Estate planning isn’t anyone’s favorite subject, but it’s necessary if you want to protect your assets and loved ones down the road. To do so, you need the proper legal documents in place. In some cases, that might mean a living trust. Estate planning can be overwhelming. There are many different ways to navigate it and it could be difficult to pinpoint your best options. So, let’s help clarify some things and find out: do you really need a living trust?
What Is a Living Trust?
In short, a living trust is a legal document that helps you plan your estate. It puts your assets into a trust during your lifetime, hence the name. It also includes directions for where you would like your assets to go after you pass away.
Living trusts can be divided into two types: revocable and irrevocable. A revocable trust is one that you can change or cancel at any point without needing permission to do so. In an irrevocable trust, you need the consent of your beneficiary or beneficiaries to make changes.
You can name yourself as the trustee of your living trust, and you can name co-trustees too. Typically, your co-trustee will be your spouse. You will have to name a successor trustee to represent you after you have passed away.
Why Would You Need a Living Trust?
All of this likely sounds relatively similar to a will. However, a living trust has several significant benefits that a will lacks.
Chief among these benefits is the fact that living trusts don’t have to go through probate. Probate can be costly and time-consuming. If your beneficiaries are depending on you for financial support, it’s best to avoid probate. Your assets could linger in the courts for years.
Living trusts will also protect your privacy, which wills and the probate process do not. A will is a public document, meaning anyone can view it. That increases the likelihood that someone will attempt to contest it. Probate is also open to public view, which means anyone interested can see the details of your assets and estate.
The Downside to a Living Trust
Privacy and a lack of probate sound appealing, so why doesn’t everyone do a living trust rather than a will or any other estate planning option? It comes down to cost.
It’s best to have an estate planning attorney create the trust, and their fees can add up quickly. You’ll also have to change your assets, so they’re in the name of the trust rather than yourself, and you’ll need something called a pour-over will anyway. This will ensure any assets not in the trust are added if you pass away.
What Should You Do Now?
Whether you have a trust and it hasn’t been reviewed in a few years, or you have yet to put one together, you should reach out to an estate planning attorney. They can help get you cross this big item off of your to-do list.
If you have any questions about how trusts work, reach out to one of our advisors at JDH Wealth as we can certainly help you get your arms around these complicated instruments.
Written by Matthew Delaney
Annuities are not a new concept. They’ve been around for a long time, and many individuals have bought into them. They promise income for life. And who wouldn’t want income for life? As traditional sources of guaranteed retirement fade — like pensions, many people are doing whatever they can to ensure they have supplemental income during their retirement years. And at first glance, annuities seem to be a smart way to go.
An annuity is a contractual agreement between an insurer and an investor that states that when the investor makes an upfront lumpsum payment (or buys into an annuity) to the insurer, the insurer will, in turn, guarantee the investor future payments at regular intervals. Depending on the type of annuity the investor purchase, they may even receive income for life. There are two types of annuities: immediate and deferred, and the returns can be from a variable annuity, indexed annuity or a fixed annuity.
If an annuity sounds too good to be true, it usually is. Here are five reasons why investors should avoid annuities.
#1. High Commissions for the Seller
Even though the insurer should always have the best interest of the client at heart, sometimes the investor can be persuaded into buying into an annuity versus another type of investment, like mutual funds. This is because the seller will receive a commission from the sale of an annuity. While fiduciary responsibilities should always be in play, it’s not recommended to do this type of business with any company you know very little about. Integrity is key when it comes to an investment of this magnitude. So buyer beware; not all insurers are looking out for your best interest.
#2. High Fees
While you may not see upfront charges from the purchase of an annuity, they’re there and they can add up quickly. Annuities carry annual maintenance and operational charges, that again, can be more expensive than mutual funds. So again, buyer beware! If you don’t read the fine print on your contract, you may not learn about these additional fees until later on when you’re trying to determine what happened to some of your money.
#3. Withdrawal Charges
Additional charges (surrender charges) apply to an investor if they take money out of this account before a certain period, even if you have a financial emergency. Most annuities cannot be touched before seven to ten years. If money is taken out before this period, there is a surrender fee the investor will have to pay. Although surrender charges tend to decrease the longer you have the annuity, there is still a price to pay for withdrawing your money earlier than agreed upon in the contract. In addition, if the annuity owner is under a certain age (59 ½), they will have to pay a 10 percent penalty on any monies taken out of the account. This is information that should be known upfront, but depending on who you’re doing business with, I encourage you to read all fine print carefully.
#4. Returns May Not Match the Market
Don’t assume that your investment will match those of an equity index. Just because a specific index did well during a particular year does not mean that you will receive a return that matches that. Some insurance companies set you up to receive a little as possible with a clause called, a participation rate. This means your return is capped so that your investment can only grow by a certain amount, say 80 percent. This means you lose out on what others are receiving through other modes of investing.
#5. Stuck in an Immediate Contract
An immediate annuity can be tricky in that once you buy it, you’re stuck with it. Let’s say you have a change of heart and decide you want to pass your payments on to a beneficiary. You’re not able to make any changes to this type of annuity. Most contracts do however allow for a cash-refund feature in which your heirs will recoup the premium paid for the annuity. You can also set these contracts up as single life or joint lives. With the joint income option, your spouse will receive income payments for the rest of their life.
The bottom line is to make sure you always understand the fine print of anything when it comes to your financial planning. Retirement is a big deal, and the last thing you want to do is outlive your income. While annuities may seem like a smart way to not run out, you want to make sure you understand every detail of how they work. Most importantly, you want to ensure you’re dealing with a company that will always have your best interest at heart and will stand on integrity.
At JDH Wealth Management, we take the time to get to know our clients. We build relationships with our clients to know what they need based on where they’re trying to go. We also educate our clients on everything they need to know to make well-informed financial decisions.
If you ever have any questions surrounding annuities or investing in general, please reach out and we’ll help you with your retirement and investment needs.
Written by Matthew Delaney
If you’re familiar with retirement at all, you’re probably aware of IRAs. Traditional IRAs are a common mainstay for retirees, thanks to their tax benefits and growth potential. However, once you retire, you need to take money out every year, called a required minimum distribution (RMD).
The rules surrounding RMDs have changed in recent years, so we wanted to take a closer look at what that means for retirees and those who are close to retirement.
Here’s what you need to know.
What is an RMD?
The main appeal of a traditional IRA is tax deferment. When you contribute funds to the account, you may be able to claim that money as a deduction on your taxes. So, rather than pay taxes on it up front, you can pay them later when you finally withdraw it.
Because of this benefit, the IRS still wants that tax revenue.
So, once you reach a specific age (more on that next), you have to withdraw funds from your IRA and pay taxes. If you don’t take the distribution, you have to pay a steep penalty instead.
What are the Rules for RMDs?
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed in 2019 and became law on December 20th of that year. This act raised the age requirement for RMDs.
Before the act, account holders had to take their first distribution once they reached 70 1/2. With the change, that age is now 72. Those who turned 70 1/2 after the bill became law can now wait until 72 to take their RMDs.
The amount of these distributions depends on complicated tax tables used by the IRS. In the first year, account holders have to withdraw money by April 1st. So, if you turn 72 in 2022, you need to take funds out by April 1st of 2023. The deadline is December 31st for every year after.
If you don’t take an RMD, the penalty is 50 percent of the funds you would have withdrawn. Considering that your tax bracket will likely be less than half of that, you don’t want to pay the penalty.
Planning for retirement is one of the most crucial things you can do. Regardless of your age, it’s never too early to make a plan. If you need any help planning for your golden years, feel free to reach out to us today!
Written by Matthew Delaney
When planning for retirement, there are a lot of things to consider. One element that plays a major role in these decisions is taxes. Questions such as whether you pay taxes now or later, how much you pay and if there’s any way you can reduce that tax burden will go a long way towards what retirement planning you opt for.
One move that many have made and found helpful is a Roth IRA conversion. Doing this can help some people pay less in the long run and can have other benefits as well.
What Is a Roth IRA Conversion?
A Roth IRA conversion is when you take an existing retirement account – whether it be a traditional IRA, 401(k) or SEP – and moving the funds into a newly-created Roth IRA account. This action creates a situation where you have to pay taxes now. However, on the other hand, doing this means you don’t end up paying taxes later on when you start to draw from the account. This can be a good move for younger people and those who expect to remain in the same, or even higher, tax bracket as they begin to draw from their IRA. Plus, you don’t pay tax on the growth! Ultimately, the taxes you pay now are less than what you would have paid otherwise.
What Is the Difference?
It can be difficult knowing what is different about these various accounts, but it usually boils down to one thing: taxes. In this case, the difference between a Roth IRA and other accounts is when you pay your taxes. With tax-deferred accounts, you don’t pay taxes when you contribute, but you do pay taxes on earnings and when you draw from them in retirement.
Roth IRAs, however, are tax-exempt. This means that you pay taxes when you first contribute, but you do not owe taxes when the account grows. Simply put, every penny comes out tax free.
Benefits of Conversion
As mentioned earlier, there are several reasons why someone might consider doing a Roth IRA conversion.
The main reason why someone might want to opt for this is that it can lower your tax bill in the future. True, the conversion itself will come with a tax bill that will have to be paid first. But after that, everything that comes out of the Roth IRA is tax-exempt.
A second advantage is that Roth IRAs allow you to keep money in your account for as long as you want, unlike traditional IRAs that require you to start withdrawing money at a certain age known as a Required Minimum Distribution (RMD).
Disadvantages of Conversion
Even though there are plenty of reasons to consider a conversion, they aren’t all pros. There are cons as well.
The first, and most important, is the tax bill that comes with the switch. In pre-tax accounts, the money sitting in those accounts to date has not yet been taxed. When converting, the taxes are owed on however much is moved over. In some cases, this can be a significant amount of money, and for many it is a huge deterrent. However, remember that we’re going for long-term benefits here, not short-term.
Another disadvantage, is that Roth IRAs require the money to be untouched for at least five years, and similar to traditional IRAs, you must be at least 59 ½ before you can access those funds.
Backdoor Roth Conversions
This is tremendous opportunity that allows you to make a non-deductible contribution to an IRA and then do a full Roth conversion on these dollars. You then pay tax on any growth in the account. For example, let’s assume you have no IRA accounts to date. You make a $6,000 non-deductible IRA contribution on 1/1/2022. On 7/1/2022, the balance has grown to $7,000. You do a full Roth conversion and pay tax on the growth of $1,000. You now have $7,000 in your Roth IRA and when you pull those dollars out in the future, they will be 100% tax free.
Please note that due to the pro-rata rule, it is important to not have any other IRA balances when doing a backdoor Roth conversion. The IRS will take all of your IRA balances into account, and then determine the percentage of the conversion that is going to be taxable. If you have several IRAs with large balances, the backdoor Roth conversion isn’t for you. One way to avoid the pro-rata rule is if you have a 401(k) account. If you roll your IRA accounts over to your 401(k) account, you don’t have to consider any additional IRA balances when doing the backdoor Roth conversion. This is a win-win all around.
Of course, this is only scratching the surface of Roth IRA conversions and backdoor Roth conversions. If you any questions on how these strategies work, please reach out to one of our advisors at JDH Wealth and we can walk you through the process.
Written by Matthew Delaney
A 401(k) plan is one of the best retirement savings options. However, while many people know how to use a 401(k), not everyone makes the most of their savings. In fact, some individuals can be making huge mistakes without realizing it.
No matter where you are on your path to retirement, it’s crucial to maximize your earnings. So, make sure to avoid these potential setbacks.
Not Maxing Out Your Savings Potential
In 2021, the maximum contribution limit for a 401(k) plan is $19,500. If you can afford to put that much into the account, you should. Remember, there are two primary benefits to putting as much money away as possible right now. If you are over the age of 50, you can contribute an additional $6,000.
First, you can deduct it from your taxes, reducing your overall burden for the year.
Second, your money grows in a 401(k), so the more you invest, the more you can earn.
Your 401(k) Plan may also allow for Roth contributions. This is a great option if you have a longer period of time until retirement. While you pay tax now on your contributions, the growth is tax-free down the road.
How much do you have to pay to keep funds in your 401(k)? If you don’t know the answer, you need to find out. While most plans have low fees, they can add up. You may also be getting charged for services that you’re not using. You should consult your plan administrator if you have any questions on fees. If you feel the fees are too high and you are eligible for an in-service distribution, you can consider rolling your money into a traditional IRA to avoid them.
Putting Too Much Into Company Stock
Even if you’re working for a major enterprise like Microsoft or Google, it’s never a good idea to put too much money into a single stock. Instead, you want to spread your funds around so that you can absorb market volatility more easily. A good ratio is for about 10 or 15 percent of your account to be invested in the company.
Not Matching Funds
If your employer offers matching contributions, you need to take advantage of that program as much as possible. Why say no to free money? Keep in mind that many employers have unique requirements, such as staying with the company for a set period.
Be sure to read through these qualifications so that you can plan accordingly. In most cases, it’s best to wait until those funds are vested into your account before making any changes.
If you have questions about your 401(k) plan, we’re here to help. We can also assist you with other retirement planning solutions so that you can be better prepared. Just let us know how we can help.
Written by Matthew Delaney
If you’ve been paying attention to prices lately, they’re all doing one thing – going up. Inflation has always been around, but in 2021, it seems like it’s on overdrive. Usually, inflation rises at about two percent annually. This year, it’s already past five percent. What’s going on?
While many people may be pointing fingers, there are some tangible, real-world factors at play. So, let’s dive in and see why inflation is so high.
Comparing 2021 to 2020
One of the biggest reasons for a significant jump is that the country is reopening again. This time last year, many states were still under lockdowns and quarantines, and fear of the COVID-19 virus was rampant.
Simply put, a pandemic upended the economy, and overnight, everything changed. Because of that, many companies had more supply than demand, forcing them to lay off workers and shed inventory.
As the world reopens, the demand is skyrocketing, so prices are too.
Supply Chain Issues
When the world shut down, supply chains everywhere came grinding to a halt. Even though the United States is roaring back (although cases are back on the rise in summer 2021), other countries are still reeling from the pandemic.
We live in a globalized economy, meaning that issues in one location will affect prices in another. Many industries are facing shortages, leading to inflation spikes.
Shifts in Demand
If you had stock in toilet paper companies in February of 2020, you would have made a killing by April of last year. Today, toilet paper supplies are average, meaning that any price fluctuations are stable now.
In 2021, people want to get back to “normal,” which includes everything that shut down during the pandemic. Air travel, salon visits, nights out with friends – it’s all back on the table, and consumers are ready to spend. Industries that did well during the pandemic are slowing down, while those that shut down are ramping back up.
What Does All This Mean?
Right now, it’s hard to say how long this inflation spike will last. A labor shortage certainly isn’t helping, and rising cases may cause further lockdowns or quarantines in the coming months. Historically, the Federal Reserve has had to raise interest rates to cool the economy down, but it’s unclear if that will have to happen now.
If you’re concerned about inflation and the impact to your financial future, contact us today at (707) 542-1110 and we can help you navigate these stressful times.
Written by Matthew Delaney
There are so many things in life we cannot control. A stock market crash, a global pandemic or other natural disasters come regardless if we’re ready for them or not. What’s more, sometimes the things outside of our control cause us to lose focus on the things we still can control, like our finances. So, how are your savings coming along? Are you spending less than you’re making?
Here are some things to do to keep you focused on your finances.
Before you do anything else, come up with a plan for your money. Once you have a plan, you have to stick with it. It’s hard to plan if you don’t know how much is coming in and going out. Budgeting your money always gives you an advantage. It lets you know where your money is going and whether or not you’re overspending. Here is a great online budget calculator to get started.
Set Financial Goals
Now that you have a budget, you need to determine what it is you’re trying to achieve with your money. Set some financial goals, incorporate them into your budget and most importantly: stick to the budget. The only way to achieve your goals is to stick with the measures you set in place to get there.
Start Paying Down Debt
Your financial goals will never come to pass if your debt is exceeding what you can handle. Debt is a huge financial burden that weighs us down and keeps us from reaching our dreams. It’s time to get your debt under control. Make sure your budget plan includes a reasonable method for paying off your debt.
Know and Understand Your Credit Score
As with your debt, your credit score can make or break your future. That three-digit number can have an alarming impact on everything you do in life. In essence, if our credit score is not good, it keeps us more in debt because anything we borrow will incur an astronomical interest rate that seems impossible to pay back, causing us even more stress.
Check your credit score often or at least once a year to review any errors in the reporting. Each of us is entitled to one free credit report each year, but most of us never check it. You can also check it as often as you’d like using a comparable financial app. Get in the know with your credit report and credit score today.
Grow an Emergency Fund
An emergency fund is critical. Unexpected events and life emergencies will come. If you’re not financially ready to tackle it, it could cost you additional stress, a high-interest loan, and a mountain of financial worry.
A good emergency fund has three to six months of expenses saved up. If that seems out of reach, shoot for one month’s worth of expenses and work your way from there. Start small, like $25 or $50 monthly, until you’re able to do more. Eventually, you’ll get there.
Compare Insurance Options
Are you adequately insured? Does your insurance do everything you need? Insurance is an expensive but necessary expense, so make sure you’re properly insured. Remember, insurance isn’t just for your sake, but for your family’s sake as well.
Make sure you have the right insurance. Assess your insurance needs annually to ensure you have everything you need — renter’s insurance, homeowner’s insurance, health insurance, life insurance and disability insurance.
Automate Your System
Use a financial app to help you stay on track with your money. There are apps set up to monitor, measure and manage your personal finances. They can also alert you when you need to give special attention to certain transactions or your credit.
If you’ve ever thought about building long-term wealth, investing is a smart way to get you there. Starting early so you can invest over a long period is key. Find an investment option that works best for you and start as soon as you can.
Do your future self a favor and start saving now!
Contribute to Your Retirement
You may be a ways off from retirement, but it’s never too early to start saving for it. Just like investing, planning for your retirement will be easier and more effective
if you start now. Retirement may require a lot more money than you realize, so make sure you’re setting accurate long-term goals.
There are so many things that we cannot control that take our attention off the important things. Your finances are important and it’s important that you stay focused so you can be prepared for financial stresses that could occur and especially retirement.
If you find yourself struggling in this area or you need to talk with a Wealth Advisor, JDH Wealth is here to help…..just reach out to us. We’d love to hear from you!
Written by Matthew Delaney
Summer might look a little different for you now that you’re retired. Summer used to be when you worked full time and vacationed a week or two here or there, but now the entire summer is at your beck and call. Sometimes transitioning from having a full schedule to an empty one can be jarring and it’s important for your mind and health to keep active even in retirement. So how will you enjoy your summer this year? Here’s a list of 11 ideas so you can enjoy your first summer in retirement!
First Things First, Celebrate
You’ve been waiting your entire work career for this! It’s been a long time coming, but it’s finally here.
Make sure you take the time to celebrate your well-earned freedom and do something exciting and celebratory just to recognize this milestone in your life. Throw a party, celebrate with friends, go on a trip. Do something to acknowledge your retirement before anything else.
Start a New Routine
For years, you made a habit of getting up every day and being on the go. You had a routine that kept you going.
Start a new routine that keeps you active and make sure it involves some outdoor activities. Summer is a great time to start a walking program or take up a sport like tennis or golf.
Plant A Garden
Gardening is a great way to exercise, keep moving, and relax your mind. It’s therapeutic, and you get to grow wonderfully, healthy food that’s good for you to eat or beautiful flowers to decorate your home.
Write a Book
I know this sounds a little busy, but is there a better place to write the perfect book than on your deck or on your front porch? Is there a better time than now?
Now that you’ve retired, it’s finally time to put pen to paper and get the story living in your head out onto the page. Nature helps to bring out what’s in your heart, so this summer, get comfortable in the shade outside and write that book you’ve always wanted to.
Spend Time With Your Grandkids
Summer is a great time to plan to see those loved ones you never got to see much of — the grandkids. They’re out of school, and you’re out of work — what a great time to catch up! Planning a family trip can give you a project to work on and the trip itself can be great family time.
There’s nothing like a fishing trip with friends to keep your summer fun this year, so grab your friends and get out there! Fishing is not only relaxing, but it’s also a great opportunity to spend quality friends with friends.
Event It Out
If you enjoy visiting flea markets, farmer’s markets and craft shows, make a summer out of it! These are great places to go to appreciate art, nature and what you love. Who knows, maybe you’ll find inspiration for a new hobby or meet new friends at an event!
Enjoy Outdoor Concerts
The country’s back open which means outdoor concerts are back this summer! This is another opportunity to enjoy nature, great music, great friends and dance! Dance the summer away in the park … safely, of course.
Hit The Road With an RV
When all else fails, and you don’t know what to do, go out and find it. Go on a road trip to where? You’ll know when you get there! Rent an RV or pack up the one you own and take the time to get away from everything to relax, reflect and have as little responsibility as possible.
Learn a New Instrument
Music has an amazing impact on people’s lives. It is the universal language of all mankind. Connect with an instrument of your choice and see how much more amazing your life can be. Music relaxes and engages others. Make a group of it, and do a sing-along to celebrate this triumphant feat once you’ve mastered your new trade.
There’s nothing more relaxing than taking to the sails of the big blue ocean and letting the sail guide you as it may, especially if it’s on a clear, blue, hot summer day. Live your best life on the water this summer.
Do What Makes You Happy
We could keep growing this list; the bottom line is you want to do whatever makes you happy. You’ve earned the right to do absolutely nothing … if you want to. But we hope you enjoy your summer doing some fun and exhilarating things, and we hope that whatever you do, you’re doing it within the means of your new retirement income.
No matter what’s on your list this summer, take a minute to assess your financial situation before anything else. Make this a habit to do every three to six months, so you always know you’re in a good place financially, so you can have a great summer for the rest of your life!
At JDH Wealth, we work hard for you so you can enjoy summers like these. Contact us should you ever feel concerned about the state of your retirement finances or if you just need someone to review your financial outlook.
Written by Matthew Delaney
With all the new trends going on in the stock market (we’re looking at you, bitcoin), more and more people are investing each day. As of 2019, 53 percent of Americans are invested in stocks. In 1989, that number was only 32 percent.
While there are many factors that go into investing and understanding the stock market, there are certain rules of thumb that any investor should be aware of. The last thing you want to do is invest a good chunk of your savings only to have it swindled away with poor-performing investments. So, how does the average investor lose money? You’re about to find out.
Putting All Your Eggs in One Basket
We know, you’ve heard that saying at least a million times in your life. But it’s especially true when it comes to investing. Let’s say you invest in 3 different stocks in the same industry.
What if something big happens in that industry? A scandal, waning interest or a global event can drastically change the value of entire industries. Spread your wealth around to different industries that tend to be more stable.
Not Keeping Up With Trends and Current Events
As you know, the stock market can shift in an instant. Remember the Gamestop fiasco?
Since the stock market is unpredictable, it’s crucial to stay focused and disciplined. For example, Apple’s stock often shoots up after a product launch or keynote address. This is when many investors want to invest once they see a big jump in stock price. Unfortunately, they are now potentially buying high.
We always suggest that you ignore the noise of the big swings in the markets. In order to buy low and sell high, you need to leave your emotions at the door. The stock market is efficient and you don’t have any information that others don’t already have.
Investing With Your Emotions
Unfortunately, many investors lose money due to greed and fear. Maybe they want to latch on to the latest stock trend (i.e Dogecoin) or all their friends are investing in a particular stock. You don’t have to follow the trends.
For example, the dot com boom in the 1990s ended with many big companies going under. The reason? So many people were investing in these companies, while they lacked the financial stability that investors needed. Dot coms were all the rage back then, and investors couldn’t wait to get into the industry. But, it backfired.
Overall, investing in the stock market is a great way to prepare for the future. But, it isn’t always easy. These factors are just the tip of the iceberg. If you need any help building your retirement plan, feel free to reach out to one of our advisors.
Written By Matthew Delaney, Managing Partner at JDH Wealth