My wife is a high school women's basketball coach. As such, and considering we have one daughter in junior high and one in late elementary school, guess who was "promoted" to junior high girls' basketball coach after spending five years at the high school level? That's right, yours truly. Now, I count it a blessing to be able to coach these motivated young ladies, and one of our key tenets is the ability to drive the ball into the paint. You can't just stand and pass on the three-point line. Once we learn the art of the drive or attack, we transition to the hardest part: finishing! Many times, things don't go as planned, and we teach them the pivot. Without the pivot, a bad shot is taken, or a terrible pass is made, and it usually spells trouble for our team. In much the same way, this is how we teach our clients about their retirement savings and investing plans. One caveat here is every situation is unique, and you should talk to your own personal financial advisor or planner about how your investments should be structured. But much like these young ladies, the first step is attacking, and that's what you're doing in Baby Step 4. Attacking through a savings rate of 15% of your income and investing into the four categories that Dave and his team teach you. Then, when the attack is made, and you're closer to or at retirement, it's not always going to go as planned. Said another way, the stock market doesn't go up in a straight line, nor is it promised to go up at all. Therefore, you must have a pivot, like the girls on my basketball team. You must be able to say, that when the market is bad, I better have something in my tool belt to deal with this. Typically, for most clients using the systematic withdrawal approach in retirement (taking out a predetermined amount from their investments each year - say 4% or 5%), this is fixed income (bonds) and real estate. Throughout this article, let's talk about what happened to bonds last year to reset the paradigm for retirees in a most favorable way, in my opinion. While 2023 has been a better year for bonds after last year's bear market, rising interest rates over the past three months have acted as a headwind. The U.S. Aggregate bond index has gained 0.6% this year, down from a peak return of 4.2% in April. Similarly, corporate bond returns have receded to 1.8% from 5% prior to the banking crisis earlier this year. Our favorite strategy, the PIMCO Income Fund, has fared much better this year, coming off a high of 4.80%, earlier in July to settling around 4.38% to end the month of August. High-yield bonds, which are volatile and often behave more like stocks, have hung onto their gains with a year-to-date return of 6.6%. At the same time, rising yields mean that bonds are able to generate more portfolio income than at any other time over the past 15 years. What do long-term investors need to know about recent swings in the bond market and how it affects their portfolios? The bond market is having a better year than in 2022 despite recent volatility Several market and economic factors have created uncertainty in the bond market. First, recent events have led to swings in interest rates beginning with the U.S. debt downgrade by Fitch Ratings on August 1. This jump in rates had ripple effects across the market since U.S. Treasury securities serve as a benchmark for riskier bonds. However, just a week later, Moody's downgraded 10 banks, placed six under review, and shifted the outlooks on 11 to negative. These ratings and outlook changes briefly renewed concerns over the financial system which caused interest rates to fall. Since then, there have been concerns around the supply and demand of Treasury securities, worries over China's housing sector, and more. All told, these events caused large intra-day rate swings with the 10-year Treasury yield rising to 4.2%, then falling to 3.9%, before surging again over the past few days. This volatility directly impacts bonds since prices and interest rates are two sides of the same coin. In general, rising interest rates lead to lower bond prices, and vice versa. One intuitive way to understand this is that the cheaper you can buy a bond with a specified payout schedule, the higher your eventual return, or yield, will be. Despite these changes in rates and bond prices, it's important to maintain perspective on the bond market behavior of the past two years. Last year's historic surge in inflation resulted in the worst bear market for bonds in recent history, as shown on the accompanying chart. The Wall Street Journal called last year the worst bond market since 1842. This year, bond returns have mostly been positive, and the largest intra-year decline of 4% is well in line with historical patterns since most years experience similar declines between 2% and 5%. So, while bond prices are generally much steadier than those of stocks, history shows that fluctuating interest rates result in some bond market swings each year. The yields on riskier bonds have fallen Second, while the Fed is expected to keep policy rates high, there is less pressure to hike rates again as inflation improves. The latest Consumer Price Index report shows that price pressures are not only easing, but that headline inflation is already back to the Fed's 2% target when considering the latest annualized rate. Core CPI is also just under the target at 1.9% on an annualized basis and the trend is deflationary when shelter costs are also excluded. These numbers are important because they represent what is happening to consumer prices today, compared to the more commonly cited year-over-year measures that tend to be more backward-looking. So, while the Fed has penciled in one more rate hike this year, markets believe this may not be necessary. The probability of a so-called "soft landing" has increased as economic growth has remained steady as well. This has helped to reduce credit risk concerns which were elevated during the banking crisis. As the accompanying chart shows, yields on riskier bonds have come down as recession concerns have faded and corporate earnings have beaten low expectations. Ironically, only the yields on the highest rated bonds have increased due to the U.S. debt downgrade. All in all, this means that even if a recession does occur, markets expect that it would be mild and that companies would still be well-positioned to repay their debts. Bonds are offering attractive yields for long-term investors Finally, investors can be better positioned to generate portfolio income today, without "reaching for yield" by taking inappropriate risks, than at any point since I started my career in 2007, right before the global financial crisis. A diversified index of bonds now yields 5% - nearly double the 2.6% average since 2009. PIMCO Income today clocks in around 6.00%. 3-Month to 12-month Treasury Bonds come in between 5.4% to 5.5% as of the writing of this article. Investment-grade corporate bonds generate 5.7%, and high-yield bonds 8.5%. In contrast, the forward-looking dividend yield on the S&P 500 is now only 1.9% after this year's strong rally. This is further evidence that diversifying across stocks and bonds continues to be the best way to construct well-balanced portfolios that can achieve income and growth, while withstanding different market environments. The bottom line? The bond market continues to face challenges due to the uncertain economic environment. Still, this year's bond performance is a sharp reversal of last year's bear market, and the level of volatility has been in-line with the typical year. Most importantly, attractive yields underscore the need for bonds in long-term portfolios as inflation improves and the economy recovers. Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

About two weeks ago, we were all hit with the clickbait headline, "credit card balances hit $1 trillion". Immediately, people used this as justification for why the US economy is doomed. What if when we hit half a trillion dollars, which is equally a large enough number, it's hard for us to comprehend we had the same reaction? That was back in September of 1999, and since then, the S&P 500 has delivered 440% of total return, which would have meant $10,000 is now worth $54,000. Imagine making the foolish decision to use a headline or a single data point as a rationale for why you shouldn't invest. Buy and hold and forget the noise. Have an Advisor who will teach you why the US economy (and frankly, the global economy) is the best place to invest long-term money. Throughout this article, I'll try to do just that: educate you on why this single data point is not anything to make decisions around. Despite the economic uncertainty of the past year, everyday individuals and households have been resilient. Consumer spending has remained steady in the face of high inflation, rising interest rates, housing market challenges, and layoffs in sectors such as tech. While it has helped that the recession anticipated by many investors and economists has not materialized, this fact is partially due to the strength of consumer finances. How do consumer balance sheets look today, and how might this impact the economy and markets in the coming year? Personal savings have helped to cushion consumer finances From a financial planning perspective, there is possibly nothing more important than saving and investing enough to meet future goals. After all, how much you save is completely within your control, unlike the short-term direction of the market. Personal savings and spending are equally important for the broader economy. When times are good and consumers are optimistic about their jobs and financial situations, they tend to spend more. This boosts sales for small businesses and large corporations alike, which then hire workers, make investments, develop new products, and more. This in turn, creates new jobs and boosts wages, which increase consumer activity further. Thus, how consumers feel is an important economic indicator for investors to consider across business cycles. During the pandemic, consumer spending plummeted which led to record savings rates from early 2020 through much of 2021. At its peak, consumers in aggregate saved over one-third of their paychecks, an unprecedented rate that is seven times the historical average. Although this occurred under difficult personal and financial circumstances, these savings shored up consumer balance sheets and created a cushion for the inflation that came later. Government stimulus checks through measures such as the CARES Act also helped consumers make important purchases and pay off debts. Since then, savings rates have fallen as consumers have spent more dining out, attending events, and on other services. Still, as shown in the accompanying chart, the trend over the past three years is well above average with individuals saving 8.3% of their disposable income. This is often viewed in terms of "cumulative excess savings" - i.e., the total dollar amount that individuals have saved beyond what they typically might - a figure that rose to $2.1 trillion at its peak. Since mid-2021, these excess savings have fallen as spending has picked back up, declining by $1.9 trillion. Automobile sales have recovered from a low of around 12 million cars per year to 15.7 million recently, dining activity is 23% above pre-pandemic levels, and travel activity has jumped this summer with almost 2.6 million travelers per day. While this spending shrinks financial cushions, it also supports economic growth. Some investors fear that this trend could result in economic problems in the coming quarters. While there could be a slowdown in consumer spending, this isn't guaranteed. History shows that there have been long periods during which consumers saved very little, including throughout the mid-2000s. While it's prudent for consumers to save more from a financial planning perspective, the reality is that savings rates have fluctuated significantly over time - in both good and bad economic environments. Household debt service has risen but is still historically low Additionally, trends such as wage growth due to the strong job market could support both spending and savings. The latest report from the Bureau of Labor Statistics shows that wages rose 4.8% year-over-year. While this has generally been slower than inflation, hourly earnings are still rising at their fastest pace in 40 years. This is happening at a time when the national unemployment rate, at 3.8%, as reported yesterday in the government jobs data, is near historic lows. Job openings have fallen to 9.6 million, but this still represents 1.6 openings per unemployed person across the country. Other trends have helped to support consumer finances, including the steadily growing economy and this year's market rally. While household net worth has not yet recovered to its pre-pandemic peak, it reached $150 trillion at the start of the year according to the latest report by the Federal Reserve on the Financial Accounts of the United States. This is partly because while the aggregate levels of household debt are high across student loans, auto loans, credit cards, etc., what households pay every month is still at reasonable levels. As the chart above shows, debt service levels, with and without mortgage payments, are still below average at 5.7% and 9.6% of incomes, respectively. This is even more true when compared to highly levered periods such as during the housing bubble when debt service ratios were above 13%. Rising interest rates will likely worsen this picture, but this might happen steadily as homeowners benefit from mortgages that were locked in at much lower rates. Consumer sentiment is only slowly improving Of course, how consumers feel can differ from their financial picture, especially as they look to the future. Consumer confidence, as measured by the University of Michigan Survey of Consumers, which is a report we look at each month on our weekly video series, "What We Learned in the Markets This Week, has suffered over the past year due to inflation and economic uncertainty. Fortunately, this is slowly improving as the economy stabilizes. According to the same survey, consumers expect inflation of 3.4% in the next year, which could then decline to 3% over the next five years. While these represent high inflation rates, they are far better than what many had feared even just six months ago. The bottom line? Consumers have been an engine of economic growth over the past three years. Although savings rates have fallen, the strong labor market and manageable debt service levels have supported consumer spending and the broader economy. From a financial planning perspective, investors should continue to save appropriately using the Baby Step Principles, ideally with the guidance of a trusted advisor, who, as Vanguard and Morningstar have pointed out, has helped clients to achieve their long-term goals, with a higher percentage of success than those without an advisor. Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Working daily to become a Millionaire The premise of which workplace plan to select assumes that you have a workplace plan available to you. If you own your own business, you can start your own plan. There is a statement and a common sentiment among Americans that says: “You can’t get rich working for someone else.” Although most uber-wealthy people are entrepreneurs or own businesses, becoming a millionaire is achievable by working a traditional job without being a business owner or a real estate mogul. Recent Ramsey Solutions Research shows that investing in retirement plans is the #1 contributing factor to millionaires’ high net worth. Their study of over 10,000 millionaires revealed that 79% reached millionaire status through their employer-sponsored retirement plan. Which Plan to Choose Based on the data noted above, it’s clear how important it is to participate in your retirement plan with work. Let’s shift our focus to which plan you should select. The leading choice for most participants is whether to make pre-tax or post-tax contributions, which equates to a Traditional Plan or a Roth. The most common employer-sponsored plan is a 401(k), but 403(b)’s is usually the plan of choice for healthcare employers, educational institutions, and not-for-profit organizations. Another common plan for small businesses is a Simple IRA, which previously only allowed pre-tax contributions, but starting this year (January 2023), Simple plans also allow Roth contributions. All of these plans can match contributions, so if you are torn on whether or not you are better off choosing a traditional or Roth option, either way, maximizing the match your company offers is always a better choice than not participating. As I mentioned, some employers do not have a retirement plan. If so, consider asking your employer to start a payroll deduction IRA. This only costs the employer minimal administrative work, so an employer may not be too resistant to start doing this if prompted by employees. If you are employed and no option is offered, you can start your retirement account. For example, you could open a Roth IRA and set up recurring contributions from your checking account. This is not as easy as having it come from your paycheck, but it is the next best thing. Roth vs. Traditional plans There are income limits that limit or prohibit your ability to make Roth IRA contributions once your income reaches specific amounts. Refer to the chart on this website for specific income and contribution limits for 2023. If you are a high-income earner, this article from Financial Advisor Stephen Armstrong walks through techniques that you could use to still be able to contribute to a Roth. Roth With workplace plans, there are no income limits to participate. High-income earners can make a plan top-heavy, and their ability to participate may be reduced, but that is a topic for another article. So, the Roth option is an excellent opportunity for employees in the higher tax brackets who strongly want to accumulate tax-free income. In general, the younger you are, the more the Roth is beneficial, and the older you are, the benefits may be less beneficial. So, an employee in their 20s or 30s selecting the Roth option is a no-brainer because of the number of years that your plan can grow tax-free, saving those individuals a vast amount of tax dollars in retirement. Traditional At the other end of a working career, an individual that is in their late 50s or early 60s, nearing retirement, and in a high tax bracket, it almost always makes sense for them to do a Traditional plan and take the generous tax deduction, then likely withdraw at a lower rate a few years later. A caveat for an employee in this position is if virtually all of their savings are in pre-tax plans, and they have a large sum accumulated (at least $500,000), then they may want to accumulate some tax-free dollars to reduce their tax burden while in retirement and reduce the risk exposure to the government raising income taxes in the future. For employees in their 40s and early 50s, choosing a Roth or Traditional plan is less clear-cut and more nuanced. Without laying out several variables that could tilt this group one way or the other, if you are in the 12% tax bracket (married filers with income below $89,450), it still is usually best to go with the Roth. These individuals get less upfront savings on taxes and likely will withdraw in retirement at the same and relatively likely at a higher rate. The current tax rates will increase for everyone starting in 2026 unless Congress acts, so this is another variable in your decision-making process. Can I do both a Roth and a Traditional? Yes. Many employees like the benefits of both options, so it does not have to be an all-or-nothing proposition. For instance, splitting their contributions would make sense if a 50-year-old in at least the 22% tax bracket has already accumulated a decent amount of pre-tax dollars and wants to start accumulating tax-free dollars. An individual in this position would still have relatively high expenses and may want their contributions to stretch further by having them withheld before taxes come out. Yet, they have never started a Roth IRA and want the flexibility or tax-free income, so if they contribute 10% to their 401(k), doing something like 6% Traditional and 4% Roth could be a good compromise. Although Americans can split their contributions to any percentage they wish, the combination is still subject to the IRS contribution limits of $22,500 for workers under 50 and $30,000 for workers over 50 in the tax year 2023. So, splitting the contributions is not a loophole to contributing more. What if I have a pension? Congratulations, you are among the few as pensions continue getting phased out of retirement. Only around 10% of private companies still have a pension, but most government positions have one. A payroll deduction plan is also an option in either of these cases. Remember that all pension income will be taxable, so doing a Roth option as a supplement would be a good idea. Although pensions may provide a solid retirement income level, they are not flexible and can’t be customized. Like social security, you are told how much income you will receive and when. So, varying withdraws due to your schedule, taxes, need, or several other life events is not an option, so participating in defined contribution plans (Traditional or Roth) through your work makes sense so that you have some flexibility and choices in varying your income as needed in retirement. How much are we saving in taxes by participating in my workplace plan? Whether contributing to a Traditional or a Roth plan through work, you will save tax dollars. Many Americans will have a working career of at least 30 years and the option to participate all those years. So, if a worker contributes an average of $10,000 per year for 30 years and makes a 7% return*, those dollars will compound to $1,016,638. So, if you are doing a Traditional (pre-tax) Plan, you save whatever $300,000 of contributions times your tax bracket equates to, but you will pay tax on all your withdrawals. If you flip this same example to doing a Roth option, you will pay tax on $300,000, but all your withdrawals are tax-free. So, obviously, if you participate for several years, you will pay considerably less in overall taxes doing the Roth option. Participate and be disciplined In summary, focus on your positive opportunity if you have a workplace retirement plan. Sign up on Day 1, and take full advantage of the match. Do not take loans or pre-mature distributions are universal good decisions, regardless of your plan or how much total you contribute. Related to contribution levels, Dave Ramsey recommends saving 15% of your total income. If you are wondering the best way to structure that 15% savings, refer to this video from our Chief Operating Officer, where she walks through how to structure your retirement savings when you have an employer plan and when you don’t. If you have questions about which workplace plan is best for you or if you should be contributing more to another option, contact one of our financial advisors today to clarify the best option(s) for you and your situation. *The annual rate of return given in this article is used for informational purposes to illustrate an example. This is not a guarantee of return.

You recently left an employer where you were contributing to their 401(k), 403(b), or some other qualified retirement plan. Now what? This article will outline your options and point out some pros and cons of each option. Option 1: Leave the funds in the former employer’s plan You can leave your savings in the old plan if its terms allow it. While most plans will let you do this, that is not always true. Many plans will automatically roll your savings into an IRA if it is under a certain balance. They stipulate this in the plan’s description, but most people do not realize that, and trying to track down the IRA becomes a burden. Here are some pros and cons of this option: Pros: 1) Continued investment and growth potential in a tax-deferred account. 2) If you leave the employer in the year you turn 55 or older (50 or older for certain public safety employees), you can take distributions from the plan without having to pay the 10% IRS tax penalty that would typically be imposed for taking a distribution before 59 ½. Keep in mind this only applies to CURRENT plans. This rule no longer applies if you start contributing to a new employer plan. 3) Generally lower fees and expenses than an IRA. Cons: 1) Not all employer plans allow funds from former employees to remain in the plan. They could roll it to an IRA as mentioned previously, OR if it is under a certain amount, they could even force it out by sending you a check, and then you are hit with the taxes and penalty. 2) Leaving behind savings in old plans increases the probability of losing track of them. 3) Limited to the investment options available in the plan only. 4) You will no longer be able to contribute to the plan after your termination. Option 2: Roll funds from the employer plan into an IRA An Individual Retirement Account (IRA) is a tax-deferred investment vehicle that allows you to invest in marketable securities. An employer does not sponsor an IRA. If you hire an independent fiduciary advisor, like Whitaker-Myers Wealth Managers, we can help you with the rollover process and build a portfolio that fits your needs and risk tolerance to achieve your goals. We can also ensure you avoid common mistakes people make when attempting a rollover independently. Here are the pros and cons of rolling your funds into an IRA: Pros: 1) More investment options than an employer-sponsored plan. 2) Gives you the ability to consolidate other tax-deferred accounts into a single IRA. 3) Option to have your IRA managed by one professional. 4) Ability to make additional contributions. 5) Continued tax-deferred growth potential. 6) If appropriately executed, there are no tax consequences or penalties to rollover from an employer plan to an IRA. Cons: 1) Fees and expenses might be higher than an employer-sponsored plan. 2) High-income earners may lose the ability to make deductible contributions to an IRA or to contribute to a back-door Roth IRA. Option 3: Withdraw the funds from the employer plan Another option is to take a partial or full distribution from the plan. This is generally not wise, especially if you are under 59 ½. Here are a few pros and cons of cashing out your savings: Pros: 1) Immediate access to your money. 2) If applicable, the rule of 55, as discussed in the previous option. Cons: 1) All withdrawals are subject to a mandatory 20% federal tax withholding. State and local taxes may apply too. 2) If you are under 59 ½ and do not qualify for the rule of 55, an additional 10% tax penalty may be imposed on your distribution. 3) The funds will no longer have tax-deferred growth potential. Option 4: Roll funds from the old employer plan to a new employer plan This option is not always available. Employers are not required to allow funds from previous plans or IRAs into their sponsored plan. While this is not the worst option, it does come with its pros and cons: Pros: 1) Continued tax-deferred growth potential. 2) Consolidation of assets makes it easier to keep track of savings. 3) Ability to invest in securities available in the plan. 4) No tax consequences or penalties rolling from one plan to another. Cons: 1) Limited to the investments available in the plan. 2) Fees and expenses might be higher than the previous plan. Conclusion This article is for informational purposes only and should not be taken as advice or a recommendation. Several other factors may affect which of these options is best for you. If you have funds in an old employer plan or want to consolidate accounts, we suggest contacting one of our team's financial advisors. Going through a financial plan might be the best way to find out which option would be best for you. Our advisors would be happy to do that and they will answer any questions to make this a seamless process for you.

The year was 2005 and I was purchasing my first home. It was a small modest ranch with three bedrooms, 1 bathroom and an attached one car garage with a nice fenced in backyard. That fenced in backyard was key because my wife and I, as most newlyweds do, bought our first puppy together, a boxer named Sammy. Sammy being all puppy, loved to run around, so we thought we’d install a doggy door into the garage, which was the entrance to the fenced in backyard, so she could run through the backyard all day and come into the garage when it was too hot or cold outside. My handy brother-in-law came to help me cut the doggy door in the wooden garage door, since it involved using a jig saw, which was something I had little experience doing. We put together the saw; I began cutting and without hesitation I began moving the saw in a manner it was not designed to go, all the while my brother-in-law gently reminding me, “I’m not sure you’re supposed to bend the saw like that, bro”. Eventually, as the cut was being made, the blade of the saw snapped, shot through the air, right past mine and my brother-in-law’s head and lodged itself into the wall… pretty deeply, I might add. My life flashed in front of my eyes. It was in that moment that I realized, sometimes it is better for your health, the health of your family and your own sanity, to hire a professional for tasks you have little desire to do or expertise in. In the same way, your largest financial asset, other than your home is typically your employer sponsored retirement plan such as a 401(k), 403(b), Deferred Compensation or other retirement asset. This is an asset you may be nervous about managing and investing on your own and thus may want to seek the help of a professional, however most plans do not provide professional guidance and help within the plan. (CHEAT – Skip to the end to learn about how regardless of your plans commitment to help, Whitaker-Myers Wealth Managers can now provide this help to you). According to a recent study by Aon Hewitt, a provider of human capital and management consulting services with 500 offices in 120 different countries, you would be correct that seeking help with your retirement accounts has produced superior results, thus additional money available to you, when you retire. Their study showed that the averaged participant that sought and received help within their retirement plan had an outcome that was 3.32% better, than their peers who sought no help with their investing strategy. Makes sense, right? My time is limited, especially the more demanding my job is, thus someone who has a 24/7 job of managing, reviewing and investing my retirement assets, is probably going to be in better position to help create improved outcomes and performance within my investing strategy. Their study which was done from 2006 through 2012, studied 14 very large companies defined contribution plans (which basically means, 401(k) plans). Those plans had 723,000 participants who held around $55 billion worth of retirement assets. One question, you might be asking is, “Why do this study?” Perhaps to cater to Financial Advisors? Considering the fact that Aon Hewitt competes with Financial Advisors for many of these large retirement plans, that wouldn’t make sense. Rather, their intention in doing this study was to encourage Plan Sponsors (people who are in charge of retirement plans at these large companies) to provide help to their participants as opposed to forcing them to make retirement investment decisions on their own with no professional help, as many plans unfortunately do. The results were quite incredible. Define Help Before we actually discuss the results, we should quantify what AON meant when they said an employee “received help”. They categorized these 401(k) participants into four basic groups: Target Date Funds – These are mutual funds with a year within their name. That year quantifies the estimated year of retirement for the client and the investment strategy is managed, to be appropriate for someone retiring in the year of the fund. For a participant in the study to be classified as using target date funds as help, they needed to have 95% or more of their assets invested in the target date fund. Our own Financial Advisor, Griffin Lusk, recently wrote an article about how once you get close to retirement target date funds can provide “negative compound interest” when in a withdrawal mode, thus typically not a good option once you are within 5 years or closer to retirement. Managed Accounts – This is where a participant would be paying a third-party provider, such as Whitaker-Myers Wealth Managers to manage their account. Essentially, they are outsourcing something they are not good at or have little expertise in, to a professional. Online Advice – Here participants were able to pay for one time advice on asset allocation and investment strategy within their plan, however the execution was up to the participant. The advice had to have been given to the participant within the last 12 months. Non-Help Group – Here participants received no help, nor were invested in the target date funds. This group was then compared against the other three groups to try and quantify the value of advice to plan participants. Results – Performance The group of participants that received some form of help – target date funds, managed accounts or online advice, outperformed the group that received non-help by an average of 3.32%. The results then broke out the outperformance by age groups, looking at participants in five year increments, starting at 25 – 30 and going all the way through participants in their 70’s and the outperformance ranged from 2.13% to 3.70%. This amount of out performance creates a very large difference over your working lifetime, perhaps meaning the difference between retiring early and retiring later. The study gave an example of someone receiving help at age 45. If they were to retire by 65, the standard retirement age because of Medicare health insurance eligibility, the participant receiving the help would have had 79% more than the participant that would not have received help. Here is another example to ponder. Let’s say you graduate college at age 25 and begin working with a salary of $50,000 and decide to contribute 15% of your income, with a 4% match from your employer to retirement, all the way until age 65. Additionally, as Dave Ramsey says, let’s assume this person is a loser. A loser in the sense that they never get a raise over their lifetime thus their savings rate of 15% of $50,000 ($7,500) never changes. At an average rate of 7% the participant would have approx. $1.5 million by age 65. The person that received help, according to the AON study earning about 3% better, would have generated a 10% return, which would have netted them approx. $3.7 million by retirement. That’s an incredible $2.2 million improvement AND the person getting help, just as my example with our doggy door, saved themselves the time and hassle of something they didn’t have passion for nor had an expertise in. Bonus, they probably built a great friendship and relationship with their Financial Advisor, as many of us do, with our clients. Chasing Return The number one reason why a participant would see improved performance within their portfolio with the help of an experienced and knowledgeable advisor is a result of asset allocation. Participants in 401(k) plans tend to chase the returns of a few mutual funds in their portfolio, that have the largest amount of performance, which tends to be the lowest performer over the next group of years because of mean reversion, which is to say, the best becomes the worst and the worst becomes the best. That is why, when we manage a 401(k) plan, we break things out into the four basic categories Dave would recommend, Growth, Growth & Income, Aggressive Growth & International. Then from there we allocate capital to the best performers in each category, knowing that some categories, such as Aggressive Growth and International can even have subcategories you should be allocating dollars to. We never let near term underperformance, shift us out of a certain category because just about the time you do, the market will punish you for that decision. Results – Risk Participants that did not seek help also struggled to have appropriate amounts of risk within their portfolio. The risk distribution was the most inappropriate for those near retirement, which is scary considering the fact that those participants had the least amount of time to fix problems, if the additional risk created volatility issues, they were ill prepared to handle. According to the study about 60.5% of non-help participants had inappropriate levels of risk with about 2/3 of those individuals caring too much risk and 1/3 caring too little risk. The appropriate amount of risk was determined by using the applicable target date fund for their age and baselining their portfolio against the target date fund. Results – Help Usage is Growing During this study, of the 723,000 participants, about 1/3 of them were using some form of help, as outlined above, which was an improvement over the last time AON ran this study. 16.9% of the help given was through target date funds, 12.1% was through managed accounts and 5.4% was given through online advice. When viewing usage through the amount of assets dedicated to each level of help an interesting stat emerged. Only about 3.7% of assets were provided help through target date funds, while 15.2% were provided help through managed accounts and 11.4% through online advice. This basically showed, the more in assets that a participant had, the more complex their situation was and they were more likely to seek out help. Whitaker-Myers Wealth Managers 401(k) Managed Account My purpose for writing this article is twofold. First, just as I nearly twenty years ago, almost created a disastrous outcome for my brother-in-law and myself by trying to do something I was ill-prepared to manage myself, Whitaker-Myers Wealth Managers wants to ensure we consistently educate you on the ways your financial future can become more secure. Our firm mission statement says that we, “strive to have the heart of a teacher, so that we can empower and equip people with the knowledge and tools they need to be able to achieve their goals and feel confident about their financial future.” Second purpose being, in March of 2022, we rolled our ability to help our clients manage their 401(k) plans, regardless of where they’re held, through a third-party technology firm, that provides us compliant access to your company held plan, for investment management purposes only! Want us to change your beneficiary, contribution rate, personal information or Roth vs. per-tax allocations on the plan? We can’t do that. However, if you’d like us to be able to make changes to your investment strategy, use our technology firms risk management software to daily watch the portfolio for drift within the investment strategy, be notified when your plan makes investment changes and rebalance the portfolio on a consistent basis, which has proven to manage risk and add return, this service is for you. Reach out to your Whitaker-Myers Financial Advisor today to learn more and begin allowing us to service your 401(k) account. Watch this video of my friend Dave Ramsey discussing what the number one mistake people make, when hiring a Financial Advisor. Making it better – every day!

What Are Parents Paying For? Part 2 Last month's newsletter asked the question: why parents should pay for a college education when students work and study 40% less than they did 50 years ago, graduating knowing less each year. In part two of "What Are Parents Paying For?" this newsletter will address what consumers are learning; that a pint of ice cream costs more for two ounces less. Colleges are no exception. So, what is it that parents are paying more for and what is lost in those two ounces? Too many of the people charged with actually teaching our students are not tenured professors. What we get are Teaching Assistants (TA's), part-time adjunct professors barely making minimum wage, decreases in career services, fewer majors and athletic programs, and a cutting of overall student services. Even at the elite and more selective colleges, students are not being educated by full professors. Colleges make money on research, and that is what professors spend most of their time on. They have little incentive to teach. Teaching Assistants are graduate students who are working on their post graduate degrees and need to earn money to pay for tuition and have no real interest in teaching. They do it to survive. Start Looking For Scholarships Now It's hard to believe, but some scholarships have deadlines beginning in August. Too many students treat the scholarship search almost as an afterthought. Students needing money to pay for their living expenses, such as books, supplies, personal items, etc. can use whatever free time is left of Summer to research and apply for free money. The idea of finding scholarships can cause a little anxiety, but it doesn't have to if they know where to look. Google "scholarships" and you will find dozens of search engines. The better ones are: The College Board's Big Futures, FastWeb, Going Merry, Bold.org, and Cappex. Each month, we provide you with tips on your best ways to pay for college regardless of your financial situation. Who Is The Custodial Parent? Historically, the FAFSA definition of the "custodial parent" was the parent that the student lived with for the majority of the 12-month period ending on the day the FAFSA application is filed. This often created a very favorable financial aid award if the student was living for a majority of the year with the parent who had lower income and assets. Under recent amendments to the FAFSA, no matter the living situation, students will now report financial information solely for the parent who provides the most financial support. For the 2024 - 2025 school year, the new FAFSA rules require the parent who provided the most financial support in the "prior-prior" tax year to complete the FAFSA application instead of the custodial parent. Prior-prior refers to the tax year two years before the beginning of the college semester. For the 2024 - 2025 award year, FAFSA would be looking at the 2022 tax year for this determination. For example, Dick and Jane got divorced five years ago, and their daughter Sally will be a high school senior this Fall. Jane is a homemaker. Sally lives with her mother for the majority of the year, Dick makes $300,000 per year, and pays Jane $25,000 per year in child support and $40,000 per year in alimony. Under the old FAFSA, Jane would be considered the custodial parent, and completed Sally's FAFSA using her annual income and assets. Since Dick is not the custodial parent, Dick's income and assets were not included on Sally's FAFSA. Under the new FAFSA, as Dick is providing the majority of the financial support via child support and alimony payments, Sally's FAFSA would now be completed using his income and assets. Since Dick's income is substantially higher than Jane's, it would most likely reduce or eliminate eligibility for need-based financial aid. In another situation Dick's income is still much higher than Jane's but she earns $40,000 per year and receives child support of $25,000. Just because Dick earns more money than Jane doesn't necessarily mean Dick is actually providing more support than what is required by a divorce decree. In another scenario, Dick has remarried, and his new wife earns the majority of income. They file a joint return showing $300,000 in adjusted gross income. According to the new rules, Dick would be required to file the FAFSA, and again cost Sally financial aid. In any number of circumstance, it would be in Sally's best interest to use her mother's income and assets on the FAFSA. Later, if a college aid office questions or dispute this, an appeal could be submitted supporting this filing. There are many changes to the financial aid system that may negatively affect the planning that parents have done to prepare for college costs. Given these changes meeting with your college financial planner is more important than ever. With all the changes related to financial aid eligibility and college affordability that are going into effect this fall, contact Lindsey Curry at 330-345-5000 to schedule a college-planning consultation. We can help to ensure that, despite all the changes going into effect, you can still save considerable amounts of money college costs, avoid needless student loan debt and improve your retirement savings outlook. It requires that you have access to the actionable information and advice needed to make smart, informed and prudent college selection, planning and funding decisions and that is what I am going to help you do! Have a great summer!

Exploring the 529 and the UTMA for College Savings Options With the fall semester commencing, it’s an appropriate time to consider saving for your children’s college education. Whether they’re heading into high school or Kindergarten (like my oldest), it is never too early to begin thinking about saving for your child’s future. In this article, we will explore the different ways to save for your child’s future endeavors, whether college, the trade, or even their first home purchase. Savings Vehicles Like automobiles, different types of accounts are designed for other purposes. While a 4x4 is great for off-roading excursions, you would not want to use it in an F-1 race. The investment accounts available to you might not have such apparent differences, but those differences are worth knowing. What is a 529 A 529 plan is a tax-advantaged savings account intended to help people pay for costs associated with education. While initially designed for college funding, it now can cover K-graduate school education and even apprenticeships. There are two main types of 529 plans: savings plans and prepaid tuition plans. Savings plans are tax-advantaged because they are tax-deferred and tax-free if withdrawals are made for qualified education expenses. Pre-paid tuition plans, however, allow the account owner to “lock in” the current tuition rate (most likely lower) for a later date. These, of course, are for higher education only. These also have some restrictions on exactly which institutions the funds can be used to attend. 529 plans are sponsored and run by the state where the account is held. All 50 states and the District of Columbia offer their own plans, and the plan rules and fees can vary from state to state. Account holders can open accounts directly with the state or through a broker or financial advisor. Advantages of a 529 There are no limits on how much can be contributed to a 529 per year, but some plans cap the total amount that can be contributed over time, and you will have to pay “gift tax” if you contribute more than $17,000 in 2023. With a high contribution limit, these allow an account holder ample opportunity to save. There are tax savings to be had as well. While the contributions themselves are not federally tax-deductible, many states provide tax deductions or credits to 529 contributions. You must often invest in your home state’s 529 plan to receive these credits. Some states allow non-residents to participate in their plans, possibly sans tax credit. We say this because most states require you to contribute to your resident state plan to get the tax benefit, but currently, 9 states allow you to contribute to any state’s plan and still get the tax benefit. Unused 529 balances can be transferred between immediate family members or first cousins. Additionally, SECURE Act 2.0 permits 529 balances of up to $35,000 to be rolled into a Roth IRA account beginning January 1st 2024. The only stipulation is that the 529 account must be at least 15 years old. Disadvantages of a 529 529 plans are often invested in target date funds. When a high school graduate year is determined, the plan administrator selects a fund with a year on it, allocating some of the money in the investment to Equities (stocks and mutual funds) and another portion of it to fixed-income (Bonds and treasuries). The issue is that the funds selected are often underperforming, and the fixed-income allocation is not usually appropriate or beneficial to a client with a longer time horizon (10 years and up). If graduation for your 2-year-old is 16 years away, you may want to allocate more money to equities now and add fixed income to the portfolio when graduation draws nearer. In addition to some of the transfer and withdrawal restrictions associated with 529 accounts, it might be a better option to utilize an investment vehicle that is more customizable and user-friendly. In some cases, that might mean looking to a UTMA. What is a UTMA A UTMA Account or Uniform Transfers to Minors Act allows minors to receive gifts without the aid of a guardian or trustee (UGMA or Uniform Gifts to Minors Act). A UTMA enables the gift-giver to be a custodian or to appoint a custodian to watch over the account and its assets until the minor is of the age of majority. That age can be any that the custodian selects between 18 and 25, depending on the state rules. The gifts received through a UTMA avoid tax consequences until they reach legal age in their state of residency. The IRS allows for a gift-tax exclusion of up to $17,000 per person per year (2023). Any income earned will be taxed at the tax rate of the minor receiving the funds as a gift. Since the minor’s social security number is used to open the account and the child owns the account, this can negatively affect their standing for receiving financial aid in the future. Advantages of a UTMA The gift-tax exclusion is a significant benefit to the UTMA. If gifts are not more than $17,000 annually, they qualify for the exclusion. Another drawback for a donor to a UTMA is that the assets in a UTMA are counted as part of the donor’s taxable estate until the minor takes possession of the account. Money in a UTMA can be used for far more than educational purposes. This is perhaps the most significant difference from a 529 since that is for educational spending only. The UTMA can be untouched until the child reaches the legal age to take possession. In this case, the money becomes the beneficiaries and can be used to purchase a car or their first home. While the custodian is still in charge of the account, withdrawals may be taken for anything that benefits the child, like clothes, summer camp, or even piano lessons. The flexibility of the UTMA ensures that there is money to be utilized even if the child chooses not to attend college but instead enter the workforce after high school. Disadvantages of a UTMA A drawback for a donor to a UTMA is that the assets in a UTMA are counted as part of the donor’s taxable estate until the minor takes possession of the account. Another drawback is that it can sometimes be a laborious task to make a qualified withdrawal from the account while under the watch of the custodian. Finally, it's worth remembering that the growth is taxed in a UTMA, and no expense exempts withdrawals from taxation, like the 529’s federal tax exemption for education expenses. However, the first $1,100 of unearned income in the UTMA is tax-free, and the next $1,100 is taxed at the child’s tax rate. Any unearned income above that $2,200 is taxed at the custodian’s tax rate. Alternatives Generally speaking, there are other savings options for your child’s future. The Coverdell Educational Savings Account (ESA) has income and contribution limits, and contributions must stop when the child reaches 18. States do not offer tax benefits for contributing to an ESA like they often do for contributing to a 529. The other main difference between an ESA and 529 is that the ESA has many investment options available. Having the flexibility to pick investment options is a perk of the ESA. To learn more about the ESA, check out this article on our blog. A taxable brokerage account does not offer the tax advantages of the other accounts we’ve discussed; it offers complete flexibility regarding investment options, contribution limits (there are none), and how the money can be used (however you wish). If your state does not offer a tax credit for contributions to a 529 and you don’t like the format of the UTMA, then a brokerage account could be a good option for you. Talk to a financial advisor today if you need help determining which strategy is right for you.

Technology has improved almost every area of our lives – why can’t it improve our investing? For those of us, that subscribe to the Dave Ramsey and Ramsey Solutions mentality of investing – which means we like the diversification benefits that mutual funds and exchange-traded funds provide us, we have always had to invest in exactly that – mutual funds or exchange-traded funds. And for many account types, that makes sense – it’s easy, and there is no reason to do anything different. However, for investors with large amounts of non-retirement money, such as brokerage accounts or Bridge Accounts, as Dave Ramsey refers to them, you’ll want to pay attention to this article. Additionally, for those clients getting ready to complete Baby Step 6 and thus will soon be building your bridge account, this article brings you good news about technology enhancements that will help you save that mortgage payment each month and create tax benefits while doing so. The concept we’ll dive into today is called Direct Indexing. Direct Indexing is not new, but it’s growing fast! According to the 2021 edition of Competing for Growth Oliver Wyman, Inc reported that Direct Indexing has grown from $100 billion of assets in 2015 to roughly $350 billion by the year 2021, which is more than threefold growth! Talk about gaining momentum! Let’s dive into what it is, how it works, and why it could benefit you. Understanding Direct Indexing: We all should know what a mutual fund is, right? Hopefully, your Financial Advisor taught you about the ins and outs of mutual funds when you first met them. Essentially, your fund manager aims to diversify your risk away by purchasing a large basket of stocks that you, along with many other investors, collectively own. If you don’t like my definition, you can read Investopedia’s definition right here. The reason, over the years, this was the only logical option for the investor that needed or wanted to spread their money out amongst many companies was cost and technology. For example, just ten short years ago, it would have cost nearly $10 / trade, at even the discount brokers, to place a trade; therefore, buying the 500 individual components of the S&P 500, for example, would have cost $5,000 in commissions and fees. No thanks – I’ll buy the Schwab S&P 500 Index Fund with its 0.02% expense ratio and hold the companies through the fund. In addition, the technology was such that buying those stocks would have taken forever, and then monitoring all those holdings would have been a task most individual investors and Financial Advisors were unwilling to commit to. However, that has all changed. Schwab and many of the other larger brokerage firms like Fidelity, Vanguard & TD Ameritrade have lowered their trading fees to zero. Technology is moving faster than we can blink our eyes, so making those 500 stock purchases can be done in seconds, and monitoring it can be accomplished by high-speed algorithms. So holding all 500 companies in the S&P 500 (if that is the index I’m trying to replicate) is no longer impossible or cost-prohibitive. So now the only question remains – why would I want to do such a thing? Benefits of Direct Indexing: Tax Efficiency: One of the key advantages of direct indexing is the potential for increased tax efficiency. Since investors directly own individual securities, as opposed to a fund that owns all those securities, they can selectively harvest tax losses by selling specific underperforming stocks. These realized losses can be used to offset capital gains and potentially reduce tax liabilities. This ability to manage tax consequences more granularly can be particularly valuable for high-net-worth individuals seeking to optimize their tax efficiency. Let’s look at how this works: Stock A drops below the initial cost that it was purchased at. It is then sold by the technology watching your direct indexed account, and a correlated (but not substantially identical, thus not to trigger the wash-sale rule) replacement stock is repurchased in its place. This loss that is created can then be used to offset other gains in your portfolio, or an investor can take up to $3,000 each year in capital losses to offset ordinary income. Those of you that remember our discussion using the Prudential Asset Allocation Chart, will remember that the stock market has historically been positive 80% of the years, over the last thirty – so is this strategy only beneficial in the 20% of years that the stock market has been negative? Absolutely not! It should be beneficial to your tax situation every year! Take a look at this Vanguard Report that did a study to help teach the benefits of direct indexing using market returns in 2021. If you remember, 2021 was one of the best years for the market in my career. Not because of the rate of return, although the S&P 500 returned 28.66% that year, but more so because of the lack of volatility. We barely had a 5% dip that year, yet according to Vanguard, there were still 133 individual companies that lost value in the fourth quarter of 2021 alone. That was 133 opportunities if you held the individual securities, instead of the S&P 500 fund, to create tax benefits for yourself. Vanguard quantified the value created by these tax loss harvest opportunities for a high-net-worth investor to be as much as 1.32% added to your performance and 2.26% for an ultra-high-net-worth investor. Essentially the higher the tax bracket and the more potential capital gains you have, the greater the benefit of Direct Indexing. How is this accomplished? Let’s assume you’re in the 24% Federal Tax Bracket. Taking the $3,000 in losses that could have been realized (as described above, even in a year the market had a positive return) would have tax savings of $720 in federal income taxes. Not let’s also assume that there were capital gains that were able to be avoided in that year, because of the fact that the Direct Indexing Software was able to generate a total of $5,000 in losses. $3,000 against ordinary income, and another $2,000 was used to offset other gains, now saving this person a total of $1,200 in federal income and capital gain taxes. When you start compounding that over many years, these savings really start to add up. Customization and Personalization: Direct indexing allows investors to tailor their portfolios according to their individual preferences and investment goals. Investors can exclude specific companies or sectors that do not align with their values or include securities that are aligned with their Christian values. This level of customization allows for more personalized investing and enables investors to align their portfolios with their unique beliefs and objectives. If you work for a publicly traded company and have the ability to purchase shares from the company at a discounted price, that can be a valuable tool; however, we may not want to continue buying that stock in your mutual funds as well; otherwise, you’ll break the cardinal rule of having more than 10% of your net worth invested in one company, specifically the company that also provides the income to your household. Therefore, with direct indexing, we can exclude your company's stock and even their entire sector from the portfolio to ensure portfolio efforts are not duplicated with your company’s stock option or purchase plan benefits and your investment advisor’s portfolio. Cost Savings: Direct indexing can potentially result in cost savings compared to investing in mutual funds or ETFs. While traditional funds charge management fees, direct indexing often incurs lower expenses since investors can bypass the expense ratios associated with fund investments. Additionally, by owning individual securities, investors can potentially save on transaction costs, as the fees associated with trading stocks are often lower than those associated with buying and selling fund shares. Conclusion: Direct indexing represents a powerful tool for investors seeking greater control, customization, and potential advantages in their portfolios. By directly owning individual securities that replicate an index, investors can enjoy tax efficiencies, customize their holdings and potentially reduce costs. With its ability to align investments with personal values and objectives, direct indexing provides investors with a unique opportunity to create portfolios that truly reflect their individual aspirations. According to a recent Bloomberg article written in December 2022, the $350 billion in Direct Indexing could hit $825 billion in the next four years. With the benefits described above, talk to your Financial Advisor to see if this may be the right approach for your brokerage or bridge account.

Roth and Traditional IRAs With a Roth Individual Retirement Account (IRA), money is put in after paying income tax on it, and then you get the best benefit of any retirement account: TAX-FREE GROWTH & TAX-FREE WITHDRAWALS (once you reach age 59 and a half and have had the Roth for 5 years). As I tell every person I talk to, imagine taking money out of your checking account, which you have already paid tax on, making a contribution to your Roth IRA, and sitting back to enjoy the tax-free growth for the rest of your life. For example, you are 35 and will max out your Roth IRA in 2023, so you contribute $6,500. Click HERE to see contribution limits (based on age, how you file your taxes, and how much money you make). You are planning to retire at 65, so you let the money grow in the stock market over the next 30 years. Assuming a 7% annual growth rate over those 30 years, the $6,500 you put into your Roth IRA will be $52,757. * That’s $46,257 of tax-free growth you never have to pay taxes on. With a Traditional IRA, you get an immediate tax break on your contribution, your money grows tax-deferred, and you pay income tax when you take a distribution in retirement. So, using the same example above, you make a $6,500 contribution into a traditional IRA, let it grow tax-deferred over the next 30 years, and the numbers are the same – you still have $52,757. The difference is that now you have to pay income tax on all of it as you take distributions in retirement. I don’t know about you, but scenario one sounds much better since it means I am paying less in taxes. Backdoor Roth IRA A backdoor Roth IRA is the way that high-income earners can benefit from the tax-free growth of the Roth IRA. Click HERE for the 2023 Roth IRA income phaseout to see if you must use the backdoor Roth to take advantage of tax-free growth. If Dave Ramsey can use it, I bet you can too. How to execute a Backdoor Roth? To take advantage of the backdoor Roth IRA, you must make a non-deductible contribution to a traditional IRA, then convert that money to your Roth IRA. WARNING – if you have a Traditional IRA, SEP-IRA, SIMPLE IRA, or another pre-tax non-employer sponsored retirement account, you will be held to the pro-rata rule unless you convert all of your pre-tax dollars to Roth. Talk to a Whitaker-Myers Wealth Managers SmartVestor Pro or Tax ELP if you have questions about the backdoor Roth IRA. 401(k)’s and 403(b)’s All 401(k) and 403(b) plans allow employees to make pre-tax contributions up to the annual limits. Click HERE to see a summary of the changes from 2022 to 2023. Most employers also offer employees the option to make Roth contributions to their employer-sponsored retirement plans. This allows your payroll-deducted contributions to be taxed now and grow tax-free moving forward. There is a third bucket of contributions that are rarely seen inside employer-sponsored retirement plans known as after-tax deferrals. These additional contributions are not taxable upon withdrawal, but the growth of the funds will be taxed upon distribution. If this option is available in your plan, you can make after-tax contributions above and beyond the normal contribution limits of $22,500 (under age 50) or $30,000 (50 or older). In 2023, the contribution limit for combined employee and employer contributions is $66,000 (under age 50) and $73,500 (50 or older). If you contribute after-tax contributions to your employer plan, then you will likely want to convert them to Roth using the Mega Backdoor Roth strategy. What Is a Mega Backdoor Roth? The Mega Backdoor Roth is a financial strategy that allows individuals to contribute significant amounts of money to their employer plan and then convert the after-tax funds to a Roth IRA. This technique lets you take advantage of the tax benefits and potential growth opportunities a Roth IRA provides, even if your income exceeds the limits for direct Roth contributions. How Do I Know If I Can Take Advantage of the Mega Backdoor Roth? · Make sure your 401(k) or 403(b) has a Roth option, allowing you to make Roth contributions. If yes: · Confirm that your 401(k) or 403(b) allows after-tax contributions. If yes, you have two questions to ask that could potentially allow two options for you: 1. Does the plan allow for “in-service withdrawals?” This allows employees to roll over after-tax contributions into an outside Roth IRA at a custodian of their choice like Charles Schwab. 2. Does the plan offer the ability to make “in-plan conversions” to Roth? · Choose which option best fits your situation. Your employer-sponsored retirement plan has limited investment options, so we suggest choosing the “in-service withdrawal” option if available. This will open up the investment universe for your hard-earned dollars. · Max out your Roth 401(k) for the year ($22,500 if under age 50; $30,000 if 50 or older). · Max out the after-tax contributions, then convert those funds IMMEDIATELY to Roth. If you don’t convert immediately, you will have to pay taxes on the growth of the after-tax portion. If you have questions on what is the best way to invest for yourself, reach out to one of our financial advisors. They can help answers questions you have, and help you decide which option is best for your situation. *The annual rate of return given in this article is used for informational purposes to illustrate an example. This is not a guarantee of return.

One tax most are not familiar with is the Net Investment Income Tax or NIIT. This is also sometimes referred to as the Obamacare surcharge as a tax created in the same legislation as the Health Care and Education Reconciliation Act of 2010, with NIIT taking effect in 2013. This is a 3.8% tax on high earners—specifically, those whose modified adjusted gross income or MAGI meets the tax threshold above $200,000 for a filing status of single and head of household, $250,000 for married filing joint and qualifying widower, and $125,000 for married filing separately. Earning these incomes would put your income in the top 10% in the United States for 2022. Please note that MAGI is not on your federal 1040 tax return form, but AGI can be found on line 11 of the 1040. These minimum income levels have been at the same level since the laws passed, meaning there’s no inflation index for these numbers, which most tax limits have. Because of this, it’s starting to apply to more and more people as wages have increased more than usual in the last several years. What is subject to the net investment income tax? · Interest · Dividends (Qualified or Non-Qualified) · Sale of assets (rental homes, stocks, or any other security), whether they are subject to short or long-term capital gains rates · Rental / Royalty income · Non-Qualified Annuity distributions · Income from passive income activities What is not subject to the net investment income tax? · Wages · Social Security or Veteran’s Benefits · Pensions · Tax-Exempt Interest (Municipal Bonds) · Qualified Retirement Distributions (IRA, 401(k)) · Tax-Exempt Income from the sale of your primary home · Life insurance proceeds · Operating Income from non-passive businesses There are several ways to reduce your taxable income to avoid this tax by using certain financial accounts: Traditional 401(k) / 403(b), SEP / Simple IRA, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSA), and Dependent Care Savings Accounts (DCSA). The items subject to NIIT stack on top of your ordinary income or those not subject to the tax. Let’s look at an example: Mary and Paul have an adjusted gross income (AGI) of $180,000 in 2022. They owned a rental real estate property that they sold that netted a $100,000 long-term capital gain in 2022. They had $2,000 earned in their High Yield Savings Account. They had dividends of $3,000. Their total AGI added up to $285,000 for the year. $35,000 is above the $250,000 NIIT threshold and thus subject to NIIT, which would result in an additional $1,330 owed in federal income taxes. As you can see in this example, taxes can greatly impact your financial plan and goals. That is why at Whitaker-Myers Wealth Managers, we have a CPA on our team so that we are equipped to help you in all areas of your finances. If you have any questions on how this tax may apply, please contact me, Andrew Young, or Kage Rush, CPA.

Do you have a savings account for your child at the bank? If so, did you know that you could have that money invested and potentially earning much more than the interest rate that the bank offers? You can! Since savings interest rates at banks are typically pretty low, it is definitely beneficial to have the money invested instead. How to Invest for Kids The Uniform Transfers to Minor Act (UTMA/UGMA) allows minors to receive gifts (i.e. money), and with the UTMA account, there is an adult custodian, typically the parent or legal guardian, that manages the account until the minor is of legal age, usually 18, 21, or 25, depending on the state. This is likely similar to what you have at the bank; you opened an account for your child, and you are the custodian, which means you are managing the funds until they are of legal age. The main difference between opening this account at the bank versus having it invested in a brokerage account is the performance. At the bank, you earn the interest based on the interest rate the bank is offering at the time. When it’s invested in a brokerage account, you get to capitalize on the earning potential of the stock market by investing the money in mutual funds. How the UTMA Account Works In an UTMA Account, the money that is deposited into the account is an irrevocable gift to the minor, which means that the money has to be used for the child’s benefit. One difference between the UTMA and a college savings account such as a 529 or ESA is that the UTMA can be used for college but it doesn’t have to be. The money in the UTMA account can be used for anything that is for the child’s benefit. For example, this money could be used to purchase their first car or for a down payment on their first home. You do have to pay taxes on the growth of the UTMA Account, or the “unearned income” that comes from the interest and/or performance from the investments. However, that doesn’t happen right away because the taxes are applied on a sliding scale: The first $1,100 of unearned income in the UTMA is tax-free. The next $1,100 of unearned income in the UTMA is taxed at the child’s tax rate. Any unearned income above that $2,200 is taxed at the custodian’s tax rate. There are no withdrawal penalties. Once the minor reaches the legal age, they are granted full access to the money in their UTMA account. If a child applies for college financial aid, the money in the UTMA account does need to be listed as an asset on the FAFSA. Key Take-Aways To recap, here are the key takeaways of the UTMA Account: The money in a UTMA/UGMA Account CAN be used to pay for college, but it doesn’t have to be. It can be used for anything for the child’s benefit. Brokerage UTMA/UGMA Account = the money can be invested. UTMA/UGMA Account at the bank = savings interest rate. There are no withdrawal penalties. There is an adult custodian that manages the account until the minor is of legal age. Sliding scale for how unearned income is taxed. Questions? If you have questions about how to open a UTMA Account and/or want to discuss this more, we would be happy to talk with you. You can meet our team of Financial Planners and reach out to one of us HERE.

President & Chief Investment Officer of Whitaker-Myers Wealth Managers, John-Mark Young recently completed the coursework and examination to earn the prestigious AIF®, Accredited Investment Fiduciary designation. This makes John-Mark Young one of the few Dave Ramsey and Ramsey Solutions Smartvestor Pros that also holds the AIF® designation and operates his practice under the Fiduciary standards. One of our core values is integrity. We quote Philippians 2:3-4 when thinking about this core value which says, "Do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourselves, not looking to your own interests but each of you to the interests of others" We think part of this verse means we should treat others as we would want to be treated, which in financial planning and investment management, means you're operating in a fiduciary mindset and worldview. According to fi360's website, The Accredited Investment Fiduciary Designation is a professional certification that demonstrates an advisor serving as an investment fiduciary has met certain requirements to earn and maintain the credential, which include Complete the AIF® training (picture shown above). Pass the AIF® examination. Meet the experience requirements. Satisfy the Code of Ethics and Conduct Standards. Submit an Application to be reviewed by the fi360 staff. Fi360 further notes that this designation helps to assure that those responsible for managing or advising on investor assets have a fundamental understanding of the principles of fiduciary duty, the standards of conduct for acting as a fiduciary, and a process for carrying out fiduciary responsibility. This designation is accredited by the American National Standards Insitute (ANSI) and that means this designation is part of an elite group of accredited designations recognized by FINRA. To search Financial Advisors that have earned this designation, you can look here.