Did you have trouble learning to handle money as an adult? Did your parents teach you about money when you were a child? What are you teaching your children about money; its value, your relationship to it; as well as how to handle it?
Parents teach their children many things, both good and bad. Behaviors and beliefs are implanted from a very young age, both consciously and unconsciously. Only by understanding your own relationship to money, can you teach your children to respect and use money for their own benefit, and the benefit of others.
A qualified finance planner can help you better understand your relationship to money, which will also help you better teach your children the value of money and how to establish a healthy relationship to money. (more…)
The evolution of our tax code has created an alphabet soup of retirement account options, making our choice of investment accounts for retirement confusing. A case in point being the difference between a Roth IRA or 401k, and a Traditional IRA or 401k. A personal financial manager can help you understand these differences, as well as helping you decide which will be the most benefit to you and your financial goals.
What is the difference between a Roth IRA or 401k, and a Traditional IRA or 401k? Simply, contributions to a Traditional IRA or 401k are made pre-tax, reducing your current tax burden, while Roth contributions are made post-tax. However, during retirement, distributions from a traditional IRA are taxed as ordinary income while Roth account distributions are taken tax-free. Growth is tax-free in both cases – no capital gains tax or tax on investment income is assessed on assets in either plan.
The way the math works, if tax rates stay exactly the same, the Roth and the Traditional IRA/401k will end up with the same after-tax retirement benefit in the future. If tax rates go up, however, the Roth delivers higher after-tax income in retirement. In other words, when deciding among investment accounts for retirement, a Roth IRA or 401k is a wonderful hedge against higher taxes at retirement. When you consider the current fiscal crisis and the level of debt this country has built over the past decade, an environment of rising taxes is likely. By investing in a Roth plan, you can protect some of your retirement income from higher tax rates.
Roth vs. Traditional IRA/401k
- Roth IRA contributions are limited based on income. HOWEVER…many employer 401k plans now have a Roth 401k option. These plans do not have income limitations.
- Distributions from Roth accounts are tax free in retirement. Although you receive no tax deferral when you contribute to your plan, a Roth can be an effective strategy to hedge against higher taxes in the future. Balancing your retirement dollars between Roth and Traditional retirement plans adds a layer of diversification of future income sources and a way to hedge your retirement tax bills.
- In a Roth account, there is no annual minimum distribution required at age 70 ½ as there is with a Traditional plan – so tax free growth can continue throughout your lifetime. This can be a terrific tax-efficient strategy for leaving assets to your kids – while still having those assets available to you during your lifetime.
- Converting an IRA from traditional to Roth is another way to build Roth assets into your financial plan and also has no income limitations currently. However, when you convert, income taxes are due on the amount converted. A competent personal finance planner or tax advisor can help you create a conversion strategy.
Many people believe they will be in a lower tax bracket in retirement because they won’t be earning as much – concluding that a Roth plan does not make sense for them. However, unless you will be relying mostly on Social Security Income in retirement, chances are that your taxable income in retirement will be high because distributions from Traditional retirement plans are taxed as ordinary income.
A Roth IRA or 401k provides a powerful strategy to hedge your retirement tax bills and extend your tax-free growth benefit. If your employer provides a Roth option in your 401k plan, you have easy access to building your Roth retirement accounts.
At Tamarind Financial Planning, we will use our individual financial planning strategies and personal investment management techniques to help you decide whether you can benefit from a Roth, as well as exactly how to best diversify your investments for retirement.
Do you remember the 1983 movie “Mr. Mom,” in which Michael Keaton struggled with the role reversal of being a stay-at-home dad? Do you remember all the things he had to learn to run the household? It was hilariously funny to watch Keaton struggle to do all of the tasks that Teri Garr handled so effortlessly. Moms of the day could relate! The movie shone a spotlight on the value provided by the stay-at-home spouse and difficulty in replacing that person’s skills.
The role of the stay-at-home parent is an incredibly valuable job. Just imagine the cost of hiring someone, an outsider, to perform all the tasks required to efficiently run your household on a daily basis. One estimate of the value of the tasks performed by the stay-at-home parent, in 2009 dollars, was over $122,000. (more…)
Did you ever bet on a “Sure Thing” – and lose? Have you recently jumped on a market trend, only to miss the big return that “everyone else” seemed to enjoy? Do you sometimes “go with your gut,” only to realize you were not really making a smart choice – you simply had indigestion? How’s that tummy feeling now?
A personal finance planner is exactly what you need to help you avoid emotional responses to an irrational market.
“Yes, we live in trying times, and investors should be concerned about a feeble economy and volatile, often irrational markets. But now more than ever, we need to shunt aside emotions and approach our investments with logic and detachment, and take a long-term view,” writes Bob Frick, Senior Editor, Kiplinger’s Personal Finance in a timeless Kiplinger’s personal finance article “How to Be a Better Investor.” (more…)
When it comes to real estate, we are told it is all about location, location, location. When it comes to money, we are told we need more, more, more. However, this begs the question, “How much is enough?” Through the use of our personal investment management strategies and individual financial planning, we can help you answer this question; for yourself and your family.
The messages we receive every day, from radio, television, and all over the internet teaches us to focus on always striving for “More.” But, how much is enough? How much is enough to eliminate the fear of running out of money? How much is enough for us to relax and be happy? (more…)