One of the most challenging aspects of investing involves matching your tolerance for risk with your investment objectives.

Beyond Your 401(k)

Have you taken the time to really project the amount of money you may need in retirement? While setting aside a percentage of your income in a 401(k) is an important step, chances are you will need more than the current limitations may allow you to save. Most people supplement their employer-sponsored retirement benefits and Social Security income with personal investments. In order to develop a fitting plan, you need to have your goals in sight.

In 2025, your elective deferral (contribution) limit for your 401(k) is $23,500. If you’re age 50 or older, you may save an additional $7,500. While the contribution often rises in upcoming years and your employer may match contributions above this limit, will your employer-sponsored plan allow you to save enough? Cast your net as far as possible — can you contribute to your 401(k) and afford to invest in other opportunities? Increasing your savings rate now may help you later.

Asset Allocation and Diversification

Are you an aggressive, moderate, or conservative investor? Your answer probably depends in large part on your stage in life and your financial resources, and will most likely change over time.

Aggressive investors tend to have a longer time frame—as many as 35 years or more to save and invest until they reach retirement—and a greater capacity to withstand loss. For example (the following percentages will vary greatly by investor and their definition of the terms aggressive and conservative investments), stocks may account for 85% of a relatively aggressive portfolio compared to 40% for a more conservative portfolio. As investors near retirement, their asset allocation strategies generally change to account for lower risk tolerance and an emphasis on income over growth.

With a 401(k), you become responsible for managing your portfolio, not your employer. While one aspect of a retirement savings plan is investing for the long term, it is still important to stay involved and make adjustments as needed. Choosing to be an active money manager rather than a passive investor can help you maintain the appropriate allocation strategies and pursue your long-term goals.

Remember that it may be important to diversify within asset categories. For example, spread your equity investments among large-cap, mid-cap, and small-cap stocks, as well as vary your fixed-income investments with different types of bonds and cash holdings. The diversification strategy you choose for your 401(k) should complement your strategies for investments outside of your retirement plan.

Tax Considerations

Because retirement plans offer tax benefits, they carry certain restrictions, such as when withdrawals can be made without penalty. While funds in a 401(k) are made with pre-tax dollars and have the potential for tax-deferred growth, withdrawals made before the age of 59½ may be subject to a 10% Federal income tax penalty, in addition to the ordinary income tax that will be due.

Some 401(k) plans feature the Roth 401(k), too. If your employer offers this option, you may be able to designate all or part of your elective salary deferrals to a Roth account. Although contributions are made with after-tax dollars, earnings and distributions are tax-free, provided you have held the account for five years and are at least 59½ years old when you access funds.

If you’re looking to save specifically for retirement, in addition to your 401(k), consider a Roth IRA, which allows earnings to grow tax-free. While contributions are made with after-tax dollars, your withdrawals will be tax-free provided you are older than age 59½ and have owned the account for five years. Early withdrawals may be subject to a 10% Federal income tax penalty, unless you qualify for an exemption. Certain income limits apply.

Taking advantage of the tax benefits retirement arrangements offer is a valuable strategy, but also consider building more liquidity and flexibility into your overall savings and investment plan. In the event you need access to funds before retirement, have a contingency plan such as an emergency cash reserve and relatively liquid investments. However, keep in mind how accessing savings in the short term will affect your long-term goals.

As you look toward retirement, consider increasing your overall savings rate, maintaining appropriate asset allocation and diversification strategies, and planning for taxes. Over time, your investments will inevitably be affected by legislative reform and market swings, but with a long-term outlook and continued involvement, you are better positioned to manage the fluctuations and changes to work towards your objectives.

Investment returns and principal values will change due to market conditions and, as a result, when shares are redeemed, they may be worth more or less than their original cost. Past performance is no guarantee of future results.

Planning for retirement doesn’t have to be overwhelming. Talk to a financial professional to make sure your strategy fits your life and goals. Meet one of our team members today!

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Asset allocation does not ensure a profit or protect against a loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by AdviceIQ.

LPL Tracking #737710

The post Figuring Out a 401(k) Strategy That Works for You appeared first on Choice Bank.

Most younger folks don’t know what types of retirement accounts to start with. If your employer offers a 401(k) plan, go for it. This is especially true if your employer matches your contributions – it’s free money. But you can and should still own a Roth IRA.

Make Savings Automatic

Let’s talk about some basic history and what this vehicle actually is.

The Taxpayer Relief Act of 1997 created the Roth IRA. The man who helped push the concept through legislation was Senator William Roth – hence the name Roth IRA.

A Roth IRA is, as the name implies, an account an individual opens to save for retirement. In most circumstances, you cannot take out the earnings until you reach 59½ years of age without incurring a penalty.

A Roth IRA is similar to a traditional IRA, but one main difference is the tax benefits. With a traditional IRA, you typically get a tax deduction in the tax year you make a contribution. When you take the money out at retirement, you pay taxes on those withdrawals. With a Roth IRA, you do not receive an upfront tax deduction for your contributions, meaning you pay your tax now, but when you take money out after 59½, the withdrawals are tax-free.

A Roth IRA is the ultimate investment account for Millennials and Gen Z for many reasons.

1. The money you take out of your Roth IRA at retirement is generally tax-free.

Because the money you put into a Roth IRA is after-tax money, and you don’t get a tax deduction like you would with a traditional IRA, the government doesn’t tax you again on withdrawals. For example, if you start a Roth IRA account today at 25, and contribute $5,000 every year into the account until 65, at a 7% rate of return, you have about a million tax-free dollars at retirement.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

2. You can withdraw the contributions you make at any time, without penalty.

This is a huge benefit for younger generations, who may expect large expenses like a house down payment, education fees, and marriage. In addition, you are able to take out earnings for your first home purchase if you meet all the rules. However, early withdrawal is a last resort as it diminishes the growth that compounds over time.

3. You can contribute to a 401(k) and a Roth IRA at the same time.

When you participate in a 401(k) plan at work, the Internal Revenue Service limits the contributions you can make to a traditional IRA. This is not the case with a Roth IRA. As long as you are under the income phase-out limits (currently $129,000 if you’re single, and $204,000 if you’re married), you can contribute the maximum $6,000 to your Roth IRA each year, in addition to contributing to your 401(k) account.

4. You can open a Roth IRA at any age as soon as you have earned income.

As long as you have income from a job, be it babysitting or mowing lawns, you can start contributing. And the IRS doesn’t care what money you actually use to contribute. Your parents can make the contribution for you.

5. You can keep contributing even after you retire.

With a traditional IRA, you typically cannot make contributions after you are 70½. With a Roth IRA, you can make contributions no matter how old you are –  even on your 100th birthday.

6. Your money can keep growing after you retire.

Most tax-deferred retirement accounts, such as 401(k)s and traditional IRAs, require you to start taking money out after 70½. On the contrary, with a Roth IRA, you do not need to take money out at any age. The money can grow for your lifetime and be passed on to your future heirs.

7. You have four more months to make a contribution.

For your 401(k), you generally have one calendar year (Jan. 1 through Dec. 31) to make your contributions. For your Roth IRA, you have up until the tax day, April 15th, to contribute. This gives you a good amount of flexibility. But the sooner you make your contributions, the sooner the money starts to compound and work for you.

Millennials and Gen Zers both have a great advantage in time. A small contribution today to a Roth IRA can grow to a nice tax-free nest egg. Start investing in your future now.

Want help getting started? We would love to meet with you about Roth IRAs.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This article was prepared by FMeX.

LPL Tracking #1-05325282

The post Why Millennials and Gen Zers Need a Roth IRA appeared first on Choice Bank.

Seeking the help of a professional to assist in one’s wealth planning leaves more time for them to focus on their primary specialty area, thus driving efficiency in managing results. Often, these individuals are focused on their careers, are business owners, or are high achievers with many goals. Here are ten ways a financial professional can assist high-performing individuals work toward improving their financial health.

1. Planning for Goals

A financial professional can develop a customized plan considering income, expenses, financial goals, risk tolerance, and investment strategies. This holistic plan considers all aspects of a high-performing individual’s financial life and aligns them with their goals.

2. Planning for Retirement

It’s vital to start planning early to maintain your desired lifestyle while working and after retirement. Financial professionals will work to understand your retirement lifestyle goals and devise a comprehensive plan based on your goals, risk aversion, and timeline.

3. Investment Advice Based on Your Situation

Investing can be a complex process. A financial professional can help with investment diversification and recommend suitable investment strategies to help manage financial goals.

4. Tax Planning

Efficient tax planning can result in significant financial savings. Financial professionals are equipped to recognize your tax liabilities and objectively propose strategies to mitigate taxes.

5. Risk Management and Insurance

From health insurance to life and property insurance, financial professionals can help you understand the importance of appropriate insurance coverage. Your assets may avoid early depletion with suitable insurance, making insurance essential to asset preservation.

6. Debt Management

Too much debt can hinder financial independence. Financial professionals work with you to determine appropriate strategies for prioritizing and paying off debts, maintaining a healthy credit score, and working toward financial confidence.

7. Estate Planning

Comprehensive estate planning ensures efficient wealth transfer to beneficiaries. Financial and legal professionals together will help guide you through complex processes such as drafting a will, setting up trusts, and tax implications based on your situation.

8. Education Funding

Whether you’re funding your child’s education or returning to school yourself, a financial professional can guide you on appropriate strategies for paying for education without jeopardizing your financial goals.

9. Emergency Funding

Unexpected situations that require immediate financial resources may arise. A financial professional will help develop a strategy for creating an emergency fund and determine the appropriate amount to set aside as you work toward a fully funded emergency fund.

10. Behavioral Coaching

Money decisions often involve a lot of emotions; market ups and downs and other significant life events can derail your long-term financial goals. If your emotions dictate your investment decisions, a financial professional can help you manage them to keep you on track toward pursuing your goals.

Remember, financial wellness is not just about acquiring wealth; it’s also about managing and preserving it for the future. High-performing individuals must seek guidance in this endeavor, as managing finances requires the help of a financial professional, time, and continuous effort.

Important Disclosures:

This material was created for educational and informational purposes only and is not intended as tax, legal, insurance or investment advice. If you are seeking advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

 All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.This article was prepared by Fresh Finance.

LPL Tracking # 538128

Sources

https://www.forbes.com/advisor/investing/financial-advisor/what-is-a-financial-advisor/

The post Asking for Help Is a Strength, Not a Weakness. 10 Ways a Financial Professional Can Assist You. appeared first on Choice Bank.

This article overviews RMD requirements and how to circumvent IRS penalties.

What Accounts Have RMDs?

RMDs are the minimum amount the IRS requires to be withdrawn from a tax-deferred retirement plan. The amount withdrawn is taxed as ordinary income at the owner’s tax rate. RMDs apply to:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• Rollover IRAs
• 401(k) and 403(b) plans
• Most small business accounts

It’s essential to note that Roth IRAs, Roth 401(k)s, and Roth 403(b)s do not have RMDs.

Changing RMD Ages

In the past, RMDs commenced at 70 1/2 unless one solely owned a 5% or more interest in the business sponsoring the retirement plan; then, it started at a later retirement date. The rule changed following the enactment of the Secure Act in 2019, which pushed the RMD beginning age from 70½ to 72.

The SECURE 2.0 Act increases the RMD age:

• If you turned 72 in 2023, your first RMD for 2024 is due by April 1, 2025
• For those turning 73 in 2024 through 2032, your first RMD is required by April 1 of the following year.
• The beginning age for RMDs is 75 for those who turn 74 after December 31, 2032.

Failing to manage these deadlines can result in hefty penalties. If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year in which the full amount of the RMD was required, but not taken.

Calculating RMD

The calculation of an RMD can be complex and depends on various factors, including the account balance at year-end, divided by a distribution period from the IRS’s Uniform Lifetime Table. The Joint and Last Survivor Table will apply to your situation if your spouse is your sole beneficiary and is ten years younger.

It’s important to remember that each retirement account you own most likely has its own RMD. You can aggregate the RMDs and take them from one IRA if you own multiple IRAs. But, if you have several 403(b) accounts, for example, you cannot aggregate the RMDs – you must calculate and distribute them separately.

Inherited Retirement Accounts

The RMDs for inherited retirement accounts follow different rules. The Secure Act of 2019 also changed these rules. Non-spouse beneficiaries must withdraw the entire balance within ten years of the original account owner’s death without any yearly distribution requirements.

However, these individuals are granted an exception and can take RMDs over their lifetime:

• spouse beneficiaries
• minor children
• disabled individuals
• individuals not more than a decade younger than the original account owner

Understanding Required Minimum Distribution requirements is an essential part of retirement planning. Navigating your RMD can be complex, but with planning and professional guidance from financial and tax professionals, you can work toward taking RMDs, avoiding IRS fines, and increasing your retirement savings.

Meet With a Financial Professional

Important Disclosures:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

LPL Financial does not provide legal advice or tax services.  Please consult your legal advisor or tax advisor regarding your specific situation

This article was prepared by Fresh Finance.

LPL Tracking #664427

Sources:

https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#

https://www.nstp.org/article/secure-act-2-0-%E2%80%93-when-does-the-rmd-start

The post What’s New for RMD Requirements appeared first on Choice Bank.

There are several ways to “mix” your investments. You can invest in different instruments which are also broken up into sectors (both listed below). This is generally called “diversification.” The goal of diversification is to help avoid losing significant money from investments that don’t turn out as you may have hoped. However, just because you are diversified doesn’t mean you selected a safe composition of investments. For example, if you have many different high-risk penny stocks, the diversification may not have done much to decrease the risk that you could lose money. You have to be prudent in your investment decision-making and understand how each asset works.

Some of the investment instruments people consider for their portfolio include:

• Stocks – Fractional ownership interest in a company. If the company does well, the investor tends to do well, and vice versa.
• Bonds – A debt security, like an IOU. Borrowers issue bonds to raise money from investors who earn interest over time.
• Mutual Funds – A company that pools money from investors and invests the money in securities such as stocks, bonds, and short-term debt. Unlike ETFs, mutual funds can only be bought and sold at the end of the trading day.
• Exchange-traded funds (ETFs) – A collection of securities that tracks sectors of the market or seeks to outperform an underlying index. Unlike mutual funds, ETFs trade throughout the day on a stock exchange and their price fluctuates based on supply and demand.
• Fixed-income investments (that aren’t bonds, such as certificates of deposit (CDs), money market funds, and commercial paper. Sometimes preferred stock is considered fixed income since it is a hybrid security bringing together equity and debt features) – Debt instruments that pay a fixed rate of interest.
• Annuities – Financial products that provide a guaranteed income stream. Investors fund the product with a lump-sum payment or periodic payments.
• Derivatives – Financial contracts between two or more parties that determine their value from an underlying asset, a group of assets, or a benchmark. These tend to be higher risk investments and you want to be extremely careful and consult a financial professional before treading in these volatile waters.
• Investment Trusts – A public limited company that strives to earn money through investing in other companies. Investment trusts are closed-ended funds with a fixed number of shares and can only be traded once per day at the end of the trading day. Investment trusts generally cost less to own that a similar mutual fund but are typically more expensive than an ETF.

The sectors investors select from include:

• Industrials – (Stanley Black & Decker, Caterpillar, A.O. Smith, etc.)
• Materials – (Sherwin-Williams, Amcor, Albemarle, Nucor, etc.)
• Real Estate – (Realty Income, Federal Realty Investment Trust, Essex Property Trust, etc.)
• Consumer Staples – (Coca-Cola, Walmart, Proctor & Gamble, Colgate-Palmolive, etc.)
• Energy – (Exxon Mobil, Chevron, Shell, Enbridge Inc, etc.)
• Financials – (LPL Financial, Aflac, Chubb, Franklin Resources, etc.)
• Utilities – (Consolidated Edison, Atmos Energy, NextEra Energy, Duke Energy, etc.)
• Information Technology – (NVIDIA, Apple, Microsoft, International Business Machines (IBM), etc.)
• Healthcare – (Johnson & Johnson, Abbott Laboratories, Kenvue, Pfizer, etc.)
• Consumer Discretionary – (Amazon, McDonald’s, Lowe’s, Target, etc.)

Return on Investment (ROI) and Compounding

Historically (according to officialdata.org), since the inception of the S&P 500 in 1957 the index has produced an annual return of 10.26%. If you are an individual stock picker you know that it is hard to beat the S&P 500 over time. Even the greatest investor of all time, Warren Buffett didn’t beat the S&P 500 over the past twenty years, missing matching its return by .05%.

What is the S&P 500 index? The S&P 500 Index or Standard & Poor’s 500 Index is a market-capitalization weighted index (market capitalization is the total dollar market value of a company’s outstanding shares of stock. Market value is the amount for which something can be sold on a given market) of the 500 leading publicly traded companies in the U.S. It is considered one of the best gauges to measure top-tier American equities’ performance and the overall stock market.

Thanks to the advent of ETFs, in 1993, that mirror the S&P 500, investors are now able to buy shares of funds that aim to produce returns equal, or close that of the S&P 500. For an investor who doesn’t have the time to conduct their own research, these investment options could be part of their overall program to assist in their long-term retirement savings goals.

Another aspect of investing that is often overlooked is the power of compounding. Compounding occurs when your investment begins to earn interest on the interest as well as the principal. The longer you hold the investment the more extraordinary the compounding has the opportunity to become. Albert Einstein is credited with saying, “Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.” The secret to compound interest working in your favor is being patient. Morgan Housel, the author of The Psychology of Money, said, you don’t have to be particularly smart or lucky to do well in the stock market. You just have to invest according to your risk tolerance and then be patient. Warren Buffett’s partner, investing legend Charlie Munger once said, “The first rule of compounding: Never interrupt it unnecessarily.” The concept when it comes to compounding and value investing over many decades is to buy and hold and wait. But first you have to figure out your risk tolerance.

Determine Your Risk Tolerance

Everybody has a different risk tolerance based on their income level, lifestyle, life experiences, and many more factors. It is critical that you figure out your own risk tolerance and not somebody else’s because of FOMO (anxiety that something exciting is happening and you are missing out), which can be damaging to your finances and significantly impact your financial condition and strategy.

Allocation of Assets

Based on your risk tolerance and your investment goals, you want to decide how you plan to allocate your investments, for example, a percentage in stocks, bonds, etc. This includes how much you want to keep on hand in cash.

While asset allocation does not ensure a profit or protect against a loss, being consistent with your investment allocation helps to lower volatility as you maintain your portfolio diversification. It helps to stay focused on your long-term goals and reduce impulsive decision-making based on speculative news. Remember, it is impossible to predict the future of the market or its volatility as much as it is futile to try and predict natural disasters, wars, and pandemics. Things happen in life, but consistency can help you navigate those unpredictable times.

Invest in What You Know

When it comes to investing, experienced investors often reiterate the importance of investing in what you know.

• Choose businesses and companies that you are familiar with their products and services.
• Do your research to get an understanding of the various investment vehicles available.
• Start with investments that you are familiar with.
• As you become more knowledgeable about how investing works you can begin to expand your portfolio with various forms of instruments and strategies.

Work to Master the Fundamentals

It is hard to earn a dollar, but it isn’t as hard as you might believe to build wealth over time with the right guidance and strategy. And, you don’t have to have a high-income job to do it. Think of investing as you would golf, boxing, or any other sport or skilled hobby. We’ll use golf and boxing in this example: The next time you watch either sport, notice each player’s swing looks different and in boxing each fighter’s stance is unique, however, despite their different approaches they still are able to put themselves in the position to win. This is because they understand the fundamentals. Investing is the same thing. You don’t have to have the same stock portfolio as your neighbor, co-worker, relative, or investing guru to do well over time. As long as you understand the fundamentals of investing and create the mix of investments that works for you, you can be unique and manage your wealth using your own strategy.

Everybody’s retirement and financial goals are different, their strategies are unique to them, their life experiences are distinct from their friends and neighbors, and the reasons why they make the decisions they do are personal. There is no right or wrong mix of investments when you are building a portfolio, however, there are strategies that may help you lower some of the risk of investing while preserving and working to grow your wealth.

If you have invested for a while, you probably understand that there are absolutely no guarantees that you will come out on top as an investor. Most great investors from Warren Buffett to Peter Lynch had a mentor that they learned from. They weren’t just born with financial acumen. Warren Buffett learned from Benjamin Graham. Peter Lynch’s lifelong mentor was George Sullivan. Getting help so you can improve your financial situation is a step that highly motivated investors take.

Consider Consulting a Financial Professional

Want to learn more about your retirement planning? Just as history’s most notable investors sought the help they needed, you too can do the same. Consider consulting a financial professional to help you create an investment portfolio and strategy that can align with your retirement goals.

Meet Our Team

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.  All indexes are unmanaged and cannot be invested into directly.

An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.

Because of their narrow focus, investments concentrated in certain sectors or industries will be subject to greater volatility and specific risks compared with investing more broadly across many sectors, industries, and companies.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Marketing Solutions.

LPL Tracking #659526

Sources:

Guide to Fixed Income: Types and How to Invest (investopedia.com)

Bonds | Investor.gov

Derivatives 101: A Beginner’s Guide (investopedia.com)

S&P 500 Returns since 1957 (officialdata.org)

Warren Buffett Has Underperformed the Stock Market for the Last 20 Years (linkedin.com)

Quote by Albert Einstein: “Compound interest is the eighth wonder of the w…” (goodreads.com)

The post Choosing the Right Investment Mix is Key to Your Retirement Plan appeared first on Choice Bank.

The Rule of 25

Many suggest the Rule of 25 as a 401(k) balance starting point. This model states that you should aim to save at least 25 times what you expect to spend in your first year of retirement. For example, if you project that your expenses will amount to $40,000 a year once you’ve retired, then you should aim to have at least $1,000,000 in your 401(k) account by the time you retire.

However, this amount isn’t set in stone, as everyone’s situation differs. It’s essential to understand that using the Rule of 25 as a starting point is a general guideline. Personal factors, such as healthcare expenses or cost-of-living increases, can significantly impact how much you should aim toward saving.

It’s also vital to acknowledge that multiple retirement savings strategies, such as your 401(k), IRAs, other investment strategies, and Social Security Retirement benefits, will impact how much you need for a confident retirement.

401(k) Balance Benchmarking by Age

Having specific age and 401(k) balance benchmarks can be helpful for determining whether you’re on track with peers. While everyone’s situation is different, bench marketing provides a starting point and a 401(k) balance-based approach to aim toward. These benchmarks are not a set-in-stone rule but a guideline to help check that your retirement savings are on track.

• By age 30, you should have one times your annual salary saved.
• By age 40, you should have three times your annual salary saved.
• By age 50, you should have six times your salary saved.
• By age 60, you should have eight times your salary saved.
• By age 67, your total savings goal is ten times the amount of your current annual salary. So, for example, if you’re earning $75,000 per year, you should have $750,000 saved.

Remember that it’s never too late to start saving for retirement. However, the earlier you start saving, the more time your 401(k) has to accumulate value.

What can Impact a 401(k)’s balance?

1. Yearly Salary
   Many contribute a percentage of their income to their 401(k). Since your earnings are projected to increase, your contribution amount will simultaneously increase.
2. Your Contribution Amount
   Aim to contribute enough to receive the employer’s match. By setting up automatic increases, you will increase your contributions each year.
3. Your Risk Profile
   Investors with a higher risk tolerance tend to invest in riskier assets with more growth potential. Still, investments with a higher risk are more impacted by market fluctuations, which may result in more significant losses. Investors with a lower risk tolerance tend to invest in assets that are less likely to lose value due to market fluctuations.
4. Market Performance
   Market fluctuations can affect the growth of your 401(k) in numerous ways.
5. Stock Prices
   Positive market performance increases the share’s value, whereas negative performance decreases the share’s value.
6. Interest Rates
   Investment strategies tied to interest rates are impacted when rates rise or fall. Examples of interest-rate-sensitive strategies include bonds and money market funds.
7. Your Employer’s Contributions
   Employer contributions can help increase retirement savings by providing a dollar-for-dollar or partial match for each dollar an employee contributes.

Monitoring Your 401(k)

Monitoring your investments is crucial to determining if you’re on track toward your goals and accumulating enough retirement savings for your situation. There are several ways to monitor your 401(k).

1. Regularly Check your Account Balances
   Most 401(k) providers and all investment custodians provide online account access or a smartphone app, making tracking your account balances easy. When monitoring, consider your current balance and how it compares to your goal.
2. Assess your 401(k)’s Asset Allocation and Rebalance
   One factor influencing your 401(k)’s performance is how its assets are allocated. This review involves spreading your investments across different asset categories, such as stocks, bonds, and mutual funds, a strategy known as diversification. Next, check that your asset allocation aligns with your risk tolerance and time horizon and rebalance your 401(k) portfolio to align with these factors.
3. 401(k) Reviews
   You should review your 401(k)’s investment mix and performance at least annually. However, suppose you experience significant changes in your life, such as marriage, divorce, or job loss. In that case, you may need to review your 401(k) and progress toward your retirement income goal more frequently.
4. Meet With a Financial Professional
   A financial professional can help monitor your 401(K) and other investment strategies. They will help you understand how your combined investment strategies are performing as you work toward your goals.
5. Understand Fees
   Lastly, stay informed about the fees associated with your 401(k). These fees may include administrative fees, investment fees, and service fees. High fees can eat into your retirement savings over time, making managing these fees vital.

Checking in with us can help you make more informed decisions about your 401(k) as you work toward a confident retirement. Remember, staying proactive about your 401(k), continuing to save, reviewing your 401(k) at least annually, and setting automatic contribution increases yearly is vital.

Sources:

MoneyNews.com

Investopedia.com

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking #642705

The post How Much Should I Have in My 401(k)? appeared first on Choice Bank.

What to Know About 401(k) Contributions

First, the more you contribute to your 401(k), the more likely it will compound over time, ultimately leading to more significant wealth accumulation. Aim to contribute as much as possible to take full advantage of this benefit by contributing at least 10-15% of your income. Here are some other points about contributions to consider.

Automatic Contribution Increases

Automatic 401(k) contribution increases work by automatically increasing an employee’s contribution rate to their 401(k) plan annually or based on another predefined timeline. This practice aims to encourage long-term savings for retirement and encourage employees to contribute more over time.

These automatic increases usually continue until the contribution rate reaches a specified cap, often between 10% and 15% of an employee’s salary. This automated process allows individuals to incrementally build their retirement savings without significantly impacting their paychecks.

It is essential to note that employees can opt out of these automatic increases if they choose. If you have questions about contributions and your situation, visit your HR department or 401(k) plan administrator.

Catch-Up Provisions

If you’re 50 or older, you can contribute more toward your 401(k) through catch-up provisions. The IRS announces revised catch-up provisions each year, so contact your plan administrator or financial or tax professional to learn this year’s amount and adjust your contribution amount.

Matching Contributions

Secondly, take advantage of employer matching contributions. Many employers offer to match their employees’ 401(k) contributions up to a certain percentage of their salary. Not taking advantage of this is like leaving free money on the table. Be sure to contribute enough to receive the entire match, as this represents an opportunity to increase your 401(k)’s investment return.

Roth 401(k)

Consider contributing to your employer’s Roth 401(k) options. Traditional 401(k) accounts provide tax benefits up front, as contributions mitigate your taxable income for the year while allowing your investments to grow tax-deferred. However, in retirement, withdrawals are taxed as ordinary income.

On the other hand, with a Roth 401(k), contributions are made with after-tax payroll dollars, but withdrawals in retirement are typically tax free. If you expect your income tax rate to be higher in retirement than now, it may be advantageous to pay the taxes now and opt for the Roth 401(k).

401(k) Portfolio Diversification

A diversified portfolio often includes a mix of stocks, bonds, and other assets to spread risk and potentially increase returns. Some 401(k) plans offer target-date funds, automatically adjusting the asset mix as you get closer to retirement. However, consulting a financial professional to create a personalized investment strategy may be beneficial depending on your risk tolerance and long-term financial objectives.

The path to becoming a high-net-worth individual is not guaranteed. It takes planning, disciplined saving, and monitoring your investment portfolio. By making strategic decisions about your 401(k), such as maximizing contributions, taking advantage of employer matching, considering Roth options, diversifying wisely, and minimizing fees, you can effectively leverage this powerful tool to build wealth as you work toward an independent future.

Sources:

https://www.investopedia.com/super-rich-401-k-s-5323955

https://www.cnbc.com/select/retirement-accounts-make-up-over-half-of-hnwi-wealth/

https://www.investopedia.com/articles/financial-advisors/121615/how-become-401k-millionaire-trow.asp

Important Disclosures:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Investing involves risks including possible loss of principal.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking #597501

The post The Road to High-Net-Worth: Strategic 401(k) Moves to Amplify Your Wealth appeared first on Choice Bank.

Market uncertainty can be stressful, and if you are preparing and saving for retirement, an unpredictable economy might leave you anxious. Understanding how to manage your money and investments during such times may help alleviate some of the stress and uncertainty you feel as you work to preserve and grow your hard-earned wealth.

How Can I Keep Up With Inflation in Retirement?

Inflation is generally a large-scale measurement of prices over a given period of time, such as the increase in cost of living nationwide, or the overall increase in prices. For many investors, inflation is a concern because as companies watch their costs rise, and the price of materials they need to produce products increase, producing goods and services becomes more expensive. This causes profits to fall, lowering stock prices. Fortunately, there are several strategies that may help you keep up with inflation. Consider these suggestions:

• Hold onto your stocks – It is true that inflation can be a downside for growth stocks because companies during periods of inflation have to spend more to produce their products, which drives down stock prices. However, over the long term, stocks have been able to outpace inflation. Value investors are less concerned about inflation. Over the past 40 years, inflation in the U.S. has averaged around three percent per year, while the S&P 500 index has averaged over 10%.
• Inflation-protected bonds – As you near retirement, you may be considering revising your portfolio toward holding more fixed-income investments, like inflation-protected bonds. Treasury Inflation-Protected Securities (TIPS), for example, help to mitigate the effects of inflation by adjusting the principal for inflation and deflation. The TIPS goes up with inflation and down with deflation. When the TIPS matures, you receive either the increased (inflation-adjusted) price or the original principal, whichever is greater. There is virtually zero risk that you will ever get less than the original principal. TIPS are subject to market risk and significant interest rate risk. Their longer duration makes them more sensitive to price declines associated with higher interest rates. The biggest downside is that you could have made more money elsewhere.
• Don’t hoard your cash – You should consider saving up enough cash to cover expenses and unexpected emergencies for up to 3 to 6 months. Everyone is different, so the amount you would have to save varies from person to person, or family to family. However, you don’t want to hoard all of your cash for fear that the market might crash at any point. The problem with hoarding your cash is when inflation rises, your return on the cash you have will be lower. Instead, invest the excess cash you saved after compiling an emergency fund into low-risk investment opportunities such as money markets, treasury bills, certificates of deposit, high-yield savings accounts, index funds, or mutual funds. A financial professional can help you figure out a beneficial approach for your strategy.
• Four percent rule – Spend less to save more. If you are nearing retirement or already retired and concerned about preserving your money throughout your retirement, the four percent rule is a popular approach used by retirees looking to manage their spending to stretch their savings. The idea is that you shouldn’t withdraw more than four percent of your retirement account per year. Some financial analysts suggest this is even too much. However, a financial professional can help you create a budget that aligns with your financial goals.

How Can I Receive Consistent Income During Uncertain Economic Conditions?

For investors, especially older individuals, having a consistent and reliable income stream is important. In a world that regularly experiences changing interest rates, market fluctuations, and uncertain economic conditions, having a financial strategy, being consistent, and being willing to reassess your portfolio and modify it if needed can help you maintain an income stream when the market goes haywire. Here are a few ideas to consider:

• Value investing – Being a value investor focused on stocks that offer dividends could help to provide income over time as your dividend payments increase. There are investors whose financial strategy is to live off their dividends, thus having an income stream without touching the investment principal. While this may be a savvy idea, you should keep in mind that companies may reduce or eliminate the payment of dividends at any given time and dividend payments are not guaranteed.
• Bond laddering – Bond laddering consists of investing in bonds with different maturity dates to help mitigate interest rate risk. When a bond matures, you reinvest the principal in new bonds with the longest term you originally chose for your ladder. You can reinvest at higher rates as interest rates increase.
• Diversification – Being diversified in your investment approach may help to mitigate some of the risk that comes from interest rate changes, fluctuation in the market, and erratic market conditions. Diversification does not, however, protect against market risk.

What Do I Do if My Retirement Account is in The Bank and The Government Cuts Interest Rates?

A Federal Reserve rate cut may be welcomed news from some borrowers, but this might not settle well with others, particularly retirees. As rates decrease, yields on savings accounts, fixed annuities, and certificates of deposit do as well. They also squeeze pensions and long-term care plans. Long-term care plans are impacted because a portion of the cost of long-term care insurance is generally covered through yields on investments. Low interest rates tend to squeeze those returns. Insurers will then be forced to hike premiums that may have already been increased. Pensions are largely invested in fixed-income investments, which depend on higher interest rates and increased stock returns.

Consider Consulting a Financial Professional.

Everyone from motivational guru Tony Robbins to former athlete Steve Maraboli, to artist and sculptor, Michelangelo, claims taking action is key. It’s time to take control of your financial future. Do you want to hear more about how a financial professional can make your retirement savings work hard for you? Schedule an appointment today.

Sources:

Bond Laddering: How it Works, Benefits, Variations (investopedia.com)

7 Ways That An Interest Rate Cut From The Fed Impacts Retirees | Bankrate

TIPS — TreasuryDirect

What Is The 4% Rule for Retirement | New York Life

5 Ways To Keep Inflation From Wrecking Your Retirement | Bankrate

Here’s how inflation affects stocks: 5 things you need to know | Voya.com

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Past performance is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by LPL Marketing Solutions.

LPL Tracking #613403

The post Overcoming Market Uncertainty: Financial Strategies for Retirement Savers appeared first on Choice Bank.

In this article, we delve into distribution planning and some of the critical components that must be considered as they will impact the longevity of your retirement savings.

What is Distribution Planning?

Distribution planning refers to spending down retirement savings to optimize financial independence during retirement. It involves a detailed assessment of your retirement accounts, factoring in tax considerations, your expected lifespan, potential healthcare and other costs, your desired lifestyle post-retirement, and estate planning goals. This comprehensive approach gives you the control to shape your financial independence in retirement.

Distribution planning is a complex process that aims to develop a strategy to ensure you appropriately deplete your retirement savings while maintaining a comfortable lifestyle. It’s a delicate balancing act that requires thought, comprehensive planning, and careful management. Given its intricacies, working with financial and tax professionals is highly recommended.

Retirement Savings Strategies, Taxes, and RMDs

One of the more critical aspects of retirement savings accounts is the tax treatment of contributions and distributions. Understanding how taxes will impact you once you begin taking distributions from these accounts in retirement is essential for effective planning.

401(k), 403(b), 457 plan, IRA, SIMPLE IRA — These pre-tax retirement savings accounts allow contributions to be made with pre-tax money, but withdrawals are subject to taxation. Once distributions begin, both contributions and accumulation are taxed as ordinary income. Understanding these tax implications is crucial for effective distribution planning. Withdrawals before age 59 ½ on some retirement accounts may result in a 10% IRS penalty tax in addition to current income tax.

Roth IRA — Contributions to a Roth IRA are made with after-tax dollars, and the contributions and accumulation are tax-free when withdrawn after age 59 ½. If the account has been open for at least five years, the contributions can be withdrawn before age 59 ½ without penalty.

Annuities — Annuity contributions are generally made by transferring a pre-tax retirement savings account or from contributions into an annuity within a retirement savings strategy. When distributions begin, both contributions and accumulation are taxable. It’s important to note that annuities may come with a surrender period, impacting when distributions can begin penalty-free.

Developing an effective distribution strategy may involve integrating multiple account types, taxable, tax-deferred, and tax-free accounts, to mitigate or even eliminate taxes upon distribution. It may also include accounts outside retirement savings, such as brokerage accounts, bonds, and other investment strategies. Understanding the tax implications of each account type is vital, as it can help you decide when and how much to withdraw from each.

Distribution Plan Examples

Tax first, no tax last — Take distributions from taxable and tax-deferred accounts until assets deplete. Then, take distributions from taxfree accounts last. This method lowers taxable income as one ages.

Market-driven distribution — If a down market occurs during retirement, distributions can switch to accounts less affected by market performance—for example, fixed or fixed-indexed annuities. Occasionally, a distribution plan may be altered depending on the retirement portfolio’s allocation and market risk.

Required Minimum Distributions (RMDs)

Another vital aspect of distribution planning is the required minimum distributions (RMDs). Starting at age 73, owners of traditional IRAs, 401(k)s, and other pre-tax retirement accounts must begin taking RMDs — minimum amounts that must be withdrawn annually. Failing to follow these requirements can result in hefty penalty taxes.

In contrast, Roth IRAs do not have RMDs during the owner’s lifetime, making them an attractive strategy for those who may only need to tap into their retirement savings later or wish to leave assets to their heirs.

Social Security

Although Social Security retirement benefits are not an investment strategy, they are taxable retirement income. For this reason, distribution planning includes Social Security as one component of life income.

Addressing Life Expectancy and Healthcare Costs

When crafting a distribution plan for your retirement savings, it’s essential to address two significant unknowns:

• How long you will live
• What your healthcare costs can be

Although difficult to predict accurately, creating a distribution plan with a reasonable estimate of these figures can provide a more realistic assessment of how long your retirement savings funds may last.

Healthcare can be a substantial expense in retirement, and costs often rise as you age. Therefore, planning for healthcare and estimating unexpected health costs can deter you from depleting your retirement savings too quickly.

Factoring in Your Desired Post-Retirement Lifestyle

Your post-retirement lifestyle goals also play a crucial role in shaping your distribution planning. If your vision of retirement includes extensive travel or engaging in potentially expensive hobbies, you may need to make larger withdrawals that could impact the longevity of your retirement savings.

Work With a Financial Professional

Given the complexity and importance of distribution planning for retirement savings, it can be beneficial to work with a financial professional. Distribution planning aims to help ensure you have enough to sustain your desired lifestyle throughout your golden years, even as you navigate the uncertainties of taxes, healthcare costs, and longevity. A comprehensive distribution plan, ideally formed with a financial professional’s help, can be your roadmap to a more independent retirement.

Important Disclosures:

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking tax, legal or investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking #579866

Sources:

https://www.annuity.org/selling-payments/withdrawing/

https://www.nerdwallet.com/article/investing/ira-distribution-rules

The post Nuances of Distribution Planning for Pre-Retirees appeared first on Choice Bank.

RMD Basics

Certain RMDs must be taken from individual retirement accounts (IRAs) and employer retirement accounts or a penalty will apply. IRA owners and employees with employer retirement plans must generally take RMDs during their lifetime.

RMDs are generally required to begin by April 1 of the year after the individual reaches RMD age. RMD age is:

• 70½, if born before July 1, 1949
• 72, if born July 1, 1949 through 1950
• 73, if born in 1951 to 1959, or,
• 75, if born in 1960 or later.

An employee still working for the employer maintaining an employer retirement account may be able to wait until April 1 of the year after the employee retires (if that is later and the plan allows it). The applicable April 1 date is often referred to as the required beginning date (RBD).

Lifetime distributions are not required from Roth accounts and, as a result, Roth account owners are always treated as dying before their RBD. Prior to 2024, these two special rules for Roth accounts applied to Roth IRAs, but not to Roth employer retirement plans.

Beneficiaries must also take RMDs from an inherited retirement account, including Roth accounts, after the death of an IRA owner or employee.

Inherited IRAs and Retirement Plans

RMDs for IRAs and retirement plans inherited before 2020 could generally be spread over the life expectancy of a designated beneficiary. The SECURE Act changed the RMD rules by requiring that in most cases the entire account must be distributed 10 years after the death of the IRA owner or employee if there is a designated beneficiary, and if death occurred after 2019. However, an exception allows an eligible designated beneficiary to take distributions over their life expectancy and the 10-year rule would not apply until after the death of the eligible designated beneficiary in that case.

Eligible designated beneficiaries include a spouse or minor child of the IRA owner or employee, a disabled or chronically ill individual, and an individual no more than 10 years younger than the IRA owner or employee. The entire account would also need to be distributed 10 years after a minor child reaches the age of majority (i.e., distributed at age 31).

The proposed regulations issued in early 2022 surprised many when they suggested that annual distributions are also required during the first nine years of such 10-year periods in most cases. Comments on the proposed regulations sent to the IRS asked for some relief because RMDs had already been missed and a 25% penalty tax, 50% prior to 2023, is assessed when an individual fails to take an RMD.

The IRS has announced that it will not assert the penalty tax in certain circumstances where individuals affected by the RMD changes failed to take annual distributions in 2024 during one of the 10-year periods. For example, relief may be available if the IRA owner or employee died in 2020, 2021, 2022, or 2023  and on or after their RBD and the designated beneficiary who is not an eligible designated beneficiary did not take annual distributions for 2021, 2022, 2023, or 2024 as required, during the 10-year period following the IRA owner’s or employee’s death. Relief might also be available if an eligible designated beneficiary died in 2020, 2021, 2022, or 2023 and annual distributions were not taken in 2021, 2022, 2023, or 2024 as required, during the 10-year period following the eligible designated beneficiary’s death.

The rules relating to RMDs are complicated, and the consequences of making a mistake can be severe. Talk to a professional to understand how the rules apply to your individual situation.

Important Disclosures:

Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by Broadridge.

LPL Tracking #580988

The post Relief for Certain RMDs from Inherited Retirement Accounts for 2024 appeared first on Choice Bank.