A Health Savings Account (HSA) is a tax advantage savings account that is created for people who have high-deductible health insurance plans. High-deductible insurance plans are usually accompanied with lower premiums. Lower premiums mean the covered employee pays lower monthly fees, however the caveat is that the employee is responsible for the higher out-of-pocket medical expenses. Employer and employee can contribute to the HSA, which then the funds can be used towards qualified medical expenses. Some examples of qualified medical expenses include the following; dental and vision care, prescription and over-the-counter medications, childcare, transportation and parking expenses to and from medical appointments, and service animals. Contributions The IRS allows a yearly max contribution to an HSA to be $3,650 for an individual or $7,300 for a family. If you are over 55 years of age, you are allotted an extra $1,000 per year. These limits include the contributions from both the employer and the employee. Once you enroll in Medicare, you are no longer permitted to contribute to an HSA, however, you are still allowed to withdraw tax-free distributions from the existing account for qualified medical expenses. Tax Benefit People who participate in HSA’s benefit from a triple tax advantage: Contributions are tax-deductible up to the IRS limit. If payroll deduction is an option, these contributions are typically made pre-tax. Using HSA dollars to pay for qualified medical expenses is free from federal income taxes. When you start to invest your HSA dollars, any growth is free from Federal Income Taxes. When to Invest When looking at the past 30-year performance of the stock market, it’s important to consider when to start investing HSA funds. Since 1991, the stock market has been positive 83% of the time and negative 17% of the time. It would be detrimental for an individual to make withdraws from their invested portion when the market is down. This would result in negative compound interest. For this reason, we, at Whitaker-Myers Wealth Managers, recommend keeping the yearly maximum out-of-pocket coverage in cash within the HSA. How to Invest At Whitaker-Myers Wealth Managers, we keep your HSA diversified following Dave Ramseys’ principles; 25% Growth, 25% Growth & Income, 25% Aggressive Growth, and 25% International. Pros of HSA Contributions are payroll deducted and excluded from taxable income Earnings on the account are tax-FREE (if used for qualified medical expenses) Can invest money within the HSA into Mutual Funds Contributions do not need to be used within the same year HSA can be transferred to a surviving spouse tax-free upon the account holder’s death Cons of HSA Must have a high-deductible Insurance plan Must have medical emergency fund to cover higher out of pocket medical expenses Certain filing needs to be completed, which is where using a Tax ELP such as Whitaker- Myers, can help you prepare. Fidelity At Whitaker-Myers Wealth Managers, we typically recommend clients establish their Health Savings Account at Fidelity, since Schwab does not have a Health Savings Account option. We can help manage the Fidelity Health Savings Account through our Pontera platform.

Acquiring life insurance is one of the most important considerations a person can do to protect their loved ones after death. Two of the most popular vehicles are term life insurance and whole life insurance. But which one is best for you? Below we will examine both insurance features and explain why term life insurance will be the better consideration of the two. Term Life Insurance When one purchases term life insurance, they are only covered during the contract term. These policies start at 5 years and can go as high as 40! Naturally, the longer the term, the higher the premiums. Term Life insurance offers the lowest premiums compared to other insurance policies. You also have to qualify for term life insurance through a health exam. Depending on the company sponsoring the plan, you may have to submit to some medical tests and provide family medical history in order to qualify. This will also impact the premiums you will have to pay. If you are a very active and healthy individual, your premiums will be lower than someone who does not take care of themselves. Your death benefit is only effective during the term you select. Once the term expires, you will no longer have coverage. You can always renew your term life insurance, but the premiums will increase from your previous contract. Your Financial Advisor can help you to determine the amount of term you should purchase but a standard amount, as discussed by Dave Ramsey & Ramsey Solutions is 10 times your income. This would mean someone earning $100,000 / year would want to purchase a $1,000,000 term life insurance policy. Typically, we recommend you purchase term insurance until the point with which you are self-insured, which your financial plan can help you determine. Pros Low Premiums Guaranteed Death Benefit Flexibility of Term – 10 Year, 20 Year, 30 Year, 40 year Better discounts for Healthy Lifestyles Cons No Death Benefit after policy is completed Submission to examinations to qualify May not qualify Whole Life Insurance Whole life insurance is a policy that covers you till death (as long as you make the payments). A portion of your monthly premium pays the actual cost of the insurance and a portion of the monthly premium deposit's money into a savings account. This is known as the cash value of the whole life policy. This will increase the death benefit and provide more to the beneficiaries. “Policy dividends can also be reinvested into the cash value and earn interest” (Investopedia). The interest earned would grow tax-deferred. From this cash value, you are able to also take out loans. Like any loan, there is interest charged and the rates may differ from different issuers. If you have a loan out from this policy, whatever is owed at time of death will be deducted from the death benefit to the beneficiaries. When you pass away, most whole life insurance policies, keep the cash value of the life insurance, therefore passing on years of savings to the insurance company, instead of your family and/or beneficiaries. So you build a savings account, that you were required to borrow from, to actually use (thus you must pay back) and when you pass away, your family doesn’t get to keep it. Wow what a deal - for them! Monthly Premium Comparison Through research of a nationally recognized insurance company, I was able to gather cost information. The criteria entered are a male, low 30s, healthy, $1 million death benefit coverage, and looking for a 30 year term (in regards to term life). The cost for a 30-year term life insurance policy is $55 per month. The cost for whole life insurance is $764 per month! So, in a thirty-year span, for term you would invest $19,200 where whole you would spend at least $275,040. Whole Life Insurance Answer = Lower Death Benefits In our example above, which again was a quote delivered to us from a large, national well known insurance company, we see the difference between a whole life policy with the same death benefit of a term policy was $709 / month! The $764 monthly whole life insurance premium is equivalent to some family’s mortgage payment. Obviously, the whole life insurance industry is smart enough to know that most people will not be able to afford to allocate $764 / month to their life insurance premiums. That is why we normally see clients that have whole life insurance policies with only $100,000 or less death benefit. Now it makes the premium comparable to a term policy. What’s the problem with this scenario? Client are severely under-insured, which potentially creates catastrophic issues for the family they left behind. Buy Term & Invest the Rest! Let’s assume our client did have the cash flow to allocate $764 / month to the life insurance line on his budget. Should he buy the whole life policy with a $1,000,000 death benefit or purchase the $1,000,000 term and invest the rest? Let’s assume he had a rock star SmartVestor Pro, that got him hooked with a 30-year term policy for $55 / month. Then our client invested the $709 per month for the next thirty years. With a 10% return, which we can see from the Prudential Asset Allocation Chart, is what the stock market has averaged over the last thirty years, he would have approx. $1,602,685. What if we only generated a 7% return? $864,959.44 Then the client no longer has premium payments and if he continues living the money will continue to grow and compound. The Whole Life Policy will most likely require continued premium payments until the cash value can pay the premium payments, which then means if you use the cash value (through a loan because you can’t take it out) the monthly premium will be required to begin again or they’ll start eating away the cash value until it’s all gone, creating a nightmare scenario later in life. Additionally, this doesn’t account for the fact that our hypothetical male client, should be doing savings through his retirement plan and Roth IRA, while paying down his mortgage and thus by the end of the thirty year period, beyond just the life insurance bucket of money we assumed he built from his whole life insurance savings, he should be a significantly self-insured with his Baby Step 4 bucket. Favorite Dave Ramsey Video Dave Ramsey takes a lot of heat from the insurance industry for his common sense approach to life insurance. One of my favorite video's can be seen here of Dave debating a Whole Life Insurance Agent, who decided he would call the show and debate him in front of a national audience. Bad idea for that poor agent . Conclusion Life Insurance is exactly that – life insurance. Do not merge savings, investing and life insurance into one product, because as Dave Ramsey says, it’ll just provide a way for the insurance company to pick your pocket, the entire time you do business with them. To learn more about how you can have a life insurance strategy that aligns with Dave Ramsey, Ramsey Solutions and a holistic financial plan, please reach out to one of our SmartVestor Pro’s today.

I would like to start off with a basic introduction to retirement-based target date and lifecycle mutual funds: Larger mutual fund companies and similar entities create these particular funds and the composition of this type of investment universally is the following: Layer 1: “Umbrella” Mutual Fund – Let’s use the Vanguard Target Retirement 2050 Fund that is simply just a placeholder for underlying mutual funds (Layer 2) Layer 2: Multiple underlying mutual funds created by same company/entity where your original investment dollar is allocated to varying percentages Layer 3: Hundreds/Thousands of underlying stocks, bonds, or alternative investments within all mutual funds in Layer 2 Here is a real-life example. The Vanguard Target Date 2050 Fund whose ticker symbol is VFIFX would be an example of Layer 1. Inside of the Vanguard 2050 are four mutual funds which are: Vanguard Total Stock Market Index (53.40%), Vanguard Total International Stock Index (36.06%), Vanguard Total Bond Market (6.26%), Vanguard Total International Bond Market (2.86%). All four of these funds are an example of Layer 2. Inside of each of those funds are 11,796 individual stocks and 21,911 individual bonds which is an example of Layer 3. Let’s transition into a quick real-life application to establish potential relevance to you as the reader: Likely, the easiest strategy available in most 401(k) and likewise retirement plans involve using these funds. The commonly recommended concept is to choose the fund that “contains” the year closest to your retirement year, whether that be an educated guess or specific knowledge in your specific situation. Regardless of source, these funds typically exist in 5-year increments. Example: If Company A has a Lifecycle/Target Date funds 2025, 2030, 2035, and so on… and I expect to retire somewhere between 2041-2042, then a common recommendation would consist of choosing to invest solely in the Company A 2040 Fund. I would argue that these types of funds have can have benefits. In the right situation and with the absence of investment knowledge and/or access to good advice, these funds can be the simplest and most effortless way to create a retirement investing decision you could feel good about. Retirement goals aren’t universal, but these funds aim to do what makes sense for a lot of people, in a general sense: being more aggressive in investment strategy earlier in a working career and gradually shifting a larger portion of the retirement account dollars to investments with historically less volatility/risk. This is completed with changes and adjustments in ‘Layer 2.’ ‘Simplest’ and ‘effortless’ do not necessarily equate to best available strategy and this brings me to my main purpose in writing today’s article, being just one specific downfall in utilizing this widely-available option in many retirement plans. I am going to focus on what can happen not when you invest, but rather when you sell out and take withdrawals, most prominently in retirement, after age 59 ½. The U.S. stock market (U.S. equity) has experienced average annual return of roughly 10% over the past 30 years, but there are, of course, ups and downs and periods of high volatility historically and expected in the future again and again. Of the many 2020 & 2025 target date funds, one 2025 fund in particular is composed of roughly 28% U.S. equity while the similar 2020 fund is composed of roughly 15% U.S. equity. The concept I previously mentioned is showing true: less allocation towards higher-volatility investments as you shift into retirement. The problem with withdrawing money in retirement in certain situations is being revealed: when you sell out and withdraw money from a lifecycle/target date fund, you get your investment dollar back from ‘Layer 1,’ right back from where that investment dollar started when you were working and investing income. When you sell out of Layer 1, everything in Layer 2 is sold evenly based on current allocation to each fund. You cannot pick only 1 or 2 funds or any possible incomplete list from Layer 2 to sell from, using recent performance and forward-looking metrics as a basis for a potentially informed decision that saves/creates wealth that you could accomplish otherwise. Being invested in the right target date fund has some pros in some situations, but selling out of these funds at any level does not allow you to take into account current market environments whatsoever. There is not intelligent withdrawal strategy available even though ‘Layer 2’ contains funds of varying strategies, objectives, performance/return characteristics, and so on, because nothing is catered to you and you get no choice. A better strategy is available with the help of a knowledgeable advisor and a portfolio of funds of varying risks and strategies not contained in the lifecycle/target date outer layer. Whether you have 15%, 28% or a different percentage of your nest egg/retirement account(s) in the stock market, it is subjectively not smart to sell out of this bucket when the underlying market is performing poorly in the short-term. The U.S. stock market experienced 37% loss in 2008. More recently, when COVID first hit, the market was down roughly 30% in a few short months. If you are taking regular income from a fund like this in a retirement or non-retirement account, you are essentially guaranteeing the future repetition of selling out of the stock market at inopportune times as inopportune times are inevitable. In-Service Rollovers - 59 1/2 One way to prepare for retirement, with a strategy that is customized to your specific needs and withdrawal requirements, is to have your funds transferred to your IRA or Roth IRA, before you actually retire through an in-service rollover. Investopedia says that, "an in-service rollover allows a current employee the ability to move some or all of the assets in their employer-sponsored 401(k) plan into an IRA without taking the money as a distribution but rather as a rollover." That's right! If you're over the age of 59.5 you can typically move your retirement money while stilled employed. This allows you to ensure your future distribution strategy is not ineffectively selling assets at their low point, like a Target Date Fund could do. Contact one of our Financial Advisors today to discuss your ability to do an in-service rollover.

This is a great question that I get quite often. Many married couples have one income earner in the family and in many circumstances, this can limit their ability to save in tax-advantaged retirement accounts. Let’s say a married couple in their early-40’s has one income earner making $190,000/year and they want to save 15% ($28,500) of their income for retirement. The working spouse has a company 401(k) as well as a Roth IRA. Because the income earner is under 50, the maximum elective deferral for 401(k) in 2022 is $20,500 and the contribution limit to the Roth IRA in 2022 is $6,000. $28,500 – ($20,500 + $6,000) = $2,000 Total Savings – (401k Max + Roth IRA Max) = Unaccounted Savings How do we save the additional $2,000 in a tax-advantaged retirement account? Enter, the spousal IRA. This is a strategy designed for married couples with one income earner. Under spousal IRA rules, married couples with one income earner can contribute up to $6,000 ($7,000 if non-working spouse is over age 50) into their spouses IRA on behalf of the non-working spouse. A few things to consider before implementing this strategy. First, married couples must file a joint return to be eligible to use the spousal IRA strategy. Second, income limits apply to Roth IRA contributions. In this example, the couple’s income is under the $204,000 threshold and they are able to contribute the maximum amount to their Roth IRAs. If you are married filing jointly and your Modified Adjusted Gross Income (MAGI) is over $204,000 you should speak to a Financial Advisor at Whitaker-Myers Wealth Managers about the possibility of the backdoor Roth IRA. Third, the non-working spouse is the account owner even though the working spouse is funding the account. All of the decisions within the spousal IRA are only to be that of the non-working spouse (asset allocation, withdrawals, beneficiaries). The spousal IRA is a great consideration if you are like the hypothetical couple above or if you just want to save in a Roth IRA with tax free growth, tax free distributions after 59½, and NO REQUIRED MINIMUM DISTRIBUTIONS AT AGE 72. If you are interested in opening a spousal IRA or have questions related to backdoor Roth IRAs, retirement planning, or general investing, you can reach out to one of our Financial Advisors here.

If you are currently holding cash that is above the comfort of your emergency fund, you may be stuck in what is called “analysis paralysis”. That is, with extra money to invest, you are holding back as an investor due to uncertainties in markets. A volatile equities market and a low yielding bond market due to low interest rates can do that to you. So, you are keeping money in cash for the time being, all while we are dealing with the highest inflation numbers in 40 years. If this is you, and you are concerned about keeping up with inflation, the Federal Series I Saving Bond (I Bond) can be very attractive. What is the Federal Series I Saving Bond? The Series I Bond is offered by the Treasury Department and are backed by the U.S Government. They can be purchased directly through the TreasuryDirect website. I Bonds are a fixed income investment and the interest rate it earns is what is known as the “Composite Rate”, which is a combination of a fixed (currently 0%), and an inflation rate (currently 7.12%). The current composite rate for these bonds is 7.12%! The I Bond has a 30-year maturity, but can be redeemed after holding the bond for 12 months. The composite rate of these bonds (7.12%) is good for the first six months the bond is held, thereafter, a new rate is applied that is correlated with the current inflation level. How Much Can One Individual Buy? One Individual is limited to purchasing $10,000 in I Bonds for the calendar year. So, for 2022, a married couple may purchase up to $20,000 in I Bonds, $10,000 for each individual. Although, there is a bonus, you may purchase up to $5,000 extra in a calendar year with your tax return refund money. The refund money is per return, so a married filing joint couple could only add an additional $5,000 combined into I Bonds from their tax return refund. These buying limits reset every calendar year, so they could purchase another $20,000 in 2023. What’s the Catch? Timing As mentioned, the current 7.12% composite rate will be evaluated and updated, investors have until May 1st, 2022 to lock in the 7.12% rate for their first six months. Penalties The I Bond has a 30-year maturity but can be redeemed after 12 months. If it is redeemed between 12 months and 5 years, you will lose the last 3 months of interest earned. This results in limited liquidity as the I Bond does not provide liquidity within the first 12 months (Not redeemable in the first 12 months unless a federally declared disaster). Example Susie purchases the I Bond for the maximum amount of $10,000. Susie is safe to assume that the value of her bonds at the time of the 6-month redemption rate will be $10,361. The next 6 months, the composite rate will be adjusted, for the sake of the example, lets assume inflation zeroes out and the composite rate drops to 0%. For the same 12-month period, Susie would still have earned a return of 3.56%! A U.S Government backed return of 3.56% is much more attractive than the current interest rates on high-yield savings instruments, such as 1% CD. Pros and The Cons of I Bonds Pros Extremely low risk and protection of principle Keeps up with inflation in a high inflationary environment (7.12%) **as of 3/5/2022** No state or local tax when the bond is redeemed Growth is tax deferred until redemption Cons Lack of liquidity (no redemption within 12 months) Purchasing limits of $10,000 per person Forfeit the last 3 months of interest earned if redeemed between 1-5 years Overall, I bonds may be a great investment if the alternative is low yielding savings account and fixed income. The investor must be aware of the liquidity timeline (greater than 12 months), as well as the change of the composite rate every 6 months. If inflation continues to roar, I bonds will be a good place to protect principle and keep up with that roaring inflation. To Purchase an I Bond – please follow these instructions here. Please consult with your financial advisor today if I Bonds may be the right thing for you. This article is for educational purposes only and not personal financial advice.

Here at Whitaker-Myers Wealth Managers, we think it is really important for you to know what your Financial Advisor’s goals are. Knowing their mission, vision, and core values tells you a lot about what you can expect when you are a client of theirs. As a team, we have developed our mission & vision as well as 7 core values that we all agree are important to us individually and as a company. That last part was really important to us as we were outlining this. We wanted to make sure we all agreed to live by these principles. Dave Ramsey talks about this a lot with his company, Ramsey Solutions. They have very clearly defined core values and if people do not believe in them, they ultimately do not fit in there. This is because in order for core values to actually mean something, everyone in the company has to strive to live them out. In this article, we will talk through our Mission, Vision, and Core Values but you can also view them on our website HERE. What is a Mission Statement and why is it important? A mission statement is “a formal summary of the aims and values of a company, organization, or individual.” (Dictionary) Mission statements are important because they help the company to identify the purpose of their work and it aligns the team and organization around that purpose. Whitaker-Myers Wealth Managers’ Mission Statement Whitaker-Myers Wealth Managers strives 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. We do this by providing integrity-based financial planning and investment advisory services that are tailored to the specific needs, goals, and values of each client. What is a Vision Statement and why is it important? A vision statement states the current and future objectives of an organization. A vision statement is vital for a company because as Zig Ziglar said, “If you aim at nothing, you’ll hit is every time.” You have goals that you are striving for in your personal life and as an organization, we definitely should too. We want to make sure that as a team, we are aligned in the direction the company is headed and that we agree on what will serve our clients in the best way. Whitaker-Myers Wealth Managers’ Vision Statement To be the most comprehensive wealth management firm with seamless client interactions so that clients trust us with all of their financial needs. What are Core Values? Core Values are qualities that represent an organization’s highest priorities, beliefs, and driving forces. Whitaker-Myers Wealth Managers Core Values Heart of a Teacher We are here to educate clients and help them feel confident about their current and future finances. We work together to answer the question “Am I going to be okay?” (Philippians 4:8-9) Integrity We hold ourselves to the fiduciary standard, that is why we do the right thing no matter what. We act only in the best interest of our clients and we approach every interaction with the intent to serve rather than sell. (Philippians 2:3-4) Family We work hard but also know that family is important. We strive to balance working with spending time with family. We believe a good balance of work and life is essential to our physical health and will allow us to continue our mission that we have been called to do long term. (Proverbs 22:6, I Timothy 5:8) Colossians 3:23 “In all the work you are doing, work the best you can. Work as if you were doing it for the Lord, not for people.” We strive to “live it and give it” and work hard to become better every day in life and in business. Excellence in the Ordinary We are faithful in the little things. We are reliable, trustworthy, consistent and on time. (Luke 16:10-12) Work that Matters We are motivated to come to work every day and genuinely help our clients and future clients. We know our work matters and is honest. We believe helping enough people will reward us not just financially but spiritually as well. (Colossians 3:17) Matthew 18 Principle Biblical conflict resolution. We are optimistic and objective – we deal in facts and truth. We strive to be part of the solution and not the problem. Why we are sharing this with you? As a team, we have committed to live out these principles and hopefully you can see from them that we take this work very seriously. What that means is that we also take the trust that our clients put in us very seriously. We want to be transparent in all that we do and we want you as a client to feel like you know what kind of organization Whitaker-Myers Wealth Mangers is.

Now that you have taken the first step and decided to start budgeting, let’s talk about creation of it. When trying to set up a budget, you need to think of how to organize it the easiest way for you to know where all your dollars are going and how they are working for you. There are several different ways to set up your budget with the most common methods being: 50/30/20 Method This method is percentage based off your income. You take 50% of your monthly income and use it towards your needs (rent, utilities, groceries, etc.), then 30% of your income goes to your wants (eating out, spending money & entertainment), and the remaining 20% goes into savings. This method does not give any room in your budget to put into any investing (if you are at this baby step), and does not account for any debt you may have. 60% Solution Method This method seems simple enough, 60% of your income is allotted for all of your needs and wants, with the last 40% going into your savings. That last 40% is categorized 4 different ways in your savings: 10% goes into retirement, 10% long-term savings, 10% short-term savings, and lastly 10% into “fun”. In this method we can see that saving for retirement is allocated for, but again, if you are in baby step 2, nothing is earmarked to put towards the debt you are trying to get out of by creating a budget. Reverse Budgeting Method Reverse budgeting is all in its name. Normally with budgeting methods, you start with necessities and move onto savings from there. In this method you start with your savings and investing first, then move onto your necessities like housing, food, etc. This method gets kudos for putting such an emphasis on savings and investing, but this could put you in a very bad position if you are living paycheck to paycheck and counting on every dollar to be working the best way for you. Zero-Based Budget Method This method is the preferred budgeting method by not only Dave Ramsey and his team, but also the team with Whitaker-Myers Wealth Managers. By using a Zero-Based Budget, you are putting every dollar to work for you by giving it a designated role on how to be used and spent. I understand, having the word “zero” in the name of your budget seems a little counterproductive. But contrary to that belief, it can actually help you SAVE money in your budget. For a Zero-Based Budget, we suggest using EveryDollar that Dave Ramsey’s team created to keep track of your monthly income and expenses. It’s a simple, user-friendly, web-based app that you can also download to your phone for easy access to your budget while you’re out and about. Since this is the method we prefer, we are going to focus on how a Zero-Based Budget can actually go to work for you. So, what is a Zero-Based Budget? Let’s break it down for you. In simplest form, a zero-based budget is when you take your monthly income, and subtract all your outgoing expenses (this includes the dollars being put away for savings or paying off debt too!) from the monthly income total until the base line is zero. *Please Note* your budget will hit zero, NOT your bank account. You should always have your emergency fund set up and in your account. Let’s walk through creating a Zero-Based Budget Start with your monthly income. If you have a spouse, make sure to include their income also. And don’t forget any side hustles, child support, etc. – anything that is income coming in to you on a monthly basis. List your monthly expenses until your budget line hits zero. Dave Ramsey’s team suggest listing your expenses out in order as below. Giving As Dave Ramsey has said, “Outrageous generosity is a wonderful thing and is changing you as a person”. They suggest starting with giving as your first budget line so you can make this a priority. They suggest giving 10% of your income. Savings If you are in Baby Step 1, this is where you are building up that $1,000 emergency fund. If you are in Baby Step 3, this is the 3–6-month emergency fund. And lastly, if you are in Baby Step 7, this is where you are putting money aside to continue building wealth. Four Walls These are your absolute necessities: food, utilities, shelter and transportation. These are the things you need to live on from day to day to take care of yourself, and your family. Other Essentials These are the items that come second in regards of needs. These items would include, insurance, child care, and debts. Yes, this is where Baby Step 2 is focused on at getting paid off. Got a sinking fund, this could also be where you put these expenses. Extras This area is considered the “fun” budget line. Think of this area as your dining out, shopping, and money to play with category. FYI – this is more than likely the area will you cut back to if you are trying to find money in your budget. Month-Specific Expenses This budget line could change from month to month. This is where you put month specific items – think holidays, birthdays, events, or quarterly payments. Miscellaneous Lastly, don’t forget to give yourself some wiggle room. This budget line is to help cover expenses that pop up and you need somewhere for them to go. NO, this is NOT your emergency fund. If you have car problems and need repairs, that should come out of your emergency fund not the miscellaneous budget line. What if I have an irregular monthly income? Having an irregular income can happen for several reasons. You have side hustle(s) that is dependent on outside purchases, or work you get. Or you are hourly or commission-based pay. Know that you can STILL DO A ZERO-BASED BUDGET! To do this, it may be helpful to have a few past bank statements to review. Look at several previous months income and choose the lowest amount received. This becomes your starting line for your monthly income. If you notice you have started to make more income throughout the month, you can go in and adjust your budget to account for this increase. Remember, “A Budget is just a plan” You need to stay consistent with your plan by tracking all of your expenses. I know it may feel tedious at first, but the more you do it, the more natural and second hand it will come. The better your track your expenses, the more information you have to better help you plan for next month’s budget. Don’t feel like a budget is holding you back or keeping you from using your money the way you want to. By doing a budget, YOU are the one in control of how your money is being used! If you need help with your monthly budget or just need general financial help, our financial coaching service may be the right option for you. You can learn more here.

This is a common question for many people new to the budgeting world who aren’t quite sure what’s the first thing they should do. Many like the idea of budgeting, but are afraid to take that first step in creating one, following through with it, or doing one consistently. Sometimes just getting started and doing your first one can give you the momentum to keep going and getting into the habit of doing a monthly budget. What is my first step? Acknowledging you need to do a budget, really is the first step. However, there must be action that comes next. If you are in a relationship where you share finances equally, you and your spouse must be on the same page. Set a time aside to talk specifically about your budget. Rachel Cruze on the Dave Ramsey team likes to call this the “Family Budget Meeting”. How do we have a “Family Budget Meeting”? During the “Family Budget Meeting” time, items you and your spouse need to talk about include: goals to reach by doing a budget, reviewing of last month’s budget, how much money to allot to each specific line items (i.e., groceries, utilities, transportation, entertainment, etc.), and any adjustments you need to make from the previous month’s budget that you’d like to address for the upcoming month. FYI – there will be disagreements. And that is okay. There are two people and two opinions coming to the meeting; as Rachel always says, the “nerd” (the one who wants to crunch numbers) and the “free spirit” (the one who’s ready to spend the cash). The goal is that you both show up, and both learn to discuss and collectively decide on a common goal of how to spend your money. This meeting should take place the last few days of the month, so you can plan for the upcoming month’s budget (ex. February 26th or 27th meeting date to plan for March budget). Plan for roughly 30 minutes (as you progress these may get shorter in length), limit distractions so you can give your full focus to the task at hand, and sources have told me, if someone brings a snack to the meeting, nobody is probably going to complain about that little treat! What if I am single? Yes, you can still do a budget. If this is the case for you, Dave Ramsey and his team suggest getting an “accountability partner”. This person is someone that you trust, is good with money, someone that can help guide you to spending your money wisely, and most importantly, help keep you accountable. You should sit down with them monthly to go through the same discussion topics listed above. After some time, you may feel you can move on and do this on your own, but for starting out, you should have someone with you to help keep you on track, and keep giving you the motivation needed. Are there any tools out there to help me with budgeting? You have your traditional pen and paper method that you can write everything out. For all the “nerds” out there, a detailed, itemized Excel spreadsheet will work too. But if you’re in the mood for an already created, simple, and user-friendly budgeting website created by Dave Ramsey and team, EveryDollar is for you! And *Bonus Feature* there is an app for you to download to your phone so now you can budget on the fly! Also come to the meeting with your bank account information, either log in online, or have statements ready in hand to review. You need to have accurate numbers on monthly income going into your account, and know exactly what expenses are going out each month. And the biggest tool you can come to your monthly meeting with is an open mind. Be understanding that your budget may need to change from month to month to accommodate what you have going on in your life. You may have to give something “up” to make sure necessities are getting taken care of before the wants. You may also learn that what worked one month for a budget, may not work as a rinse and repeat system. I don’t want to do a budget because I don’t want to feel like I’m not allowed to spend my money. Following Rachel Cruze’s tagline, “a budget gives you the permission to spend your money!” Yes, by doing a budget, and saying how much you will spend on different things each month lets you spend your money the way you want to, without feeling guilty. So, if you are someone who likes a tasty treat from the drive thru, make sure you give yourself some spending room for that iced coffee, or hot and salty French Fry for your afternoon pick me up! Whatever your guilty pleasure is, the budget allows you to enjoy it…. guilt free! But I’m not in debt, should I still do a budget? A budget will never bring you harm. Knowing where your well-earned dollars are going every month is being responsible. It also gets you in the habit that if one day you do decide to start saving for something down the road (i.e., house, vacation, wedding, you name it!) you know where your money is going on a monthly average that you can make a quick adjustment here or there to help get you to that “want” faster. Also, knowing where each dollar is going every month, rather than looking at your bank account one day and going “EEEKKKK”, will also help keep you OUT of debt. If you need help getting your budget on going or on the right track, please reach out to your Whitaker-Myers Wealth Mangers Financial Advisor today and they'll get you connected with our in-house financial coach!

My wife is a high school basketball coach. There are so many times she’ll create a game plan, explain the game plan to the ladies on her team, however once the game is played, the game plan is not executed to its total perfection. Why? Because everything is easy in a simulated, non-real environment. In your game plan, you’ll typically assume what you want to do, you can and will do. Investing strategy is similar in my eyes, in the sense that we as investors are ready for good returns and the volatility that goes along with them, however once the game is played (the market actually drops), many investors are ready to head for the door “until it gets easier”. Warren Buffet through his annual letters has constantly tried to remind us to stick to the game plan. Here are a few exerts: In his 1991 annual letter to shareholders, Buffet exclaimed, “We continue to make more money when snoring than when active” He continued, “our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from active (investors selling) to the patient” In his 1996 annual letter to shareholders, he advised: "Inactivity strikes us as an intelligent behavior” In his 1998 annual letter to shareholders, he continued to advise: “our favorite holding period is forever” In a June 1999, interview with Business Week, Buffet advised, “Success in investing doesn’t correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble investing” In his 2013 annual letter to shareholders, he advised, “Forming macro-opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important” Finally, Buffett has famously quoted, “A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.” Vanguard Investor Behavior Study Investing is dealing with money and money is often an emotional thing for people. Most investors are aware of time-tested principals of investing but sticking to them is the hard part. It’s made even harder in today’s, “connected world” environment where you can, right from your phone, get an “experts” opinion, often making a recommended change to your investing strategy, based on what has already happened, which is a fool’s errand. Yet the most logical thing for you to do, is stick to the strategy, you pursued, that was time tested and executed before the emotions, of a stock market decline or increase, factored into your decision. Vanguard recently did a study of 58,168 self-directed IRA investors. The study looked at the time period between the end of 2007 and December 31st of 2012, which of course includes 2008, thus was one of the most extremes in terms of volatility in market history, starting with the financial crisis and ending with the strong market returns of 2012. When reviewing all 58,000 accounts during this period of time, the investors that made a change (switched investments) often resulted in a lower return than the respective benchmark of an applicable Vanguard Target Date Fund. If you look at Figure 1.1 you’ll see the purple area shows the amount of underperformance, by those investors who made a change and it was around 150 basis points (1.50%). That led Vanguard to put out the Vanguard Advisor Alpha Study, which has helped advisors quantify the amount of value they provide to clients, with their services. Vanguard concluded the total value an advisor can bring to their client is around 3.00% However the largest factor was what they call behavioral coaching, which is helping clients manage their risk tolerance and prevent emotional decision making, which can add about 1.5% to the clients returns. The other 1.5% is comprised of things such as portfolio rebalancing, asset location, drawdown strategies and total return vs. income investing. Manage Risk Tolerance Making the assumption that during your entire retirement there will never be a stock market correction (-10%), let along a bear market (-20%), would be a foolish assumption of your advisor and yourself. To date, in world history, there has never been anyone able to consistently predict stock market crashes and the ones that finally get one right, are typically perma-bears, which means they consistently predict doom and gloom. Ever hear the phrase a broken clock is right twice a day? About two months ago, a popular hedge fund shut down, because of a history of betting that the market will drop, which didn’t happen. Thus, you know market drops coming but you don’t know when and for how long. This is why you should follow some Ramsey Solutions and Whitaker-Myers Wealth Managers principals in regards to your balance sheet. Clear off your debt as soon as possible. Debt represents risk and one way to mitigate risk in your life is to eliminate it, when possible. Some risk is impossible to eliminate but debt is one that can and should be eliminated Fully fund your emergency fund and don’t forget about building sinking funds, for future expenses as well. Those that have a rainy-day fund, will be prepared when it rains Invest relative to your retirement goals. Meaning, if you’re within five years or sooner to retirement, make sure your investment strategy reflects that. This is one reason we advocate for in-service rollovers (which is moving money from your corporate 401k to your IRA). If the market were to drop right before retirement, you’d be burned if you were to, as Dave Ramsey states, jump off the roller coaster in the middle of the ride. However, if you had money invested in assets that were non-correlated to the stock market, then you wouldn’t be forced to sell stocks to begin your retirement income stream, thereby allowing time for those stock assets to recover. Review your 2022 Financial Plan. Many times, analyzing the projections of your income distributions in retirement, based on what has happened this last year in the market can help to provide you with a level of comfort about your long-term picture. Your Whitaker-Myers Financial Advisor is always happy to spend time reviewing your updated financial planning projections to help you uncover any potential issues or pitfalls. Don’t pay attention to short term movements in the market. While we don’t advocate for non-involvement in the financial planning process, sometimes the best strategy for some people is to turn off the business news and not log onto Schwab.com every single day. If market movements give you too much stress, you’re only tempting yourself to make a mistake by watching it daily. I can promise you; your financial advisor is watching things daily and through our blog, website, newsletter and YouTube page, we will let you know if there is anything you should be paying attention to. Conclusion Investing is simple yet not easy! Dave Ramsey says financial success is not about head knowledge but rather about building great habits. One habit Dave consistently advocates for is consistency with your investing strategy. The best book one will ever read on investing is the tortoise and the hare. Thus, let’s commit to being more like the tortoise – consistent in our strategy and disciplined with our decision making.

As parents it is important to be good role models for our children. Dave Ramsey Personality Rachel Cruze states “More is caught than taught”. This statement is especially true when it comes to how we, as adults, handle our finances. An integral part of a child’s development is teaching them a good work ethic and financial habits. Educating our children from an early age on how to give, save, and spend responsibly and intentionally will help to set up them up for financial success. As parents, we can provide inspiration as to how they can make a small income. This will then open the opportunity to discuss and help our children understand different investment opportunities available to them, such as a Custodial Roth IRA. Custodial Roth IRA This is an Individualized Retirement Account established for a minor, where the contributions are made with the income after tax dollars. How to Open a Custodial Roth IRA Account Since the child is a minor, both the legal guardian and the minor need to sign the contract for the Custodial Roth IRA. To open this account, certain information is needed from both the parent opening the account and the child such as Social Security numbers, employment detail, annual income, and banking information. Contributions The contribution limit for a Custodial Roth IRA is the same as a regular Roth IRA which is $6,000 a year or cannot exceed the minor’s annual income. The custodian of the account is allowed to match the child’s contributions dollar for dollar, as long as it does not exceed the child’s annual taxable income. Example: If your child makes $5,000 a year and wants to contribute $2,500, you as the parent or legal guardian can also contribute $2,500. Eligibility To be eligible for a custodial Rolth IRA, your child needs to have an earned income. The definition of earned income is broad so your child could be working in a W-2, paycheck type of situation or they could just be babysitting. The key here is your child must be earning an income and paying taxes on it. This can create additional costs such as Medicare and Social Security taxes, so we recommend you consult with a tax professional such as our local Ramsey Solutions Tax Endorsed Local Provider, on staff. Taxes When the child reaches legal age, the Custodial Roth IRA will convert to a “Normal” Roth IRA and the account will be transferred into the child’s name. There are no taxes that are incurred during the transition from the Custodial Roth IRA to the “normal” Roth IRA. As a Roth IRA, there are no taxes on the growth or on the distributions after 59 ½. However, taxes and penalties incur if there are unqualified withdraws taken from the Roth IRA prior to the age of 59 ½. To help your child understand the importance of consistent contributions, try using a basic investing calculator such as the one offered by Dave Ramsey: Ramsey Solutions Investment Calculator At 15-years-old, if your child was to start a Custodial Roth IRA with a one-time contribution of $1,000, by the time he or she was 65 years old it would grow to $144,000 based on average growth of 10% (Stock market average since 1992), based on Prudential’s Asset Allocation Chart which can be seen here. If this same 15-year-old child contributed $1,000 every year until he or she was 65 years old, (Principal total of $50,000), the total account will grow to $1,443,639! Really neat scenario; this same 15-year-old child contributes $3,000 a year and the parent or legal guardian matched that contribution until he or she is 18 years old, then the child contributes $6,000 annually until 65 years old, (Principal total of $300,000) the account would grow to 8,362,195! Remember Ben & Arthur, from Financial Peace University. This is an excellent way to change your family tree, as one goal of Financial Peace University articulates.

I’m not sure if there is an actual definition of success tax, however if I were to locate one, it might state that the Required Minimum Distribution is the definition of success tax. Imagine you have done the hard work of getting out of debt, you execute Baby Step 4 and as Dave Ramsey clearly articulates, you emulate the tortoise not the hare, in that you are diligent over the next 20-30 years of savings. Your retirement is fully funded and you’re ready to enjoy the fruits of your labor and then you turn 72 and the government starts forcing out money, from your pre-tax retirement accounts, such as Traditional IRAs and 401(k)s. This creates a potential tax liability on money you may not need nor want, yet the IRS wants to tax it before your death. How can one eliminate this issue? The Qualified Charitable Distribution. Required Minimum Distributions First let’s define what a required minimum distribution is. When you have pre-tax or Traditional IRA’s, this money has never been taxed because it was taken out of your paycheck before taxes were withheld. Additionally, all your employer match, is typically pre-tax therefore that money will be subject to a required minimum distribution. All your pre-tax money is required to be taken out starting at age 72 (this was changed from 70.5 when the SECURE ACT of 2019 was passed) and every year you’re alive afterward based on IRS formulas. You can check out your estimated required minimum distributions by using this calculator. Finally, if you don’t take your RMD, you’ll have to pay a 50% penalty to the IRS on whatever distributions you were supposed to take but didn’t. Be Proactive Younger – Roth IRA’s Before we dive into qualified charitable distributions, it’s prudent to understand with the help of your financial advisor and the financial plan they can help you create, if you should be doing Roth IRA’s at a younger age, even if your tax rate is higher, to avoid these pesky required minimum distributions. Roth IRA’s, because all the contributions have been taxed and the growth won’t be taxed, as long as they are distributed after retirement (59.5), have no required minimum distributions. Let me say that again, Roth IRA’s have no required minimum distributions. Thus, the tax savings of not being forced into higher tax brackets at 72 and older, is typically enough to justify them alone, outside of the tax-free growth and tax-free distributions. Recently, I did write an article that discussed how someone very close to retirement should consider pre-tax and then Roth conversions, right after they retire and presumably fall into a lower bracket. Read that article here. Qualified Charitable Distribution (QCD) Qualified Charitable Distributions are a way for you to give your Required Minimum Distribution to the charity of your choice and avoid paying income tax on the distribution, counting it towards your RMD and avoiding the 50% penalty for not taking the RMD. To qualify for the QCD, you need to be at least 70.5 years old, the IRA custodian (Charles Schwab in our case) needs to transfer the funds directly to the charity and the charity must be approved by the IRS. Eligible charities include 501(c)(3) organizations and houses of worship. Donor-advised funds are not permitted to receive QCD’s. The IRS provides you with a database to search approved charities here. Qualified Charitable Distribution Example Let’s set the table for how someone might use the QCD in retirement. Johnny Client and Suzie Client have approx. $400,000 in their pre-tax retirement Traditional IRA. The RMD on this account in 2022 is $20,000. Their income is broken out as follows $24,000 – Johnny Social Security $20,000 – Suzie Social Security $40,000 – Roth IRA Distributions $84,000 Total Income – of which $44,000 is taxable (Roth IRA distributions are not taxed). Social Security only gets a partial taxation and the threshold is income between $32,000 - $44,000 (if married filing jointly) makes 50% of your benefit taxable and anything more than $44,000 makes 85% of your benefit taxable. Meaning this $20,000 RMD is going to make 35% more of their SSI taxable unless they use QCD’s. Therefore, in this case if we take the RMD and give $5,000 to the local pregnancy center, $1,600 to the local humane society and $5,000 to the local children’s home, serving kids in the foster care system and $8,400 as their normal tithe to their church, they have been able to give the entire $20,000 to causes and institutions they care most about. In comparison, if they took the RMD and gave the money to those charities because they’d be paying income tax (federal and state) they have approx. 15% less to give. Additionally, we improved their cash flow. Instead of giving their $8,400 tithe to their church through their income, we were able to give it through their QCD, therefore saving them tax dollars and we put $700 back into their monthly budget because normally that $700 would have come from their Social Security and Roth IRA Distributions. Finally, by keeping their reportable income below $44,000 we kept 35% of Social Security from being taxable (about $15,400 worth of income) which may have saved them approx. $2,000 in state and federal income taxes, therefore further improving their monthly cash flow (around $166 / month). The total estimated savings for this client was incredible. $2,000 by not taking the RMD and making it a QCD instead. $2,000 by not increasing their amount of their SSI that is taxable and $8,400 back into their cash flow by allowing their QCD’s to create their tithe, as opposed to their normal cash flow. Johnny & Suzie saw a $12,400 improvement in their cash flow. Your savings may be this great, but the QCD is surely still a conversation worth having with your SmartVestor Pro. Conclusion There are many rules around the QCD’s and you certainly would be well positioned to navigate those rules, in light of your particular situation, with a SmartVestor Pro and Tax ELP on your team. We would be happy to help you consider the benefits of a QCD, by reaching out to us today.

I’m not sure if there is an actual definition of success tax, however if I were to locate one, it might state that the Required Minimum Distribution is the definition of success tax. Imagine you have done the hard work of getting out of debt, you execute Baby Step 4 and as Dave Ramsey clearly articulates, you emulate the tortoise not the hare, in that you are diligent over the next 20-30 years of savings. Your retirement is fully funded and you’re ready to enjoy the fruits of your labor and then you turn 72 and the government starts forcing out money, from your pre-tax retirement accounts, such as Traditional IRAs and 401(k)s. This creates a potential tax liability on money you may not need nor want, yet the IRS wants to tax it before your death. How can one eliminate this issue? The Qualified Charitable Distribution. Required Minimum Distributions First let’s define what a required minimum distribution is. When you have pre-tax or Traditional IRA’s, this money has never been taxed because it was taken out of your paycheck before taxes were withheld. Additionally, all your employer match, is typically pre-tax therefore that money will be subject to a required minimum distribution. All your pre-tax money is required to be taken out starting at age 72 (this was changed from 70.5 when the SECURE ACT of 2019 was passed) and every year you’re alive afterward based on IRS formulas. You can check out your estimated required minimum distributions by using this calculator. Finally, if you don’t take your RMD, you’ll have to pay a 50% penalty to the IRS on whatever distributions you were supposed to take but didn’t. Be Proactive Younger – Roth IRA’s Before we dive into qualified charitable distributions, it’s prudent to understand with the help of your financial advisor and the financial plan they can help you create, if you should be doing Roth IRA’s at a younger age, even if your tax rate is higher, to avoid these pesky required minimum distributions. Roth IRA’s, because all the contributions have been taxed and the growth won’t be taxed, as long as they are distributed after retirement (59.5), have no required minimum distributions. Let me say that again, Roth IRA’s have no required minimum distributions. Thus, the tax savings of not being forced into higher tax brackets at 72 and older, is typically enough to justify them alone, outside of the tax-free growth and tax-free distributions. Recently, I did write an article that discussed how someone very close to retirement should consider pre-tax and then Roth conversions, right after they retire and presumably fall into a lower bracket. Read that article here. Qualified Charitable Distribution (QCD) Qualified Charitable Distributions are a way for you to give your Required Minimum Distribution to the charity of your choice and avoid paying income tax on the distribution, counting it towards your RMD and avoiding the 50% penalty for not taking the RMD. To qualify for the QCD, you need to be at least 70.5 years old, the IRA custodian (Charles Schwab in our case) needs to transfer the funds directly to the charity and the charity must be approved by the IRS. Eligible charities include 501(c)(3) organizations and houses of worship. Donor-advised funds are not permitted to receive QCD’s. The IRS provides you with a database to search approved charities here. Qualified Charitable Distribution Example Let’s set the table for how someone might use the QCD in retirement. Johnny Client and Suzie Client have approx. $400,000 in their pre-tax retirement Traditional IRA. The RMD on this account in 2022 is $20,000. Their income is broken out as follows $24,000 – Johnny Social Security $20,000 – Suzie Social Security $40,000 – Roth IRA Distributions $84,000 Total Income – of which $44,000 is taxable (Roth IRA distributions are not taxed). Social Security only gets a partial taxation and the threshold is income between $32,000 - $44,000 (if married filing jointly) makes 50% of your benefit taxable and anything more than $44,000 makes 85% of your benefit taxable. Meaning this $20,000 RMD is going to make 35% more of their SSI taxable unless they use QCD’s. Therefore, in this case if we take the RMD and give $5,000 to the local pregnancy center, $1,600 to the local humane society and $5,000 to the local children’s home, serving kids in the foster care system and $8,400 as their normal tithe to their church, they have been able to give the entire $20,000 to causes and institutions they care most about. In comparison, if they took the RMD and gave the money to those charities because they’d be paying income tax (federal and state) they have approx. 15% less to give. Additionally, we improved their cash flow. Instead of giving their $8,400 tithe to their church through their income, we were able to give it through their QCD, therefore saving them tax dollars and we put $700 back into their monthly budget because normally that $700 would have come from their Social Security and Roth IRA Distributions. Finally, by keeping their reportable income below $44,000 we kept 35% of Social Security from being taxable (about $15,400 worth of income) which may have saved them approx. $2,000 in state and federal income taxes, therefore further improving their monthly cash flow (around $166 / month). The total estimated savings for this client was incredible. $2,000 by not taking the RMD and making it a QCD instead. $2,000 by not increasing their amount of their SSI that is taxable and $8,400 back into their cash flow by allowing their QCD’s to create their tithe, as opposed to their normal cash flow. Johnny & Suzie saw a $12,400 improvement in their cash flow. Your savings may be this great, but the QCD is surely still a conversation worth having with your SmartVestor Pro. Conclusion There are many rules around the QCD’s and you certainly would be well positioned to navigate those rules, in light of your particular situation, with a SmartVestor Pro and Tax ELP on your team. We would be happy to help you consider the benefits of a QCD, by reaching out to us today.