Tax Strategy in Retirement: 10 Tips to Save on Taxes

Jan 25, 2022 | Insurance, Planning, Retirement, Taxes

Tax Strategy in Retirement: 10 Tips to Save on Taxes

The word retirement can bring up all sorts of emotions, such as excitement and joy, anxiety and fear—all things to consider when thinking about tax strategy in retirement. There are many ways to save on taxes in retirement, such as moving to a lower-tax state and taking advantage of tax breaks like IRA contributions and IRAs. Still, there are also plenty of ways that retirees can end up paying more tax than they expect. Read on to learn ten tips on how to save on taxes in retirement so you can truly reap the benefits of the golden years.

1) Contribute to your 401(k) if you can

Making contributions to your 401(k) is a great way to reduce your taxable income during retirement. The current limit for 401(k) contributions is $18,000. If you’re 50 or older, you can contribute an additional $6,000 in catch-up contributions. Contribute as much as you can afford

And if possible, be sure that all of your pre-tax dollars (income less any deductions) are going into a tax-advantaged retirement plan like a 401(k). Contributing pre-tax dollars will reduce your annual taxable income—meaning more money will go towards reducing your tax bill! You can also consider contributing to a Roth IRA. A Roth IRA offers after-tax contributions, meaning you pay taxes upfront, but withdrawals are tax-free during retirement. Disbursements are especially useful if you expect your income to be higher during retirement than now or your tax rate will increase. Roth IRAs also have no required minimum distributions once you turn 701⁄2. Therefore, afterward, your money can grow tax-free until you decide how much (if any) you want to withdraw each year.

Finally, consider increasing your retirement savings by making more contributions to your current employer’s 401(k) plan, investing through a Robo-advisor, or starting a side hustle. If you’re over 50, you can contribute an additional $6,000 annually, which is just icing on top of a sweet tax-free cake! You may have heard that saving for retirement and college are mutually exclusive—this isn’t necessarily true. Maximizing both types of savings accounts is one way to optimize your financial health.

2) Leverage tax-free investment accounts

As your income rises, it may make sense to start using tax-free investment accounts like Roth IRAs and 401(k)s. When you contribute to a traditional IRA or 401(k), taxes are withheld from your paycheck, lowering your net income for that year. But when you invest in a Roth IRA or 401(k), you’re not getting a tax deduction up front; instead, it’s free of taxes when you withdraw money later in life. So why would someone who is already paying less (or no) tax use a Roth? It all comes down to taxes during retirement. In general, people tend to pay fewer taxes during retirement than while working.

Keep your tax-free investments separate from other money you don’t want to pay taxes. You can do that by opening different investment accounts for each and making sure you only deposit pre-tax dollars into your tax-free account. For example, if you contribute $2,500 per year to a Roth IRA, do not also deposit that $2,500 into a standard investment account or other savings account that’s already taxed. If you do, there will be no benefit when it comes time to withdraw. Even worse, there could be an additional penalty because some of those contributions may have come from pre-tax income.

Lastly, don’t forget that you can roll over money from a 401(k) into a Roth IRA. If you are getting close to retirement age, talk with your financial adviser about what accounts might work best for your specific situation. The last thing you want is to end up taking money out of your investments early and paying more than necessary in taxes.

3) Consider maxing out your Roth IRA

Contribution limits are relatively low, but they don’t have to be. When you’re younger, it can make sense to put more money into a Roth IRA since your tax rate is likely higher than it will be later in life. You’ll also have fewer retirement accounts later in life. This is why it is critical to plan for the long term now while you are younger. You can always make a backdoor Roth contribution once you’ve maxed out other accounts (see #5 below). If maxing out a Roth IRA doesn’t make sense for your specific situation or goals, consider contributing enough money to hit the maximum 401(k) and IRAs before putting any more money into your employer plan.

The last thing you want is to save a ton of money for retirement, only to owe taxes on it when you withdraw. So clearly, a tax strategy in retirement planning is vital. There’s no tax deduction upfront with Roth IRAs (as with a traditional IRA), but that means you don’t pay taxes on any distributions later. If your income is high enough, your contributions may be subject to income tax when you put the money into an account. Still, your qualified distributions will never be taxed. Check out our Roth IRA Basics guide or read about how a Roth IRA works. Fidelity Investment’s 401(k) calculator can help determine how much to contribute based on your goals and current situation.

You won’t owe taxes for traditional IRAs when your money goes into an account. Still, you will have to pay taxes on any distributions. However, like a Roth IRA, qualified distributions are tax-free (except for any capital gains). Depending on your income and other factors, you may be able to deduct some or all of your contributions (although if you make more than $70,000 and file married filing jointly, that deduction is phased out completely). For more information about IRA contribution limits and eligibility requirements for traditional IRAs and Roth IRAs—as well as information about allowable IRA investments—check out our Individual Retirement Accounts guide. Our calculator can help determine how much you should contribute based on your goals and current situation.

4) Use after-tax dollars for nondeductible IRA contributions

For higher-income earners who aren’t saving enough for retirement, you can use after-tax dollars to make nondeductible IRA contributions. For example, if you earn more than 58k as a single filer or over the 92k filing jointly bracket, you cannot take a deduction for any contributions you make into a traditional IRA—but there’s no reason why those same dollars can’t be put toward nondeductible gifts.

$3,000 is a substantial saving over $5,500. Remember that once you turn 70 1⁄2 years old, you can only withdraw money from a Roth IRA if you’ve had it for at least five years and your account has been open for at least five years as well. However, these rules don’t apply to nondeductible IRA contributions, so there’s no need to be concerned about taking advantage of them now. Your distributions will still be tax-free at age 59 1⁄2 even though they aren’t penalty-free until after age 59 1⁄2.

You may have heard that you’re required to take distributions by April 1 of each year after reaching age 70 1⁄2, but you don’t have to make withdrawals at all if you don’t want to. You just need to plan ahead. Again, this is why it goes without saying, having a tax strategy in retirement is more than beneficial. If you don’t need money from your nondeductible IRA contributions and want a way to defer tax on your income, consider taking advantage of using after-tax dollars for a nondeductible IRA. Just remember that once you reach age 70 1⁄2, it will be mandatory for you (unless granted an extension) to begin taking minimum required distributions from all IRAs—including Roth IRAs. The same is true for traditional IRAs as well.

5) Best tax strategy in retirement is flexibility

It’s possible to structure your life insurance so that you can access cash value over time. In other words, instead of taking a death benefit payout or cashing out your policy, you can take some (or all) of it as a policy loan. That loan can be used for any purpose—including paying off debt, spending money during retirement, or investing for future income. The interest paid on these loans is tax-free and will reduce your net cost of insurance.

You can also use your life insurance policy as collateral for a loan. Most policies will allow you to take out a loan against your cash value, and, in some cases, you may be able to use all or part of your death benefit as collateral for that loan. If you’re planning on taking a lump-sum distribution from your policy, you might consider using all or part of it toward a down payment for an investment property. You can then get a home equity line of credit (HELOC) against that property to keep it as an investment property instead of selling it and buying something less tax-efficient—and if anything happens to you and your spouse during retirement, there won’t be any taxable gains left behind when probating your estate.

Tax-free distributions from your qualified retirement accounts can be used for any purpose, and that includes paying off debt. Suppose you have a traditional IRA or another pre-tax retirement account. In that case, you can roll over those funds into a 401(k) or similar employer plan if you have one. If not, consider using part of your retirement savings for a down payment on a tax-free investment property—that way, you can also get an above-market mortgage rate if necessary. You’ll still have access to that cash later—and even better, it won’t add to your taxable income when it goes back into your IRA (or another retirement account).

6) Invest through solo 401(k)s, multiple IRAs, and self-directed IRAs

A solo 401(k) is an excellent tax-advantaged retirement account because you can contribute up to $50,000 of pre-tax income into your plan each year. Additionally, you can contribute an extra $6,000 each year if you’re 50 or older. However, one downside is that it doesn’t allow after-tax contributions like traditional IRAs do. Traditional IRAs allow additional contributions above and beyond what your employer matches as long as you have earned income. When it comes time to start withdrawing funds from these accounts, make sure that you first pay attention to any required minimum distributions (RMDs) depending on your age; RMDs will need you to begin taking a certain amount from traditional IRAs starting at age 701⁄2.

It’s possible to invest in several different types of IRAs. You can contribute up to $5,500 ($6,500 if you’re 50 or older) per year into a traditional IRA. Suppose you have access to a 401(k) at work. In that case, you can participate in both as long as your contribution does not exceed IRS contribution limits ($18,000 if you’re under 50 and $24,000 if you’re 50 or older). This is referred to as backdoor IRA contributions because it requires contributing first through a 401(k), which provides valuable tax-deferred growth. If your employer doesn’t offer a 401(k), consider opening an IRA account through your bank or brokerage.

If you have access to a 401(k) at work, make sure you know what type of account it is before contributing. Many companies offer both traditional and Roth 401(k) options; while they’re both excellent choices, their tax implications are vastly different. The vast majority of people should contribute to a traditional 401(k), which allows your investments to grow tax-deferred until retirement when you pay taxes only when making withdrawals. When deciding between a traditional or Roth IRA, it comes down to what your best tax strategy in retirement will be. Also, how much money you expect your tax rate will be at retirement vs. your current marginal income tax rate. Those who anticipate being in a lower bracket at retirement should choose Roth IRAs over traditional IRAs, as withdrawals are made without paying taxes upfront.

7) Consider making nonretirement withdrawals from a Roth IRA

Take nonretirement distributions from a Roth IRA before age 591⁄2. You must pay a 10% early-distribution penalty tax on those amounts and may also owe regular income taxes. But if your modified adjusted gross income (MAGI) is less than $100,000 for single filers or $199,000 for married couples filing jointly (if either spouse is an IRA owner), then you’re eligible to pay taxes only on earnings from contributions—not on withdrawals of gifts—in addition, to spend just a 10% early-distribution penalty tax. Note that these limits apply whether you make nondeductible contributions or use already-taxed money to fund your IRA.

Roth IRAs were designed with two distinct goals in mind. One was that you should pay no taxes when making withdrawals of your contributions—only gains. The other was that those gains should be completely tax-free, providing a way to get around paying taxes on early distributions from traditional IRAs. But early distribution penalties and taxes will still apply if you make nonretirement withdrawals from your Roth IRA if you’re under age 591⁄2 or your MAGI exceeds $100,000 for single filers or $199,000 for married couples filing jointly (if either spouse is an IRA owner). Consider converting part of your traditional IRA into a Roth.

If you have a traditional IRA, you can convert it into a Roth—provided that you meet certain income restrictions and don’t owe taxes on early distributions from other IRAs. When you convert your IRA into a Roth, your MAGI must be less than $100,000 for single filers or $199,000 for married couples filing jointly (if either spouse is an IRA owner). There are three methods of conversion. You can recharacterize your IRA by making a trustee-to-trustee transfer back to your traditional IRA within 60 days. Or you can make two separate transactions by first taking out all of your contributions from your traditional IRA (leaving behind only gains) and then converting those converted funds into a Roth.

8) Take advantage of catch-up contributions

If you’re 50 or older, you can put an extra $6,000 a year into your IRA or 401(k). That’s called a catch-up contribution, and it can help boost your savings. And if you’re self-employed, there’s no age limit on catch-up contributions. However, when you contribute more than that amount each year to either type of account (combined employer/employee contributions), the additional amount is considered excess and subject to penalty and taxes. However, if you plan now, by saving ahead, you will have a solid tax strategy in retirement. Additionally, plan sponsors may set a lower upper limit on total annual employee deferrals. To be safe, check with your company before contributing over the 6k limit to your retirement accounts.

In addition, contributing more to can sometimes backfire. For example, contributing $7,000 to a traditional IRA comes with a price tag of about $600 because of taxes on excess contributions. In comparison, you are making an extra $6,000 catch-up contribution to a Roth IRA has no tax consequence at all. So if you’re 50 or older and eligible for catch-up contributions, it’s generally better to contribute up to that amount into your 401(k) or traditional IRA and then make an after-tax ($6,000) contribution into your Roth IRA instead.

If you’re self-employed, start a business retirement plan (like a SIMPLE IRA or SEP-IRA) and make contributions for yourself. Employer contributions into those plans are tax-deductible. Employer matching can be an effective way to boost your retirement savings. Note that after-tax SIMPLE or SEP IRA contributions are made with funds from your taxable income and will impact what’s reported as adjusted gross income (AGI). This may increase or decrease certain tax deductions based on AGI levels. But any money contributed into a 401(k) plan is pre-tax, which means it won’t impact AGI or itemized deductions.

9) Itemizing your deductions isn’t always the best approach

When calculating your itemized deductions for a solid tax strategy in retirement, consider considering charitable contributions and mortgage interest—it’s not always worth it. Your deduction for mortgage interest and property taxes may be limited if your income is higher than $100,000 ($50,000 if you’re married filing separately). And once you’re above a certain income threshold ($75,000 if single or $150,000 if married filing jointly), you won’t be able to deduct those charitable contributions at all. If that describes your situation, consider taking only the standard deduction—which varies depending on your filing status but is currently $6,350 for singles and $12,700 for married couples.

Instead, you may want to focus on deductions that are completely unaffected by your income. You can take a deduction for medical expenses that reach 7.5% of your adjusted gross income, and interest paid on student loans can count as well—though it’s limited to $2,500 per year. If you work from home or have other expenses related to being self-employed, those qualify too. Write off every legitimate cost you incur because no matter what deduction it is—or whether it’s subject to an income threshold—every dollar counts when it comes time to file taxes! To see what your tax rate will be once all those deductions are taken into account, use a financial calculator and make sure you don’t miss out on any that could save you money come April!

If you’re unsure about which direction to go, a tax advisor or financial planner can help. They’ll make sure you get all of your deductions while also making sure they add up to something worthwhile—in other words, that those deductions won’t push you into a higher tax bracket. And suppose your income is high enough that certain itemized deductions are off-limits. In that case, a few strategic changes could make filing easier on your budget. One option is asking your employer for more pre-tax contributions into retirement accounts like 401(k)s and 403(b)s so you don’t have to worry about coming up with post-tax money later.

keep an eye on the yearly tax rate changes

10) Monitor your effective tax rate each year

One of the easiest ways to save money on taxes is monitoring your effective tax rate. That’s an annual calculation that reveals how much money you pay in income taxes as a percentage of your gross income. Suppose it turns out you are paying more than 25% (the upper range for most taxpayers). In that case, you might be able to plan some moves—like when and how you withdraw from accounts, where and when gains are harvested, etc.—to reduce your overall tax burden for that year. It’s just another way tax planning can help keep more of your hard-earned money! Most investors have no idea what their effective tax rate is until after filing their taxes for each year.

If you’re like most investors, though, you probably don’t know what your effective tax rate is until you’ve filed your taxes for each year. Try looking at your overall portfolio from a holistic point of view—the sooner, and more often, than better! Your plan for adjusting any elements of your portfolio that can be changed to influence taxes should depend on what stage of life you are currently in. How long do you have before retirement? Do you even have a tax strategy in retirement? What are your goals for current account balances and annual income when retired? If saving up for retirement is part of your plan, how much money will likely go into different accounts (e.g., IRA vs. 401(k))?

And remember, if you’re not sure what tax strategy might make sense for your situation, talk to a CPA or another financial advisor who can help. There are many ways tax planning strategies can be tailored to fit an individual investor’s specific needs, and it never hurts to have extra eyes on your accounts! If you’re saving for retirement, paying attention to your effective tax rate and overall portfolio is critical—even more so than when you’re planning other aspects of your life. Saving more money on taxes can also give you a little extra cash flow each year, which might make it easier to hit all those goals while keeping more of what belongs to you!

How I can help

While taxes are a touchy subject, there is no reason why you should be paying more than you need to. As you approach retirement age, your tax strategy in retirement should change slightly. You can do many different things to save money on taxes, and it all starts with a plan. Be sure that you have held money in tax-free accounts such as IRAs and Roth IRAs so that when those funds come out, they won’t be taxed. Also, don’t forget about your social security income. If you start taking it at 62, it will be less than when taken at 70, so make sure that amount is maximized so your tax bracket will remain low for as long as possible.

As you can see, there are a lot of different tax strategies that can be used as you plan for retirement. However, most people ignore them or don’t use them correctly. That’s why it’s vital that you find a professional like me who understands your situation and will explain how these ideas apply to your unique situation so you can take advantage of every possible way to save money on taxes as quickly as possible. The sooner you start planning now, the more time those tax savings have to grow and accumulate, so by making smart decisions now, later down the road, they will start paying off. Contact me to learn more about all the services I offer.

The Benefits of Hiring a Financial Investment Advisor

Dec 22, 2021 | Annuities, Insurance, Long Term Care, Planning, Retirement, Taxes

The Benefits of Hiring a Financial Investment Advisor

If you’re interested in learning more about how to ensure your financial future, you may have considered working with a financial investment advisor. Here are some of the benefits that come from working with one of these individuals, who will help you take control of your finances and grow your assets over time through sound investing practices.

Why do you need an investment advisor?

If you’re not investing for retirement, it’s probably because you don’t have enough money to invest in your 401(k) or other investment vehicles. But if you want to build wealth, that’s only going to happen through investments. You need an expert: someone who can help guide your investments in a way that’s aligned with your needs, goals and risk tolerance. This person is called an investment advisor. They can offer sound advice based on their experience and expertise that will help make sure you get back what you put in.

So how do you know if you need an investment advisor? If your investments aren’t doing well, or if you’re not sure about where to invest your money, it’s probably time to consider enlisting help. If you want professional guidance but don’t have much to invest right now, there are professionals who can help walk you through what should be considered even if your portfolio is small.
Who do I need to find?: There are many different types of financial advisors out there—certified financial planners (CFPs), certified public accountants (CPAs), and chartered financial analysts (CFAs)—and they serve different purposes.

But no matter who you work with, it’s important to make sure that your advisor is properly licensed. You want to be sure that you’re getting advice from someone who has enough education and experience in investment management. To find out if an advisor is licensed, check their credentials through your state or local government. If they don’t have all of these credentials, consider looking elsewhere for help with your finances. Otherwise, you could end up making poor investments or financial mistakes that cost you more money than necessary.

What does a financial advisor do?

Typically, an investment advisor is someone who acts as your liaison with financial institutions. They can help you find low-cost funds and credit cards or offer personalized advice for investing in stocks or other assets to achieve your financial goals. For example, you might have student loans that are preventing you from saving for retirement. A financial advisor can sit down with you and develop a savings plan based on how much money you make and how much debt you carry. Of course, they may not be able to lower your student loan interest rate (although some employers will match their employees’ investments), but they may be able to help break down that mountain of debt into smaller chunks—and explain what happens if interest rates rise before those loans go away.

Choosing an advisor is more important than most people realize. After all, you’re entrusting them with your money and future goals. The bottom line is that you need to do your homework—including asking friends and family members who they trust or using online reviews—and make sure you feel comfortable before bringing in anyone to act as an intermediary between you and your financial institutions. If you get along well with someone and feel like they’re talking your language, then it might be time to consider making an appointment.

If you do decide to hire an advisor, you can expect your relationship with them to evolve over time. Initially, they’ll probably want to get to know you and your financial goals by asking questions about how much money you make, how much debt you have and what your priorities are. Once they understand what drives your financial decisions—and how much risk is involved—they can help chart out a plan that takes into account all of these factors. They may also ask whether you want them to be actively involved in your investments or simply give advice from time to time.

Finding the right financial advisor for you

Some financial advisors are independent and provide investment advice on a fee-only basis; others work for mutual fund companies and/or insurance agencies, which mean they could also be salespeople. There are advantages to both types of advisors, but some investors prefer not to have to worry about conflicts of interest where one party is trying to sell you something and other party is trying to give you sound investment advice. If you’re going to hire someone as your personal CFO (Chief Financial Officer), it’s best that they focus on serving you, rather than serving themselves.

Once you have decided that you need some help, there are a few things to look for in an advisor. The first is if they are registered as a fiduciary or not. This means they operate under stricter ethical rules to always place your best interests above their own and their employers. You also want to make sure they aren’t compensated based on selling you financial products, so they won’t be tempted to put their interests ahead of yours with pushy sales tactics or by steering your investments toward products that pay them more commissions or other perks.

The easiest way to find an advisor you trust is to ask family, friends and colleagues for recommendations. You can also look at industry-specific websites, such as those from financial trade groups like The Financial Planning Association (FPA) or The Association for Financial Professionals (AFP). Another resource that can help is CERTIFIED FINANCIAL PLANNERTM Board of Standards Inc. (CFP® Board), which requires its Certified Financial Planner professionals to adhere to a code of ethics and standards of practice. In addition, if you have certain assets under management, it’s possible that your bank or investment manager provides their own financial advisors as well.

What to consider when hiring a financial investment adviser

Do you need one? What are your goals? Are you willing to pay an annual fee? What conflicts of interest should I be aware of? Do they have legal and regulatory licenses that can protect me from fraud and misconduct. How much will it cost to set up and maintain an account with them. Is there a better way to save than with an investment advisor or even a robo-advisor. Do I need estate planning, insurance, or tax advice for my business assets in addition to financial investment advice. Is my chosen financial investment adviser credible and held accountable by licensing/certification bodies, etc.? Most importantly: do I like them, trust them, do they make me feel comfortable asking questions and can they articulate how they think about money.

In today’s fast-paced financial world where technology is reinventing our experience with investing, an investment advisor can bring you peace of mind. To find one, ask yourself what your goals are and how much time you want to spend managing your money. With that in mind, take some time to do your homework on potential candidates, including checking out their social media presence and online reviews to get a good sense of who they are. Then sit down with at least three potential advisors for lengthy face-to-face meetings to discuss their services and make sure they fit with your personality before deciding who to hire. If you don’t feel comfortable about someone during or after those meetings, don’t hire them!

A good way to get started is to ask yourself what you want from an investment advisor. The first step in getting your financial life together is to figure out where you stand and make a plan for getting to where you want to be. It’s not always easy, but it’s worth it if you want to feel more confident about your future. To help get things started, here are some considerations

How much does it cost to hire an investment advisor?

While you can certainly manage your own investments, hiring an investment advisor does come with some costs and fees. How much does it cost to hire an investment advisor? It depends on several factors, including what kind of service you are looking for and how many assets you have in need of management. According to Investopedia, individual investors typically pay 1% to 2% of their portfolio value annually in advisory fees—while smaller accounts may pay as little as 0.5%. Of course, there is no set rate; it really depends on the quality of service provided.

The expense ratio is another cost to consider. This fee, charged by investment funds and advisors, may be expressed as a percentage of assets under management or as an annual fee that varies depending on which funds you have in your portfolio. Some funds can have expense ratios as high as 3%, though most will fall somewhere between 0.5% and 2%. For example, investing $10,000 for five years with a mutual fund that has an expense ratio of 1% will increase your annual cost by $100 each year. While small increases in costs like these may seem unimportant individually, they do add up over time—and they can add up quickly if you are paying them on hundreds or thousands of dollars per year.

Fees aside, it is important to understand that you may also need to pay taxes on any investment gains you accrue while working with an advisor. In some cases, you may even be required to pay capital gains tax regardless of whether or not your investments actually made money—in certain instances, if an investment makes less than $3,000 in total profit for example, it’s taxed at your regular income tax rate. If fees and taxes eat up too much of your potential returns from investing on your own, then hiring an advisor might seem like a better option. In other words: it can cost less to hire an investment advisor if you think its value will outweigh those fees and taxes over time.

How can an investment adviser help me?

Perhaps you’re saving for retirement, and want to make sure your plan is on track. Maybe you’re thinking about buying a house and need help deciding whether you can afford it. Or maybe your family is going through an emergency and you need some financial advice—fast. In situations like these, hiring a financial investment advisor can be really helpful, because he or she will be able to take over at those moments when you don’t have time to figure things out yourself. He or she will create a detailed roadmap for your future financial goals, helping you make informed decisions along the way.

If you’re currently looking for a financial investment advisor, there are several things to consider. For example, some advisors work with individuals and families, while others focus on businesses or high-net-worth clients. Before deciding on an advisor, you should always ask about potential conflicts of interest in his or her business relationships and whether he or she charges fees for services. One last thing to think about: How will your new advisor help you manage your finances? Will you meet face-to-face, have frequent phone calls or just exchange emails? You’ll want to make sure that you both feel comfortable with how communication will take place throughout your relationship.

Another important step is to make sure that your investment adviser is properly licensed, especially if you’re looking for help with retirement accounts or investments. You should always ask to see his or her professional designation or certification. The designations you’ll find most often are certified financial planner (CFP), Chartered Financial Analyst (CFA) and Certified Public Accountant (CPA). These credentials show that your advisor has met certain education and professional requirements and has passed exams—so they are helpful indicators of a good financial advisor. But remember: The amount of time spent studying isn’t necessarily an indicator of quality service. What’s more important is whether your advisor demonstrates professionalism and cares about helping you meet your specific goals.

Selecting the right professional financial planner.

Before you commit to a financial planner, it’s important to ask yourself how much time and effort you’re willing to invest in your relationship with them. Having someone work closely with you who is personally invested in your success makes sense from both an emotional and professional standpoint. However, if you have other commitments and can only schedule meetings during certain times, for example, hiring someone who is available on nights and weekends may be more convenient for you. No matter what path you choose, make sure that your advisor has experience working with clients like yours—and has expertise in areas such as taxes or retirement planning where they’ll be handling money-related tasks for you.

Once you’ve gotten an idea of what you want in a financial planner, it’s time to start meeting with people. Before your first appointment, take some time to think about what questions you have and what issues are most important to you. It’s also worth thinking through any advice you have heard or read and compare it with what your potential advisors have said so far—this will help you identify which planner is actually going to work best for your situation. Finally, ask yourself whether these meetings feel comfortable—when it comes to money, relationships matter more than almost anything else.

Once you’ve narrowed down your list to one or two financial planners, it’s time to start interviewing them. During these meetings, ask questions about any concerns you have and consider what they would do if they were in your shoes. If they don’t give specific answers or sound uncertain during their response, find out how they would handle that situation—this will help you understand how willing they are to work with your unique needs. To finish up each interview, tell them about your biggest concern or worry—and then listen closely for any ways in which their advice helps.

Starting off with an interview.

Now, your task is to start with an interview. Say you are interviewing four potential financial advisors, what will you ask them? You can use some very basic questions as well as some more specific ones based on how many years they have been in business, what services they offer and how much money you want to invest. Here are a few examples: 1) What made you get into financial planning? 2) How long have you been doing it? 3) Can I review your background checks and/or certifications? 4) How do you help someone achieve their retirement goals? 5) What fees do you charge and why is that fair? 6) Do you provide advice or just manage assets?

7) Are you a fiduciary? 8) Do you have any conflicts of interest? 9) What types of assets do you focus on? 10) Do you work with investment professionals as well as yourself? 11) Why should I trust you? 12) How do I know if your advice is working or not and how often are we suppose to review my plan together so that it can be fine tuned when needed.

13) How will you manage my student loans? 14) What is your investment strategy and what benchmarks do you use to determine if my portfolio is growing or not? 15) What happens when I lose money in my portfolio, how will you help me recover from that loss? 16) Can you guarantee that I’ll always get positive returns, even during a recession? 17) Is there anything else I should know about your services.

Tips on how to tell if the financial professional is right for you.

Choosing a financial investment advisor can be an intimidating task. Where do you start? What do you look for? How do you tell if they’re right for you? Here are some questions to consider when looking into hiring a financial investment advisor: Are they registered with their state’s securities commission? Can they demonstrate experience and background knowledge in your specific industry or sector? Do they have access to proven, time-tested strategies—or are they just learning as they go along and taking best guesses at what might work for your unique needs and situation?

Make sure they’re qualified. A licensed and accredited financial investment advisor should be able to provide detailed information about their academic qualifications, certifications, professional background and any other relevant experience in your industry or sector. Do they have an established track record of helping others succeed? Have they delivered on their promises in previous jobs? If so, how long ago did they do it? At what point should you start looking at specific references and ask for names of current clients? And finally: Does your gut tell you that everything feels right with them—that your personalities and communication styles match up well, or that your philosophies on money management are similar? When it comes to choosing a financial investment advisor, don’t be afraid to trust your instincts.

You should also be wary of potential conflicts of interest when you’re choosing an investment advisor. Some advisors can earn commissions and other fees based on the investments they suggest. You may not even be aware that these incentives exist if your advisor doesn’t tell you up front, so ask plenty of questions about how your advisor is paid before making any final decisions. How are they paid? Do they have any special interests or incentives to persuade you to choose certain products over others? Can you understand all charges and fees clearly?

Communicating with your financial professional.

Whatever your financial questions or needs, it’s essential to work with someone who makes you feel comfortable and confident. Ask for help communicating with your financial professional—don’t just leave your money in his or her hands without knowing how it’s being managed. If you don’t understand an investment decision, say so. Your advisor should be able to clearly explain his reasoning, and if he doesn’t, get a second opinion from another expert (many are happy to do an informal check-in). If you still have questions after receiving explanations or consulting others, ask some more. It’s better to spend extra time understanding exactly what is happening with your investments than to invest blindly.

Some financial professionals communicate directly with clients; others use technology to do so. A growing number of firms are using digital assistants, such as Apple’s Siri or Amazon’s Alexa, for example. Whatever method you prefer, it’s your responsibility to ask all questions, no matter how simple or obvious they may seem at first glance. While some topics are clearly too complicated for an online tool or email exchange to handle (any decision about withdrawing funds from retirement accounts immediately comes to mind), many more questions can be easily resolved by simply talking with someone face-to-face or via phone call and asking additional questions until you have full understanding of what is happening with your money.

The Federal Trade Commission has an online tool to help you select a financial professional. It asks about your goals, risk tolerance and concerns, such as loss of principal or guaranteed income, so it can match you with someone who’s right for you. Even if that initial list isn’t enough, don’t give up—or lose hope in finding someone who works well with you. Some people try out several advisers before they find one they like; if it takes time and patience on your part to get things right, that’s still better than continuing with an unsatisfactory situation.

Is there anything else I need to know?

While there are benefits to working with an advisor, you do need to be aware of potential conflicts-of-interest that may arise. If your advisor has other sources of income such as asset management fees or commissions, you might not be in their best interest because they’ll get paid regardless of whether they make good investment decisions or not. The best way to ensure that your advisor is putting your interests first is to make sure they’re fee-only and also have no conflicts-of-interest. This type of arrangement may cost more initially but it can help keep you from making emotionally driven investment decisions which could hurt your portfolio in the long run. You should always discuss fees, compensation and any potential conflict-of-interest before hiring an advisor.

There are advantages and disadvantages to having an advisor. If you work with one, you’ll have someone to discuss investment strategies with and help determine which types of investments are right for your situation. You may need help managing your portfolio as well if you’re new to investing, or if you just don’t have time for it. A lot of investment advisors also offer tax planning services, which can be especially helpful because filing taxes isn’t always straightforward when it comes to investment income.

However, there are some potential downsides to hiring an advisor. It may cost more than doing it yourself, and because investing can be difficult to understand at times, you may need to learn more about investing so you can make well-informed decisions. In addition, you’ll still have responsibility for your investments and could lose money if bad decisions are made. Even if your advisor does everything in their power to create good investment strategies for you, it won’t work unless you do your part as well by following through with those strategies. It’s ultimately up to you whether or not hiring an advisor is right for you.

How I can help

You should know that in making any financial decision, there are risks and rewards. You may not see them immediately, but over time these can be realized. That is why I am here for you, to help inform you and protect your money from any unnecessary risk or damage. I will help keep an eye on your investments so you don’t have to worry about where your money is going.

It is very easy to lose track of what your money is doing and where it’s going. For some people, that’s enough reason to seek out help from an investment advisor. I can give you personalized advice on how to invest your money and point you in directions for growth that fit within your financial plan. I can also keep a watchful eye on any investments you may have made or are thinking about making.

What is a Fiduciary Financial Advisor?

Nov 14, 2021 | Annuities, Insurance, Long Term Care, Planning, Retirement, Taxes

What is a Fiduciary Financial Advisor?

You might have seen the term fiduciary financial advisor thrown around, but what does that mean? What do you need to know about it if you decide to work with one? Here are some essential things to know and how they can help you. This includes information on their roles in general and specific information about certified financial planners and wealthcare advisors, two particular types of advisors.

Why Have One

A certified financial planner will work with you to create an individualized plan for wealth management, investment, and retirement planning. They are licensed professionals who can represent your interests in front of banks, insurance companies, and other professionals whose products and services will affect your life. Having a CFP on your side can mean having someone provide unbiased advice about every significant decision you make. With their help, you’ll be able to keep track of all income, spending, investments, and taxes–all while helping to minimize your tax burden. Whether you have money to invest or not at all–an experienced CFP can help take care of these day-to-day tasks.

When looking for a fiduciary financial advisor to help you handle your day-to-day finances, it’s also important to know what makes them qualified. When it comes to financing, investments, and tax advice, there are two types of advisors you can work with: fiduciaries and advisors. A CFP professional is a type of fiduciary who provides legal protections and standards of care for their clients above all else–meaning that they’ll never profit from giving bad advice that hurts their clients in any way. However, an adviser isn’t bound by these restrictions because they’re not held to such high standards as CFP professionals. You’ll have to look at each of them independently when choosing which one works best for your individual needs.

Once you know what makes a CFP professional stand out from other advisors, finding one in your area can be easier than you might think. Many operate out of banks and insurance companies. Still, they are also available through specific organizations, including The National Association of Personal Financial Advisors (NAPFA) and The Financial Planning Association (FPA). NAPFA was founded on three guiding principles: honesty, integrity, and competence–they only allow advisors who have been certified by the International Association for Financial Planning or hold similar credentials to join their organization. FPA was created to connect planners with people who need help creating personalized strategies for investment, retirement planning, insurance coverage, and more. You can search both organizations online to find someone near you that fits your needs.

Who Are They and How Much Do They Cost

A Fiduciary Financial Advisor is any individual, firm, or other organization (fiduciary) that meets one of several standards for being fiduciaries, namely: an agent who represents another person and has discretionary authority over assets held in trust by that person; an executor, administrator or trustee; and persons licensed under specific professional titles such as those of Certified Public Accountant, attorney-at-law or Chartered Financial Analyst. Another requirement to be considered a fiduciary are those who work on commission with no potential conflicts of interest. The term Financial Planner is often used interchangeably with Fiduciary Financial Advisor.

According to their professional guidelines, there are various standards and practices that those who can be considered an FIA must follow. The three main groups include Certified Financial Planners (CFPs), Certified Public Accountants (CPAs), and attorneys. It’s important to note that even if you work with an attorney or CPA who isn’t a Certified Financial Planner, you’re still protected by federal regulation.
Financial Advisors are commonly paid in two ways: on commission and fee-based. The majority of financial advisors fall into one of these two categories, with commission-based being slightly more common.

Commission-based advisors can be highly effective at motivating their clients to invest. Still, it would help if you looked for those who do not base their pay on selling products or who use a combination of commissions and fees that way. Sales commissions don’t bias them. The problem with commission-based advisors is when they have an incentive to recommend specific investments over others because it makes them more money.

Choosing The Right Financial Advisor For You

One of the most important things you can do in your financial life is to get proper guidance. A CFP® professional will take your needs and goals into account, as well as any potential conflicts of interest, to offer objective recommendations based on what’s best for you rather than best for them. You may think that anyone who has an advanced degree in finance or works at an investment firm would qualify as your CFP®, but that isn’t necessarily true. Only Certified Financial Planner® professionals who have met stringent educational, examination, and experience requirements can call themselves CFP® professionals.

Only CFP® professionals can call themselves CFP® professionals. You can check with your country’s regulatory body to find out whether someone you’re considering working with has earned their certification, but it may not be that easy. That’s because there are currently over 70 countries where individuals and firms offering financial advice can earn or use a similar credential called Certified Financial Planner. More than one hundred ninety-thousand advisors worldwide have earned the right to call themselves CFP® professionals.

By choosing a CFP® professional means, you’re choosing someone who will look out for your best interests. It also means that they’ve likely completed additional hours of continuing education to stay up-to-date on changes to tax laws and investment markets. And being independent allows them to put your needs ahead of those of any bank or investment company they may represent. Not to mention, being a CFP® professional prohibits from recommending products or services based on what’s most profitable for them, as a fiduciary financial advisor.

When To Hire A Financial Advisor

Finances are a world of confusion for many people. How do you separate your wants from your needs? Where should you invest, and how much money do you need to save for retirement if you want to maintain your current lifestyle after leaving your job? What are some investments with reasonable returns with low risk in today’s volatile economy? All these questions can overwhelm anyone. Suppose the person who answers your questions has no real vested interest in getting to know you. In that case, they will likely end up being nothing more than another source of frustration on top of everything else that life throws at us.

Before you hire someone to manage your finances, it’s important to ask yourself a few questions. Firstly, why do you need an advisor in the first place? Is it because you’re doing something wrong and need help correcting it, or are you in over your head and need guidance to ensure that you have all of your bases covered? Next, ask yourself if you can be objective when making decisions regarding your money. If not, then an unbiased source may be best for you. Then some people don’t want to be bothered with their finances but want someone there when they want to know about them.

Next, ask yourself if you have time to manage your money. That may be one of the most important questions of all. It’s very easy to say that you want someone there helping with your finances, but are you willing to put in the time and effort to get to know them and work with them? An advisor can’t do anything for you if they don’t know what’s going on in your life, which requires work. If you aren’t ready or willing to make that commitment, then an advisor isn’t right for you.

How Does the Advising Part Work?

Your insurance agent sells you an umbrella policy and commissions every policy sold. Your stockbroker pushes stocks that make him money, not necessarily stocks that are good for your portfolio. A financial planner who gets paid by commission might steer you toward products that pay higher commissions, like certain types of annuities or life insurance policies, even if they’re not in your best interest. They might also push products from companies whose executives have made political contributions to their campaigns—giving them access to high-profile politicians with campaign cash in return for prioritizing their clients’ needs above those of others.

A fee-only fiduciary financial advisor, on the other hand, works for you. He’s not allowed to sell you any products that aren’t in your best interest. And he doesn’t collect commissions from insurance companies, stockbrokers, or others who make money if they can convince you to buy a certain product. Instead, fee-only planners are paid by you directly in regular installments—similar to what you’d pay an attorney for services. If they believe you should buy something—for example, life insurance—you might need to go through another type of planner or company called an adviser (or independent broker/dealer) that does sell insurance and other products but works with your fee-only planner as part of your team.

Fee-only planners provide financial advice for a fee and do not sell any products. They’re sometimes called fee-based advisors or retainer advisors. The fee you pay is an hourly rate as you pay an attorney. So why would you ever hire a fee-only planner instead of another type of planner who makes money by selling insurance and other products and providing some financial advice?

Some Of Their Responsibilities When Working With Clients

A fiduciary has specific responsibilities when working with clients. These responsibilities can vary depending on their relationship with their clients. The term fiduciary comes from the law, meaning trustee or someone tasked with managing another person’s finances in their best interest. As a financial advisor, you might act as a trustee for your clients. However, since there are many types of relationships between people who give investment advice and those who receive it (including fee-only advisers, brokerage advisers, and insurance agents), there isn’t always an expectation that an adviser will take on fiduciary duties.

When you work with an fiduciary financial adviser, they should have your best interests in mind. If they don’t, you are at risk of not meeting your personal financial goals and objectives. Being partnered with someone who has only their interest in mind (or someone else’s interest) can ultimately cause issues like misallocating assets and earning suboptimal returns on investments. There are legal protections put into place for people who hire advisers to help them invest their money.

There are two main types of investment advisers: fee-only and fee-based. A fee-only adviser does not receive any compensation from commissions or sales, so you can be sure that they won’t have an incentive to sell you something because it’s in their best interest. Instead, these advisers get their compensation through fees charged directly to you for their services. These services may include planning your investments, managing your portfolio, reviewing your account performance, and paying taxes on any gains from your investments. Some people call these fee-based investment advisers, but they mean more or less the same thing; they’re just synonyms.

Areas That Fiduciary Financial Advisors Handle.

Fiduciary Financial Advisors are legally bound to work for their clients and in their best interest, which protects both parties. The fiduciary concept comes from Latin and refers to being loyal or trustworthy; in legal terms, advisors must not place themselves ahead of their clients. A fiduciary financial advisor might oversee all your day-to-day finances or specialize in one area (taxes, investments, estate planning). Most importantly, they act as a buffer between you and any conflicts of interest your advisers might have.

A fiduciary may also provide you with financial planning, starting with an initial consultation. They will review your current situation to see what you can realistically achieve in terms of goals like buying a home or retiring early and create recommendations to help you get there. You can ask them about estate planning, taxes, and insurance as well, so they are pretty much up-to-date on anything that affects your assets and help maximize your wealth. They work with different types of assets, including cash accounts, stocks, and mutual funds, so they should have expertise in one or more of these areas; their value depends on how relevant it is to you personally. A non-fiduciary advisor may have similar knowledge but isn’t obliged to put you first.

A good financial adviser can handle some of your day-to-day finances, or they can offer advice. Either way, you should be sure to find one who’s properly licensed and registered and check their professional background before hiring them. Your country might have regulations governing different aspects of financial advisors’ practices. For example, Australia requires advisers to act in their clients’ best interests at all times.

Life Insurance Advice From A CFP® Professional

Questions to Ask When Buying Life Insurance — Many people don’t think about buying life insurance until too late. Unfortunately, that means that you have to buy coverage when you’re emotional—which can be pretty difficult. That’s why CFP® professionals are great advisors: they help you navigate these critical decisions before they become urgent. An excellent place to start is by asking yourself some questions and looking for answers.

But it’s important to remember that life insurance policies are complex and full of nuances, so getting an insurance expert on your side can help you get all of these questions answered. And if you don’t know where to start, start by making a list of questions: How do life insurance policies work? What types of life insurance are there, and how can they help my family after passing away? How much coverage should I get? After you’ve figured out what questions you want to ask, schedule an appointment with a CFP® professional. They will be able to help you sort through your options and answer any questions that you have.

Once that’s done, your life insurance adviser will help ensure that all of your bases are covered so that your family won’t be left hanging in case something happens to you. It can be challenging to ensure that everyone’s financially protected when someone passes away—but it doesn’t have to be. Start by asking yourself these key questions and seeing where they lead. Remember: You don’t need to go into these discussions alone!

Tax Planning Services For Individuals And Small Businesses

The client/counselor relationship with a fiduciary financial advisor isn’t just about taxes. The broad definition of financial planning includes more than just tax advice. It also provides:

Guidance on life insurance and annuities.
Wills and estate planning.
Retirement planning.
Income tax planning.

And business strategy. Some advisors say that wealthcare is a better way to define their work because it encompasses short-term wealth management (taxes) and long-term investment strategies. No matter how you slice it, an advisor can assist clients in forming sound plans for their future while providing counsel they can follow through on every step of the way.

The IRS makes it pretty clear that any professional who suggests or recommends tax-related actions to their clients must operate as a fiduciary – meaning they’re required to act in their client’s best interest at all times. As a result, advisors who work for banks and brokerages aren’t necessarily allowed to act as fiduciaries because of conflicting interests; advisors at these institutions have incentives to sell certain products because they earn commissions from them. The term fiduciary may sound official and complicated. Still, it simply means that an advisor has an obligation—as well as a legal liability—to be transparent about fees and other compensation. Hence, there aren’t any hidden surprises that might come back to bite you.

The potential rewards that come with working with a trustworthy, knowledgeable, and client-focused financial planner are many, including peace of mind. Once you know what to expect regarding taxes and other related issues, you can stop worrying about them so much—that’s some profound relief. If you’re interested in meeting with one of these types of advisors for yourself or your small business, start by asking friends and associates if they can recommend someone in your area who might be able to provide advice on tax planning services as well as other related matters. Because most states do not regulate advisors or their work (because it falls under federal jurisdiction), there isn’t any required licensing or certification for professionals—meaning anyone can call themselves an advisor.

How I can help

My job is to help people make sure they are receiving appropriate services (or establishing relevant accounts) based on their unique goals and circumstances and pay a fair price for those services. So if someone needs help designing an estate plan that minimizes tax liability while preserving assets for heirs, that’s part of my job; if someone needs investment advice to grow capital safely through retirement, that’s part of my job too.

I see my role as part of your team. Your job is to run your business, and I’m here to help you make sure you have access to all of your relevant documents, statements, and tools at any time in an organized manner so that you can spend less time worrying about financial paperwork and more time running your business.