Author: Gene Gard

Gifting a Roth IRA?

When it comes to giving thoughtful gifts, financial security may not be the first thing on your mind. However, giving a Roth IRA can be a meaningful way to start your loved ones on a path toward financial security.

A Roth IRA is a type of individual retirement account that offers tax-exempt growth and tax-exempt withdrawals in retirement, which make it a powerful tool for building long-term wealth. Contributions to Roth IRAs are made with after-tax dollars, and qualified withdrawals of assets are tax-exempt and don’t increase your taxable income. In contrast to traditional IRAs, they aren’t subject to required minimum distributions (RMDs) during the owner’s lifetime, which means assets in the account can continue growing tax-exempt throughout the account holder’s life.

There are several benefits to giving a Roth IRA.

1. Tax-Exempt Growth

One of the primary benefits of Roth IRAs is that they allow contributions to grow on a tax-exempt basis. This means any earnings, such as interest, dividends, and capital gains, aren’t subject to federal income taxes while held within the account. Over time, this can add up to significant savings, especially for younger investors who are able to let their assets grow over many years before withdrawing them in retirement.

2. Retirement Savings

Establishing a Roth IRA for a loved one can be a great way to help them save for retirement. Many young people struggle to find extra money to set aside for retirement planning. Funding a Roth IRA can help remove some of that financial burden and allow your family member to focus on other financial priorities, such as saving for a home, paying down student loan debt, starting a business, etc.

3. Financial Literacy

Giving a Roth IRA can be a great opportunity to educate loved ones on multiple financial topics, such as saving early and often, the power of compound interest, the basics of investing, and the importance of planning for retirement. With a Roth IRA, not only are you helping your loved ones financially, you’re also teaching important financial strategies.

4. Estate Planning

Not only are Roth IRAs not subject to RMDs during the account holder’s lifetime, but they can also be passed on to heirs tax-free following the account holder’s death. Roth IRAs are a tax-efficient way to transfer wealth to future generations because they allow heirs to receive assets without having to pay income taxes on the distributions (unless the Roth IRA is less than 5 years old).

In addition, Roth IRAs don’t count toward the taxable estate of the account holder, which means they can help reduce the size of an estate for tax purposes. By giving a Roth IRA as part of an estate planning strategy, the account holder has the potential to reduce their heirs’ estate tax liability, which helps preserve more assets for future generations.

5. Compound Interest

By giving a Roth IRA to a younger family member, you offer the opportunity to take advantage of compounding interest over the individual’s lifetime. The impact of this cannot be overstated.

Suppose you contribute $1,000 to a Roth IRA on behalf of your granddaughter every year, beginning at age 20. By the time she reaches 40, you would have invested $20,000 on her behalf ($1,000 x 20 years). Assuming an average annual return of 10 percent, the investment would be worth $63,773.40 after 20 years.

On the other hand, if your granddaughter began contributing $2,000 per year to a Roth IRA from age 30 to 40 ($20,000 total), her investment would only be worth $36,934.83 after 10 years (again assuming an annual average return of 10 percent) because she has less time to take advantage of the power of compounding.

Contributing to Roth IRAs should not exceed the amount actually earned in a year by the account owner — or the maximum contribution limit, if the owner earns more than that amount.

The gift of a Roth IRA to young family members has the potential to significantly improve their long-term financial outlook and be a cornerstone of their nest egg now and in the future. Roth IRAs can truly be the gift that keeps on giving.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags Finance, retirement, Roth IRA, tax

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8 Open Enrollment Mistakes

Post author By Gene Gard
Post date December 4, 2024

Welcome to fall, the season of changing leaves, falling temperatures, and, of course, open enrollment for employer benefits. Open enrollment is the period of time when eligible employees can enroll or make changes to their employer-sponsored benefits.

Unless you experience a qualifying life event, such as getting married or having a baby, open enrollment is the only time of year to make changes to your insurance coverage and spending account contributions. That’s why it’s important to carefully review all options and select benefits that make sense for your particular situation.

Following are eight common open enrollment mistakes to avoid.

1. Failing to review all options

Many employers offer multiple types and levels of health, life, and disability insurance coverage. Be sure to review all options available to you and select coverage levels that make sense for your personal life and financial situation. Your wealth manager can help you evaluate your options and select appropriate levels of coverage.

2. Overlooking plan changes

Don’t assume this year’s coverage is the same as last year’s. Both employers and insurers can change plan details, such as coverage levels, premiums, in-network providers, and out-of-pocket costs. That’s why it’s important to carefully review all plan documents for updates.

3. Forgetting to consider how your life has changed

It’s important to reevaluate your benefits in light of any major life events that occurred over the past year, such as marriage, divorce, the birth of a child, etc. Failing to account for these important changes may leave you underinsured or lead to higher-than-necessary costs.

4. Selecting the wrong type of health insurance coverage

Many health insurance plans offer different levels of coverage. Selecting the wrong level may result in insufficient coverage or require you to pay higher premiums than necessary.

5. Missing out on employer matching contributions

If your employer offers a 401(k) match, make sure you’re contributing enough to take full advantage of this money.

6. Overlooking the benefits of flexible spending accounts (FSAs) and health savings accounts (HSAs)

FSAs and HSAs offer a tax-advantaged way to save for qualified medical expenses. Take time to understand how these plans work, the differences between the two plan types, and how you can maximize your contributions.

7. Failing to update beneficiaries

If you have employer-sponsored life insurance or retirement accounts, it’s important to regularly review your beneficiary designations to ensure they continue to reflect your wishes as your life evolves over time.

8. Procrastinating

Waiting until the last minute to enroll in benefits can lead to rushed decisions and missed opportunities. Begin the open enrollment process as soon as possible, and work with your wealth manager to ensure your benefit elections are in line with your overall financial plan and long-term goals.

Tags employer-sponsored benefits, flexible spending accounts, health insurance, health savings accounts, Open Enrollment

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Handing Down Your Home to an Heir

Post author By Gene Gard
Post date November 27, 2024

A home is one of the most valuable and complex assets to hand down. It can be an incredibly emotional experience and may be difficult to find common ground. Thoughtful planning can ensure your home is passed along according to your wishes. A well-constructed plan can minimize the risk of legal, financial, and tax complexities. If you’re proactive, your heirs can have clarity and a clear course of action for when the time comes.

1. Start planning early.

Start early and discuss your intentions with family members and heirs. Understand their wishes and ensure your decisions align with their hopes for the future.

2. Understand the potential tax consequences.

Transferring property to an heir can trigger various tax consequences, including estate taxes, gift taxes, and/or capital gains taxes. Work with an estate planning attorney or tax professional to implement a tax-efficient transfer strategy.

3. Explore different transfer options:

Joint ownership — If you plan on living in the home until you pass away, you may wish to add your heir’s name to the property’s title as a joint owner. This ensures that the joint owner receives full ownership rights to the home without restrictions after one’s passing.

If a spouse is listed as the co-owner of the home, the value transferred to the spouse is exempt from estate and gift taxes as they benefit from the unlimited marital deduction. The surviving spouse would inherit your ownership interest of the home and become the sole owner.

When a non-spouse co-owner is listed:

• The value transferred is considered a gift and must be reported for gift tax purposes, meaning it counts toward your lifetime exemption amount.

• Lifetime gifts to non-spouse heirs are subject to the carryover of cost basis, which may be equal to the original cost of the home (excluding improvements). This means they may be subject to higher taxes due on the future sale of the property because they’ll likely not be eligible for a step-up in cost basis at the time of your death.

• As a co-owner, your heir assumes ownership of a portion of the home’s value. Should they experience financial difficulties, initiate divorce proceedings, or incur debt issues, this could put your home at risk of a lien or other legal action. Further, you would need the permission of your co-owner to take out a new mortgage, refinance the existing mortgage or sell the home in the future.

Will — A traditional will allows you to name an heir as the beneficiary of your home. A testamentary trust setup can provide more control over how your home is managed and used. Having a will alone doesn’t prevent your assets from going through probate. And a will is a public document, so anyone can see who inherited assets.

Revocable trust — A revocable trust allows you, as “grantor” or “trustee,” to maintain control over your home while specifying how and when it will pass to your heirs. Following your death, the trust enables your home to be quickly and privately transferred to your heir while bypassing the probate process. This approach allows you to retain full control and use of your home during your lifetime and a seamless transition after you pass away.

Qualified personal residence trust (QPRT) — A QPRT can help you transfer your home’s ownership at a reduced gift tax rate. Here, the home is transferred to a trust, but as the owner, you maintain the right to live there for the QPRT’s duration. At the end of the trust, the house is transferred to the designated beneficiary, and you no longer have an official right to live there (however, it’s common to negotiate a lease with the beneficiary).

For this strategy to be most effective, the original owner must outlive the terms of the trust. If you die before the trust ends, the value of your home will be included in your taxable estate.

4. Evaluate financial readiness.

Make sure your heir is financially prepared for homeownership and the commitments associated with the property. Passing down a home can mean additional financial responsibilities, including property taxes, home insurance, maintenance costs, and mortgage payments.

Tags Financial readiness, Inheritance planning, Wills and revocable trusts

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Happily Ever After

Post author By Gene Gard
Post date November 13, 2024

As a newly married couple, you have many exciting life milestones to look forward to. You may buy a home, start a family, or travel the world — the possibilities are endless. However, in order to achieve your goals, it’s important to make sure your financial house is in order. Here are six financial planning tips for newly married couples.

1. Understand each other’s approach to finances. Have an open and honest conversation about your approach to money. Most people’s views on spending and saving are formed early in life, and it can be difficult to alter your mindset. Consider your earliest memories about money, any financial fears you have, what your savings priorities are, and how much debt you’re willing to take on. Find common ground and establish a strong foundation on which to build your financial lives.

2. Share financial histories. Gain an understanding of your starting point. This means sharing details about your past and current finances. Important topics to cover include:

• Income — What’s your gross and net income monthly? Do you receive bonuses? Do you have any contract income to consider for tax planning?

• Spending habits — Discuss monthly expenses and understand where discretionary income is spent. That can help plan for how you’d like to adjust your expectations and work toward a compromise early on.

• Savings amount — Identify how much is kept in savings on average and how much each partner saves regularly.

• Investments — Does your partner have a 401(k), IRA, Roth IRA, or investment account? Which are you saving toward regularly? The amounts you can save for each may change once you’re married.

• Debts — Understand debts your partner may have: credit cards, student loans, personal loans, mortgages, or even back taxes.

3. Establish shared financial goals. Work together to establish shared goals in the short term and the long term.

What do you envision for your financial future? What savings goals do you have? New home? Future children’s college expenses? Retire early? Travel the world? Start a business?

How do your goals differ from your spouse’s? It’s okay to have differing goals. The key is to communicate and come up with a financial strategy that allows you to pursue both your shared priorities as well as your individual objectives.

4. Create a budget. A budget provides insight into exactly where your money is going each month and can help identify spending issues.

Start by determining how much money you anticipate spending each month. Then divide your expenditures into nondiscretionary and discretionary expenses. Once you have a handle on your expenses, compare that amount to your income. Are you spending less than you earn? Are you saving enough to hit your targets? If not, find ways to reduce discretionary spending.

You may also want to combine some bills into shared plans. Bundling your auto or homeowners insurance will likely reduce your nondiscretionary expenses.

The key is to establish a budget that allows you to pay for nondiscretionary and certain discretionary expenses while progressing your financial goals. If you and your spouse have different spending habits, you may consider giving each other an agreed-upon monthly “allowance” that can be freely spent or saved without the other’s input. Establish separate accounts so that you both have complete freedom over this limited amount of money.

5. Cover your bases. After the difficult discussions, take time to restructure your income, expenses, insurance, and savings plan. Establish joint checking, savings, and investment accounts; update your income payouts into the appropriate bank account(s) for your overall goals; and review existing insurance policies and purchase/update any relevant policies.

6. Review beneficiaries and create an estate plan. If beneficiary designations are not updated and you’ve listed someone other than your spouse, when you pass they won’t have the ability to contest or receive those funds. Update designations on retirement or savings accounts and establish estate planning documents to ensure your spouse receives assets as you desire.

Tags Finance, newlywed

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Getting Covered for Retirement

Post author By Gene Gard
Post date October 30, 2024

Whether retirement is on the horizon or it’s quite a few years away, planning what your retirement will be like can be very exciting! This stage in life comes with a mix of emotions, but with planning, you can turn your savings into a source of income to cover your living expenses. Here are four important tips to help you plan for income in retirement.

1. Make a plan.

The first step in preparing for retirement income is to have a comprehensive plan. A custom financial plan serves as a blueprint to inform your financial decision-making and helps ensure all aspects of your financial life are working together to achieve your goals.

2. Properly structure your portfolio.

One of the best ways to generate income in retirement is to strike a balance between short- and long-term investment accounts.

It’s recommended to maintain three to five years of living expenses in a short-term, semi-liquid investment account. A mix of bond funds works well, as it provides capital for opportunistic rebalancing as well as a monthly income. Having a short-term allocation to bonds can prevent you from being forced to sell out to equities at a loss when markets are low.

It’s also important to continue growing your assets in order to help offset inflation and ensure you have enough income to last throughout retirement. You should consider investing any assets not necessary to fund your short-term needs in a diversified portfolio that focuses on growth and inflation protection. While this portfolio should be in line with your overall risk tolerance and investment objectives, it can be invested in riskier assets than your short-term account.

3. Implement a tax-efficient withdrawal strategy.

Ideally, you’ve been saving in multiple accounts with different tax treatments, such as traditional IRAs, Roth IRAs, 401(k)s, and taxable accounts. If so, you may have an opportunity to maximize your income by strategically withdrawing from different accounts in different circumstances. This is called tax diversification.

• Taxable (non-retirement) accounts – These offer the benefits of tax-loss harvesting and have fewer restrictions on contribution amounts and fewer distribution penalties.

• Tax-deferred retirement accounts, such as pre-tax IRAs and 401(k)s – Withdrawals from these trigger ordinary income taxes, as they’ve enjoyed tax-deferred growth.

• Tax-exempt accounts, such as Roth IRAs – These allow tax-exempt investments to grow for as long as possible, and qualified withdrawals are tax-free.

There are two main withdrawal strategies to consider based on your specific goals, tax situation, and income needs.

• Traditional approach – Using this, you would withdraw from one account at a time. Typically, the order of withdrawals is from taxable accounts first, followed by tax-deferred accounts and, finally, tax-exempt accounts. This allows the tax-advantaged accounts to continue growing tax-deferred and tax-free for a longer period of time. However, it may result in uneven taxable income.

• Proportional approach – This strategy establishes a target percentage that will be withdrawn from each account each year. The amount is typically based on the proportion of retirement savings in each account type. This can help ensure a more stable tax bill from year to year and can also help you save on taxes over the course of your retirement.

The benefit of following a disciplined approach is that you won’t be tempted to spend more than you can afford in any given year (or less than you’re able to!). This practice can help you maintain adequate assets to last a lifetime, regardless of market volatility. An advisor can assist you with creating a distribution strategy aligned with your financial needs and tax bracket on a year-by-year basis.

4. Regularly revisit and readjust.

Given the potential longevity of retirement, periodic reviews of your financial plan and income strategy are essential. Work with a qualified wealth manager who can help you understand how regulatory and market changes may impact you and adapt your plan as needed to align with your evolving goals and needs.

Tags Finance, investment, retirment

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Education Planning for Individuals With Special Needs

Post author By Gene Gard
Post date October 16, 2024

Planning to pay for a loved one’s educational expenses can be daunting, and parents of children with special needs face additional challenges. Fortunately, there are strategies that can help you plan without jeopardizing their eligibility for government benefits.

First, establish an individualized education plan (IEP). This document details the special education instruction, support, and services your child needs to be successful. IEPs are covered under the Individuals with Disabilities Education Act (IDEA), a federal law that requires all special education students to have access to a free and appropriate public education. It also mandates that teachers be appropriately trained and have the skills necessary to serve children with disabilities. IEPs are established in collaboration with a child’s school administration, teacher(s), and parent/guardian. It outlines the specific needs of the student and the services required of the school to meet them.

One way to pay for your loved one’s education is by establishing a special needs trust (SNT). This holds money for a beneficiary who has a disability or chronic illness. SNTs are intended to supplement government benefits, such as Supplemental Security Income (SSI) and Medicaid, while preserving the individual’s eligibility for them.

Another advantage of SNTs is that they can help ensure assets are distributed appropriately, as directed by the trust documents. Family and friends can make gifts to an SNT of up to $18,000 per year, per donor ($36,000 per married couple) without being subject to gift tax.

SNTs also offer flexibility in the types of assets used to fund them, including cash, securities, and life insurance proceeds. A common strategy is for parents to purchase a second-to-die life insurance policy, which pays a death benefit to the SNT after the last surviving policy holder passes away. SNTs can even help protect your loved one from falling victim to financial predators, as assets can’t be accessed without the trustee’s approval.

While there are immense benefits to establishing an SNT, there are also some downsides. First, the person you designate as trustee will have complete discretion over how the assets are distributed. This can cause issues if the trustee doesn’t share your intentions or have the same financial priorities as your loved one, which is why it’s important to carefully consider whom you designate as trustee.

Also, in order to ensure your trust is structured properly, you’ll need to work with an estate planning attorney. This is typically worth the expense, considering the peace of mind it provides. Finally, there are ongoing costs and responsibilities to administer and maintain the trust; another reason it’s important to select a willing and capable trustee.

Named after the Achieving a Better Life Experience Act of 2014, ABLE accounts offer another opportunity to provide benefits to individuals with special needs. Similar to SNTs, the assets don’t interfere with benefits eligibility (so long as they don’t exceed $100,000), and contributions can be made by the account holder as well as friends and family members.

When used to pay for educational expenses, withdrawals from ABLE accounts are exempt from taxes. In contrast to SNTs, which are managed by a trustee, ABLE accounts are owned and managed by the individual with special needs. It’s also much easier to access ABLE account assets than SNT assets.

Another benefit of ABLE accounts is that assets can be used for a variety of purposes, including anything that helps improve health or quality of life. This includes basic living expenses, food, employment, education, transportation, etc.

In order to qualify for an ABLE account, an individual must meet one of the following requirements:

• Qualify for SSI by a disability that occurred before age 26

• Qualify for disability insurance benefits, childhood disability benefits, or disabled widow/widower benefits by a disability that occurred before age 26

• Hold a certificate that proves the disability occurred before age 26

Once an individual qualifies, it’s easy to establish an ABLE account through the state’s website. No attorney is needed. It’s important to be aware that ABLE accounts have contribution limits. In 2024, contributions are limited to $18,000 per year.

Another downside is that any assets left in an ABLE account after the account holder’s death may be used to reimburse the state Medicaid agency for any services paid by Medicaid.

Tags Finance, individualized education plan, special needs, special needs trust, Supplemental Security Income

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HELOC for College?

Post author By Gene Gard
Post date October 2, 2024

The cost of a college education has risen significantly over the last few decades. The average cost of college tuition and fees at public four-year universities has risen by 179.2 percent over the last 20 years. That’s an average annual increase of 9 percent! At the same time, financial aid has decreased at a rate of 6 percent, need-based grants are down 15 percent, and scholarship awards have declined by 24 percent.

If you’re struggling to pay for a child’s college education, you may be tempted to tap into your home’s equity with a home equity line of credit (HELOC). While using a HELOC to pay for college offers some benefits, including the potential for lower interest rates compared to student loans, there are also significant risks. Below are seven reasons to think twice before taking out a HELOC to pay for college.

1. Variable interest rates

Most HELOCs have adjustable interest rates, so the rate you’re paying now may not be the rate you pay in the future. If interest rates rise in the future, your monthly payment could increase significantly. This makes it difficult to plan — and virtually impossible to estimate how much you’ll pay in interest over time.

2. Risk of foreclosure

When you use your home as collateral, you risk foreclosure if you can’t fulfill your debt obligations. If an unexpected financial emergency arises and you’re not able to make payments on your loan, you could lose your home. Before committing to a HELOC, make sure you fully understand the risks and have enough emergency savings elsewhere to protect your home should something unexpected occur.

3. Minimum monthly interest payments

There are two primary time frames associated with a HELOC — a draw period and a repayment period. The draw period refers to the amount of time you have to borrow funds and is typically between five and 10 years. During this period, you don’t need to make principal payments, but you’re responsible for paying interest on your loan.

The repayment period is the time frame during which you must make monthly payments to both principal and interest. As noted above, the monthly payment amount will likely fluctuate, based on variable interest rates. Repayment periods typically vary between 20 and 30 years.

Remember that you’re paying interest throughout the entire life of the loan, during both the draw and repayment periods. The interest can add up to a significant sum over time.

4. Equity becomes unavailable for other purposes

Your home’s equity is a valuable asset. You can use it to purchase a new home, cover the cost of end-of-life care such as a nursing home, or pass it along to your heirs after your death as a financial legacy. Tapping into your home’s equity to pay for college means those assets aren’t available for other purposes, which can put your other future financial commitments at risk.

5. Prepayment penalties

Many lenders charge a penalty for paying back a HELOC faster than your established repayment terms. That’s because paying off your loan early means the lender receives less in interest over time. Before committing to a HELOC, make sure you fully understand all associated fees and potential penalties.

6. Closing costs

HELOCs often carry closing costs, which can quickly add up. Again, it’s important to fully understand all potential fees to determine whether a HELOC makes sense for your particular situation.

7. Ineligible for tax deductions

When used to pay for home improvements, the interest paid on a HELOC is typically tax-deductible. However, it’s important to know that using the money to pay for college doesn’t result in a tax deduction. In contrast, saving in a state 529 plan could both reduce your state income tax at the time of your contribution and offer tax-exempt investment growth.

Tags college, Finance, HELOC, home equity line of credit, Memphis

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Estate Planning Myths

Post author By Gene Gard
Post date September 25, 2024

Combine planning for your eventual demise with engaging in a complex legal and financial planning process, and it’s no wonder why many people shy away from estate planning. Misconceptions surrounding the estate planning process can make it seem even more daunting.

However, estate planning is essential to ensure your loved ones’ long-term financial security. Stay informed about various strategies and the role they play in protecting your heirs.

Myth #1 — Estate planning is for the wealthy.

Many people think that if their assets are less than the lifetime estate tax exemption amount ($13.61 million per individual or $27.22 million per married couple in 2024), they don’t need to worry about estate planning.

Fact: Everyone over the age of 18 should engage in estate planning, regardless of assets. While a well-executed estate plan can help lower estate tax liabilities, it also provides the following benefits:

• Helping ensure healthcare decisions are carried out according to your wishes

• Authorizing a trusted individual to manage your finances should you become unable to do so

• Providing financial security for your loved ones should you pass away unexpectedly

• Naming a guardian for minor children

• Helping ensure minor children who inherit assets have a structured plan to make sure they’re financially mature enough to receive and use assets

Note that, unless Congress makes a change, the current lifetime estate tax exemption amount will revert to approximately $5 million per individual ($10 million per married couple) on January 1, 2026. That means many more families will be subject to estate tax going forward.

Myth #2 — Estate planning is for the elderly.

Fact: Estate planning should begin at age 18, when an individual becomes legally recognized as an adult.

If you experience an accident or injury at any age and don’t have the necessary estate planning documents in place, your family members may be unable to obtain medical information, visit you in the hospital, or help manage your finances.

All adults should have: a HIPAA waiver, healthcare power of attorney, living will/advanced medical directive, financial power of attorney, and a basic will. A trust may also be advisable.

Myth #3 — Estate planning is expensive.

Fact: Complex estate planning strategies can add up, but the expense is typically well worth the stress and tax liabilities your family would face without an estate plan.

In certain situations, the cost tends to be relatively low. Some simple documents are even available online for a low fee. Be sure to check in with your wealth manager to ensure your estate planning documents are in line with your overall financial plan.

Myth #4 — If I have a will then my assets will avoid probate.

Fact: A will is a great first step in developing your estate plan but a will alone doesn’t protect your loved ones from the probate process. Probate is the only way an executor designated in your will can take action. Probate proceedings are a matter of public record, which means anyone can find out who’s inheriting your assets and how much they stand to receive.

Myth #5 — My assets will automatically pass to my heirs without an estate plan in place.

Fact: If you die without a will or trust, intestacy rules will dictate who handles your financial affairs and who receives your assets. These aren’t necessarily the people you would have chosen. Also, there are significant time, expense and administrative requirements associated with dying intestate.

Myth #6 — I created a will years ago, so I’m all set.

Fact: Estate planning should be an ongoing process, not a one-time event. Your life, family and goals are constantly evolving, and your estate plan needs to keep up with your changing needs.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags Early Estate Planning, estate planning, estate planning myths

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Missing Retirement Funds?

Post author By Gene Gard
Post date September 18, 2024

Losing track of retirement funds is a common and concerning trend that has worsened in recent years. As of May 2023, there were approximately 29.2 million forgotten 401(k) accounts in the United States that held approximately $1.65 trillion in assets. And, due to recent increases in job switching, the number of forgotten 401(k)s has grown by more than 20 percent since May 2021.

Missing out on these retirement funds can put your retirement at risk, as you may end up losing significant assets. Fortunately, there are ways to locate and reclaim lost retirement accounts. The following tips can help.

1. Check with past employers.

If you’ve changed jobs throughout your career, it’s important to follow up with past employers to make sure you didn’t leave any money behind. Retirement plan administrators have several options for how to handle abandoned funds in an employer-sponsored account, based on the amount left in it.

• $1,000 or less — The employer can issue a check and mail it to your last known address. If you’ve moved since leaving a job, you may need to request a new check.

• Between $1,000 and $5,000 — Employers can move funds to an IRA without your consent. You’ll need to ask your past employer how to access the account.

• More than $5,000 — There’s a good chance your funds are still in the employer’s plan. It may be wise to roll over the account balance to an IRA that you control.

2. Search unclaimed property databases.

Sometimes people lose track of their retirement savings when they move and forget to notify past employers of their new address. When an employer or financial institution is unable to reach an account-holder, it may turn over the account to the state’s unclaimed property office.

Fortunately, you can search for your name on the National Association of Unclaimed Property Administrators (NAUPA) website or your state-specific unclaimed property office to find any unclaimed retirement funds that may be waiting for you.

2. Check the Department of Labor (DOL) abandoned plan database.

If your past employer’s plan was terminated, the DOL’s Employee Benefits Security Administration consolidates information about unclaimed retirement benefits and makes it easy to track down missing funds.

3. Contact the Pension Benefit Guaranty Corporation (PBGC).

The PBGC can be a great resource if you lost track of a defined benefit pension plan at a previous employer. This organization is a government agency that insures the value of pension benefits and helps individuals locate lost pension plans. Visit pbgc.gov for more information.

4. Track down forgotten IRAs.

If you think you may have abandoned an IRA along the way, take inventory of past bank and investment account statements for any evidence of the account. You can also reach out directly to any financial institutions you’ve worked with in the past to inquire about any inactive or dormant IRAs associated with your name.

If you think you left behind retirement assets at some point, it may be worth the effort of tracking them down. Even if you haven’t contributed to the accounts in many years, the power of compounding has the potential to significantly grow your retirement assets over time.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401(k), Finance, IRA, retirement, retirement savings, unclaimed property databases

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Funding Your 401(k)

Post author By Gene Gard
Post date September 4, 2024

If you’re making regular contributions to an employer-sponsored retirement plan, such as a 401(k) or 403(b), congratulations! You’re taking steps toward a more secure financial future. However, even those who participate in a 401(k) plan may worry they’re not contributing enough to achieve their retirement goals.

Unfortunately, as with so many financial planning challenges, there’s no single guideline to ensure you’re putting enough aside. Even if you have an idea of the dollar amount you’ll need to comfortably retire, the amount you need to save varies based on a wide range of factors, including when you start investing, your portfolio allocation, market events, lifestyle goals, spending habits, inflation, etc.

A general rule of thumb is to invest 15 percent of your income in a retirement account, but your exact savings requirements may differ widely from that number. Rather than focusing on a specific percentage, consider implementing the following tips to help maximize your employer-sponsored retirement plan benefits.

1. Start contributing early.

Thanks to the power of compound interest, it’s typically more advantageous to start contributing to a 401(k) as early as possible, even if you’re only able to commit to a small amount.

2. Maximize your employer match.

If someone offered to give you $3,000 each year with no strings attached, would you take it? Of course you would! Yet many people pass up retirement savings opportunities by not contributing enough to their 401(k) to receive the full value of their employer’s matching contribution. That’s essentially saying no to “free” money.

3. Increase your contributions by 1 to 2 percent each year.

Once you’re contributing enough to receive your full employer match, consider increasing your contributions each year or whenever you receive a raise. Even a 1 to 2 percent annual increase can have a big impact on your savings over time, and you’re unlikely to even notice the impact on your take-home pay.

4. Diversify your contribution types.

Many employer-sponsored retirement plans offer the option of contributing to a traditional (pre-tax) 401(k) or a Roth (after-tax) 401(k).

• Traditional 401(k) contributions provide the benefit of lowering your taxable income during the year in which they’re made. However, these assets and their earnings are taxed as ordinary income when you withdraw them in retirement.

Once you are retired and reach a certain age, the IRS requires you begin taking required minimum distributions (RMDs) from your pre-tax retirement accounts. These withdrawals are subject to ordinary income tax.

• Roth 401(k) contributions don’t provide an immediate tax benefit, but assets can be withdrawn without federal income tax as long as you’ve reached age 59.5 and held the account for at least five years.

In addition, Roth 401(k) contributions aren’t subject to RMDs, which means your assets can continue growing within the account throughout retirement.

Contributing a portion of your retirement savings to both types of accounts offers a combination of tax benefits, including:

• An opportunity to lower your current taxable income when you’re in a high tax bracket by making pre-tax contributions

• Flexibility and tax-planning opportunities in retirement that allow you to draw from accounts with different tax treatments, based on your changing needs, market conditions, and tax exposure.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401(k), 403(b), Finance, Memphis, retirement, Roth