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Direct vs. Advisory
Advisory Accounts: Advisory account fees are charged quarterly as a percentage of your account value. This method is most common among financial advisors and within our firm. Your planning fees are waived when you open an “Advisory” account.
Direct Accounts: We also offer commission-based “Direct” accounts, for which we are paid a commission on purchases and in some cases redemptions. This method is also common among full-service brokers, and is also what you will typically encounter with a discount broker and direct mutual fund or annuity company.
We do more than provide information, we help you make financial decisions based on your unique situation.
Earnings in an IRA are tax-deferred. Withdrawals before 59½ may be subject to income tax and penalties. Withdrawals after 59½ are taxed as income. Beginning at age 70½, required minimum distributions must be withdrawn.
Roths: Like the Traditional IRA, Roths offer flexibility and diversification. Unlike a traditional IRA, individuals of any age can contribute, providing they have earned income. Contributions are not tax-deductible, but earnings are tax exempt, which can be a great benefit to the investor seeking a tax-free source of income at retirement.
Another key advantage of the Roth is that contributions may be withdrawn at any time after five years from the initial contribution, for any reason, and there are no required minimum distributions during retirement, which means investors with variable time horizons can stay invested as long as they need to. While there typically are taxes and penalties for early withdrawals on earnings, there are many exceptions to this, including a first-time homebuyer provision.
457 Plans: Like 401(k)s and 403(b)s, 457 plans are offered through employers. 457s are nonqualified plans, meaning that although employers defer compensation on a pre-tax basis, there are no early withdrawal penalties (only income tax). In some cases, an employer may offer both a 401(k)/403(b) and a 457, the benefit being that the participants are subject to the contribution maximum of both plans independently, without having to split their contributions between one or the other. With 457 plans, rollovers into other plans tend to be more restrictive.
SEP IRA: Ideal for the self-employed, a SEP is a low-cost retirement plan that allows an employer to contribute 25% of taxable compensation or the identified IRS dollar limit to a tax-deductible IRA. Contributions into the SEP IRA are discretionary and incur no recordkeeping costs.
SIMPLE IRA: A SIMPLE IRA is a retirement plan available for employers of 100 or fewer employees with no other qualified retirement plan. Employees make elective contributions as a percentage of their income and the employer matches contributions dollar for dollar, up to 3% of their employees’ salary.
UGMA/UTMA [Uniform Gift to Minors/Uniform Transfer to Minors]: With an UGMA/UTMA, the custodian invests on behalf of the minor, but contributions are held in the minor’s name and are irrevocable. There can be tax savings, depending upon the state and the age of the child at the time of the withdrawal. The funds can be used in any manner for the minor’s benefit, and are not limited to educational expenses. The minor gains complete control of the assets at the age of majority, which varies by state.
US Savings Bonds: Interest on Series EE or I bonds is exempt from federal and state income taxes when used to pay tuition. The major disadvantages of savings bonds is that interest is only exempt when the bonds are used to pay tuition [not room and board, books, or other expenses], and they have a historically low rate of return compared to stock market-based college savings investments.
529 Plans: Contact us for more information about 529 plans.
To save for short-, intermediate- and long-term goals other than college and retirement, investors have many options, and what they choose ultimately depends on their risk tolerance and time horizon.
Ideal for short-term goals and very conservative investors, bank and credit union savings, money markets, and certificates of deposit [CDs] can offer the security of low volatility, high liquidity, and in most cases, FDIC protection – but at low interest rates.
Longer term goals necessitate more risk-taking in order to capitalize on market appreciation and accumulation through dividends. In order to minimize risk and diversify a long-term portfolio, it is important to invest in various companies and market sectors – which means portfolio management can become cumbersome.
For most lifestyle planning needs, a brokerage account works well because of its flexibility, its ability to hold diverse assets under one account, and its ease of management with aggregated statements and tax reporting.
Brokerage accounts offer both a short-term cash management component with access to money markets and CDs as well as longer-term investment options. When an investment is ready to mature or is needed to meet a goal, it can easily be converted to cash in the account or reinvested in any number of different investments in the same brokerage account.
Permanent Insurance: Permanent insurance does not expire at the end of a term. The policy lasts the life of the insured and can build up a cash value, making it a more expensive option than term. Permanent insurance, however, offers a tax-advantaged investment component, as well as flexibility in allowing withdrawals and loans.
Whole life, universal life, and variable life are all types of permanent insurance. Whole life has a fixed premium and a guaranteed minimum growth of the cash value. Universal life allows the policyholder to raise or lower their premiums, resulting in a higher or lower cash balance. Variable life allows for the investment of premiums in separate accounts, professionally managed funds that are invested in the market. The separate accounts in a variable life policy are subject to market risk and will fluctuate in value, but have a greater potential for growth.
Tax Planning: Different from the annual preparation of tax returns, tax planning is structuring your finances to minimize or avoid tax consequences where it makes the most sense, now and in the future. This includes utilizing tax-deferred and tax-free investment options, tracking cost basis on investments to manage capital gains, and carefully planning your distribution strategies to avoid unnecessary income tax.
Estate Planning: Estate planning helps you preserve your assets while you are alive, and to conserve and control their distribution after your death. At a minimum, this means executing a will, a durable power of attorney, an advanced medical directive, and if needed, purchasing life insurance. A will directs how your property is disposed upon your death, and provides instructions regarding the care and guardianship of your children. A durable power of attorney allows you to name someone to manage your assets in the event you become incapacitated. Advanced medical directives document your wishes regarding medical care when you are ill or have become incapacitated. Life insurance provides a cash benefit to your heirs upon your death, and can be provided by your employer and/or purchased separately.
Individuals with more complex estate planning needs may need to establish trusts, which come in many forms and among other purposes, are used to reduce administrative costs of probate, minimize estate and/or income taxes, and direct the distribution of property to beneficiaries.
ETFs [Exchange Traded Funds]: An exchange-traded fund pools the money of many investors and purchases a group of securities, typically focusing on a particular market sector. They can be actively managed or they can be passively managed by being tied to an index. ETFs are priced throughout the day like stock. A few of the advantages of ETFs are low internal costs and lower capital gains distributions at year-end.
Stock: With stock, investors are purchasing a piece of a company’s equity – and a share in its profits or losses. Historically stocks have performed well over time. Many well-established companies pay their shareholders steady dividends, which can be advantageous to those seeking regular income. Stock in a nonqualified account can be taxed at a capital gains rate if held long term. However, stock can be volatile and investors can lose their entire investment if the stock performs poorly. It can also take a great deal of time and research to build and manage a large stock portfolio, something the average investor does not have time or experience to do.
529s, Mutual Funds, REITs and Variable Annuities: Contact us for more information about other investment products such as 529s, mutual funds, REITs and variable annuities.
With professional guidance comes peace of mind. Here are some of the key points to consider when choosing an attorney, tax advisor, realtor, business consultant, or other professional.
- How do I know if I need a professional? If you have to ask, you probably know the answer. To do it yourself: do you have the time, motivation, knowledge, patience, and connections to complete the task from the beginning to the end? Consider these components and any follow-through along with the potential costs of a mistake if you go it alone.
- What services can I expect to receive? Think carefully about what your needs are and match them to the appropriate level of service. Are you looking for a longer-term relationship or someone to help with a transaction? Be sure to ask the professional what your options are and how they view your need to ensure your idea of service matches theirs.
- How much can I expect to pay? Fees and transaction costs can vary widely, but they should be fully disclosed, easy to understand, and correspond to the level of service to be provided. For hourly fee arrangements, ask up front how many hours a project like yours should take. If the professional is reluctant to disclose the total costs and what your options may be, that may be an indication to look elsewhere.
- How are professionals compensated? This may vary based on each profession, so ask. Again, if they are reluctant to respond, consider moving on. Of the costs and/or fees that you pay, understand how much is going to the professional so you can make an informed decision.
- What does the professional’s business consist of today and into the future? To ensure a sound and long-term ongoing relationship, research their background, experience, and book of business, as well as ask them their future plans. Thirty years of experience will mean very little to you if the professional retires next year.