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Zach Abraham

Your 2023 Year-End Financial To-Do List

By | Financial Planning, Tax Planning

The end of the year is upon us. Here are some tasks to check off before 2024 arrives!

As the year wraps up, it can be a great time to take financial inventory. Your circumstances are constantly changing and evolving, and the proper financial plan is not meant to be a set-it-and-forget-it thing. With the end of the year presenting the perfect chance to revisit your goals, here are a few areas you may want to check in on before we flip the calendar to 2024.

  1. Review Your Financial Plan

As the year comes to a close, it can be a great idea to reassess your financial circumstances and make necessary adjustments to your financial plan. Maybe your goals have changed. Maybe you’re on a fast-track toward goals you expected to take longer to reach, so you can move some dates up. And remember, it’s always important to make sure that your beneficiaries are up-to-date annually on all of your accounts, investments and insurance policies.

  1. Adjust Your Monthly Budget

Now that we’re in the final quarter of the year, you may be in a good position to revisit your budget and adjust as needed. Maybe you received a nice annual bonus or raise, or maybe you’ve recently had a baby and haven’t had a chance to fine-tune your budget through the sleepless nights. No matter your circumstances or the new milestones and stages of life you reached this year, it can be a good idea to look at how your income keeps up with your expenditures and tweak accordingly.

  1. Review Your Investments

It’s important to know that diversifying with different asset classes can help protect your overall portfolio, especially important during times of increased market volatility. Be sure that your investment portfolio positions you with a level of risk you’re able to tolerate, especially as you get closer to retirement.

  1. Recalibrate Your Retirement Account Contributions [1,2,3,4]

As you traverse your career and attempt to carve out a lifestyle that will be sustainable once you get the chance to quit working and chase your retirement dreams, it’s important to know how much you’re allowed to contribute to your various accounts. In 2023, the contribution limit is $6,500 for traditional and Roth IRA accounts, and it is $22,500 for 401(k)s. In 2024, those limits are expected to increase to $7,000 and $23,000, respectively. If you’re 50 or older, you can also make catch-up contributions of up to $1,000 to your IRA and $7,500 to your 401(k). Those limits are expected to remain the same for 2024.

  1. Take Your RMDs [5,6]

Below we’ve created a chart to show the age at which you must begin taking required minimum distributions from your tax-advantage accounts that mandate them. Failure to adequately withdraw funds will result in a 50% excise tax, and the deadline to withdraw the minimum amount from tax-deferred accounts is Dec. 31. If you’ve reached the age at which you must take the distributions, withdrawing the proper minimum amounts from the correct accounts can help you avoid that hefty penalty. We’re also available to help you calculate your RMDs to ensure that you withdraw the right amount!

 

Date of Birth RMD Age
June 30, 1949, or Before 70 ½
July 1, 1959, to Dec. 31, 1950 72
Jan. 1, 1951, to Dec. 31, 1959 73
Jan. 1, 1960, or After 75

 

  1. Spend Money Left in Your FSA [7]

Unlike health savings accounts (HSAs), flexible savings accounts (FSAs) do not typically allow you to roll your excess funds into the next year. You may have a grace period provided by your employer, but even the grace period often comes with a limit as to how much can roll over. Some ideas to avoid losing funds left in your FSA include booking general wellness appointments like visits to the eye doctor, annual physicals and dental cleanings.

  1. Talk to Your Financial Professional or Advisor

The job of a financial professional, planner or advisor is to assist you with your unique circumstances and goals. We aim to provide guidance that aligns with your vision, and together we’ll navigate the path to a financial future you are comfortable with. Whether you’re looking to check off all of these boxes as the year ends or start 2024 with fresh goals, we can help!

 

If you would like to discuss your situation with a financial professional or advisor, give us a call! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395

 

Sources:

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
  4. https://www.thinkadvisor.com/2023/09/27/smaller-401k-ira-contribution-limit-increases-expected-in-2024/
  5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  6. https://www.orba.com/what-is-your-required-minimum-distribution-age/
  7. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over

Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 23-732

 

6 Key Features of Indexed Universal Life Insurance

By | Health Care, Life Insurance

Indexed universal life insurance is a type of permanent life insurance that offers different benefits to policyholders. Here is what you need to know!

Traditionally, life insurance has been one of those assets someone might hold but hope they never have to use. Often crafted to protect from the worst-case scenario, it’s most known for the death benefit it can offer heirs in the event of untimely death, providing a payout that has the potential to ease both financial and emotional tension. Modern life insurance options, however, can come with different features depending on the type of policy you purchase. Because September is Life Insurance Awareness Month, we thought it would be the perfect time to go over one of those options: indexed universal life (IUL) insurance.

NOTE: When reading this information, it’s important to remember that life insurance may require medical underwriting and sometimes policies can be denied. In general, the younger and healthier you are, the lower the cost of insurance.

  1. The Classic Death Benefit

The classic benefit of every different type of life insurance policy, including IUL, is the death benefit, which is typically paid out to the policy’s named beneficiaries tax- and probate-free in the event of the policyholder’s death. This can give your heirs a nice sum of money to cover things like burial and funeral costs, outstanding debt, and living expenses. It can be difficult to lose a provider, and a life insurance death benefit can ease some of that burden.

  1. Permanent Coverage

IUL policies offer permanence, which can make them a viable option for all ages. Unlike term life insurance, where the death benefit expires when the policy expires—typically in 20 or 30 years—an indexed universal life policy is a permanent policy that offers your beneficiaries a death benefit as long as premiums are paid and the policy is in force. While term policies can offer relatively affordable premiums for young, healthy policyholders, an IUL can lock in and guarantee coverage even if the policyholder develops a condition that would make them uninsurable later.

Increasingly popular [1], indexed life policies are sometimes purchased by healthy seniors as a way to transfer tax-advantaged wealth as part of their estate plan, or seniors may elect to purchase a policy which has long-term care benefits either built in or added as an optional rider to an IUL policy.

  1. Flexible Premiums

One of the key differentiators between whole life and universal life is flexible premiums. IUL policies allow policyholders to determine the monthly premiums they pay based on their desired death benefit and/or cash value in the policy. For instance, if your need for a high death benefit is not as great as it once was, you can pay lower premiums while still keeping your policy in force. Furthermore, the cash value portion of the policy can also be accessed to pay premiums, whether that’s by choice or by the policyholder’s inability to pay monthly premiums. On the other hand, policyholders with the funds to increase premiums to increase coverage can do so, potentially meaning a greater death benefit and a greater cash value.

  1. Accessible Cash Value Portion

Permanent life insurance policies like whole life and universal life offer a cash value portion that is funded by the policy’s premiums. Because the policy’s premiums are paid with post-tax dollars, that cash value is accessible to the policyholder for any reason as a tax-free loan, potentially making IUL a useful source of income for retirement, postsecondary education, a downpayment for a home, or any other major expense. Granted, borrowing from the cash value of a policy does accrue interest per policy terms; however, the cash value in an indexed universal policy also continues to be credited interest as if the borrowed amount is still there, again based on the contract terms. That gives the cash value a chance to keep pace with, or even outpace, the amount the policyholder owes in interest. Furthermore, if the policyholder uses the cash value as a tax-free source of retirement income and never pays it back, the borrowed amount plus interest is simply taken from the death benefit. It’s important to read and follow the contract terms carefully to make sure that the policy stays in force whenever the cash value is borrowed.

  1. Guarantees Provided by Carrier

In addition to being accessible as a source of tax-free income, the cash value in an indexed universal policy also comes with guaranteed principal protection and growth that correlates with a preselected market index. Those guarantees are made by the claims-paying ability of the issuing insurance company, and they can allow you to participate in at least a portion of the market’s upside without subjecting you to its bottomless floor. This can make indexed universal life a helpful tool for those without the stomach or tolerance for market risk. Depending on investment, saving and lifestyle goals, it can also help to diversify a portfolio with a non-correlated asset class that still offers potential market upside.

  1. Long-Term Care Hybrid Policies

Nearly 70% of today’s 65-year-olds will need some type of long-term care (LTC), and 20% will need it for longer than five years [2]. It’s also important to know that extended stays in long-term care facilities are not covered by Medicare, as they are considered lifestyle expenses as opposed to medical expenses. That means that today’s retirees may want to consider the possibility of needing LTC, as well as a way to cover the potentially exorbitant costs. Modern hybrid policies can give policyholders the option to combine their life coverage with long-term care coverage, eliminating the “use-it-or-lose-it” aspect of long-term care policies of old. If you need the benefit to pay for long-term care, it can be used to pay for those expenses, but if you don’t, it can be converted to a death benefit for your beneficiaries.

If you’d like to find out if an indexed universal life insurance policy might align with your unique financial circumstances and goals, we can help! Give us a call today to explore your options and build a plan for your future. You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395

 

Sources:

  1. https://insurancenewsnet.com/innarticle/indexed-life-sales-up-28-drives-strong-q2-for-life-insurance-wink-says
  2. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need

 

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Trek #23-712

Financial Freedom at Each Stage of Life

By | Financial Planning

What does financial freedom mean to you? It could give you the opportunity to pursue personal goals and milestones while shouldering less of a financial burden.

It’s true. Money can’t buy happiness. You can’t simply walk into a store and purchase it over the counter or off the shelf. It can, however, open avenues that allow you to pursue happiness, giving you the flexibility to chase what makes you feel fulfilled, understood and complete. That flexibility is called financial freedom, and it occurs when you’re no longer beholden to restrictions placed upon your goals and your desires by your unique circumstances.

We also truly believe that financial freedom is achievable for everyone, no matter their income level, present outlook or future objectives. But what opportunities does financial freedom typically unlock, and how do those change as you age and progress through both your life and your career? Let’s go over a few phases and milestones as well as the possibilities that may be availed to you through securing your financial independence.

20s

It’s never too early to begin your quest for financial freedom. Similarly, it’s never too early to actually achieve it. In your 20s, it might begin with the ability to start paying off those expensive student loans that can potentially bog you down later in life. You should be in the beginning phases of your career, looking to make your mark, climb a ladder and experience a tremendous amount of growth as you learn who you are in a professional capacity. Use this time to learn and accept the traditional lessons while also voicing what makes you unique, all while collecting paychecks that ideally allow you to pay down high-interest debt, make a down payment on your first home or consider starting your family. While young and spry, financial flexibility can also allow you to travel, plan for a wedding, move cities to chase career opportunities, or start a side hustle or passion project. In your 20s, the possibilities are endless, and detaching yourself from financial limits can help you make the most of your youth. And remember, saving any amount, no matter how small, can have a huge impact on your future financial freedom because of compound interest. As Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

30s

By your 30s, you might be a bit more settled, either with a family or an idea of when you’ll begin your family. You may also have a better idea of who you are, your goals, your dreams, your passions and your desired lifestyle. Financial freedom in this stage can allow you to indulge in those dreams, potentially with grander vacations, elimination of hand-cuffing debt, continued repayment or payoff of your home loan and car, and the ability to provide for your loved ones. If you’re lucky enough to eliminate debt, it can be a great time to consider saving or investing more for the future while continuing to maintain your current lifestyle expenditures. You can also consider an estate plan or a life insurance policy to protect those who might rely on you, giving both you and your beneficiaries some peace of mind should something happen to you.

40s

Once you reach your 40s, you’re likely quite used to the life you’ve built and the family you’ve raised. You may also be more comfortable financially, as you’re deep into your career and have adapted with the industry you work in. That’s why in this stage, freedom is about satisfaction. With more security in your profession and better backing in your bank account, you could continue to travel, look for a second home and provide for your beneficiaries. Additionally, your children may be reaching the point at which they need to consider how they’ll pay for college. Though parent-owned 529 accounts do figure into how much federal aid a student qualifies for, other methods, such as permanent life insurance policies, may not, making them a potentially valuable tool. At the same time, your parents may be progressing into their next stage of life, and they may need your help whether that’s simply via your time or your funds. Proper preparation may be able to help you accomplish all of these.

50s

If you experienced financial freedom in previous decades and were able to pay off outstanding debt, home loans, car loans, student loans and more, your 50s could be the perfect time to sock money away for retirement. You’re now closer than ever to retirement, making this the most important time to ensure that your accounts are well-funded, you’re prepared to move on to a fixed income, and you’re protected from market volatility in the final years of your career and first few years of your retirement. If you haven’t in a minute, it could also be a good idea to reassess your beneficiaries, your estate plan and your life insurance policy. You may be able to make necessary tweaks and plan to pass your wealth as tax-efficiently as possible. Additionally, if you’ve shored up all aspects of your financial and retirement plans, you may have some flexibility to spend on things like vacations, charities, vow renewals or other recreational expenditures.

60s

In your 60s, you may be on the cusp of retirement or already in retirement. You can file for Social Security at age 62, but it’s important to remember that filing prior to your full retirement age will permanently reduce your benefit. That’s why this could be a good time to do your final pre-retirement planning, which could include the creation of income streams to keep you afloat while you wait until your full retirement age. You may also be in a comfortable enough position to begin looking at vacation homes, pursuing your various hobbies, checking off bucket list items or even just enjoying a little bit of downtime. Grandchildren may also be on the way, or you may already have them. In that case, financial freedom can grant you the power to spoil them, either with memories that will last or with a long-term college fund. Unlike parent-owned 529 plans, grandparent-owned 529 plans do not count when calculating how much aid a student qualifies for, so they may be helpful tools for your grandchildren looking to achieve higher education.

70s

At this point, it’s likely that you’re retired. Not only have you reached your full retirement age; you may have also permanently increased your benefit by waiting through that special birthday. Now, with financial freedom, you may have the monetary means to match your ample free time. The world is your oyster, and with sufficient retirement funds, you can plan fun things depending on your hobbies and your passions. If you enjoy travelling, it could be a great time to take that once-in-a-lifetime trip that you no longer have to request time off work for. You might also be able to tack onto a collection you’ve been building for decades. Maybe retirement simply means more time to spend with friends and family, and now that your time and your finances are flexible, you can develop those relationships without any inhibiting factors.

80s and Beyond

Though you may slow down as you get older, financial freedom never becomes less important. In this phase of life, it may be critical to consider the possibility of needing long-term care. Roughly 70% of Americans over the age of 65 will need some type of long-term care [1], so while it’s nothing to be ashamed of, it can be a good idea to be prepared. Still, however, you don’t have to stop living your life. You can continue to utilize your free time as you please, but your hobbies may change. You may want to prioritize your health and your personal connections. You may also discover that you have a shift in philosophy, finding joy in activities that require less physical activity such as visiting art shows or attending theatre performances. Furthermore, though you should consistently be revisiting your estate plan throughout the years, this is perhaps the most crucial stage. Reviewing your beneficiaries and ensuring that your tax professional and estate attorney are helping you pass your wealth in the most tax-efficient manner possible can help your loved ones attain financial freedom themselves.

Financial freedom may look different for everyone, but universally, it can be the key to unlocking the comfortability and security to achieve your dreams. Give us a call today to see how we can help you design a plan to become financially liberated and bring those dreams to life! You can reach Bulwark Capital Management in Tacoma, Washington at 253.509.0395

 

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Sources:

  1. https://www.singlecare.com/blog/news/long-term-care-statistics/

 

TREK 23-695

7 Signs You May be Ready for Retirement

By | Retirement

It can be difficult to know when you’re ready to retire, but checking these seven boxes may be a sign that the time is coming.

Preparing yourself for retirement can be scary, as so many variables and questions leave timing up in the air and offer little to no confidence when it comes to selecting the perfect moment to quit your job and spend your time doing what you want to do instead of what you have to do. There are several indicators that may suggest you are on track to retire comfortably. While many savers and pre-retirees set concrete milestones and timetables, only a few of the important signs that you may be ready to retire comfortably have to do with your age. Here are some ways to know that you might be ready to leave the workforce.

  1. You Have Adequate Savings to Cover Your Projected Lifestyle Expenses

The adequate amount of savings will be different for everyone, which is why it can be helpful to consult your financial professional as you make your way toward retirement. They can help you determine a retirement budget that suits your spending habits and desired lifestyle, as well as the longevity of your savings in relation to that estimate. It can also be important to consider that your expenses may rise in retirement, as you might work to check off bucket list items you’ve had for years. It’s all part of the planning process that will be unique to you and your goals.

  1. You Are Debt-Free

Ensuring that you have little to no debt when you enter retirement can be paramount to your ability to live your desired lifestyle and have a secure post-career life. This could mean paying off credit card debt, tackling home loan bills or more. The problem with bringing your debt with you into retirement is that you stop working for your money and you start asking your money to work for you. While that’s the best-case scenario, it doesn’t always work perfectly in, for instance, periods of market downturns, where you may have to potentially turn to your savings for necessities.

  1. You Have Secured Multiple Income Streams

In the modern retirement landscape, it can be helpful to secure multiple income streams that can provide different levels of growth and protection. For example, instead of relying solely on your 401(k), you can add other retirement investment accounts or insurance products that match your goals. Your financial professional should be able to help with this. Additionally, those extra income streams can be helpful if you decide to delay claiming Social Security to maximize your benefit.

  1. Those Income Streams are Diversified Between Tax-Free and Tax-Deferred

Diversification of your retirement portfolio may not guarantee success in retirement, but it could position you to offset certain tax obligations depending on future circumstances and legislation. On one hand, saving vehicles, such as a Roth IRA, can offer tax-free growth and withdrawals. On the other hand, tax-deferred accounts, such as a traditional IRA, are funded with pre-tax dollars then taxed as ordinary income upon withdrawal. While this can present an opportunity for additional income streams, the tax landscape is ever-changing, potentially causing less certainty in how much you’ll have when you retire.

  1. You Have Liquid Savings

The traditional recommendation for an emergency fund is somewhere between three- and six-months’ worth of living expenses, ideally providing you with liquid savings that could prove even more important when living on a fixed income. As we mentioned above, it’s a good idea to clear most if not all your debt prior to entering retirement, but having an emergency fund could help you protect yourself from car or home repairs, medical emergencies, part-time job loss and more.

  1. You Have Hobbies

Your free time is set to skyrocket, and you’ll need a few ways to spend it to avoid immediately becoming bored. Some ideas include traveling, collecting, learning a new skill, picking up a part-time job, starting a business, golfing, volunteering and more. The possibilities are nearly endless, as long as you’re doing something you love and something that drives you to get out of bed in the morning long after the alarm means that it’s time to get ready for work.

  1. You Have a Plan

It’s important to create your plan long before you choose to leave the workforce, and it should cover more than just decumulation and distribution of your various retirement accounts. It’s your comprehensive map that outlines ways you will cover your many expenses, including those that simply bring pleasure. Furthermore, though you’ll certainly want your plan to be malleable, it can be helpful to have an idea of how you’ll use funds, giving you a better grasp of how much you’ll spend and how much you’ll want to save prior to entering retirement.

The perfect time to retire will vary based on your unique circumstances, but we’re here to provide you with the education, tools and preparation you need. To learn more about your options, please call Bulwark Capital Management at 253.509.0395.

 

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Trek 23-657

Investing Alternatives During Periods of Market Volatility

By | Investments

During periods of market volatility, investors may look to alternative vehicles. Here are some options to consider.

2022 was a difficult year for investors, with all three major market indexes dipping simultaneously and taking their biggest hit since the housing crisis of 2008[1,2,3]. Investors are increasingly aware of market volatility and uncertainty, which can influence their investment decisions. While recent market trends have shown positive performance [1,2,3], it is important to consider the potential for volatility and to explore diverse investment options that offer growth potential and risk mitigation.

Though diversification of assets certainly doesn’t guarantee success, it can play a role in potentially mitigating risk and pursuing sustained growth. That’s why it can be a good idea to consider alternative investment and savings options. Here are a few options you may have when looking to diversify your investment portfolio.

Real Estate

Traditionally, investing in real estate involves purchasing property with the potential for rental income or appreciation. This can be a great way to potentially earn steady income. However, it’s important to be aware of the associated risks, such as difficulties finding tenants or temporary softening in the housing market.

Additionally, managing your rental property can be strenuous, whether that’s because of difficult tenants, maintenance costs or other ancillary costs and challenges associated with owning and renting property. It’s important to thoroughly research your investment property and have a plan to cover property costs, as well as a contingency plan in the event that it becomes more difficult to find a reliable tenant or liquidate if you want to sell.

There are vehicles for investing in real estate where you are not involved in day-to-day property management, but these options have other risks to consider and should be undertaken carefully working with trusted financial, tax and legal professionals.

Bank CDs and Treasury Bonds

Certificates of Deposit (CDs) and Treasury bonds are investment options that are often considered conservative in nature. CDs and Treasury bonds are similar in that they function as loans. The difference, however, is to whom your money is being loaned. Bank CDs, or certificates of deposit, are lump sum investments with a bank or credit union that are guaranteed up to $250,000 by the Federal Deposit Insurance Corporation, or the FDIC [4]. They earn interest for the duration of a predetermined period of time. Treasury bonds, on the other hand, are a loan to the government with specified interest rates for durations of either 20 or 30 years [5].

It’s important to consider that interest rates on CDs are often adjusted by banks during periods of high inflation to attract investors. This can make CDs more appealing during times of both high inflation and high interest rates. At the moment, interest rates are the highest they’ve been since 2008, potentially signaling a good time to purchase CDs [6]. While Treasury bonds also pay a predetermined interest rate over a set period of time, it’s worth noting that when interest rates rise, the value of existing Treasury bonds may decline as newer bonds with higher returns become more attractive. Both CDs and Treasury bonds are commonly regarded as safe and conservative investment options, but it can be a great idea to speak to your financial professional prior to purchasing either.

Annuities

Annuities are contracts between you and an issuing insurance company. Annuity contracts (except variable annuities) typically provide both principal protection and a rate of growth that is guaranteed by the insurance carrier based on that company’s claims-paying ability. Fixed annuities work very similar to CDs but may pay more attractive interest rates. Other annuities, such as fixed indexed annuities, or FIAs, can provide growth linked to a specific market index, such as the S&P 500, while still protecting the principal. This investment option provides the opportunity to potentially benefit from market upswings while aiming to mitigate exposure to market downturns.

It can be extremely helpful to discuss your annuity options with a financial professional who understands annuities and has access to multiple products and insurance carriers in order to find a product that suits your unique situation and your goals.

Life Insurance

No longer is life insurance solely about the end. Now, it can be a beginning with modern product-development companies working to create customizable, client-oriented policies that can function as vehicles for retirement saving and income. While term life provides a payout upon death in a specific time window, permanent life insurance policies, like whole life and universal life, can come with a cash value portion that can potentially be accessed tax-free.

Based on the claims-paying ability of the issuing company, an indexed universal life policy, or an IUL, offers guarantees similar to a fixed-indexed annuity, such as principal protection and index-linked growth. IULs also offer flexible premiums, meaning that the policyholder can increase or decrease premiums by increasing or decreasing the amount that goes into the cash value portion or increasing or decreasing the insurance death benefit of the policy based on their circumstances while still keeping the policy in force.

Private Equity

Private equity investments can offer unique opportunities to invest in businesses and projects that are not publicly traded. These investments are often made through private companies, and they may provide the potential for greater returns. However, it’s important to be aware that private equity investments typically involve larger investment amounts compared to investing in publicly traded companies.

It’s important to consider the risks associated with private equity investments, including limited liquidity, lack of diversification and the potential for loss of capital. These types of investments may not be suitable for everyone and should be carefully evaluated based on your individual financial goals, risk tolerance and investment time horizon.

We understand the importance of exploring various investment options to meet your unique financial goals. While alternative investments may offer unique features, it’s important to note that no investment can guarantee complete protection from market volatility or downturns. However, we strive to help you navigate various investment choices to develop a well-diversified portfolio tailored to your needs. Give us a call today! You can reach Bulwark Capital Management at 253.509.0395.

 

 

Sources:

  1. https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart
  2. https://www.macrotrends.net/1320/nasdaq-historical-chart
  3. https://www.macrotrends.net/2324/sp-500-historical-chart-data
  4. https://www.fdic.gov/resources/deposit-insurance/faq/
  5. https://www.treasurydirect.gov/marketable-securities/treasury-bonds/
  6. https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

 

Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor.

Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein.

*Annuity guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. Financial products and services if recommended may include investment advisory fees, commissions and/or other charges.

This article is not to be construed as investment advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your investment portfolio. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Trek 23-602

Are Weddings Worth the Money?

By | Financial Planning

While so many people dream of their special day, it’s worth asking the question: Is it worth the price?

Love conquers all, right? It’s a nice thought, but as the price of having a fantasy wedding continues to soar, so many couples are left wondering if it’s worth it to have a grand showcase and celebration for their first moments bonded in holy matrimony.  In fact, the numbers appear to back these concerns, as the average cost of a wedding in 2022 was $30,000, a $2,000 increase from the 2021 total [1]. When the median household income in the United States is just over $70,000, it’s easy to see how a large wedding can upset the delicate financial balance inside your home [2].

Now, we aren’t telling you to elope, arrange for a courthouse marriage or even forgo the ceremony you’ve been looking forward to since you were young. We are, however, suggesting that there might be areas in which costs can be cut, possibly freeing up funds for potentially more important or desirable expenses and luxuries. The Knot, a popular wedding-planning site, assembled a list of just some of the most common expenses you should expect to incur when planning for your wedding, along with their average price in 2022[1].

-Average cost of reception venue: $11,200
-Average cost of wedding photographer: $2,600
-Average cost of wedding/event planner: $1,900
-Average cost of live band: $3,900
-Average cost of reception DJ: $1,500
-Average cost of florist: $2,400
-Average cost of videographer: $2,100
-Average cost of wedding dress: $1,900
-Average cost of wedding cake: $510
-Average cost of catering: (price per person): $75
-Average cost of transportation: $980
-Average cost of favors: $440
-Average cost of rehearsal dinner: $2,400
-Average cost of engagement ring: $5,800
-Average cost of wedding invitations: $510
-Average cost of hairstylist: $130
-Average cost of makeup artist: $120

While this can add up quickly, it can give you a good idea of where you might spend the majority of your budget as well as where you may be able to make some cuts. First and foremost, the guest list appears to be the best place to start. In 2022, couples hosting weddings with 50 or fewer guests spent an average of nearly $15,000, while couples who invited between 51 and 100 people paid nearly $25,000. The average price for a wedding with more than 100 guests was just over $38,000, so trimming your guest list to only those who absolutely must be there can be helpful if you’re looking to bring down the bill [1].

Obviously for some with larger families, this might not be an option, but the average couple spends roughly $266 per wedding guest, so slicing your guest list by 50 people can save you an average of more than $13,000. It’s also important to know that being more selective with your guest list doesn’t necessarily mean that your wedding will be less significant or impactful. In fact, you might even enjoy the feeling of a more intimate wedding with your closest friends and family whom you expect to be around for the rest of your life.

Another great way to save money is by hiring a wedding planner and using a budgeting tool [3]. While the services of a wedding planner average about $2,000[1], the entire job of the event planner is to remain within budget. They may also know other ways of saving or finding deals that aren’t available to a couple that plans for a wedding just one time. Furthermore, whether you’re keeping tabs or your planner is, a budgeting tool can help you track your spending and ensure that you don’t spend in excess on one particular category. It might also help you get more creative and work within your means and imagination, possibly even making your wedding a more personal experience.

Moreover, if you’re certain you’d like to bring your childhood dreams to life, you can save money by planning early. In addition to increasing your options by aligning your timeline with venues and vendors, you might be able to secure a more buyer-friendly rate while still allowing yourself the flexibility to opt for better or more cost-effective options should they avail themselves in the near future. Remember, pushing out your wedding doesn’t lessen the strength of your bond. Marriage is intended to last forever, and extravagance at the cost of debilitating debt can potentially lead to a more difficult happily ever after.

Additionally, your wedding may be more reflective of your financial circumstances than you even realize. For example, it’s important to communicate and prioritize. Work with your partner to find areas in which you’re willing to compromise and areas in which you aren’t. If you’re a foodie and you want to remember how delicious the various dishes were, it might be a good idea to spring for your top choice in caterers. At the same time, if your family doesn’t drink alcohol, you might be able to save around $2,500 by having a dry wedding [4].

So, to answer the original question of whether or not a wedding is worth the money, yes, but it’s probably only worth it if you plan within your means, which can depend on your unique situation, your relationship and your goals. If a grand wedding is within your budget, you aren’t interested in sparing any expense and your pursuit of other goals isn’t hindered, it may be worthwhile to invite extra people or tack on an open bar. However, if you’re looking for a more cost-effective way to show your love, you can explore other avenues or cut costs without sacrificing or devaluing your marriage.

Whether you are planning on paying for your own wedding—or helping your grown children or grandchildren pay for theirs—let’s talk about how a wedding fits into your financial plan. You can reach Bulwark Capital Management at 253.509.0395.

 

Sources:

  1. https://www.theknot.com/content/average-wedding-cost
  2. https://www.census.gov/library/publications/2022/demo/p60-276.html
  3. https://www.theknot.com/content/ways-to-save-money-on-wedding
  4. https://www.theknot.com/content/average-cost-wedding-alcohol

 

7 Strategies to Reduce Taxes

By | Tax Planning

No matter which phase of life you’re in, you might be looking for ways to trim your tax bill. Here are some strategies to consider!

Nothing is certain but death and taxes. Perhaps a phrase most known for being spoken by Benjamin Franklin, the old adage seems to have held up over the course of centuries as a constant, dogmatic idea that sticks with investors and consumers. Nevertheless, each year around tax time, most of us wonder how we can pay less in income taxes, and the answer to that question is always, “It depends.” Each person’s situation is completely unique to them, and the strategies that may be able to be employed to mitigate or reduce tax obligation vary based on goals and circumstances.

That’s why it can be so important to find an advisor and a tax professional who can work together as a team to help you determine strategies that can lower your bill. To that end, we’d like to share seven strategies for pre-retirees and retirees that you should be aware of but may not apply to your particular situation. Remember, while we don’t handle tax returns, we often function as part of a team alongside a client’s CPA when it comes to future tax-planning scenarios, so don’t hesitate to reach out if you have any questions.

If You’re Working

Beef Up Your Traditional 401(k) [1]

In general, for those who are able to participate in an employer-sponsored group retirement plan like a traditional 401(k), contributing more to that account can lower your taxes in a given earning year. Contributions to a traditional 401(k) account are made on a pre-tax basis, meaning that they do not count as taxable income. This could lessen your tax obligation, potentially even dropping you into a lower tax bracket for the year. You should see that reflected on your annual W-2 from your employer.

It is important to remember that these contributions are tax-deferred, meaning that you will pay taxes upon withdrawal. There are also limits to how much you can contribute. For 2023, you are allowed to contribute up to $22,500 to your 401(k) plan, plus an additional catch-up contribution amount of $7,500 if you are age 50 or older. If your company provides a matching amount for contributions, in many cases you should consider contributing at least that amount to receive the full match.

Contribute to a Traditional IRA [1]

A traditional individual retirement account, otherwise known as a traditional IRA, is an account independent of your employer that allows you to contribute funds to save and invest for retirement. In terms of tax savings, depending on your income level—or whether or not you or your spouse contributes to a 401(k) or similar plan at work—you may be able to deduct traditional IRA contributions from your taxes.

For those who are married and filing jointly in 2023, you can deduct your traditional IRA contribution if your joint income is $116,000 or less. For 2023, you are allowed to contribute up to $6,500* to your own traditional IRA, plus an additional catch-up contribution amount of $1,000 if you are age 50 or older.

Contribute to a Roth IRA [2]

Though Roth IRA accounts have the same contribution limits as traditional IRAs, they typically function differently and are subject to a few different rules. For example, contributions to a Roth IRA are not tax-deductible because account holders fund their accounts with post-tax dollars. The benefit of paying taxes on the amount contributed is that gains are made and withdrawals are taken tax-free, slicing tax obligation later on.

In 2023, you can contribute the full $6,500*/$1,000 catch-up limit to a Roth IRA if your single-filing income is $138,000 or less or your married-filing-jointly income is $218,000 or less. Single filers and those who are married filing jointly can contribute partial amounts with income of up to $153,000 and $228,000, respectively. You can’t contribute to a Roth IRA if your single-filing income is more than $153,000 or your married-filing-jointly income is more than $228,000.

*In any given year, you can contribute to a traditional IRA, a Roth IRA or a combination of both only up to the $6,500/$1,000 catch-up limit.

If You Have Taxable Investments

Tax-Loss Harvesting [3]

Tax-loss harvesting is a strategy typically used by investors who have experienced losses in their investments. It involves selling those positions while they’re at a lower point, realizing a loss and then using those losses to offset taxable gains. In a given year, investors can claim losses of up to $3,000 to lower their taxable income; however, losses can be carried forward into future years. Oftentimes, investments are sold during market downturns, then proceeds are reinvested with a new allocation.

This has the potential to significantly decrease an investor’s tax obligation while improving overall portfolio returns. It is, however, important to note that, as always, tax-loss harvesting should be undertaken with the help of a financial advisor or professional with experience in investing and tax planning. It is a more complex method of cutting your tax bill and exposes an investor to many variables, including the uncertainty of the market. We’d always advise consulting and working closely with your financial professional who understands your goals and plan.

For Those Close to Retirement

Consider Roth Conversions

A Roth conversion can be a helpful long-term strategy to convert tax-deferred retirement funds into tax-free funds. This allows you to withdraw that money without tax obligation in retirement. The one caveat to this strategy is that you will owe taxes on the converted funds in the tax year that you complete any conversion. That’s why this can be a helpful strategy for low earning years, or for those close to or already in retirement. Retirees may earn less taxable income than they did when they were collecting salary, meaning that taxes owed on converted funds could be taxed in a lower income bracket.

Additionally, those close to retirement can use a series of conversions to avoid being pushed into higher income tax brackets and paying a larger percentage of their funds in taxes later, when annual RMDs (required minimum distributions) begin. Roth conversions allow you to experience all of the perks of Roth accounts, like tax-free growth and withdrawals, no required minimum distributions, flexibility and certainty in future tax legislation, and tax-free passing of assets. It is, however, important to remember that Roth conversions cannot be undone, so it’s always a good idea to speak to your advisor and tax professional before performing one or a series of conversions.

Annuities and Permanent Life Insurance [4]

Annuities and life insurance policies can be a great way to cut your tax obligation if you’re close to retirement or already retired. However, depending on how you fund your annuity, your payments may be taxed differently. For example, if you purchase your annuity with non-qualified money, or money you’ve already paid taxes on, the interest grows and is credited on a tax-deferred basis, so only gains will be taxed at the time of payment. On the other hand, if you purchase an annuity with qualified money, such as money from a traditional 401(k) or IRA, your annuity payments are entirely taxable as ordinary income. Even if you owe income tax on your annuity payments, they will not be counted as part of your combined income by the Social Security Administration, so you won’t pay taxes out of your Social Security benefit for annuities. (NOTE: Yes, you can be taxed on your Social Security benefit—up to 85%!)

Life insurance policies also offer tax benefits to help policyholders and beneficiaries. For instance, the classic death benefit is typically paid out tax-free to heirs, often granting them a nice lump sum to help recover from the loss of their loved one. Furthermore, modern life insurance policies offer benefits to the policyholders themselves. Because permanent policies with a cash value portion, such as whole and indexed universal life policies, are funded with post-tax dollars, they usually allow policyholders to borrow from the cash value of the policy tax-free in retirement, and these amounts are not counted as income by the Social Security Administration either.

For Any Phase of Life

Charitable Giving [5]

Charitable giving can be a great way to help an organization or a cause you care about while also reducing your tax obligation. The rules for charitable giving are relatively simple, as the gifts or donations must simply be made to or for the use of a qualified organization, which generally includes charities, religious organizations and private foundations with tax-exempt 501(c)(3) status. Those making charitable donations also have many options when it comes to the type of gift, such as cash, property, stock holdings or other any other assets that have a determinable market value.

As you may expect, there are limits on deductions for charitable giving. Deductions on long-term capital gains are limited to 30% of a person’s adjusted gross income, while deductions for other contributions are limited to 60% of a person’s adjusted gross income. In retirement, if you don’t need the money and don’t want your income taxes to go up, you can contribute your RMD amount (called a QCD or qualified charitable donation) directly to a charity—up to $100,000 of qualified, pre-tax retirement money can be donated. (After 2023, this QCD limit will be indexed to inflation under the new SECURE Act 2.0.)

You may be able to find effective strategies to cut your tax bill no matter which stage of life you’re currently in. If you have questions about any of these tax strategies which may apply to you, please give us a call to discuss. We are happy to work as a team with your tax professional to help you. You can reach Bulwark Capital Management at 253.509.0395.

 

 

Sources:

  1. https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500
  2. https://www.fidelity.com/retirement-ira/ira-rules-faq
  3. https://www.irs.gov/taxtopics/tc409
  4. https://www.annuity.org/annuities/taxation/
  5. https://www.fidelitycharitable.org/faqs/all/charitable-deduction-limitations.html

 

This article is provided for general information only and is not to be construed as financial or tax advice. It is recommended that you work with your financial advisor, tax professional and/or attorneys when tax planning.

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What To Do with Inherited Money

By | Financial Planning

Whether planned or unplanned, many are unsure of how to proceed after inheriting money. Here are a few steps you can take to make the most of it.

So, you’ve inherited money. Depending on the circumstances, it may have been expected or unexpected, and it may or may not have come with a great deal of heartache. Nevertheless, too few people know what to do when they inherit large sums of money, imposing more pressure than they might have imagined. Here are a few things you should consider when you inherit money.

  1. Take a Brief Moment to Think

When you first inherit money, it can be overwhelming, but it’s a good idea to take a moment to consider all of your options. Although it’s a myth that all lottery winners end up destitute, there is some truth to the fact that it’s easy to spend too much of a good thing too fast and blow through money that could have cleared debt, funded college costs or paid for your retirement. Know that your hand isn’t forced, and you don’t have to make a decision as to what you’re going to do with it or how you will allocate it on a timeline that you aren’t comfortable with. Additionally, the time at which you inherit money is naturally stressful, and making decisions under duress can cause unforced errors and complications. Take some time to determine a course of action you feel comfortable with and confident in.

  1. Familiarize Yourself with Tax and Inheritance Laws [1,2]

Once you’ve let the initial pressure of the situation dissolve, it’s a great idea to understand the implications of your inheritance. Whether those implications are determined by the terms of your inheritance or the tax obligations on the funds, it’s crucial that you know how the money may or may not be used. For example, even if your inheritance comes with no tax obligations, it can come with time requirements or required minimum distributions. As of the signing of The SECURE Act of 2019, non-spousal beneficiaries must drain an inherited traditional IRA, 401(k) or similar tax-deferred retirement account within 10 years, and that money is taxed as ordinary income unless it is a Roth IRA, potentially pushing you into a higher tax bracket.

It’s important to be aware of the implications of retirement accounts subject to income taxes, but depending on the amount you inherit, you may also owe federal or state estate taxes. The federal estate tax exclusion is currently $12.92 million per person, but it is set to drop back down to 2017 levels of around $6.8 million in 2026. Some states’ estate tax threshold amounts are much lower than federal levels; for example, from $1 million in Oregon and Massachusetts to $9.1 million in Connecticut. It’s important to check with a tax professional familiar with both federal and state tax laws.

  1. Pay Outstanding Debt [3]

After knowing what you’re obligated to do with the money, you can start to explore some of the freedom offered by coming into extra funds. One option that many tend to lead with is paying outstanding debt. Debt can hang over the heads of investors, pre-retirees and retirees, causing stress and potentially getting in the way of greater saving and investing goals. It can be extremely helpful to pay off debt, especially if it comes with higher-than-average interest rates. For instance, while personal loans, credit cards and student loans can be beneficial in the short term, they can be accompanied by unfavorable repayment terms. Paying them off can be a great way to prevent interest from piling up even further. If you are getting close to retirement, paying off your mortgage may also make sense depending on your situation.

  1. Establish an Emergency Fund

An emergency fund can offer flexibility when unexpected expenses arise, and while having one can be extremely beneficial, for some it can be difficult to grow the balance of your emergency fund while trying to maintain your current lifestyle. Committing at least a portion of your inheritance to an emergency fund can mean that you can easily tap into a flexible and liquid account to pay the deductible for a new roof after a storm, replace an appliance that goes bad or afford an unexpected auto repair. Most experts advise putting away at least three to six months’ worth of expenses, but you may want to put away more depending on your age and employment situation.

  1. Invest in Your Future

This can truly mean anything, whether you’re looking to grow your investment portfolio, you want to pay for classes to grow one of your skills or you’d like to provide yourself with the financing you need to start a new business venture. The opportunities for investing in your own future are virtually endless. A larger sum of money can also give you the opportunity to employ different investing strategies, like further diversifying your portfolio. Furthermore, freeing up cashflow so that you can contribute the maximum amounts to your 401(k) and IRA accounts might be a great idea depending on your circumstances, and other retirement strategies could offer lifetime monthly income that could allow you to retire sooner. There’s no doubt that inherited funds can offer you more flexibility and options.

  1. Finance Higher Education [4]

Higher education, attending college or pursuing an advanced degree can offer a leg up, both in the job market and with general skills; however, it can be an extremely expensive endeavor. Using inherited money to fund that further education can be a great way to avoid student loans and achieve the skills you’ll use for the rest of your life. Moreover, it doesn’t necessarily have to be for your own education. There are options like 529 plans for grandparents and permanent life insurance with cash value that can help pay for your children’s or grandchildren’s educational expenses, too—without causing them to qualify for less financial aid.

  1. Speak to Your Financial Advisor

It’s always best to speak with your financial advisor—as well as attorneys and tax professionals—before making any major financial decisions about inherited money. Your team of advisors should work together and have a good grasp on your goals so that they can offer custom-tailored advice that can best benefit you and your family now and in the future.

If you have any questions about inherited money, please give us a call. You can reach Bulwark Capital Management at 253.509.0395.

Sources:

  1. https://www.unionbank.com/private-banking/perspectives/protecting-your-assets/inherited-ira-rules-cutting-through-the-confusion
  2. https://www.thinkadvisor.com/2022/12/07/the-estate-and-gift-tax-exclusion-shrinks-in-2026-whats-an-advisor-to-do/
  3. https://www.nerdwallet.com/article/finance/good-debt-vs-bad-debt
  4. https://www.savingforcollege.com/intro-to-529s/what-is-a-529-plan

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This article is provided for general information only and is not to be construed as financial or tax advice. It is recommended that you work with your financial advisor, tax professional and/or attorneys when you inherit money.

7 Ways SECURE Act 2.0 Could Affect Your Retirement

By | Legislation, Retirement

SECURE Act 2.0 was signed into law at the end of 2022. Here are a few ways it could affect your retirement.

After consumers throughout America were forced to endure a harsh financial storm in 2022, the year came to a close with President Biden signing a bill intending to increase and enhance the capabilities of retirement accounts. The bill is commonly referred to as SECURE Act 2.0, and it is the follow up to the Setting Every Community Up for Retirement Enhancement Act of 2019. It is expected to assist retirees and pre-retirees even further in the pursuit of a comfortable and sustainable retirement. Let’s go over the biggest changes that have already taken effect as well as ones that will roll out over the course of the next decade.

  1. Pushed Back RMDs [1,2]

As of the beginning of 2023, the age at which retirees must begin taking required minimum distributions from their qualified retirement accounts is 73. Previously it was 72, meaning that retirees will now have an extra year to plan for the distribution of their accounts or enact a strategy to minimize taxes on tax-deferred accounts. Furthermore, the RMD age will move back to 75 in 2033; however, in all cases, if you have already begun taking RMDs, you must continue to take them.

Ed Slott, an American financial expert, a CPA and the president of Ed Slott & Co., looks to simplify dates a bit with a quick guide. He says those born in 1950 or earlier should use age 72 as their expected RMD age, while those born between 1951 and 1959 should use age 73, and those born in 1960 or later should use age 75.

  1. Lowered Penalties for RMD Failures [2]

Prior to SECURE Act 2.0, failure to take required minimum distributions 1) in the right amounts, 2) from the correct accounts 3) by the deadline of midnight, December 31st each year could cause you to incur an additional 50% penalty on the amount not withdrawn, a hefty price on what may be your most precious assets in retirement. Now, the penalty for not withdrawing the minimum amount has been reduced to just 25% with the potential to drop to 10% if corrected in a timely manner, which Ed Slott says typically means within a two-year timeframe.

  1. Increased Catch-Up Contributions [1,3,6]

Currently, those over the age of 50 can make catch-up contributions of $7,500—up from $6,500 in 2022—to employer-sponsored plans like 401(k)s, while catch-up contributions of $1,000 (above the total contribution limit of $6,500 for 2023) can be made to either traditional or Roth IRAs by those age 50-plus. It’s also important to know that individuals in higher income brackets may not be able to contribute to IRAs.

Beginning in 2025, those age 60 to 63 will be able to make catch-up contributions of $10,000 to employer-sponsored plans, and the limit will be indexed to inflation thereafter. Additionally, catch-up limits for individuals age 50 or older for both traditional and Roth IRAs will be indexed to inflation beginning in 2024. Ideally, this should give those nearing retirement a chance to grow their accounts as they close in on that important stage of their lives.

  1. Increased Options for Employer Matches [1]

Prior to SECURE Act 2.0, even if employers offered a Roth option for their 401(k) or similar plan, the employer match amount was required to be made on a pre-tax basis to a traditional account, meaning taxes would be owed when that portion of the money was withdrawn. The SECURE Act 2.0 allows employers to offer post-tax matches to Roth accounts, meaning employees pay taxes now but the match amounts can grow and distribute tax-free later.

Additionally, beginning in 2024, employers may match student loan payments with contributions into retirement accounts. For example, if a qualifying student makes a student loan payment of $500, that payment is able to be matched and contributed to a retirement account if it’s within the matching capabilities of the plan, allowing it to grow for the future. This allows students who may be buried deep in student debt to still achieve their employer match in a retirement account, meaning they won’t miss out on valuable contributions due to student loan obligations.

  1. Auto-Enrollment into Employer-Sponsored Plans [1]

Enrollment into new employer-sponsored plans, such as 401(k) and 403(b) plans, will be automatic beginning in 2025. Upon hiring or upon the inception of the 401(k) plan, employees will automatically be added at a rate of at least 3% but no higher than 10%. Despite automatic enrollment, employees will still have the ability to opt out of the plan.

Employers already have the right to remove former employees with low balances from their retirement plans by cutting them a check for the remaining amount if the employee has taken no action to move their money. Beginning in 2024, the definition of a low balance will be more than $1,000 but less than $7,000, and SECURE Act 2.0 portability provisions will allow employers to make a tax-free rollover distribution of a low balance account into an account in the former employee’s name at their new job without their permission.

Other SECURE 2.0 Act provisions include the establishment of the nation’s first lost-and-found database for retirement accounts which will be undertaken by the U.S. Labor Department at some point in the future.

Ideally, all of these changes could help people end up with higher savings when they retire.

  1. New Options for 529 Plans [4]

Beginning in 2024, unused funds from 529 plans, which are tax-advantaged accounts traditionally used by grandparents and parents to help a beneficiary pay for college, can now be rolled over into a Roth IRA on behalf of the plan’s beneficiary.

This could provide a small boost to an individual’s Roth IRA, but you may want to look out for a few distinct limitations to this new option. First and foremost, the 529 account must have been established and in place for at least 15 years. There is a $35,000 limit on funds able to be converted, and that is an overall total, not an annual total.

Furthermore, rollovers will be subject to the IRA contribution limit, which for 2023 is $6,500 (plus $1,000 if age 50 or older), and the beneficiary must have earned income of at least that amount in the year the rollover is completed.

There are still a lot of questions about this provision of SECURE Act 2.0 which must be clarified by lawmakers or the IRS, including the naming or changing of beneficiaries. Prior to SECURE Act 2.0, beneficiaries of 529 plans could easily be changed, and account owners could even name themselves as beneficiaries as long as funds were used for legitimate education expenses.

  1. Increased Flexibility in Annuities [1,5]

Annuities, which are a contract with an insurance company rather than a direct investment in the market, can offer principal protection and a rate of growth guaranteed by the issuing carrier. They have the potential to allow you to participate in stock market upside without experiencing market decline.

SECURE Act 2.0 offers a bit more flexibility in the purchase of qualified longevity annuity contracts, or QLACs, with funds held in qualified retirement accounts. Previous limits held premiums to 25% of an account’s balance and capped them at $145,000, but SECURE Act 2.0 has eliminated the 25% rule and increased the total cap to $200,000, giving retirees more options in the diversification of their portfolios.

If you have any questions about how SECURE Act 2.0 might affect your retirement, please give us a call.

 

Sources:

  1. https://www.fidelity.com/learning-center/personal-finance/secure-act-2
  2. https://www.thinkadvisor.com/2023/01/04/ed-slott-pay-attention-secure-2-0-dates-are-all-over-the-place/
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
  4. https://www.thinkadvisor.com/2023/01/30/ed-slott-529-to-roth-ira-rollover-is-no-planning-panacea/
  5. https://www.annuity.org/annuities/qlac/
  6. https://www.schwab.com/ira/roth-ira/contribution-limits

 

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This article is for informational purposes only and is accurate to the best of our knowledge. It is not to be taken as investment or tax advice. in all cases we recommend that you work with financial, tax and legal professionals to find the strategies best suited to your individual situation.

6 Ways to Protect Yourself From Financial Downturn

By | Financial Planning

Though the United States may avoid a full-fledged recession, it’s undoubtedly a difficult time to be a consumer. Here are some ways to protect yourself.

The fear of a recession looms large, and though it isn’t certain that we’ll enter recession territory in 2023, there’s no doubt we’re in a period of constraint for consumers. Inflation is still high despite the efforts of the Federal Reserve to cut spending with interest rate increases, and 2022 brought the worst annual performance for all three major indexes since 2008[1,2,3].

Understandably, this can cause panic among American consumers and pre-retirees, whether they have assets invested in the market or they’re simply looking to continue with their current lifestyle. With the times, however, our behavior and spending habits must change to give us the best chance to protect ourselves during periods of financial downturn. Here are some things you can do to counter volatile markets and economic declines.

  1. Cut Unnecessary Spending

One of the best ways to avoid a financial crisis is to cut unnecessary spending. That could mean more trips to the grocery store instead of your favorite restaurant, fewer luxury purchases or delaying your upcoming vacation. A properly structured and maintained budget typically accounts for all of your incoming and outgoing funds, so it can likely be a great place to start when looking for places to cut back. You may be forced to make some hard decisions, but the idea is for those decisions to pay dividends in the long run.

  1. Build an Emergency Fund

While an emergency fund might be seen as the most obvious form of protection against difficult financial times, nearly one-in-four consumers don’t have one [4]. Furthermore, 39% have less than a month’s worth of income saved in an emergency fund, and less than half would be able to cover a surprise $1,000 expense. A general recommendation is to have three to six months’ worth of expenses saved in your emergency bucket, giving you some flexibility if you’re forced to access that money. Additionally, you don’t need to make one lump sum contribution to your emergency fund. You can build it gradually, adding little by little until you have a balance you’re comfortable with.

  1. Pick Up an Extra Job

One way to supplement the difference in difficult times is to pick up an extra job to increase your total income. Though your finances often seem cut-and-dried, this is one area where you have the freedom to be a bit flexible and creative. Some ideas for an extra job include freelance or contract work, consulting, starting your own business, or even finding a part-time role at a local establishment where you already enjoy spending time, like a golf course. The possibilities are nearly endless, allowing you to have some fun with this secondary source of income. And who knows? It could lead you down a different career path that leaves you even more satisfied than your primary source of income does.

  1. Prioritize Financial Obligations

Market volatility, inflation, high interest rates, supply chain issues and other economic factors can be scary, but they’re even scarier when compounded with outstanding debt. It can always be a good idea to tackle debt to avoid falling into a situation where you’re beholden to that debt, seemingly allowing you little-to-no flexibility with your income. The sooner you enact a plan and clear that debt, the sooner you can begin building your emergency fund, making larger contributions to your retirement accounts or enjoying the perks of increased financial freedom.

  1. Look for Advantageous Investment Opportunities

While there are certainly no guarantees when it comes to investing in the market and no current iron-clad ways to dictate market performance or protect yourself from declines, opportunistic investors with a long time-horizon to retirement can take advantage of dips. Investors may be able to utilize these periods to their benefit by entering the market at a low point, or they could use a strategy called dollar cost averaging to continue investing or putting away money in their 401(k) at consistent intervals, thereby lowering their average cost per share. Though the big three indexes were down in 2022, they have a sustained history of long-term growth, potentially making declines a favorable time to enter the market.

  1. Use Protection-Based Strategies

Though growth can be enticing, sometimes protection for what you already have can be even more important. Diversifying your portfolio with a protection-based asset class, such as an annuity or a permanent life insurance policy, could be helpful through guaranteeing principal protection and index-linked growth. Despite allowing you to participate in market upside, these policies are not investments. Rather, they’re contracts with issuing insurance companies, and the guarantees are made by the claims-paying ability of those companies. These products and strategies can help you create a tax-free stream of income in retirement while protecting you from market volatility on the way there. If you think a protection-based approach may be the right strategy for you, we can help you decide based on your unique circumstances.

If you have any questions about protecting yourself from financial downturn, please give us a call. You can reach Bulwark Capital Management at 253.509.0395.

 

  1. https://www.macrotrends.net/2526/sp-500-historical-annual-returns
  2. https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart
  3. https://www.macrotrends.net/1320/nasdaq-historical-chart
  4. https://www.marketwatch.com/picks/this-is-the-surprising-generation-least-likely-to-have-even-1-000-in-savings-and-heres-what-they-need-to-do-about-it-01650321688

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This article is for informational purposes only and is accurate to the best of our knowledge. It is not to be taken as investment or tax advice. in all cases we recommend that you work with financial, tax and legal professionals to find the strategies best suited to your individual situation.