Choosing between retirement accounts is a decision that affects your financial future, even though it may seem like no one gives much thought to the choice. Understanding the key differences between retirement accounts can be beneficial for making an informed decision and caring for your future self. A Roth IRA (Roth) allows you to contribute after-tax dollars today with the benefit of tax-free withdrawals in retirement.  A Traditional IRA (IRA) offers tax-deferred contributions meaning you pay taxes on withdrawals in the future. The advantage of an IRA is that you can go tax-free today. This decision can be made strategically, influenced by your tax bracket, future income expectations, and retirement goals.

For example, there is a postgraduate individual working for a civil engineering firm. The company comes ready to set up a retirement account and asks to choose an IRA or a Roth. Assume that the individual desires to retire at the age of 65 and does not plan on withdrawing distributions from their retirement account until they are officially retired. At that point, their tax bracket drops significantly, because they go from c-suite positions at their civil firm to a lower income. This would make them a good candidate for a Traditional IRA, because they will experience tax advantages in their retirement, even though they will still be paying taxes. The advantage lies in the fact that they are in a lower tax bracket at the age of 65 than when they were in their early 20s just starting their career.

Now, let’s explore a situation where we might choose a Roth IRA. Some people anticipate that pension income, taxable investments, rental income, or part-time work could place them in a higher tax bracket than during their primary earning years. This could be a situation where they might be a good candidate for a Roth IRA. They will pay their taxes up front while they are still in that lower tax bracket. Assuming their income continues to grow into retirement they will then be able to pull from their accounts tax-free.

The interesting news is that Roth conversions are possible, meaning you can convert your Traditional IRA into a Roth IRA. Some people choose to convert a particular year of lower income to a Roth to capitalize on the lower income tax year. Another reason for a conversion could be to maximize your estate for your family. You will pay the taxes up-front, but your heirs will be able to withdraw that money tax-free.

There are many factors to consider when choosing a Roth IRA or a Traditional IRA and it really depends on the trajectory of your life and your goals. It can be empowering to have the financial literacy to make an informed decision. The tricky part about choosing is it can be challenging to anticipate what your life will look like 10 to 40 years from now. All we can do is consider who we want to be and where we want to be, and plan accordingly.

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The post A Great Debate: Traditional IRA vs. Roth IRA appeared first on New Century Investments.

Welcoming a New Child

The birth or adoption of a child is a joyous event that also brings new financial responsibilities. A CFP can help you understand the costs associated with raising a child, such as healthcare, education, and daily living expenses. They can recommend strategies to save for college, suggest suitable insurance products, and guide you in updating your will or estate plan to include your new family member.

Dealing with the Loss of a Spouse

The death of a spouse is an emotionally challenging time, but unfortunately, it’s also a time when important financial decisions need to be made. A CFP can provide the necessary guidance to navigate these decisions, helping you understand the impacts on your income, retirement plans, taxes, and estate. They can also assist with tasks such as claiming life insurance benefits and transferring assets.

Managing a Divorce

Divorce can significantly alter your financial landscape. A CFP can guide you through the financial aspects of a divorce settlement, ensuring you understand the implications on your income, assets, debts, and retirement funds. They can also provide advice on adjusting your budget and financial plans to accommodate your changed circumstances.

The guidance of a CFP during these significant life events can provide not only financial clarity but also peace of mind. By helping you navigate the financial complexities of these situations, a CFP allows you to focus on the emotional aspects of these transitional periods in life. Additionally, a CFP can provide ongoing support and assistance as your financial needs evolve through various stages of life.

As we face these significant life events, having a trusted partner like a CFP can make all the difference in how we emerge financially on the other side. Don’t hesitate to seek out their guidance and expertise during these times – it’s an investment in securing your financial future. So, let a CFP be your guide as you navigate these significant life events with confidence and peace of mind.

With their knowledge and expertise, coupled with your unique goals and values, together you can create a solid financial plan that will help you weather any storm and achieve your dreams for the future. Remember, life may throw us curveballs, but with a CFP by your side, you can stay on track and continue moving forward towards a bright financial future. So why wait? Start collaborating with a CFP today and embark on the journey to achieving your financial goals and dreams!

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt’s Corner

The post Navigating Major Life Events with a Certified Financial Planner appeared first on New Century Investments.

The Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE Act 2.0) was passed in late December, 2022, and it aims to make retirement saving more accessible and more secure for individuals. This comes after the SECURE Act 1.0 of 2019 that passed, delaying RMDs from age 70 ½ to age 72, among many other new provisions.

Here are some of the latest tax law changes for retirement:

• Required Minimum Distributions (RMDs) begin at age 73 and will start at age 75 beginning in 2033. (You can still take out from your IRA as early as age 59 ½)
• The what-used-to-be 50% penalty for missing an RMD is now only 25%. And if you catch the error within a reasonable time, the penalty is just 10%. (No more are the days of 50% penalty)
• More flexible rules on Inherited IRAs for surviving spouses who inherit retirement accounts from a younger spouse. (Think better for the widow or widower)
• Increased employer retirement plan catch-up contributions for participants in their early 60s. (This means more money and more tax savings too!)
• Retroactive First-Year Solo-401(k) plan deferrals allowed for sole proprietors. (High earners paying too much tax can now take advantage of another strategy)
• IRAs now allow 50 and up who separated from service (firefighter, public safety officer) to withdraw early and avoid 10% penalty. (Thank you for your service, I guess the IRS agrees)

The SECURE Act 2.0 is a great reminder that retirement saving and planning can be complex, but these new laws are designed to help make it easier for everyone to save for the future. Whether you are just starting out or winding down your career, make sure to take advantage of these changes in your individual retirement plan where possible. Even earning just an additional 1-2% per year through tax planning, budgeting, and investing will make a huge difference over 10+ years.

Have any questions? Call today! 817-238-6300

Happy Retirement Planning!

Matt Ward, CFP^®

New Century Investments

The post New Rules for Retirement – The SECURE Act 2.0 appeared first on New Century Investments.

Planning Tips for Long-Term Care

As our population ages, more and more baby boomers are finding themselves in the position of having to take care of their elderly parents. If you find yourself in this situation, there are some things you need to know about long-term care planning and estate planning.

Long-Term Care Planning: What it is

If your elderly parent needs help with activities of daily living such as bathing, dressing, eating, or using the restroom, then they will likely need long-term care. Long-term care can be provided in a variety of settings, including at home, in an assisted living facility, or in a nursing home.

Elderly parents sometimes resist the idea of needing long-term care, but it’s important to have a plan in place in case they do need it. You should start by talking to your parent about their preferences for long-term care. Do they want to stay at home? If so, what kind of assistance do they need? Are they open to the idea of moving to an assisted living facility or nursing home? If so, which one would they prefer?

It’s also important to talk about how you will pay for long-term care. Long-term care is very expensive, and most health insurance plans don’t cover it. There are several options for financing long-term care, including long-term care insurance or Medicaid to name a couple. You’ll need to explore all of these options to find the one that makes the most sense for your family.

Options for Long-Term Care Planning

Paying Out-of-Pocket

One of the biggest concerns for Americans as they age is how to pay for long-term care. The costs of long-term care can be significant and are often not covered by health insurance or Medicare. There are a few options available to help you plan and pay for long-term care, which we will discuss below.

Saving for the Expenses

One option for paying for long-term care is to simply save upfor the expenses. This can be done by setting aside money each month into a savings account, or investing in a long-term care policy. The downside to this approach is that it can take years to save up enough money to cover the costsof long-term care, and there is no guarantee that you will have enough when the time comes.

Long-Term Care Insurance

Another option for paying for long-term care is to purchase a long-term care insurance policy. Long-term care insurance policies are designed to cover the costs of long-term care, up to a certain limit. The benefit of this approach is that it can help to protect your assets in the event that you need long-term care. The downside is that long-term care insurance policies can be expensive, and they may not cover all of the costs of long-term care.

If you are considering purchasing a long-term care insurance policy, it is important to shop around and compare policies. Be sure to read the fine print carefully, and make sure that you understand what the policy covers and does not cover. Long-term care insurance often is an expensive way to save. It is also important to keep in mind that most long-term care insurance policies have age limits, so if you are older when you purchase the policy, it may not cover you.

Qualifying for Medicaid

If you are unable to pay for long-term care out of pocket, or if you do not have long-term care insurance, you may be able to qualify for Medicaid. Medicaid is a government program that provides health coverage for low-income Americans. To qualify for Medicaid, you must meet certain income and asset limits. If you qualify for Medicaid, you may be able to get help paying for long-term care.

To qualify for Medicaid, you must have a limited income and few assets. The income limit varies by state, but is typically around $2,000 per month. The asset limit is usually around $2,000 for an individual. This means that if you have more than $2,000 in assets, you likely will not be able to qualify for Medicaid. While there are some assets that are not counted when determining if you qualify for Medicaid, most likely if you have income or assets, you will not qualify initially. However, there are strategies that an attorney who specializes in elder law will know about. We know about them too. They consist of elder law strategies that help you protect your assets while still qualifying for Medicaid.

Estate Planning

Another important thing to think about when taking care of an elderly parent is estate planning. Estate planning is the process of organizing your finances and property so that they can be distributed according to your wishes after you die. It’s important to have an estate plan so that your loved ones don’t have to make difficult decisions about your finances and property
during a time of grief.

There are several things you’ll need to think about when creating an estate plan. First, you’ll need to choose someone who will be responsible for carrying out your wishes. This person is called a personal representative or executor. You’ll also need to decide how you want your assets to be divided among your heirs. Finally, you’ll need to create documents that detail your wishes so that there is no confusion after you’re gone.

Recap

Creating a long-term care plan and estate plan is essential if you’re taking care of an elderly parent. These plans will ensure that your parent is taken care of according to their wishes and that
their finances and property are handled according to your wishes after they pass away.

Take the next step!

Do you need help planning for long-term care? Do you have an elder parent that you care for? Then contact us at New Century Investments and we are happy to meet with you. We will listen to your situation and provide you with a roadmap for reaching success.

Contact us today! 

Matt Ward, CFP®

Book a call here!

Email: Matt.Ward@newcenturyinvestments.com

Phone: 817-238-6300

The post Taking Care of an Elder Parent? Planning Tips for Long-Term Care appeared first on New Century Investments.

Retirement is an exciting life milestone that requires years of forward planning. Once you’re retired, however, the financial planning doesn’t stop. In fact, there are many things to consider after one retires to ensure they are set up for success. 

Let’s look at the top three financial challenges that happen after retirement, including accurately determing how long your nest egg will last, knowing when to draw on various sources of retirement income, and knowing how to strategically control your tax bracket so you don’t end up paying more in taxes. 

How Long Will My Nest Egg Last?

It’s impossible to know exactly how long your savings will last, but there are a few important factors to consider. Consider your expenses and budgeting, taxes, and inflation. 

Budgeting

As you plan for your retirement income distribution, it’s more important than ever to establish a realistic budget and stick to it. Overspending, even for a short period, can shave years off the longevity of your assets. Calculate your monthly income given your withdrawal strategy, and then create a budget. Then make sure to track your income and spending along the way so you stick to your plan. 

Taxes

Unfortunately, you won’t get to keep all the money that’s in your retirement savings account due to taxes. Different sources of retirement income are taxed differently (as we will explain below), but it’s important to know whether or not your savings are/were tax-deferred. For example, with a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. (1)

Inflation

Another important factor to consider when determining how long your money will last is inflation. As of this writing, the annual inflation rate for the United States is 8.3% for the 12 months ended April 2022 after rising 8.5% previously. (2) Inflation means that a dollar a day is worth less than a dollar tomorrow, so by the time you retire (or as you live in retirement), your money won’t have the same buying power. This is important as you project 10, 20, or 30 years into retirement. 

Drawing on Various Sources of Retirement Income

How you take your money out in retirement is just as important as the years you spent saving your money. Strategically drawing on these sources of income includes tax planning, reviewing your tax return, and, most importantly, distribution optimization. That’s why you should capitalize on your wealth by determining a tax-efficient way to withdraw funds in your golden years. 

Different financial accounts are taxed at different rates. Traditional IRAs and 401(k)s get taxed at the ordinary income tax rate when you withdraw. Roth IRAs and Roth 401(k)s are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different from your ordinary income tax rate. 

Calculating when might be the best time to pull from each account is enough to give anyone a headache. However, the last thing anyone wants is to get hit with a hefty tax bill when trying to stretch their money for decades. Create a withdrawal strategy with the help of a trusted professional who can assist you in withdrawing funds at a sustainable rate and help ensure that you’re doing it in a tax-efficient way.

Using Your Tax Bracket to Your Advantage

In addition to making your nest egg last throughout retirement, another advantage of budgeting your assets is to come up with a plan for tax savings. One of the financial mistakes we see people make in retirement is leaving opportunity on the table. Maybe the individual has an opportunity for Roth conversions. Another common mistake might be withdrawing too much money and ending up in a higher tax bracket. You should consider your expenses and withdrawal strategy in terms of today’s tax brackets. Here are the tax brackets as of 2022: (3)

• 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly)
• 35%, for incomes over $215,950 ($431,900 for married couples filing jointly)
• 32% for incomes over $170,050 ($340,100 for married couples filing jointly)
• 24% for incomes over $89,075 ($178,150 for married couples filing jointly)
• 22% for incomes over $41,775 ($83,550 for married couples filing jointly)
• 12% for incomes over $10,275 ($20,550 for married couples filing jointly)

Tackle These Financial Challenges With Ease

These are just a few of the many financial challenges and concerns you will face in retirement. If you need help tackling these or other challenges, we at New Century Investments would love to help. Schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt graduated from Texas Tech University with a bachelor’s degree and is a Certified Financial Planner™ and Chartered Retirement Planning Counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

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(1) https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/

(2) https://www.usinflationcalculator.com/inflation/current-inflation-rates/

(3) https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

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