Claim first-year bonus depreciation, and the limit is $18,000. (Of course, the depreciation allowance for the vehicle is proportionate to the percentage of business use.) The TC&JA also created a new employer tax credit for paid family and medical leave in 2018-19, which can range from 12.5%-25%, depending on the amount paid during the leave.4,5 

Some longtime business tax deductions are now absent. Manufacturers can no longer claim the Section 199 deduction for qualified domestic property activities. Business deductions for rail and bus passes, parking benefits, and commuter vehicles are gone. Deductions have also been repealed for entertainment costs linked directly to or associated with the conduct of business.4

Business owners should also know about the new restriction on 1031 exchanges. A like-kind exchange can now only be used for real estate, not personal property.


1 - [2/5/18]

2 - [2/14/18]

3 - [12/27/17]

4 - [1/2/18]

5 - [3/6/18]


Managing Money Well as a Couple

What are the keys in planning to grow wealthy together?

Provided by Lake Hills Wealth Management

When you marry or simply share a household with someone, your financial life changes – and your approach to managing your money may change as well. To succeed as a couple, you may also have to succeed financially. The good news is that is usually not so difficult. 

At some point, you will have to ask yourselves some money questions – questions that pertain not only to your shared finances, but also to your individual finances. Waiting too long to ask (or answer) those questions might carry an emotional price. In the 2017 TD Bank Love & Money survey consumers who said they were in relationships, 68% of couples who described themselves as “unhappy” indicated that they did not have a monthly conversation about money.1

First off, how will you make your money grow? Simply saving money will help you build an emergency fund, but unless you save an extraordinary amount of cash, your uninvested savings will not fund your retirement. Should you hold any joint investment accounts or some jointly titled assets? One of you may like to assume more risk than the other; spouses often have different individual investment preferences.

How you invest, together or separately, is less important than your commitment to investing. Some couples focus only on avoiding financial risk – to them, maintaining the status quo and not losing any money equals financial success. They could be setting themselves up for financial failure decades from now by rejecting investing and retirement planning.

An ongoing relationship with a financial professional may enhance your knowledge of the ways in which you could build your wealth and arrange to retire confidently.   

How much will you spend & save? Budgeting can help you arrive at your answer. A simple budget, an elaborate budget, or any attempt at a budget can prove more informative than none at all. A thorough, line-item budget may seem a little over the top, but what you learn from it may be truly eye opening.

How often will you check up on your financial progress? When finances affect two people rather than one, credit card statements and bank balances become more important, so do IRA balances, insurance premiums, and investment account yields. Looking in on these details once a month (or at least once a quarter) can keep you both informed, so that neither one of you have misconceptions about household finances or assets. Arguments can start when money misunderstandings are upended by reality.    

What degree of independence do you want to maintain? Do you want to have separate bank accounts? Separate “fun money” accounts? To what extent do you want to comingle your money? Some spouses need individual financial “space” of their own. There is nothing wrong with this, unless a spouse uses such “space” to hide secrets that will eventually shock the other.     

Can you be businesslike about your finances? Spouses who are inattentive or nonchalant about financial matters may encounter more financial trouble than they anticipate. So, watch where your money goes, and think about ways to repeatedly pay yourselves first rather than your creditors. Set shared short-term, medium-term, and long-term objectives, and strive to attain them.   

Communication is key to all this. In the TD Bank survey, 78% of the respondents indicated they were comfortable talking about money with their partner, and 90% of couples describing themselves as “happy” claimed that a money talk happened once a month. Planning your progress together may well have benefits beyond the financial, so a regular conversation should be a goal.1   


1 - [1/2/18]

Retirement Planning Weak Spots

They are all too common. 

Provided by Lake Hills Wealth Management 

Many households think they are planning carefully for retirement. In many cases, they are not. Weak spots in their retirement planning and saving may go unnoticed.

Couples should recognize that they may face major medical expenses. Each year, Fidelity Investments estimates how much a pair of newly retired 65-year-olds will spend on health care throughout the rest of their lives. Fidelity says that on average, retiring men will need $133,000 to fund health care in retirement; retiring women, $147,000. Even baby boomers in outstanding health should accept the possibility that serious health conditions could increase their out-of-pocket hospital, prescription drug, and eldercare costs.1   

Retirement savers will want to diversify their invested assets. An analysis from StreetAuthority, a financial research and publishing company, demonstrates how dramatic the shift has been for some investors. A hypothetical portfolio split evenly between equities and fixed-income investments at the end of February 2009 would have been weighted 74/26 in favor of equities exactly nine years later. If a bear market arrives, that lack of diversification could spell trouble. Another weak spot: some investors just fall in love with two or three companies. If they only buy shares in those companies, their retirement prospects will become tied up with the future of those firms, which could lead to problems.2

The usefulness of dollar cost averaging. Recurring, automatic monthly contributions to retirement accounts allow a pre-retiree to save consistently for them. Contrast that with pre-retirees who never arrange monthly salary deferrals into their retirement accounts; they hunt for investment money each month, and it becomes an item on their to-do list. Who knows whether it will be crossed off regularly or not?    

Big debts can put a drag on a retirement saving strategy. Some financial professionals urge their clients to retire debt free or with as little debt as possible; others think carrying a mortgage in retirement can work out. This difference of opinion aside, the less debt a pre-retiree has, the more cash he or she can free up for investment or put into savings.  

The biggest weakness is not having a plan at all. How many households save for retirement with a number in mind – the dollar figure their retirement fund needs to meet? How many approach their retirements with an idea of the income they will require? A conversation with a financial professional may help to clear up any ambiguities – and lead to a strategy that puts new focus into retirement planning.


1 - [4/23/18]

2 - [3/26/18]

Set Goals as You Save & Invest

Turn your intent into a commitment. 

Provided by Lake Hills Wealth Management 

Goals give you focus. To find and establish your investing and saving goals, first ask yourself what you want to accomplish. Do you want to build an emergency fund? Build college savings for your child? Have a large retirement fund by age 60? Once you have a defined motivation, a monetary goal can arise.

It can be easier to dedicate yourself to a goal rather than a hope or a wish. That level of dedication is important, as saving and investing usually comes with a degree of personal sacrifice. When you dedicate yourself to a saving/investing goal, some positive financial “side effects” may occur.     

A goal encourages you to save consistently. If you are saving and investing to reach a specific dollar figure, you likely also have a date for reaching it in mind. Pair a date with a saving or investing goal, and you have a time horizon, a self-imposed deadline, and you can start to see how you need to save or invest to try and achieve your goal, and what kind of savings or investments to put to work on your behalf.

You see the goal within a larger financial context. This big-picture perspective may help you from making frivolous purchases you might later regret or taking on a big debt that might impede your progress toward reaching your target.

You see clear steps toward your goal. Saving $1 million over a lifetime might seem daunting to the average person who has never looked at how it might be done incrementally. Once the math is in place, it might not seem so inconceivable. The intimidation of trying to reach that large number gives way to confidence – the feeling that you could realize that objective by contributing a set amount per month over a period of years.

Those discrete steps can make the goal seem less abstract. As you save and invest, you may make good progress toward the goal and attain milestones along the way. These milestones are affirmations, reinforcing that you are on a positive path and that you are paying yourself first.

Additionally, the earlier you define a goal, the more time you have to try and attain it. Time is certainly your friend here. Say you want to invest and build up a retirement fund of $500,000 in 30 years. If you save $500 a month for three decades through a retirement account returning 7% annually, you will have $591,839 when that 30-year period ends. If you give yourself just 20 years to try and save $500,000 with the same time frame and rate of return, you may need to make monthly contributions of about $975. (To be precise, the math says that over two decades, monthly contributions of about $975 will leave you with $501,419.)1

When you save and invest with goals in mind, you make a commitment. From that commitment, a plan or strategy emerges. In contrast, others will save a little here, invest a little there, and hope for the best – but as the saying goes, hope is not a strategy.


1 - [4/26/18]


The Pros & Cons of Roth IRA Conversions

What are the potential benefits? What are the drawbacks?

Provided by Lake Hills Wealth Management 

If you own a traditional IRA, perhaps you have thought about converting it to a Roth IRA. Going Roth makes sense for some traditional IRA owners, but not all. 

Why go Roth? There is an assumption behind every Roth IRA conversion – a belief that income tax rates will be higher in future years than they are today. If you think that will happen, then you may be compelled to go Roth. After all, once you are age 59½ and have had your Roth IRA open for at least five years (five calendar years, that is), withdrawals of the earnings from your Roth IRA are exempt from federal income taxes. You can withdraw your Roth IRA contributions tax free and penalty free at any time.1,2

Additionally, you never have to make mandatory withdrawals from a Roth IRA, and if your income permits, you can make contributions to a Roth IRA as long as you live.2

For 2017, the contribution limits are $135,000 for single filers and $199,000 for joint filers, with phase-out ranges respectively starting at $120,000 and $189,000. (These numbers represent modified adjusted gross income.)2

While you may make too much to contribute to a Roth IRA, you have the option of converting a traditional IRA to a Roth. Imagine never having to draw down your IRA each year. Imagine having a reservoir of tax-free income for retirement (provided you follow Internal Revenue Service rules). Imagine the possibility of those assets passing to your heirs without being taxed. Sounds great, right? It certainly does – but the question is: can you handle the taxes that would result from a Roth conversion?1,3     

Why not go Roth? Two reasons: the tax hit could be substantial, and time may not be on your side. 

A Roth IRA conversion is a taxable event. The I.R.S. regards it as a payout from a traditional IRA prior to that money entering a Roth IRA, and the payout represents taxable income. That taxable income stemming from the conversion could send you into a higher income tax bracket in the year when the conversion occurs.2

If you are nearing retirement age, going Roth may not be worth it. If you convert a large traditional IRA to a Roth when you are in your fifties or sixties, it could take a decade (or longer) for the IRA to recapture the dollars lost to taxes on the conversion. Model scenarios considering “what ifs” should be mapped out.

In many respects, the earlier in life you convert a regular IRA to a Roth, the better. Your income should rise as you get older; you will likely finish your career in a higher tax bracket than you were in when you were first employed. Those conditions relate to a key argument for going Roth: it is better to pay taxes on IRA contributions today than on IRA withdrawals tomorrow.

On the other hand, since many retirees have lower income levels than their end salaries, they may retire to a lower tax rate. That is a key argument against Roth conversion.   

If you aren’t sure which argument to believe, it may be reassuring to know that you can go Roth without converting your whole IRA.  

You could do a multi-year conversion. Is your traditional IRA sizable? You could spread the Roth conversion over two or more years. This could potentially help you avoid higher income taxes on some of the income from the conversion.2 

Roth IRA conversions can no longer be recharacterized. Prior to 2018, you could file a form with your Roth IRA custodian or trustee to undo a Roth IRA conversion. The recent federal tax reforms took away that option. (Roth IRA conversions made during 2017 may still be recharacterized as late as October 15, 2018.)2    

You could also choose to “have it both ways.” As no one can fully predict the future of American taxation, some people contribute to both Roth and traditional IRAs – figuring that they can be at least “half right” regardless of whether taxes increase or decrease.

If you do go Roth, your heirs might receive a tax-free inheritance. Lastly, Roth IRAs can prove to be very useful estate planning tools. If I.R.S. rules are followed, Roth IRA heirs may end up with a tax-free inheritance, paid out either annually or as a lump sum. In contrast, distributions of inherited assets from a traditional IRA are routinely taxed.3


1 - [7/5/17]

2 - [3/26/18]

3 - [1/27/17]


TSP Withdrawal Options Are Changing

New rules could soon mean more flexibility. 

Provided by Lake Hills Wealth Management

By 2020, federal employees with Thrift Savings Plan (TSP) accounts should have new withdrawal choices for their invested assets. New rules are scheduled to be implemented through the TSP Modernization Act, permitting TSP participants more flexibility.1        

The TSP withdrawal rules have been strict for many years. Too strict, in the opinion of many – especially compared to the private-sector workplace retirement plans the TSP takes after. Once a federal worker makes a partial withdrawal, he or she is locked into three choices. Choice one is converting the remaining balance to a life annuity (which the federal worker must buy and which is not the same as a TSP monthly payment or the annuity the federal employee gets with a retirement package). Choice two is cashing out the remaining TSP balance. Choice three is arranging a sequence of monthly payments that may be altered only once a year.2,3  

Moreover, if a federal worker makes an age-based withdrawal from the TSP while still employed by the federal government, that worker loses the ability to make partial withdrawals after retiring. As for retirees who avoid age-based withdrawals, they can make one partial withdrawal once retired under the current rules, but are subsequently left with full withdrawal options.4 

These restrictions often prompted federal employees and retiring service members to roll their TSPs into IRAs at retirement, even though investment fees for many IRAs exceeded those for the TSP.2 

The TSP Modernization Act is a response to all this. It addresses two crucial issues. The new law strikes down the withdrawal election deadline, allowing TSP participants to arrange and revise the amount and frequency of their withdrawals whenever they want. It also removes the curbs on partial withdrawals.2,4

The new law makes one other noteworthy change: TSP participants who have made both traditional and Roth contributions no longer have to take them out pro rata or proportionally distributed. Soon they will gain the ability to specify how much of a withdrawal should come from Roth TSP assets and non-Roth TSP assets.1

The new rules will take time to roll out. Forms, web pages, and publications all need to be revised, and a public comment period on the changes is required by law. While some of these revision steps were taken pursuant to the passage of the TSP Modernization Act, some are forthcoming.1

Until the new rules are implemented, TSP participants must abide by the old rules. A TSP factsheet on the forthcoming withdrawal choices notes that TSP participants facing their withdrawal deadlines can choose monthly payments as low as $25 and let their remaining TSP balances sit until the new withdrawal options are available, if their financial situations allow.1

TSP participants who have account balances when the new rules are in effect may take advantage of the expanded withdrawal options, even if they have made a partial withdrawal or already begun to receive monthly TSP account payments. Of course, if a participant changes the time period for his or her payments, there may be tax implications.1     

The change in TSP withdrawal rules is welcome. In sum, federal workers will gain the ability to make multiple age-based withdrawals during their careers, and will still be able to make partial withdrawals once retired. As National Treasury Employees Union president Tony Reardon commented last year, “The rules for how federal employees can manage their accounts have not kept pace with the modern workforce, and these changes [make] the TSP a more attractive and user-friendly choice for employees and retirees.”4


1 - [12/17]

2 - [2/1/18]

3 - [4/9/18]

4 - [7/27/17]

Smart Financial Steps After College

A to-do list for the twentysomething. 

Provided by Lake Hills Wealth Management 

Did you recently graduate from college? The years after graduation are crucial not only for getting a career underway, but also for planning financial progress. Consider making these money moves before you reach thirty.       

Direct a bit of your pay into an emergency fund. Just a little cash per paycheck. Gradually build a cash savings account that can come in handy in a pinch.

Speaking of emergencies, remember health insurance. Without health coverage, an accident, injury, or illness represents a financial problem as well as a physical one. Insurance is your way of managing that financial risk. A grace period does come into play here. If your employer does not sponsor a health plan, remember that you can stay on the health insurance policy of your parents until age 26. (In some states, insurers will let you do that until age 29 or 31.) If you are in good health, a bronze or silver plan may be a good option.1,2

Set a schedule for paying off your college debt. Work toward a deadline: tell yourself you want to be rid of that debt in ten years, seven years, or whatever seems reasonable. Devote some money to paying down that debt every month, and when you get a raise or promotion, devote a bit more. Alternately, if you have a federal college loan balance that seems too much to handle, see if you qualify for an income-driven or graduated repayment plan. Either option may make your monthly payment more manageable.3  

Watch credit card balances. Use credit when you must, not on impulse. A credit card purchase can make you feel as if you are buying something for free, but you are actually paying through the teeth for the convenience of buying what you want with plastic. As notes, the average credit card now carries a 16.8% interest rate.4

Invest. Even a small retirement plan or IRA contribution has the potential to snowball into something larger thanks to compound interest. At an 8% annual return, even a one-time, $200 investment will grow to $2,013 in 30 years. Direct $250 per month into an account yielding 8% annually for 30 years, and you have $342,365 three decades from now. That alone will not be enough to retire on, but the point is that you must start early and seek to build wealth through one or more tax-advantaged retirement savings accounts.5

Ask for what you are worth. Negotiation may not feel like a smart move when you have just started your first job, but two years in or so, the time may be right. It can literally pay off. Jobvite, a maker of recruiting software, commissioned a survey on this topic last year and learned that only 29% of employees had engaged in salary negotiations at their current or most recent job. Of those who did, 84% were successful and walked away with greater pay.6

Of course, you also have the power to negotiate your pay when you change jobs. That ability is not always acknowledged. Robert Half, the staffing firm, recently hired independent researchers to poll 2,700 U.S. workers employed in professional environments. The pollsters found that just 39% of these workers attempted to negotiate a better salary upon their most recent job offer. The percentage was higher for men (46%) than for women (34%).7      

Financially speaking, your twenties represent a very important time. Too many people look back over their lives at fifty or sixty and wish they had been able to save and invest earlier. These are the same people who may face an uncertain retirement. Rather than be one of them years from now, do things today that may position you for a better financial future.  


1 - [11/7/17]

2 - [10/21/17]

3 - [3/22/18]

4 - [4/5/18]

5 - [4/5/18]

6 - [5/25/17]

7 - [2/8/18]

A Retirement Gender Gap

Why a middle-class woman may end up less ready to retire than a middle-class man.

Provided by Lake Hills Wealth Management

What is the retirement outlook for the average fifty-something working woman? As a generalization, less sunny than that of a man in her age group.

Most middle-class retirees get their income from three sources. An influential 2016 National Institute on Retirement Security study called them the “three-legged stool” of retirement. Social Security provides some of that income, retirement account distributions some more, and pensions complement those two sources for a fortunate few.1

For many retirees today, that “three-legged stool” may appear broken or wobbly. Pension income may be non-existent, and retirement accounts too small to provide sufficient financial support. The problem is even more pronounced for women because of a few factors.1

When it comes to median earnings per gender, women earn 80% of what men make. The gender pay gap actually varies depending on career choice, educational level, work experience, and job tenure, but it tends to be greater among older workers.2

At the median salary level, this gap costs women about $419,000 over a 40-year career. Earnings aside, there is also the reality that women often spend fewer years in the workplace than men. They may leave work to raise children or care for spouses or relatives. This means fewer years of contributions to tax-favored retirement accounts and fewer years of employment by which to determine Social Security income. In fact, the most recent snapshot (2015) shows an average yearly Social Security benefit of $18,000 for men and $14,184 for women. An average female Social Security recipient receives 79% of what the average male Social Security recipient gets.2,3

How may you plan to overcome this retirement gender gap? The clear answers are to invest and save more, earlier in life, to make the catch-up contributions to retirement accounts starting at age 50, to negotiate the pay you truly deserve at work all your career, and even to work longer.

There are no easy answers here. They all require initiative and dedication. Combine some or all of them with insight from a financial professional, and you may find yourself closing the retirement gender gap.


1 - [11/1/17]

2 - [4/4/17]

3 - [3/16/18]

Tax Efficiency in Retirement

How much attention do you pay to this factor?

Provided by Lake Hills Wealth Management 

Will you pay higher taxes in retirement? Do you have a lot of money in a 401(k) or a traditional IRA? If so, you may receive significant retirement income. Those income distributions, however, will be taxed at the usual rate. If you have saved and invested well, you may end up retiring at your current marginal tax rate or even a higher one. The jump in income alone resulting from a Required Minimum Distribution could push you into a higher tax bracket.           

While retirees with lower incomes may rely on Social Security as their prime income source, they may pay comparatively less income tax than you will in retirement – because up to half of their Social Security benefits won’t be counted as taxable income.1

Given these possibilities, affluent investors might do well to study the tax efficiency of their portfolios; not all investments will prove to be tax-efficient. Both pre-tax and after-tax investments have potential advantages. 

What’s a pre-tax investment? Traditional IRAs and 401(k)s are classic examples of pre-tax investments. You can put off paying taxes on the contributions you make to these accounts and the earnings these accounts generate. When you take money out of these accounts, you are looking at taxes on the withdrawal. Pre-tax investments are also called tax-deferred investments, as the invested assets can benefit from tax-deferred growth.2   

What’s an after-tax investment? A Roth IRA is a classic example. When you put money into a Roth IRA, the contribution is not tax-deductible. As a trade-off, you don’t pay taxes on the withdrawals from that Roth IRA (so long as you have had your Roth IRA at least five years and you are at least 59½ years old). Thanks to these tax-free withdrawals, your total taxable retirement income is not as high as it would be otherwise.2

Should you have both a traditional IRA and a Roth IRA? It may seem redundant, but it could help you manage your marginal tax rate. It gives you an option to vary the amount and source of your IRA distributions considering whether tax rates have increased or decreased.

Smart moves can help you reduce your taxable income & taxable estate. If you’re making a charitable gift, giving appreciated securities that you have held for at least a year may be better than giving cash. In addition to a potential tax deduction for the fair market value of the asset in the year of the donation, the charity can sell the stock later without triggering capital gains for it or you.3 

The annual gift tax exclusion gives you a way to remove assets from your taxable estate. In 2018, you may give up to $15,000 to as many individuals as you wish without paying federal gift tax, so long as your total gifts keep you within the lifetime estate and gift tax exemption. If you have 11 grandkids, you could give them $15,000 each – that’s $165,000 out of your estate. The drawback is that you relinquish control over those dollars or assets.4 

Are you striving for greater tax efficiency? In retirement, it is especially important – and worth a discussion. A few financial adjustments could help you lessen your tax liabilities.


1 - [3/16/18]

2 - [3/9/18]

3 - [3/6/18]

4 - [10/19/17]

Will Giving Decline?

The loss of the charitable tax deduction could hurt non-profits.

Provided by Lake Hills Wealth Management

Charities are wondering if they will lose out on millions this year. The federal tax deduction for charitable contributions has disappeared because of the recent tax reforms.

The standard federal income tax deduction is now $12,000 – make that $24,000 for a married couple filing jointly. (The amounts rise to $13,600 for a single taxpayer 65 or older and $26,600 for joint filers 65 and older.) With these huge standard deductions, middle-class households now have far less incentive to itemize. If they elect not to itemize, there will be no tax advantage in making a charitable gift – unless that gift is large enough to send their total itemized deductions north of these respective thresholds.1

Charities and non-profit organizations are justifiably worried about this. Their biggest donors – corporations, long-established private foundations, and federal and state grant agencies – may sustain or even boost their level of giving in view of the 2018 tax reforms. Individual donors, on the other hand, may lose motivation. Given the choice between below-the-line deductions and the standard deduction, the standard deduction could easily win out.2 

Certainly, households will still make charitable donations this year. The question is: to what degree? Will they reduce the amounts of the annual gifts they have made for years? 

Whether they do or not, charities and non-profits may strengthen their appeals to businesses for help. The 2018 tax reforms lowered the corporate tax rate to 21% and positioned mid-sized corporations to reap the biggest savings. Some of those savings could be poured back into communities.2     

Charitable IRA gifts can still be made. Retirees who own traditional IRAs have the chance to make significant contributions to charities and non-profits in a way that will help them fulfill their yearly Required Minimum Distributions (RMDs).3,4  

For some wealthy traditional IRA owners, an RMD is a bother. They may not really need the income, the income is fully taxable, and if the RMD is large enough, it could put them into a higher tax bracket. A Qualified Charitable Distribution (QCD) may be a good move in this situation, and many charities are encouraging it.4

A QCD works like this: a traditional IRA owner earmarks up to $100,000 in assets from the IRA for a transfer to a qualified charity or non-profit organization. As a perk for the substantial charitable gift, the Internal Revenue Service lets the donor count the amount of the gift toward his or her RMD for that year. The transfer of the assets is tax free, and the gifted amount is not added to the donor’s adjusted gross income (whereas an ordinary RMD would be).1 

The tax benefits of this gift apply even if the giver does not itemize. Yes, a traditional IRA owner older than 70½ may make a QCD of up to $100,000 this year and still take his or her $13,600 standard federal income tax deduction. (Roth IRAs never require RMDs from the original owner and qualified withdrawals from them are not taxed, so QCDs from Roth IRAs are a moot point.)1,3    

Smaller gifts can still be made in a way that may be tax effective. A household can try bunching its charitable gifts every second, third, fourth, or fifth year to amass enough itemized deductions to write off more than the standard deduction. That is, make many charitable gifts one year, and perhaps none for 1-4 years after that.

Even taxpayers who refrain from itemizing may be attracted to the potential of a donor-advised fund. Essentially, this amounts to an individual’s personal charitable savings account, with the money or securities inside it one day going to a qualified non-profit organization. Taxpayers use DAFs as a vehicle to gift highly appreciated securities to charity – when they make that gift, they are able to deduct the full market value of those securities from their taxable income for the particular year and avoid the capital gains tax they would pay if they simply sold the shares.4

Charities will be challenged to meet fundraising goals this year. Make no mistake. Perhaps that challenge will be met. Creativity among non-profits, donors, and the tax professionals who interact with them may make 2018 a better year for giving than anticipated.


1 - [1/25/18]

2 - [1/3/18]

3 - [8/26/17]

4 - [12/22/17]

How Retirement Spending Changes With Time

Once away from work, your cost of living may rise before it falls.

Provided by Lake Hills Wealth Management

New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? 

This concern is legitimate. Many households “live it up” and spend more than they anticipate as retirement starts to unfold. In ten or twenty years, though, they may not spend nearly as much.1

The initial stage of retirement can be expensive. Looking at mere data, it may not seem that way. The most recent Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by Americans age 55-64 and mean spending of just $45,221 for households headed by people age 65 and older.1,2

Affluent retirees, however, are often “above average” in regard to retirement savings and retirement ambitions. Sixty-five is now late-middle age, and today’s well-to-do 65-year-olds are ready, willing, and able to travel and have adventures. Since they no longer work full time, they may no longer contribute to workplace retirement plans. Their commuting costs are gone, and perhaps they are in a lower tax bracket as well. They may be tempted to direct some of the money they would otherwise spend into leisure and hobby pursuits. It may shock them to find that they have withdrawn 6-7% of their savings in the first year of retirement rather than 3-4%.

When retirees are well into their seventies, spending decreases. In fact, Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s). Sudden medical expenses aside, household spending usually levels out because the cost of living does not significantly increase from year to year. Late-middle age has ended and retirees are often a bit less physically active than they once were. It becomes easier to meet the goal of living on 4% of savings a year (or less), plus Social Security.2

Later in life, spending may decline further. Once many retirees are into their eighties, they have traveled and pursued their goals to a great degree. Staying home and spending quality time around kids and grandkids, rather than spending money, may become the focus.

One study finds that medical costs burden retirees mostly at the end of life. Some economists and retirement planners feel that retirement spending is best depicted by a U-shaped graph; it falls, then rises as elders face large medical expenses. Research from investment giant BlackRock contradicts this. BlackRock’s 2017 study on retiree spending patterns found simply a gradual reduction in retiree outflows as retirements progressed. Medical expenses only spiked for most retirees in the last two years of their lives.3

Retirees in their sixties should realize that their spending will likely decline as they age. As they try to avoid spending down their assets too quickly, they can take some comfort in knowing that in future years, they could possibly spend much less.


1 - [1/25/18]

2 - [10/25/17]

3 - [12/26/17]

Catching Up on Retirement Saving

If you are starting at or near 50, consider these ideas.

Provided by Lake Hills Wealth Management 

Do you fear you are saving for retirement too late? Plan to address that anxiety with some positive financial moves. If you have little saved for retirement at age 50 (or thereabouts), there is still much you can do to generate a fund for your future and to sustain your retirement prospects.  

Contribute and play catch-up. This year’s standard contribution limit for an IRA (Roth or traditional) is $5,500; common employer-sponsored retirement plans have a 2018 contribution limit of $18,500. You should try, if at all possible, to meet those limits. In fact, starting in the year you turn 50, you have a chance to contribute even more: for you, the ceiling for annual IRA contributions is $6,500; the limit on yearly contributions to workplace retirement plans, $24,500.1

Look for low-fee options. Lower fees on your retirement savings accounts mean less of your invested assets going to management expenses. An account returning 6% per year over 25 years with an annual expense ratio of 0.5% could leave you with $30,000 more in savings than an account under similar conditions and time frame charging a 2.0% annual fee.2

Focus on determining the retirement income you will need. If you are behind on saving, you may be tempted to place your money into extremely risky and speculative investments – anything to make up for lost time. That may not work out well. Rather than risk big losses you have little time to recover from, save reasonably and talk to a financial professional about income investing. What investments could potentially produce recurring income to supplement your Social Security payments?

Consider where you could retire cheaply. When your retirement savings are less than you would prefer, this implies a compromise. Not necessarily a compromise of your dreams, but of your lifestyle. There are many areas of the country and the world that may allow you to retire with less financial pressure.  

Think about retiring later. Every additional year you work is one less year of retirement to fund. Each year you refrain from drawing down your retirement accounts, you give them another year of potential growth and compounding – and compounding becomes more significant as those accounts grow larger. Working longer also lets you claim Social Security later, and that means bigger monthly retirement benefits for you.

Most members of Generation X need to save more for their futures. The median retirement savings balance for a Gen Xer, according to research from Allianz, is about $35,000. A recent survey from Comet Financial Intelligence found that 41% of Gen Xers had not yet begun to build their retirement funds. So, if you have not started or progressed much, you have company. Now is the time to plan your progress and follow through.3,4


1 - [10/25/18]

2 - [5/10/17]

3 - [2/7/18]

4 - [3/2/18]

The Solo 401(k)

A retirement savings vehicle designed for the smallest businesses.

Provided by Lake Hills Wealth Management

A solo 401(k) lets a self-employed individual set up a 401(k) plan combined with a profit-sharing plan. You can create one of these if you work for yourself or for you and your spouse.1

Reduce your tax bill while you ramp up your retirement savings. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

*As an employee, you can defer up to $18,500 of your compensation into a solo 401(k). The yearly limit is $24,500 if you are 50 or older, for catch-up contributions are allowed for these plans.1

*As an employer, you can have your business make a tax-deductible, profit-sharing contribution of up to 25% of your compensation as defined by the plan. If your business isn’t incorporated, the annual employer contribution limit is 20% of your net earnings rather than 25%. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make using the methods in Internal Revenue Service Publication 560.1,2

*Total employer & employee contributions to a solo 401(k) are capped at $55,000 for 2018.1

Are you married? Add your spouse to the mix. If your spouse is a full-time employee of your business, then he or she can also make an employee contribution to the plan in 2018, and you can make another profit-sharing contribution on your spouse’s behalf. (For this to happen, your spouse must have net self-employment income from the business.)2,3   

The profit-sharing contributions made by your business are tax-deductible. Annual contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) per year.2,4

You can even create a Roth component in your solo 401(k). You can direct up to $18,500 annually (or $24,500 annually, if you are 50 or older) into the Roth component of the plan (total contributions cannot exceed max limits) You cannot make employer contributions to the Roth component.3

Rollovers into the plan are sometimes permitted. Certain plan providers even allow hardship withdrawals (loans) from these plans prior to age 59½.5

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 full-time employees, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. There are no compliance testing requirements, and you will only need to file a Form 5500 annually with the I.R.S. once the assets in your solo 401(k) exceed $250,000.4 

If you want to hire more employees, your solo 401(k) will turn into a standard 401(k) plan per the Internal Revenue Code. The good news is that you can present your new hires with an established 401(k) plan.2,3  

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.5


1 - [10/25/17]

2 - [2/13/18]

3 - [01/29/2018]

4 - [2/13/18]

5 - [12/11/17]

Why You Want a Retirement Plan in Writing

Setting a strategy down may help you define just what you need to do.

Provided by Lake Hills Wealth Management

Many people save and invest vaguely for the future. They know they need to accumulate money for retirement, but when it comes to how much they will need or how they will do it, they are not quite sure. They will “wing it,” hope for the best, and see how it goes. How do they know they are really contributing enough to their retirement accounts? Would they feel less anxious about the future if they had a written plan? 

Make no mistake, a written retirement plan sharpens your focus. It can refine dreams into goals and express a strategy to pursue them. According to a Charles Schwab study, just 24% of Americans plan their financial futures according to a written strategy. Here is why you should join their ranks, if you are not yet among them.1,2  

You can figure out the “when” of retirement planning. When do you think you will retire and start drawing income from your taxable and tax-advantaged accounts? At what age do you anticipate you will start to collect Social Security? How long do you think you will live? No, you cannot precisely know the answers to these questions at this point – but you can make reasonable assumptions. Your assumptions may be altered, it is true – but a good retirement plan is an evolving document, one that can be revised with changing times.                

You can set a target monthly or annual savings rate. Once you have considered some of the “whens,” you can move on to “how.” Assuming a conservative rate of return on your invested assets, you can specify how much to defer into retirement accounts.

You can decide on a risk tolerance and an investment mix that agrees with it. Ultimately, you will invest in a way that a) makes sense for your objectives and b) makes you comfortable. The investment mix that you decide on today may not be the one you will favor ten years from now or even three years from now. Regular portfolio reviews should complement the stated investment approach.

You can think about ways to get more retirement income instead of less. Tax reduction should be part of your retirement strategy. Think about the possibility of part of your Social Security income being taxed. Think about tax on your Required Minimum Distributions (RMDs) from your IRAs and employee retirement plan. What could you do to manage, or even minimize, the income and capital gains taxes ahead of you?

You can tackle the medical expense question. That is, how will you fund the medical care that you will inevitably need to greater or lesser degree someday? Should you assign part of your savings to a special account or form of insurance for that purpose? Retiring before 65 may mean paying for some private health insurance in the years before Medicare eligibility.

You can think about your legacy. While a retirement plan should not be equated with an estate plan, the very fact of planning for your later years does make you think about some things: where you want your money to go when you are gone; your endgame for your company or professional practice; whether part of your accumulated wealth should go to causes or charities. 

A written plan promotes confidence and a degree of control. A 2017 Wells Fargo/Gallup survey determined that those with written retirement plans were nearly twice as confident of having sufficient retirement income in the future, compared to those with no written plan.3

If you lack a written retirement plan, talk to the financial professional you know and trust about one. Writing it all down may make a difference in planning for your second act.  


1 - [10/25/17]

2 - [6/17]

3 - [7/18/17]

Wise Money Moves Young Women Can Make

Want a better financial future for yourself? Act now. 

Provided by Lake Hills Wealth Management

As a young woman, you have an opportunity to make some major financial strides. You truly have time on your side when it comes to investing, saving, and harnessing the power of compounding. Now is the time to pay yourself first and do those things that could make you wealthy in the future.

Your first move should be debt reduction. This frees up money for the other moves you can make and lessens the amount of money you pay to others, instead of yourself, each month.

Consider attacking your highest-interest debts first rather than your largest debts. If you have big credit card balances, high-interest car loans, or similar financial obligations, that borrowed money may be extremely expensive. Credit bureau Experian says that monthly household credit card balances in this country hover around $6,375. According to personal finance website NerdWallet, the average interest rate on a credit card right now is 14.87%, and the average U.S. household pays out $904 a year just in credit card interest. A constant debt of $6,000 is bad enough, but having to pay roughly another $1,000 a year just for the opportunity to borrow? That really hurts.1

Whether your major debts are larger or smaller, think of the progress you could possibly make by devoting thousands of dollars you pay to others to yourself. Say you direct $3,000 you would otherwise pay to creditors during a year into an investment account returning 6%. Say you do this for 10 consecutive years. At the end of that 10-year period, you are looking at $47,287, not simply $30,000. That is what compound interest – the best kind of interest – can do for you financially.2

Across longer time periods, compound interest has a proportionately greater positive effect. Stretch the above example out to 35 years and those annual $3,000 investments at a 6% return grow to $377,421. (Keep in mind, you may be able to save and invest considerably more than $3,000 annually as you earn more money per year.)2           

Save or invest whatever you can. Setting aside a little cash for yourself is good, too. You want to build some kind of emergency fund with money you can touch; money you can get at right away if you need it quickly.  

Many retirement savings vehicles offer you tax breaks. The common workplace retirement plan or IRA is tax favored: money within the account grows tax free, and it is subtracted from your paycheck before taxes. You only pay taxes on the money when it is withdrawn. In addition, many employers will partially match your contributions if you meet a certain minimum. Roth IRAs and workplace plans allow both tax-free growth and tax-free withdrawals, provided Internal Revenue Service rules are followed. While you get no up-front tax break for contributing to a Roth account, you also have the potential to withdraw the money tax free for retirement, which is a great thing.3

Not using these saving and investing accounts could be a big mistake. Some people are skittish about Wall Street investments, but largely speaking, those are the kinds of investments that have the potential to return better than 5% a year (think about the scenario from a few paragraphs earlier). In fact, the S&P 500, the broad benchmark of the stock market, gained an impressive 19.42% last year.4

Parking too much money in cash and avoiding all risk can come with an opportunity cost you may not be able to afford. Sallie Krawcheck, the former president of the investment management division of Bank of America and CEO of Ellevest, estimates that a woman making $85,000 annually who puts 20% of her yearly pay into a bank account rather than an investment account could effectively forfeit more than $1 million after four decades of doing so.5

Now is the ideal time to plan to get ahead financially. Think about your future, and make the wise money moves that give you the potential to make it bright.       


1 - [2/19/18]

2 - [2/22/18]

3 - [5/20/17]

4 - [2/22/18]

5 - [3/8/17]