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How to Make Backdoor Roth IRA contributions
Retirement Planning

How to Make Backdoor Roth IRA Contributions

by Jeff Dailey
written by Jeff Dailey

Many investors are enticed by the long term benefits of a Roth IRA. Unfortunately for those who do participate in an employer sponsored retirement account, such as a 401k, and earn a high annual income (over $116,000 for single filers and $183,000 if you are married, filing jointly), you are unable to make a Roth contribution. How to Make Backdoor Roth IRA contributions
Fortunately, there are ways around this. There are steps outlined below that can be taken, which would allow a high income earner to move after tax funds into their Roth IRA. This is only possible because there are currently no income limitations for those who are looking to convert to a Roth IRA.
Step 1 – Determine whether or not there are other pre-tax IRA’s
Step 2 – If there is an existing pre-tax IRA, roll this account into a 401k (if available) to avoid the IRA aggregation rule. It is important to check whether or not the 401k allows for a rollover. You are also only able to roll over pre-tax funds.
Step 3– Contribute to a non-deductible IRA (You must have earned income for the year)
Step 4 – Invest funds in the non-deductible IRA
Step 5 – Keep invested (this is the step where you/CPA must be aware of the step transaction doctrine)
Step 6 – Convert to a Roth IRA
A CPA should be consulted prior and along the way as there are important obstacles to be prepared for. Obstacles such as the IRA aggregation rule and the “Step transaction doctrine.”
It is worth noting that this opportunity might not exist forever and the new administration may change the rules.
William N. Pugh, CFP®
Wealth Manager
www.Apriem.com
 

How to Make Backdoor Roth IRA Contributions

 

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Retirement Planning

Even the Highest Earners Don’t Have Enough

by Kimberly Johnson
written by Kimberly Johnson

A Shocking Thesis

According to the Schwartz Center for Economic Policy Analysis (SCEPA), the majority of American families nearing retirement have inadequate levels of savings. When we examine the data, there is a substantial amount of truth to this thesis. Even the Highest Earners Don’t Have Enough

The Data

Every three years, the Board of Governors of the Federal Reserve System release a massive amount of information about United States (USA) family finances. This triennial bulletin is called the Survey of Consumer Finances. (SCF) Here is some background on the authors of the survey: the Federal Reserve Governors consist of seven officials (five appointed by the President of the United States) that oversee twelve banking regions in the United States.
In the 2013 release of the SCF, the mean value of retirement accounts for families in the USA was$201,300. It is worth noting that the mean has continued to increase in every survey dating back to 1989. With that said, when focusing on age ranges, those families nearing retirement (age 50-64) have accumulated on average $285,200 in their savings accounts. The average income for these families is listed at $103,291. (SCF 2013) The data collected includes all retirement plan accounts held by United States taxpayers, such as 401(k), 403(b), and IRAs.

Setting Retirement Savings Targets

There are many opinions regarding the appropriate amount to save for one’s retirement. These figures vary widely, with Fidelity Investments suggesting a savings of eight times a retiree’s annual earnings by the time they reach retirement. In their research, Fidelity estimates that this amount, combined with Social Security should replace 85% of pre-retirement earnings.
In a more conservative outcome, consulting firm Aon Hewitt analyzed the retirement resources and needs for 2.2 million employees of 78 large companies in the United States. Their findings suggest that a retiree must save eleven times their annual earnings to make it through retirement. This amount of savings combined with Social Security should replace 85% of pre-retirement earnings. A suggested savings amount between the two targets would be a great start.

One Step Further – Are We On Track?

Citing research from the SCEPA, we realize that the majority of American families have in fact, not saved enough for retirement. Let us focus on the specific age group, ages 50-64. In any way you read the data, the bottom 50% of income earners, the middle 40%, and the top 10% have seemingly not saved enough to maintain the 85% of pre-retirement earnings discussed earlier.
 
Even the Highest Earners Don’t Have Enough

Even The Highest Earners Can Be Affected

With an average income listed at $460,852, even families in the top 10% of earners aged 50-64 may not have saved enough. The mean balance for the top 10% registers at $639,825. Perhaps they have invested in other assets, such as real estate, or non-retirement savings accounts. However, it is clear that if a family earns $250,000 annually, they need at least $2 million saved for retirement. Even with high levels of income, there seems to be a wide deficit to cover, which cannot be replaced by Social Security benefits alone.
 
Even the Highest Earners Don’t Have EnoughSource: Pew Research Center

The Boomerang Generation

If this retirement savings data was not enough to get your attention, the Pew Research Center has determined that for the first time in the modern era, living in a parent’s home is the most common living arrangement for adults age 18-34. The bottom line: it doesn’t hurt to save more, just in case your adult children are part of the 32.1%.

Landon Yoshida , CRPC®, Wealth Manager
www.Apriem.com

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5 Reasons to Meet a Financial Advisor
Retirement Planning

5 Reasons to Meet a Financial Advisor

by Jeff Dailey
written by Jeff Dailey

5 Reasons to Meet a Financial Advisor

5 Reasons to Meet a Financial AdvisorAre you planning and preparing for your retirement? If you are, you may have some questions. After all, soon-to-be retirees want and should have all of their bases covered. Of course, you can find retirement advice online or seek answers from those you know. There are, however, a number of benefits to meeting with a professional financial advisor. In fact, five reasons why are outlined below. 5 Reasons to Meet a Financial Advisor
1 – Knowledge and Expertise
While anyone can claim to be a financial advisor, a small amount of research or recommendations from those that you know can help you ensure that you are dealing with a true professional. When doing so, you should receive valuable information. Most financial advisors are trained and experienced in the world of finance, as well as retirement. Generally, you should feel comfortable and trust the advice given to you by a financial advisor.
2 – Realistic Goals
Another benefit to meeting with a financial advisor is that he or see can make sure that your feet are on the ground. Unfortunately, many men and women get carried away with their retirement goals. If you want to start a business, you may be able to so. If you want to spend your days vacationing, you should also be able to do so. But, only if you have enough money saved. A financial advisor can let you know if it is even possible for you to meet your retirement goals in the remaining time that you have left to save.
3 – A Good Value for the Money
Yes, scheduling a meeting with a financial advisor will cost you money. Unfortunately, this is a problem for many. After all, to save for retirement, you are supposed to be saving money and reducing your expenses. While this is true, meeting with a financial advisor can be considered an investment. The small appointment fee is one that you can easily make a return on, should you adhere to the advice provided by your financial advisor.
4 – Easy to Schedule an Appointment
Many soon-to-be retirees don’t want to go through the trouble to find and then schedule an appointment with a financial advisor. Doing so doesn’t have to be difficult. First, ask for recommendations from those that you know and then call to make an appointment. The internet can also be used to research and find quality and reliable advisors. Your local bank may also be able to provide you with assistance.
5 – The Consequences
The consequences of not meeting with a financial advisor or not being prepared for your retirement are enough reason why you should schedule an appointment. At this point in your life, you should have been contributing to your 401(k) and you should also have an Individual Retirement Account (IRA) with money in it. If not or if you don’t even know what these accounts and plans are, you need to meet with a financial advisor right away.
As you can see, there are a number of benefits to scheduling an appointment with a financial advisor. A financial advisor does more than an accountant. In addition to helping you save money, they can also help you determine exactly how much money you need to retire comfortably. Yes, you can develop this total on your own, but financial advisors know to take other factors into consideration as well, such as medical emergencies and inflation. Do you?

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Checklist for Retirement
Retirement Planning

Important Questions to Ask Yourself for Retirement

by Jeff Dailey
written by Jeff Dailey

Important Questions to Ask Yourself for Retirement

Important Questions to Ask Yourself for RetirementAre you getting ready to start preparing for your retirement years? Whether you are 30 years old or 50 years old, this is an important step to take. Planning for your retirement doesn’t have to be hard, but there are a number of bases that you must have covered to see success.
 
To make sure that you are on the right track to seeing the retirement future you always dreamed of, there are a number of important questions that you will first want to ask yourself. The answers to these questions are important when developing a retirement savings plan.
When do you want to retire? The date you would like to retire is important, as that is your goal date. To retire when you want to, your goal of saving a specific amount of money must be met. When setting this date, it is important to be realistic. If you haven’t saved any money for retirement, it is highly unlikely that you can be set for life in as little as a year or two. That is why you are encouraged to start the planning process as early as possible.
Can you afford to retire when you want to? As previously stated, it is important to be realistic with your retirement goals. To help ensure that you are financially prepared and not left disappointed, determine when you can afford to retire. If the two dates don’t match, you may be able to meet your goal by increasing your savings or living on a fixed income. For your own protection, do not retire until you are financially prepared to do so.
What kind of retirement lifestyle are you seeking? This is one of the most important questions you will ask yourself. Why? Because it gives you a savings goal. Of course, it is important to estimate the cost of your living expenses, but what about your wants? Do you want to spend your days vacationing along the beach? Do you want to take up a hobby like boating? Would you like to start your own business? If so, try estimating the cost of these adventures. This can help you determine how much money you need to have saved to “safely,” retire.
Am I making use of my company’s 401(k)? Are you employed? If so, do you have a 401(k) through your workplace? If you are employed full-time, you should. Are you contributing to your account? If not, this is a step that you must start taking now. It doesn’t matter whether you want to retire in 20 years or in 5 years, any bit of money that you can put aside will help. This is particularly true if your company matches your 401(k) contributions, as you are, essentially, receiving free money.
Should I open an Individual Retirement Account (IRA)? The answer to this question is yes. If you don’t already have an IRA, get one and right now. IRAs are much safer than traditional savings account, as you are less likely to dip into your account and use or “borrow,” the money. An Individual Retirement Account (IRA) also provides you with tax benefits.
What benefits will I be provided with and how much? It is important to know how much you will receive in social security benefits. The good news is that this information is easy to verify with a phone call to social security offices. If you are relatively young, such as under the age of 30, remember that changes may take place that may lessen the amount of social security you were projected to receive.
Am I in debt? If you are in debt, now is the time to start taking action. Debt can have a negative impact on your retirement goals and dreams, especially when debt collectors come knocking on your door or even take you to small claims court. That is why you should never enter into retirement when you have unpaid bills. Instead, create a budget for yourself. The money that you are able to save can be spilt to repay your old debts, as well as add more money into your retirement savings.

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Include Next Generation in Estate Planning Process
Estate Planning

Include Next Generation in Estate Planning Process

by Barbara Bates Sedoric
written by Barbara Bates Sedoric

Include Next Generation in Estate Planning Process

Include Next Generation in Estate Planning ProcessIf you think you have run out of things to talk about with your adult kids, how about a worthwhile chat about incapacity and death? That’s certainly going to get their attention and a photo worthy reaction…usually a wide-eyed look that says “it’s time to head for the hills!” Include Next Generation in Estate Planning Process
We need, however, to ensure that our next of kin are fully prepared and understand what we want should we become incapacitated or die.
There are many things we can all do to help the next generation. Including your adult children in end of life conversations and the plans you are making for the future will surely benefit them. These “chats” can reduce, and perhaps even eliminate, the mountains of questions and issues that arise amongst family members if you are ever incapacitated and after your death.
Do you have a trusting relationship with your financial advisor and your estate attorney? Then it’s high time for those advisors to get to know your children for a variety of reasons, including, but not limited to, the avoidance of potential conflict when there is a life-changing event.
First, engaging your adult children in these important conversations and planning now about any potential future wealth transfer after your death will help the next generation by creating a trusting relationship between them and your trusted advisors.
Secondly, you have the opportunity while you are still alive and kicking to have those serious conversations about your wishes and your intentions so that your children are not “surprised” when the inevitable happens. Lack of knowledge and hidden surprises can stir up conflicts that might otherwise remain unearthed during an emotionally challenging time.
Thirdly, you have an opportunity to teach and educate each of your children about the responsibilities and jobs they will inherit when overseeing the closure and distribution of your estate – and all of the tasks that need to be addressed when wrapping up your financial and personal life.
The flow of assets, personal property, real estate, and privately held businesses will go to, for the most part, your children. Don’t you think it’s best to give them some training wheels and clear directions in handling all those tasks? Wouldn’t it be better to talk about the hurdles that they may someday be faced with? Including the next generation in family meetings and communications with your advisors will only serve to minimize upset during a time of tremendous stress and will ultimately benefit those you love and those who will be left behind to sort out your wishes.
If your children don’t know what you have, what you want, and where everything is located, you will be leaving them looking for many needles in many haystacks. And frankly, sometimes incapacity and death can bring out the worst in people.
You can change that outcome by introducing your children to your trusted advisors today and by including them in these very important and meaningful family planning discussions. A good financial advisor and good estate attorney will facilitate these significant conversations.
So don’t overlook the obvious – engage your kids in your decision making process today.
-Barbara Bates Sedoric

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Estate Planning Regardless of Income
Estate Planning

Estate Planning Regardless of Income

by Jeff Dailey
written by Jeff Dailey

Estate Planning Regardless of Income

Estate Planning Regardless of IncomeThere’s a common misconception among the American public that estate planning is only the domain of the elderly or the very wealthy. However, that’s far from the truth. The fact is estate planning is something that can be done by people of any income level, and should be considered by everyone. Estate Planning Regardless of Income
If you haven’t considered yourself as a candidate for estate planning, you might be underestimating the value of your assets. In fact, you might think of items like your home, your car and your life insurance simply as part of the background of your life, but they are, in fact, assets – and valuable ones at that. And if you’ve underestimated your need for putting together an estate plan, you’re not alone. The unhappy result of failing to plan may be unnecessary fees, expenses and delays at a time when your loved ones are struggling to cope with loss.
“As many as 120,000,000 Americans do not have up-to-date estate plans,” says Clark McCleary, president of the National Association of Estate Planners & Councils (NAEPC). “That makes it one of the most overlooked areas of personal finance, but it’s also one of the most important. Estate planning protects you, your family and your family’s future, so it shouldn’t be put off.”
The complex nature of planning your estate might put some people off, but in that situation, a professional, Accredited Estate Planner (AEP) can simplify the process. Working with a team of professionals ensures that your plans are streamlined, understandable and clear-cut, to avoid confusion down the road. The NAEPC makes it easy to find vetted professionals in your area with a search tool on its website.
The economic challenges of the past few years have shown many Americans the importance of saving and making well-considered financial decisions. Even as awareness has grown, programs that support the development of financial literacy have also gained traction. As important as it is to create and maintain a household budget and use credit wisely, it’s equally essential to include estate planning as part of an overall understanding of personal finances.
For most people, the human element of estate planning is key, but it sometimes gets lost in the discussion of accounts and numbers. The most important thing to remember is that planning your estate well ahead of time – when you’re feeling your best and when you’re calling the shots – ensures that your goals will be accomplished.
Though young people often don’t feel the need to take action, a well thought out plan is the best way to ensure that your wishes, from guardianship of young children to charitable intents to caring for older parents, are carried out the way you want them to be. Your plans can always be updated as life’s inherent changes alter the landscape, but establishing a starting point that clearly represents your wishes is the first step that needs to be taken.
Giving yourself and your family peace of mind about the financial concerns of the future is a great gift. If you’ve never considered an estate plan, speaking to an Accredited Estate Planner can help shed light on how a plan can benefit you and your loved ones for years to come.
 

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How to Approach Volatile Markets
Money Tips

How to Approach Volatile Markets

by Kimberly Johnson
written by Kimberly Johnson

How to Approach Volatile Markets

When managing your wealth, it is important to have a prepared approach for volatile markets. By definition, volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can be measured by the variance between returns from that same security or market index. The more volatile the security or index the riskier it usually is. How to Approach Volatile Markets
Last year, 2015 was a year of volatility for most market indices (S&P 500, DOW and Emerging and Developed International Markets.) The S&P 500 ended the year up +1.38% and the DOW up +0.21%, although we had a -12% decline midyear.
Most investors ask the proverbial question, “How do I prepare and protect my portfolio from volatile markets?”
Here are some simple guidelines:

  1. Follow your investment plan. Don’t veer from the plan based on fear
  2. Look at your financial goals: income need/capital preservation/growth, risk tolerance and time horizon at least annually.
  3. Markets go up and down, some years worse than others. Don’t panic. Volatility can be your friend. Don’t try and time the markets
  4. Asset Allocation and Diversification are key. Don’t make any one big bet. Quality and consistency of investments make a difference.
  5. Don’t listen to all the noise on the news and take emotion out of investing.
  6. Don’t look at your portfolio daily as fluctuations will occur.

Volatile markets usually end up being insignificant in the long run. They can be painful to watch, but are the best time to invest. Corrections will occur. (2015 S&P 500 Chart)
How to Approach Volatile Markets
Source: Apriem.com

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