SIMPLE IRAs are often mentioned when talking to clients. They either have one with a previous employer or want to know if they would benefit from opening one themselves. SIMPLE IRAs have unique characteristics and rules. Educating yourself on these rules will give you a better understanding of what a SIMPLE IRA is and who it is for. What is a SIMPLE IRA? A SIMPLE IRA is a low-cost plan for self-employed or small business owners that is low-cost and easy to maintain. Who is it for? SIMPLE IRAs are for self-employed individuals or businesses with 100 or fewer employees. A caveat is that it must be the only retirement plan you fund. If you already have an existing employee retirement fund, you are not eligible to establish a SIMPLE IRA. Who is eligible? All employees who have received at least $5,000 in compensation in any of the two prior years or are expected to receive (at least) $5,000 in the current calendar year. Side Note: You can impose or eliminate less restrictive eligibility requirements for prior year compensation. How is it funded? SIMPLE IRAs are funded with salary-deducted contributions and annual employer contributions. Eligible employees can decide whether to contribute/participate, but employer contributions are mandatory. Contribution Limits (2024) Eligible employees may contribute 100% of their compensation or a maximum of $16,000. If they are 50 or older, that amount is increased to $19,500. Administering Information SIMPLE IRAs must be established by October 1st if you will make contributions for that same year. Annual employer contributions must be made by the employer’s tax filing deadline. In addition, plan vesting is immediate, and employer contributions are tax-deductible. Early Withdrawal Penalties Withdrawing from your SIMPLE IRA will result in income tax paid. However, additional penalties may be paid depending on your age and time in the plan. If you withdraw any amount before age 59 ½, you will be charged an additional tax of 10%. This tax increases to 25% if you withdraw within 2 years of first starting to participate in the plan. Are they right for you? SIMPLE IRAs have more intricacies than the ones listed, but hopefully, the broad overview of SIMPLE IRAs has helped you understand their purpose and function better. If you think you or your business would benefit from setting up a SIMPLE IRA, reach out to your advisor. If you don’t have an advisor, Whitaker-Myers Wealth Managers has a team of financial advisors with the heart of a teacher able to help explain and answer questions you may have. Schedule a meeting with one, as they can assess your situation personally.

There is much to be said about having a home to call your own. If you’ve worked to purchase your first home (mortgage-free or even just a down payment), good for you—your hard work has paid off! Not only is it a wise investment, as real estate tends to appreciate over time, but it can also serve your family practically by giving you the space you need and the ability to customize your living spaces. Unfortunately, dream homes don’t grow on trees. So, finding a house in your price range that can check most of your boxes is the first thing to do. Making that house into a home is a whole other beast. Renovations to your home, especially those done by professionals, can cost up to tens of thousands of dollars, depending on the magnitude of the project(s). In this article, we’ll look at a few budget-friendly upgrades you can make to your home that will change the feel and add value without costing you dearly. Replacing Outlets, Switched and Wall Plates Living in a house previously owned by someone else can be challenging at first, as it often still smells and feels like them. A fresh coat of paint is one of the best ways to brighten a room and immediately change things. Any time we’ve moved, the first thing we do is paint the bedrooms and main living space to a color(s) that makes it feel like ours. If you want to take it a step further and complete the look, I recommend replacing the almond-colored outlets and light switches with white ones. Many homes built before the 2010s used the off-white, almost yellow-looking almond switches. Making the switch and changing these out to white-colored wall plates can brighten the space at minimal cost. Be sure you’re comfortable working with wires, or you find a trusty friend who has done so before. I’m not giving you electrical advice, nor am I qualified to do so, so be careful and consult a professional if you’re unsure how to do this safely and correctly. If you do this right, it’ll brighten your home for just a few dollars. Replacement 15 Amp Wall Outlet: $0.77 Replacement Single Pole Light Switch: $.085 Replacement Cover Plates: $.46 New Light Fixtures At the risk of this sounding like an article about electrical work, I share another recommendation involving wires. Replacing the dining room chandelier, bathroom vanity light fixture, and even a ceiling fan in an outdated bedroom will make your house feel like a home. Again, I would suggest talking to a professional if you have not done electrical work before. Still, a project like this typically involves minimal tools to get the job done. If you check your local home improvement store for deals, they usually have good options for new light fixtures and ceiling fans for under $100. Here are some deals I’ve recently seen online: Replacement Fan: $50 Replacement Vanity Light: $19.99 Landscaping With spring in full swing, it makes sense to address the outside of your home for a little bit of curb appeal. New plants, mulch, and professional landscaping services can be another significant expense. Buying some perennial flowers is one way to freshen up the look of your home’s exterior on a budget. That one-time investment will pay off yearly as those flowers return year after year. If you buy bulbs that are also perennials, you can get them for under a dollar a piece, depending on the flower. It’s a cheap way to add a pop of color and make your house look like your home on the outside. Another tip is to edge your walkways, driveway, and flower beds with a line trimmer after mowing. This creates clean lines and adds a professional flair to your exterior. Battery-powered line trimmers can be found online for less than $100. Flower Bulbs: $0.72/bulb Line Trimmer: $ 49.99 These little changes will allow you to customize your space without spending top dollar on significant renovations. If you enjoy a weekend project or working with your hands, be careful because these little fixes will show you how capable you are of taking on even bigger projects. They could be the tip of the iceberg of future projects to come—I know from experience! If you are trying to make a house a home with multiple things on the to-do list but don’t have enough in savings to accommodate them and need to work on a budget but don’t know where to start, reach out to our financial coach to help create a customized budget plan that can include these weekend projects just for you!

I came across the topic of “Asset Location vs. Asset Allocation” a few weeks ago when I was reading, and knowing how similar they sound, I thought they would make an excellent article to write. Asset Allocation and Asset Location are two completely different strategies but must be understood to build the most effective portfolio that aligns with your goals. Let’s first dive into Asset Location. Asset Location Asset location is the process of placing your investment selections into specific accounts based on tax status. This is done with one goal in mind: appropriately managing and planning your tax liability during your investment cycle's growth and distribution phases. There are many discussions around retirement savings and planning, but many don’t consider the tax liabilities that may occur during retirement. This is why an accountant and financial advisor are essential, valuable members of your investment team. Depending on your account type and investment type, your tax liabilities may be near or far-term. Consider: Taxable accounts: Index and other Passive accounts Growth Funds with low turnover Tax-managed funds REITs Municipal bonds Tax-Deferred accounts: Dividends Most taxable bonds Actively managed, high-turnover funds Partnerships (MLPs) Asset location essentially answers the ‘where’ question: “Where should I invest to align my goals with a tax-efficient plan?” Asset Allocation On the other hand, Asset allocation answers the ‘what’ question. “What should I invest my money in?” This is where you or your advisor helps select the funds and classes you invest in. If you’re interested in learning more about asset classes, enjoy this quick read: Asset Classes: Understanding your investments (whitakerwealth.com). Asset allocation is more than just selecting assets or asset classes or assigning a percentage to each. It is the output and culmination of the various inputs that the investor provides to their advisor. This includes four key input components: The time horizon of the investment(s) and investor Strategic goals of the investor Objectives of the portfolio Investor risk tolerance Each of the four items listed above has a qualitative and quantitative component. Recently, I’ve seen many complex methods that try to quantify and stratify an investor's risk tolerance. These are done through surveys, scenario builds/discussions, or, most commonly, interviews. However the data is collected, the goal is to define and align all four key inputs to build a targeted asset allocation plan. *An important aspect of asset allocation I purposely avoided was selecting funds with low correlations. I’ve discussed this in detail in this post if you’re interested in learning more about it: Correlation of Assets in Your Portfolio (whitakerwealth.com) Does it even matter? Well, simply put, yes, it does! Knowing what to invest in and where to invest it will significantly influence your ability to meet your strategic goals in the future. Winning the lottery is not a good plan, but the team of Whitaker-Myers Wealth Manager Teachers(advisors) is ready to work with you to achieve your goals. Schedule some time with our team to explore this further and get on the right path. Next week, we’ll take this topic one onion peel further, digging into strategic, tactical, and dynamic allocation portfolios. Stay tuned!

Often, in the financial world, terminology can be used that the average person may not understand or have a firm grasp on what is being said since they don’t use it in their daily life. As we strive to have the heart of a teacher here at Whitaker Myers Wealth Managers, we find it important to educate others on what these terms mean and what they imply for the client. This article is intended to inform the reader about what an RMD is and what rules are associated with it. What is an RMD? RMD is an acronym for “Required Minimum Distribution”. RMDs apply to Traditional IRAs, Simple IRAs, SEP IRAs, Inherited IRAs, and most employer-sponsored retirement plan accounts, such as 401(k)’s and 403(b)’s. Your Roth accounts, including Roth 401(k)’s, Roth 403(b)’s, and Roth IRA’s, are not subject to RMDs. Inherited IRAs also follow different rules than all other accounts; because of that, we will talk about those last. When do RMDs start? RMDs typically start April 1st following your 73 birthday. One exception for this applies to employer-sponsored plans. If that company still employs you, then you are not subject to RMDs for that plan only. If you were to have an employer-sponsored plan from an old company that you no longer work for but are employed by a different company, then you are required to take RMDs from your former plan but not your current one. This exception does not apply if you own 5% or more of the business sponsoring the plan. Inherited IRAs Inherited IRAs are very different from these rules. The type of account doesn’t matter for Inherited IRAs, so both Roth and Traditional accounts are subject to the same RMD rules. Rules for Inherited IRA RMDs differ based on the year of death, the relation with the deceased, and the age at the time of death. If the person you inherited the IRA from passed before 2020, you have the option to roll that account into your IRA if you are the spouse. The other options for both spouses and non-spouse beneficiaries are to take distributions based on their own life expectancy, or they may follow the 5-year rule. The 5-Year and 10-Year Rule The 5-year rule says that the account must be liquidated by the end of the 5th year after the year of death. If the person were to have died in 2020, the year 2020 does not count towards their years. There is no required way to take these distributions as long as the account is empty at the end of the 5th year. Theoretically, you could withdraw the whole account on the last day of the 5th year. If the deceased passed after 2020, age becomes a factor. If they were over 75, the spouse has the option to roll the account into their own IRA or take distributions based on their own life expectancy. Non-spouses have some stipulations with them. There is such a thing as an “eligible designated beneficiary” with them. This is considered a disabled or chronically ill individual or an individual who is not more than ten years younger than the deceased. An eligible beneficiary has the option to take distributions over their life expectancy or follow the 10-year rule. In contrast, those individuals not considered eligible designated beneficiaries can only follow the 10-year rule. The 10-year rule requires the account to be liquidated within ten years, but it is on a schedule (unlike the 5-year rule). If they were not over 75 when they passed, then the rules look slightly different. The spouse can delay distributions until the deceased would have turned 72 if it applies, take distributions based on their life expectancy, follow the 10-year rule, or roll the account into their own IRA. Non-spouse beneficiaries must follow the 10-year rule regardless of whether or not they are eligible designated beneficiaries. Consulting with an advisor These rules can be very difficult to follow, so the best course of action is to check with your advisor to ensure you are following them correctly. If you do not have one, schedule with one of our ten financial advisors on our team; they would be happy to help!

When you think about risk, do you immediately think of the probability that some unfavorable outcome will occur? Most of us do. However, risk is defined as the chance/probability that the result will differ from the expectations. So, inherently, risk can be positive or negative. Sounds counterintuitive, right?  I believe the best way to understand this concept is to look at it mathematically and graphically. Risk as Standard Deviation You’ve probably seen risk defined as ‘beta’ or standard deviation or any other slew of metrics, but in today’s discussion, we’ll focus on standard deviation.  If you want a refresher on other risk metrics at a high level, read this previously posted article I wrote, Investing Metrics, Key Risk Metrics (whitakerwealth.com). Standard deviation, taking us all back to our grade school days, measures the volatility or dispersion from the mean. Simply put, standard deviation measures the probability that a result/outcome will land within n-standard deviations of the mean. In this example, the mean is the expected outcome or expected return for the investment/security. Let’s take a look at this in graphically Source: scribbr.com ‘M’ here is the mean, and the dispersion from the mean is shown as standard deviations. The standard deviation values are important. Imagine that you have an investment that your purchase price was $50/share and this purchase price (hypothetically, of course) was the same as the mean over the specified timeframe. This means that: Your investment should have a return 68% (1 SD) of the time between $40-60 Your investment should have a return 95% (2 SD) of the time between $30-70 Your investment should have a return 99% (3 SD) of the time between $20-80 Or rephrased: Your investment should have a return >$60 or <$40, 32% (1-0.68) of the time Your investment should have a return >$70 or <$30, 5% (1-0.95) of the time Your investment should have a return >$80 or <$20, 1% (1-0.99) of the time So, the question remains: Is this risky calculation/measurement actually risky?  Standard deviation measures the probability of upside and downside risk, but when I think of risk, I only consider the loss possibility. Great, so let’s revisit with only the downside risk. Downside Risk Only looking at downside risk: Your investment could have a return 34% (1 SD) of the time between $40-50 Your investment could have a return 2.5% (2 SD) of the time between $30-50 Your investment could have a return 0.5% (3 SD) of the time between $20-50 Or rephrased: Your investment could have a return <$50, 34% of the time Your investment could have a return <$30, 2.5% of the time Your investment could have a return <$20, 0.5% of the time Did you notice I changed should, to could? – This is called framing; we’ll discuss that in a future post! Sortino Ratio Well, that’s a bit easier to grasp and aligns with the way I see risk in the market. So, how can I understand the standard deviation of my portfolio and measure it against the market? There is a metric called the Sortino ratio. This ratio is a risk-adjusted return metric focused on downside deviation and risk. If you’re a risk-averse investor, consider discussing this ratio with your advisor. More importantly, make sure you discuss your risk tolerance, time horizon, and goals. Our team of financial advisors at Whitaker-Myers Wealth Managers is well-versed in metrics and how to align your goals with results. Schedule time with our team to discuss and if you have any topics you’d like for me to address, please submit them here.

Along with the final high school transcript sent to the college committed to, students who have been placed on wait-lists might send a final transcript to those schools as well. While there's no guarantee that submitting a final transcript will boost their chances, it doesn't hurt to try. In a normal year, students would have completed their roommate preference surveys, submitted housing and health forms, and taken whatever subject placement tests their college requires. If the student is a D1 or D2 athlete, the NCAA also needs a copy of their final high school transcript. A Parent's Right To Know What's Going On Is Not Automatic When a student reaches the age of 18, they are considered adults and thus have certain rights of privacy. Parents should know that the college won't automatically give you the right to access your child's educational and financial records. They won't be able to comment on the health of your child, either. This is because of the Family Educational Rights and Privacy Act or FERPA. To have access to all of the above, your student will have to sign a form explicitly allowing you, as parents, to access certain information. Here is a sample waiver Proxy Access and Authorization. Please check the college’s website on how to gain access to your child's accounts. HS Juniors: Thinking Ahead Because the number of college applications has declined so much (the exception being the "brand-name" institutions where applications have increased exponentially), the smaller regional colleges are at risk of merging with other institutions or of closing their doors altogether. Since 2020, we've seen at least 57 public or nonprofit colleges close, merge, or announce closures or mergers. There are consequences to the towns these campuses inhabit, especially those in rural spaces. If the college your child is considering is seeing a shrinking student body, the town can suffer in ways that may negatively impact the college experience. As an example, there is the town of Montgomery, West Virginia. When West Virginia University decided to move West Virginia Tech to Beckley, a bigger city an hour away, Montgomery effectively became a ghost town. Even the pizza parlor was forced to shut down. One aspect of the college search that isn't usually considered includes learning the financial health of a college and its long-term viability as an institution of higher learning. This can turn out to be very important information to have. The last thing you want to find out is that at the end of your student's sophomore year they will have to transfer because the college is closing. This link lists the credit ratings of 937 colleges and universities. Real Estate, Business Values, and Farms Are Being Counted Against You There are parents who receive income from real estate rentals. These parents mistakenly believed that their real estate was a business and therefore wouldn't be counted in the financial aid formula. To the contrary, rental real estate is considered an investment. However, the FAFSA now asks for the values of any business or farm the family owns. However, there is another option: Instead of filing a Schedule E, discuss with your CPA or accountant the creation of a U.S. Corporation and file an IRS 1120. The income you take is ordinary W-2 income and a portion of the rent can be taken as a loan. Yes, the income is taxable but you can reduce your tax liability in any number of ways. Beginning with the 2024-2025 FAFSA the values of any business the family owns is included. Businesses with hard assets and inventories will be assessed and could reduce or eliminate any need based financial aid that would have been available prior to the 2024-2025 school year. The only type of business that is excluded are US Corporations that file IRS Form 1120. But the value of the business is just the equity. Liabilities are deducted from the market values. Also until now, family farms were excluded from the aid formula. Now the equity, acreage, and the equipment are counted against those families. Unless Congress repeals the law or the parent persuading the college to use it's Professional Judgement to exclude it. This May, the price tag of a student transferring to New York University at $99,000 for the coming year. As a student transferring to the film school the student qualifies for no institutional aid or scholarships. This students aid package included $6,500 in loans and $3,000 in non-guaranteed Federal Work Study. That leaves the family to pay $89,500 out of pocket. I can't imagine any parent wanting to be in this position. The best thing to do is seek guidance from a professional college funding advisor. That way, a parent can learn about options and the benefits and burdens of each one.

What is a Roth IRA A Roth IRA is an investment vehicle that allows people to save for retirement using after-tax dollars. Those dollars are then invested into securities like mutual funds, individual stocks, bonds, or other investable securities. The advantage of a Roth IRA is that the investment grows tax-free, and distributions can be taken tax-free after age 59 ½. This is a great way to get tax-free savings and control your tax liability in retirement. The downside is that there are some rules to how much you can contribute to a Roth IRA each year. In 2024, the maximum contribution to a Roth IRA is $7,000 ($8,000 for those over age 50). That contribution limit starts to phase out the higher your income is—specifically, your modified adjusted gross income (MAGI). 2024 Income Limits for Roth IRA Contributions In 2024, the contribution limit starts to phase out at a MAGI of $230,000 for married couples filing a joint return and at a MAGI of $146,000 for single filers. Married couples who live together and file separately can only contribute to a Roth IRA with a MAGI of less than $10,000. Below is a chart that shows how each filing status and income level affects the maximum Roth IRA contribution for 2024. So, how can high-income earners contribute to a Roth IRA? The Backdoor Roth IRA contribution is the answer. Backdoor Roth IRA Contributions A backdoor Roth IRA contribution is a way for high-income earners to contribute to a Roth IRA regardless of income level. The basic concept is that the investor makes a non-deductible contribution to a Traditional IRA and then does a Roth Conversion to move the funds from the Traditional IRA to the Roth IRA. But it is not as simple as that. First, you cannot make a backdoor Roth contribution if you have any funds in a Traditional IRA, SEP-IRA, or SIMPLE IRA. You could convert the balance of those pre-tax accounts to a Roth IRA, but the entire conversion will be counted as taxable income for the year it is converted. This can be a very poor decision for many people, especially if the balance of the IRA is high. A solution to this would be to do a rollover from your pre-tax IRA to an employer-sponsored plan like a 401(k). If you have a plan that allows rollovers INTO the plan, you could do a tax-free rollover to zero your pre-tax IRA balance. Second, contributions to Traditional IRAs are non-deductible. This means that you cannot deduct backdoor Roth contributions like you could with a Traditional IRA contribution. Third, contributions made to the Traditional IRA with the intent to convert the funds to a Roth IRA typically need to sit for about four days before conversion can happen. Conclusion If you think the backdoor Roth strategy is right for you, consult with a financial advisor at Whitaker-Myers Wealth Managers. We can discuss your overall financial and investment picture and help you figure out if this is something you should be doing. If it turns out the backdoor Roth strategy does not work for you, see if your employer plan will allow for Roth contributions. This would be a great alternative to contributing to a Roth IRA but would be limited to the investment options within the plan.

Once again, we delve deeper into the world of alternative investments. So far on our journey, we’ve explored REITs, Structured notes, and private equity in previous articles. If you’d like to read about those products, here are direct links to take you there: REIT – Real Estate Investment Trusts (whitakerwealth.com) Alternative investments – Structured notes (whitakerwealth.com) Alternative-investments-private-equity (whitakerwealth.com) In this post, we’ll explore another unique product, private credit. The potential is great I’m keeping this header like last week because private credit has seen a significant upside in this environment. Similar to private equity, private credit investments involve aggregating capital from investors. However, private credit provides a loan instead of acquiring equity from companies for the investment. Like getting a loan from a bank, there are similar stipulations. Imagine yourself being the bank and receiving a percentage of the interest rate as profit based on the loan provided. Unfortunately, all of us can’t be a bank (unless it’s Monopoly!). However, we can still reap some of the benefits when investing in the private credit market. Private credit investments are typically made by large private credit firms, which manage funds from institutional investors, high-net-worth individuals, and sometimes retail investors. Let’s take a look at it in more detail Private credit investments act as the lender. As you can imagine, the clientele that walks into the bank for a loan can include individuals, startups, mid-sized firms, large companies looking to expand, or companies with liquidity/financial distress. The difference here is the borrowers may have already tried to get a loan from a traditional bank with no success. They may not have well-established credit or good investment grade credit and thus are considered too risky for the banks. This isn’t always the case, but we’ve seen much stricter lending in the banking sector, leaving the door open for this industry. Private credit can step in and underwrite the loan, which would generally include a higher interest rate to compensate for the increased risk. Many of these loans are written with floating interest rates, and in today’s interest rate environment, this has greatly benefited investors in the private credit market. I mentioned this last week, but it must be repeated. This market and alternatives as a whole are very complex. This is why finding a manager or financial advisor who knows how to invest appropriately in alternative investments is essential. Our team at Whitaker-Myers Wealth Managers conducts the necessary research and due diligence so you, as the investor, do not need to. Having the proper guardrails and boundaries can be a significant game changer in the private market. Pros of Private Credit Investments Potential predictable returns Loan interest payments function similarly to fixed income payments in your portfolio, with predictable monthly/quarterly payments. Diversification benefits Since these assets are poorly correlated to the public markets, they can provide an opportunity to increase diversification and exposure to alternative alpha (yes, we’ll explore this in a post coming soon). To understand correlation better, here is an article to help - Correlation of Assets in Your Portfolio (whitakerwealth.com) Senior secured loans One of the most significant risks is default risk. If the loan defaults, the creditor has a senior secured loan that gives them the first payout upon liquidation. Sub-diversification into sectors/categories Diversifying by adding alternatives to your portfolio has its benefits. Private credit firms also diversify their risk by investing in multiple sectors and companies. Cons to Private Credit Investments Default risk As mentioned above, this inherent risk is mitigated (primarily) by the underwriting process and loan terms. High minimum requirements Including net worth, investment capital, and income. Illiquidity or semi-liquidity Some funds may have redemption limitations and have minimum investment time horizons. Some may apply a ‘haircut’ on the investment if taken out before (usually around 2%). Fees Including some frontend, backend, and management fees. Transparency This is becoming less of a concern as most information is available on the investment company’s website and their fact sheets. Complexity Investing in private credit isn’t as easy as the public market and certainly has a learning and investing curve. How do I know if Private Credit investments are for me? The best answer here is to discuss it with your financial advisor. Our team at Whitaker-Myers Wealth Managers is always ready to field your questions and guide you with the heart of a teacher. Private credit investments have gained popularity in today’s interest-rate environment and will likely be around for quite some time. This alternative investment functions as a bank providing loans to companies seeking capital. This investment class, as a whole, can be a great addition to your portfolio diversification strategy.  While they offer the potential for high returns, they come with significant risks and require a long-term commitment. As mentioned earlier, there certainly is an opportunity with private credit or any alternative asset investing, but discuss it with your advisor to see if it is a good fit for you.

Are you thinking about selling your small business and sailing into the sunset?  Have you poured blood, sweat, and tears into your small business over the years and are now ready to settle into retirement?  That’s great, but where should you begin?  In this article, we will discuss a few simple questions that will help you in the planning of the sale of your small business. Question 1 – When Do You Plan To Retire? This question sounds relatively easy, but the reality is that over 70% of small business owners don’t know how to answer it. Fear of the unknown is a real thing.  Questions like, “If I sell my business, will I have enough to live on?  Will I be able to find the right buyer?  What are the tax implications of the sale of my business?  What is my business worth?  How do I plan to retain key employees?”  Facts are your friend, so let’s start putting some data together to help you in the decision-making process. Question 2 – What Is Your Exit Strategy? These questions build on each other, and there is some overlap in the responses to some of them.  However, this question starts to help you gather relevant data about your business, which will, in turn, help you answer the question, “When do you plan to retire?” In this stage, you will begin to answer questions about the future of your business, management, and ownership structure.  Can you sell your small business outright?  Do you have equipment to sell?  Do you need to stay on as a consultant for several years? These are just a few simple questions to ask yourself as you begin to plan to exit your business. Question 3- Have You Planned Your Exit Strategy? Did you know that the average small business owner has 90% of their wealth wrapped into their business?  No wonder it is hard to answer the question, “When will you retire?” Here is another stat for you: 70% of Baby Boomers (roughly ages 60-78) don’t have a plan for exiting their business.  Maybe some enjoy what they do, and they don’t intend to slow down at the moment.  Others can’t fathom the thought of not having an income and they don’t have a retirement plan in place.  Some don’t know if they have saved enough for retirement. A wise and smart business owner will plan for their retirement about five to six years before actually retiring.  Why?  Part of that question is answered in Question 4 (Do you have three years of financial audited statements by a reputable third party?), and part of that answer is in Question 2 (Will you need to stay on as a consultant for a few years?). Question 4 – How Do You Plan To Maximize The Value Of Your Business? Do you know what your company is worth?  Before selling your business, you should have three years of financial audited statements by a reputable third party to get an accurate valuation.  Most small businesses have their books done by a spouse, the owner, a friend, etc., but to maximize the sale of your business, you need to have a professional “sure things up.” Question 5 – What Is Your Plan When You Exit The Business? Lastly, for the purposes of this article, what does retirement look like for you?  How much can you spend in retirement?  Are you going to outlive your money?  Being able to quantify this in our brains is impossible.  We all know that saving in an employer-sponsored retirement account is good, and saving in a Roth IRA is also good.  But what does it really mean in the end? This is where a Financial Advisor can help create some projections for you on paper that will aid you in the decision-making process of planning for life after retirement.  Maybe you aren’t retiring. Perhaps you are just selling the business and moving on to something else.  Either way, you need a plan that answers the question, “What will I do after I sell my business?” Conclusion Have you figured it out yet? Many of these questions can be answered by meeting with a Financial Advisor and CPA, and many more need to be answered. As a small business owner, you probably feel like you work 80 hours a week, and maybe you do; so, when do you have time to plan for the sale of your business?  Here at Whitaker Myers Wealth Managers, we will do our best to help you in the sale of your small business, and we have a 3-step process to help you maximize the valuation of your business, mitigate the risk during the sale of your business, and map out the future as you sail into the sunset.  So please reach out to an advisor today so you can be confident in the timing of your decision to sell your business.

Once again, we delve deeper into the world of alternative investments. This large class of investments has many unique characteristics that can further diversify your portfolio and provide the sought-after alpha potential. We’ve explored REITs and Structured notes in previous articles. If you’d like to read about those products, here are direct links to take you there: REIT – Real Estate Investment Trusts (whitakerwealth.com) Alternative investments – Structured notes (whitakerwealth.com) In this post, we’ll explore the private equity capital market. The potential is great Private equity investments involve aggregating capital from investors to acquire equity ownership in private companies. Fun fact: more than 85% of companies valued at and above $250M are NOT publicly traded. This means that public market investors only have access to 15% of the whole market; there is a great opportunity out there! Private equity investments are typically made by private equity firms, which manage funds from institutional investors, high-net-worth individuals, and sometimes retail investors. Let’s take a look at it in more detail Private equity investments can include startups, mid-sized firms, or large private companies looking to expand, restructure, or go private from public markets. Usually, these companies are looking to raise capital for expansion, growth (M&A), innovation, and, in some cases, to navigate distress situations. This is why finding a manager or financial advisor who knows what companies are being invested in and why is essential. Our team at Whitaker-Myers Wealth Managers conducts the necessary research and due diligence so you, as the investor, do not need to. Having the right guardrails and boundaries can be a significant game changer in the private market. Private equity investors often take an active role in managing the companies they invest in. This can include strategic guidance, operational improvements, financial restructuring, and other forms of hands-on management to increase the company's value. With this type of support and due diligence (when selecting the right company to invest with), private equity investments have often outperformed the S&P 500. Pros of Private Equity Investments Potential for higher returns With access to a wide range of investments and active management by the investing organizations. Diversification benefits Since these assets are poorly correlated to the public markets, they can provide an opportunity to increase diversification and additional alpha. To understand correlation better, here is an article to help - Correlation of Assets in Your Portfolio (whitakerwealth.com) Aggregation of funds Allows for investment opportunities for those who are typically unable to. Cons to Private Equity Investments Increased risk Investing in startups or small/mid-cap businesses has inherent risks; compared to investing in the S&P500 index, it has increased risk. May have high minimum requirements Including net worth, investment capital, and income. Illiquidity or semi-liquidity Some funds may have redemption limitations and have minimum investment time horizons. Some may apply a ‘haircut’ on the investment if taken out before (usually around 2%). Fees Including some frontend, backend, and management fees. Transparency This is becoming less of a concern as most information is available on the investment company’s website and their fact sheets. Complexity Investing in private equity isn’t as easy as the public market and certainly has a learning and investing curve. How do I know if Private Equities are for me? The best answer here is to discuss it with your financial advisor. Our team at Whitaker-Myers Wealth Managers is always ready to field your questions and guide you with the heart of a teacher. Private equity investments play a crucial role in the financial ecosystem by providing capital and expertise to private companies and fostering innovation, growth, and economic development. While they offer the potential for high returns, they come with significant risks and require a long-term commitment. As mentioned earlier, there certainly is an opportunity with private equity investing, but discuss it with your advisor to see if it is a good fit for you.

With markets nervous about stubborn inflation, a gradually slowing labor market, and the timing of the first Fed rate cut, investors are more focused on this corporate earnings season than usual. This is because while the economy has avoided a “hard landing” corporate earnings only began to rebound in the second half of 2023. Since the stock market tends to follow the trajectory of earnings in the long run, many investors are hoping for signs that corporate profits will grow sustainably in the coming quarters. What do investors need to know today about how earnings might impact the stock market and economy? With 92% of S&P 500 companies having reported their first quarter earnings results, the trends are positive. According to FactSet, 78% of large cap companies had positive earnings-per-share surprises last quarter which is better than the 10-year average. Blended earnings growth is coming in around 5.4% year-over-year, the highest in almost two years, making this the third straight quarter of earnings growth. On a full-year basis, the consensus estimate for S&P 500 earnings in 2024 is now $239 per share according to LSEG data. If this is achieved, it would represent a 10.2% increase from last year. Wall Street analysts also expect continued growth of 14.0% and 11.7% in 2025 and 2026, respectively. The hope of an earnings rebound is one reason the stock market has rallied over the past year, driving up valuations. Thanks in part to steady earnings growth, the S&P 500 is now only about half of one percent below its all-time high. In this environment, there are three key points long-term investors should keep in mind. Earnings growth supports the stock market over time First, while investors focus a great deal on topics such as inflation, the job market and GDP, investors do not directly invest in the economy. Issues such as the impact of higher interest rates, a slowdown in the labor market, or a “hard landing,” affect investors through the financial performance of companies. In turn, this affects stock prices which then impact the overall market and investor portfolios. The accompanying chart shows that while they do not mirror each other exactly, there is a strong relationship between corporate earnings and the stock market. The stock market tends to follow the trajectory of earnings, with differences between the two lines the result of changes in stock market valuations and investor sentiment. This is why economic cycles matter for long-term investing: when the economy is growing and consumers are strong, company sales tend to improve. Conversely, spending tends to slow during economic downturns, hurting corporate profits. For investors, focusing on these longer-run trends is far more important than trying to guess what the market might do over a day, week or month. These dynamics can also impact how markets behave during pullbacks. If the market does experience a decline when the economy is otherwise strong, valuations will grow more and more attractive. Eventually, investors will find it appropriate to add to their portfolios, helping to stabilize the market. In contrast, market pullbacks are much more challenging when they are the result of economic challenges such as recessions. This is why bear markets have typically only occurred when there has been a significant recession or economic shock. Earnings growth reached an inflection point last year Second, as the accompanying chart shows, the growth of corporate profits reached an inflection point last year and has begun accelerating again after struggling in 2022. While the economy avoided a recession that year, the stock market did enter a bear market partly because there was an “earnings recession” among large cap companies. While the historical average earnings growth rate is 7.6% since the mid-1980s, earnings growth tends to fluctuate in cycles tied to the business cycle and shorter-term industry trends. Earnings growth rates also affect whether the stock market appears "cheap" or "expensive.” The price-to-earnings ratio, for instance, is simply the price of a stock or index divided by some earnings measure, such as expected earnings over the next twelve months. What this means is that even if prices don't change, increasing earnings will make the market more attractive, and vice versa. Of course, stock market prices have risen significantly over the past 18 months. The current S&P 500 price-to-earnings ratio is just under 20 times next-twelve-month earnings partly due to the strong bull market rally pushing up the numerator, and partly because earnings growth is only now supporting the denominator. So if earnings growth does continue to accelerate, valuation measures such as the price-to-earnings ratio could improve. Economic fundamentals remain strong Third, concerns over a recession or “hard landing” have moderated in recent quarters. According to FactSet, the term “recession” showed up in only 100 transcripts of earning calls of S&P 500 companies compared to 302 a year ago. This is the fewest number of mentions in two years and mirrors the improving sentiment across financial markets. Fed funds futures, for instance, are now anticipating mild rate cuts this year compared to the start of this year when many investors expected the Fed to cut rates rapidly in response to a possible recession. Additionally, data from the Federal Reserve Bank of Richmond’s CFO Survey echoes this sentiment – optimism about the economy reached its highest level since the second quarter of 2021. Estimates by Chief Financial Officers for real GDP growth for the next year average 2.2%, up from 1.7% at the end of 2023. Only 10.1% of CFOs believe that a recession will occur over the next year. While these projections are not always correct and are subject to change, they provide additional insight to how corporate executives view the current economic climate. The bottom line? The latest earnings figures show that companies are performing well which is a positive sign in this uncertain market environment. In the long run, investors should focus more on trends around economic fundamentals such as earnings than on day-to-day stock moves. Should you want to discuss your portfolio with one of our Financial Advisors or Planners, please click here.

Health Savings Accounts (HSAs) have emerged as a popular option for individuals and families seeking to manage healthcare expenses more effectively. These accounts offer a range of features designed to provide flexibility, tax advantages, and long-term savings potential. Understanding the key features of HSAs is essential for maximizing their benefits. Eligibility Let’s first establish who is eligible for an HSA.  An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,600) can contribute up to $4,150 — up $300 from 2023 — for the year. The maximum out-of-pocket is capped at $8,050. An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $3,200) can contribute up to $8,300 — up $550 from 2023 — for the year. The maximum out-of-pocket is capped at $16,100. If you are unsure of your deductible, you can contact your company's human resources contact(s) or those dealing with the benefits and health insurance. If you have chronic health issues or are expecting a significant medical expense (surgery, birth, etc.), it may not make sense to elect into an HSA-eligible plan and it is potentially cheaper to enroll in a low-deductible medical plan or one that offers a Flexible Spending Account (FSA). Flexibility in Contributions HSAs offer flexibility in contribution amounts and timing, allowing individuals and families to contribute up to a specific limit each year. The IRS sets these contribution limits and may vary depending on whether the HSA is for an individual or a family.  There are two ways to make HSA contributions: Payroll deductions through your employer Making direct contributions to the HSA from a linked bank account Like IRA contributions, where you have until the tax filing deadline to contribute for the prior year, an HSA can also be done this way.  The difference for an HSA is when you make it for the preceding year, you cannot contribute through your payroll and instead would need to make it through a linked bank account. Tax Advantages One of the primary attractions of HSAs is their tax advantages. Contributions to an HSA are typically tax-deductible, reducing the account holder's taxable income for the year.   Additionally, funds in an HSA can be invested, and any earnings grow tax-free. Withdrawals used for qualified medical expenses are also tax-free, making HSAs a triple-tax-advantaged savings vehicle. You can save on all income tax levels: federal, state, and local, by contributing to an HSA.  In addition, when contributions are made through your employer’s payroll, you also avoid paying 7.65% on payroll or FICA taxes (6.2% Social Security and 1.45% Medicare). Below is what an individual/family who is in the following marginal tax brackets (the rate paid on your last dollar): 22% federal, 4% state, and 2% local would realize in tax savings if they contributed the maximum available based on your age and individual/family plan eligibility. Portability and Ownership Another notable feature of HSAs is their portability and ownership. Unlike Flexible Spending Accounts (FSAs), which are typically tied to an employer and may have "use it or lose it" provisions, HSAs are owned by the individual. This means that funds in an HSA belong to the account holder and can be carried over from year to year, even if they change jobs or health insurance plans. Since there is no time length that you’re required to reimburse yourself for medical expenses, you can pay for a medical bill in 2024 out of a bank account and reimburse yourself from the HSA in 2034.  This allows your dollars to be invested and grow as long as you’re alive! Use for Qualified Medical Expenses HSAs can be used to pay for a wide range of qualified medical expenses, including deductibles, copayments, prescription medications, and certain medical procedures not covered by insurance. Additionally, HSA funds can cover qualified dental and vision expenses. The flexibility in using HSA funds for various medical needs makes them a valuable tool for managing healthcare costs. Long-Term Savings Potential Beyond covering immediate healthcare expenses, HSAs offer long-term savings potential. Individuals can build a significant balance over time because funds can be invested and grow tax-free. This can provide a valuable source of funds for healthcare expenses in retirement when medical costs tend to increase. For those able to contribute consistently and invest wisely, HSAs can be a powerful tool for building financial security. Closing Thoughts In conclusion, Health Savings Accounts offer a range of features that make them an attractive option for individuals and families looking to manage healthcare expenses effectively. From tax advantages and flexibility in contributions to portability and long-term savings potential, HSAs provide a valuable tool for addressing both current and future healthcare needs. Understanding these features and discussing them with your financial advisor at Whitaker-Myers Wealth Managers is essential for maximizing the benefits of HSAs and making informed decisions about healthcare planning and savings strategies.