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Thursday, September 9, 2021

Roth vs. Traditional IRA: Retirement & Estate Planning Advantages

It would be nice if the Roth IRA had been around long as the traditional IRA. Imagine the long-term benefits of tax-free growth throughout a 40-year career. Annual contribution limits for IRAs are relatively low ($6,000; $7,000 for 50-plus), but the Roth is a good complement for investors who also contribute to an employer-based retirement plan. While 401(k) contributions are made from tax-deferred income, Roth contributions are derived from previously taxed income. Both vehicles are permitted to grow without taxes on earnings; however, in retirement, you don’t have to pay any taxes on Roth distributions, whereas all 401(k) distributions are taxed at your then-regular income tax rate.1

That tax bite during retirement can feel pretty punishing when you’re on a fixed income. It’s one reason why the Roth has an edge over the traditional IRA — which also taxes distributions in retirement. One of the key strategies that has emerged in the Roth IRA era is tax diversification in retirement: Try to invest in such a way that not all your income is taxable. This can help avoid taxes on Social Security benefits and keep you from having to pay higher Medicare premiums.2

Everyone has different circumstances, and you should build your financial portfolio to reflect your needs and objectives. Since the total amount you can contribute to an IRA each year — traditional, Roth or a combination — is limited, it’s typically a good idea to pick one that best meets your needs. Another viable strategy for reducing taxes in retirement is later converting a traditional or rollover IRA to a Roth. Investors also should consider the advantages of both versions for estate planning purposes. If you have any questions, or would like help developing a long-term IRA strategy, please contact us.

Distributions from a Roth IRA can increase your income during retirement since qualified withdrawals are not taxed. Moreover, if an investor doesn’t need to use his Roth funds during retirement, those assets and all potential tax-free earnings they generate can be left tax-free to heirs. Whatever amount he passes on can continue growing tax-deferred and eventually be withdrawn tax free. Note that non-spouse beneficiaries of a Roth will need to take full distribution within 10 years of inheriting the money. However, when beneficiaries have the discipline to leave that money in the inherited Roth for the full 10 years, it can continue to grow for an even larger inheritance with no tax consequences.3

By contrast, traditional IRA distributions to heirs are considered taxable income in the year(s) withdrawn.4 So don’t just think about reducing your own taxes with a Roth; consider its tax-free advantage for your heirs.

Be aware that you can contribute only earned income to an IRA. That precludes Social Security and pension income, dividends, etc. You may continue to contribute throughout retirement as long as you’re earning some income — and may only contribute up to amounts earned, subject to the contribution limits. Also bear in mind that there are income limits for making Roth IRA contributions. Single tax filers must earn less than $140,000 (in 2021); the married and file jointly income limit is 208,000.5

In a Roth conversion, you can move money from a 401(k) into a Roth IRA, converting all or a portion of assets throughout time, but there are considerations. For example, you’ll have to pay taxes on the money you move in the year it’s converted. That’s a good reason to only move a portion at a time; try not to tip your reported income into a higher tax bracket each year. If you conduct the conversion once you’re retired, your taxable rate will be lower.

However, Roth funds are subject to a five-year rule. If you convert 401(k) funds to a Roth you’ve already owned for five years or more, you can go ahead and use that money. But, if you must open a new Roth to make the conversion, you must wait five years before you can tap that account, or funds tapped will be subject to a 10% early withdrawal penalty.6

If you are considering a Roth conversion for any retirement account funds, remember that income tax rates are relatively low right now. If there are any changes in the near future, rates are more likely to go up than down. That’s a good reason to start a conversion now if you and your advisor believe that’s a good strategy for your situation, especially if you plan to roll over funds gradually throughout several years.7

We take pride in assisting our clients with incorporating all aspects of their life into their Retirement Roadmap 360®. Take control of your financial future and give us a call at (734) 769-1719 today to see how we may be able to help you!

1 Dayana Yochim and Andrea Coombes. NerdWallet. April 28, 2021. “Roth IRA vs. Traditional IRA.” https://www.nerdwallet.com/article/investing/roth-or-traditional-ira-account. Accessed July 21, 2021.

2 Phil Lubinski. ThinkAdvisor. June 10, 2021. “6 Ways to Help Clients Avoid Medicare’s IRMAA Surcharges in Retirement.” https://www.thinkadvisor.com/2021/06/10/6-ways-to-help-clients-avoid-medicares-irmaa-surcharges-in-retirement/. June 23, 2021.

3 T. Rowe Price. Summer 2021. “The Simple Move That Has Significant Advantages.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine.pdf. Accessed June 23, 2021.

4 Dayana Yochim and Andrea Coombes. NerdWallet. March 17, 2021. “Inherited IRA: How It Works & Distribution Rules for Beneficiaries.” https://www.nerdwallet.com/article/investing/roth-or-traditional-ira-account. Accessed July 21, 2021.

5 Charles Schwab. 2021. “2020-2021 Roth IRA Contribution Limits.” https://www.schwab.com/ira/roth-ira/contribution-limits. Accessed June 23, 2021.

6 Cathy Pareto. Investopedia. April 9, 2021. “Must-Know Rules for Converting a 401(k) to a Roth IRA.” https://www.investopedia.com/articles/retirement/08/convert-401k-roth.asp. Accessed June 23, 2021.

7 Sarah O’Brien. CNBC. May 20, 2021. “These strategies can reduce the taxes you will pay on retirement accounts.” https://www.cnbc.com/2021/05/20/these-plans-can-reduce-how-much-tax-you-will-pay-on-retirement-account.html. Accessed June 23, 2021.

Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences, including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. It is generally preferable that you have funds to pay the taxes due upon conversion from funds outside of your IRA. If you elect to take a distribution from your IRA to pay the conversion taxes, please keep in mind the potential consequences, such as an assessment of product surrender charges or additional IRS penalties for premature distributions. We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

Investment Advisory Services are offered by Imber Financial Group, LLC., a Registered Investment Adviser firm. Insurance services are offered through Imber Wealth Advisors, Inc. Imber Financial Group, LLC. and Imber Wealth Advisors, Inc. are affiliated companies

Thursday, May 6, 2021

New Status on Pension Plans

Financial professionals and economists have been talking about the “graying of America” and the retirement crisis for at least a couple of decades. Now, it seems, things have reached a tipping point.

Even labor union workers, largely beneficiaries of rich benefits and pension plans, have been hit hard. Throughout the past century, unions set up multiple-employer pension plans so that unionized workers in the trucking, trade, construction, ironworking, carpentry and other industries could change employers throughout their career while staying with the same union and continue accruing pension benefits from job to job.¹ Despite that effort, more than 1,400 multiemployer pension plans covering about 11 million U.S. workers have fallen into a financial hole.

For example, a worker who retired in 2009 with 37 years paid into his pension fund was due $4,265 per month for life. However, in 2015 his pension benefit was slashed to $2,217 per month due to underfunding.²

This problem doesn’t just affect pensioners, it affects the nation’s overall economy. According to the National Institute of Retirement Security, each $1 spent on pension benefits supports $2.19 in economic output. In some coal-mining areas, entire towns are supported by union pensioners. In Detroit, nearly a third of income comes from pensions, union retiree health, Medicare and Social Security. If pension plans fail, communities throughout the heartland, including Ohio, Kansas, Pennsylvania, Michigan and Indiana, will suffer immeasurably.³

Union pensions are not the only plans under financial pressure. According to the 2020 Social Security Trustee report, the Social Security retirement trust fund was scheduled to run out of money by 2034. But that estimate was before the pandemic, when unemployment and suspended FICA payroll taxes significantly reduced Social Security revenues while at the same time millions of people retired early and began tapping their benefits. The new trustee report, due in a few months, will likely update that depletion date to 2032 or sooner. Without changes, Social Security benefits soon will be funded solely by current payroll taxes, which would reduce benefits by as much as a quarter of previous estimates.⁴

It may be a good time to review your individual retirement plan to shore up any gaps that may be affected by reduced pension and government benefits. Feel free to contact us to discuss your situation and explore tax-efficient ways to provide more financial confidence to your retirement plans.

The recent $1.9 trillion stimulus bill took a first step to help stabilize pension plans. It authorized funding by the Pension Benefit Guaranty Corporation (PBGC) for eligible multiemployer plans to enable them to pay benefits at plan levels and remain solvent. The funding is being paid out from general revenues of the U.S. Treasury.⁵

¹ Martha C. White. NBC News. Feb. 8, 2021. “Stimulus checks that don’t get used right away are still ¹ Chris Farrell. Marketwatch. March 15, 2021. “The new stimulus bill will help shore up some shaky pension plans.” https://www.marketwatch.com/story/the-new-stimulus-bill-will-help-shore-up-some-shaky-pension-plans-11615586775?mod=home-page. Accessed March 22, 2021.

² Teresa Ghilarducci. Forbes. March 15, 2021. “What Is The Pension Provision In The Stimulus Package? An Explainer.” https://www.forbes.com/sites/teresaghilarducci/2021/03/15/what-is-the-pension-provision-in-the-stimulus-package-an-explainer/?sh=7fdbc4c257d1. Accessed March 22, 2021.

³ Ibid.

⁴ Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=44501abc15e4. Accessed March 22, 2021.

⁵ Pension Benefit Guaranty Corporation. March 12, 2021. “American Rescue Plan Act of 2021.” https://www.pbgc.gov/american-rescue-plan-act-of-2021. Accessed March 22, 2021.

⁶ Jory Heckman. Federal News Network. Feb. 24, 2021. “USPS 10-year plan looks to redefine ‘unachievable’ service standards.” https://federalnewsnetwork.com/agency-oversight/2021/02/usps-10-year-plan-looks-to-redefine-unachievable-service-standards/. Accessed March 22, 2021.

⁷ Govtrack. Feb. 2, 2021. “H.R. 695: USPS Fairness Act.” https://www.govtrack.us/congress/bills/117/hr695. Accessed March 22, 2021.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Thursday, October 1, 2020

Employers: Lessons From the Pandemic

We’ve learned a lot about infectious diseases this year, as well as how to adapt our lifestyles in response to a pandemic. It will be interesting to see if and how U.S. businesses adjust their operational models to account for the potential for future pandemics or other catastrophic events.

According to the employment-population ratio, nearly half of the U.S. population was out of work (which includes those no longer actively looking for work), with economists predicting 30 million jobs must be created to return the ratio to its 2000 peak.¹

If your household has suffered a job loss or reduced income and you need assistance with creating a budget, or if you’re just not sure about your future retirement income and want to create an income plan, please contact us. We’re happy to evaluate your financial circumstances and provide guidance.

Work-life balance was a problem before the pandemic, but now that issue is being experienced in another context. Many employees have been able to migrate seamlessly to working from home using software to stay connected with colleagues and clients. However, with children home from school and now responsible for online learning, work-life balance can be even more difficult.

Many white-collar professionals have discovered the need for one — or two — in-home offices for spouses who are working professionals. While many are able to get their work completed independently, it is important to still be accessible to colleagues at certain points of the workday. Despite these challenges, some companies may increasingly find remote working to offer lower-cost, higher-productivity benefits if they can overcome some of the issues they currently face.²

As for working from home this year, it will be interesting to see if tax laws change before filing season next April. After all, according to a recent report from the Federal Reserve Bank of Dallas, more than 35% of Americans employed in May of this year were working entirely from home — up from just over 8% in February. Unfortunately, the Tax Cuts and Jobs Act disallowed W-2 employees from being able to deduct home office expenses.³

A work-from-home business model could also expand the net for recruiting talented employees. After all, many top companies are located in big cities where real estate sells for a premium. This is a tough life for young adults saddled with student loan debt. With a mobile workforce that allows employees to live wherever they want, companies can offer a competitive advantage when it comes to attracting top talent. In turn, Millennials and Gen Zers can move away from big city life and buy homes in less expensive areas.⁴ This could potentially help them save more money and turn around the fortunes of the country’s more rural areas.

It would be nice to keep your job, move somewhere with a lower cost of living and be able to keep your salary level. However, some economists claim that’s not going to be the case moving forward. Because many businesses have lost revenues due to reduced consumerism throughout this pandemic, wages are likely to stagnate for several years. Then again, the cost of living isn’t expected to increase dramatically in the near-term either.⁵ By moving to a less expensive locale, employees may be able to save more money even if they don’t get a salary bump in the foreseeable future.

Unfortunately, that means that any wage cuts employees received this year may not recover anytime soon. According to economists at the Federal Reserve Board, businesses initially cut wages by nearly two times as much due to the pandemic than they did during the Great Recession.⁶

With a strong financial plan in place, we can help you prepare to leave the workforce and live comfortably. Take control of your financial future and give us a call at (734) 769-1719 today!

¹ Yung Li. CNBC. June 29, 2020. “Nearly half the U.S. population is without a job, showing how far the labor recovery has to go.” https://www.cnbc.com/2020/06/29/nearly-half-the-us-population-is-without-a-job-showing-how-far-the-labor-recovery-has-to-go.html. Accessed Aug. 12, 2020.

² Knowledge@Wharton. May 4, 2020. “Working from Home: Navigating the Pandemic’s New Normal.” https://knowledge.wharton.upenn.edu/article/working-from-home-navigating-the-pandemics-new-normal/. Accessed Aug. 12, 2020.

³ Kelly Phillips Erb. Forbes. Aug. 12, 2020. “The Ultimate Forbes Guide to Working from Home.” https://www.forbes.com/sites/kellyphillipserb/2020/08/12/taxes-vpns-and-office-hours-the-ultimate-forbes-guide-to-working-from-home/#90a042442e7e. Accessed Aug. 12, 2020.

⁴ Parag Khanna and Kailash K. Prasad. Politico. May 13, 2020. “How Coronavirus Could Make People Move.” https://www.politico.com/news/magazine/2020/05/13/how-coronavirus-could-upend-human-migration-251715. Accessed Aug. 12, 2020.

⁵ Jessica Peres. TheDenverChannel.com. June 30, 2020. “Economists say wages will stay stagnant amid pandemic.” https://www.thedenverchannel.com/news/national/coronavirus/economists-say-wages-will-stay-stagnant-amid-pandemic. Accessed Aug. 12, 2020.

⁶ Carmen Reinicke. Business Insider. June 26, 2020. “Pandemic wage cuts are roughly double what they were in the Great Recession, study shows.” https://www.businessinsider.com/wage-cuts-coronavirus-pandemic-twice-great-recession-fed-study-shows-2020-6. Accessed Aug. 12, 2020.

Friday, September 11, 2020

What's Going on in Real Estate?

Overall, the U.S. residential real estate market has held up fairly well so far during the global pandemic. Industry experts say that the current economic decline is expected to affect retirement a bit differently than the Great Recession, largely due to housing prices remaining strong in many areas of the country.¹

One reason is because, early on, the CARES Act mandated forbearance relief for homeowners with federally backed mortgages (eg., FHA, VA, USDA, Fannie Mae and Freddie Mac).²

According to McKinsey & Company, the housing and construction industry has suffered from problems ranging from reduced demand to supply-chain issues. However, the firm believes that the real estate industry can emerge from the economic decline even stronger after the coronavirus crisis. The problem — as it is for most other industries — is how long will it take to contain the virus and re-energize the economy.

The McKinsey Global Institute estimates that in the current circumstances, the economy could be back on track by 2021. However, additional lockdowns and restrictions could mean that the economy may not return to 2019 levels until 2023 at the earliest.³

From a demographic point of view, pandemic or not, the housing cycle is on tap to experience new demand throughout the next 10 years. Many Millennials have finally hit their stride in the work world after holding off on buying a home until they were on stronger financial footing. In some cases, they are wanting to leave large metropolitan areas, looking instead at smaller, rural areas for affordability.⁴

Speaking of Millennials, they are now largely considered a driving force in the residential real estate market. In 2018, young adults represented the largest share of home buyers at 37%. High-earning Millennials are even dipping their toes into the luxury market. As part of this trend, they favor luxury condos, communities that promote healthy living and technology-enabled home offices.⁵

The home office is another influence of the pandemic that is impacting commercial real estate as well. Now that many companies recognize that their white-collar employees can simply work from home, this changes how they view the necessity of expensive office buildings and corporate headquarter campuses. In the future, we may see corporations cut their overhead dramatically in a move that could have long-term repercussions in commercial real estate.⁶

At Imber Wealth Advisors, we help individuals and families of Southeast Michigan plan for retirement.

With a strong financial plan in place, we can help you prepare to leave the workforce and live comfortably. Take control of your financial future and give us a call at (734) 769-1719 today!

¹ Kim Blanton. Center for Retirement Research at Boston College. July 21, 2020. “Pandemic Puts More Retirements at Risk.” https://squaredawayblog.bc.edu/squared-away/pandemic-puts-more-retirements-at-risk/. Accessed Aug. 5, 2020.

² Consumer Financial Protection Bureau. July 1, 2020. “Learn about mortgage relief options and protections.” https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/mortgage-relief/. Accessed Aug. 5, 2020.

³ McKinsey & Company. May 8, 2020. “How construction can emerge stronger after coronavirus.” https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/how-construction-can-emerge-stronger-after-coronavirus. Accessed Aug. 5, 2020.

⁴ Merrill Lynch. May 2020. “Welcome To Phase II — The Bridge.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_May20_Merrill.pdf. Accessed Aug. 5, 2020.

⁵ Diane Hartley. RISMedia. July 15, 2020. “Millennial Home-Buying Trends in the 2020 Luxury Real Estate Market.” https://rismedia.com/2020/07/15/millennial-home-buying-trends-2020-luxury-market/. Accessed Aug. 5, 2020.

⁶ Andrea Felsted. Advisor Perspectives. July 28, 2020. “Working From Home Is Terrible News for Landlords.” https://www.advisorperspectives.com/articles/2020/07/28/working-from-home-is-terrible-news-for-landlords. Accessed Aug. 5, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

Thursday, July 23, 2020

Rerouting Your Summer Vacation

All is not lost. If you planned a multicity tour across Europe or Asia this summer, you’ve probably already rethought those plans. But that doesn’t mean you have to abandon the idea of a vacation altogether. Perhaps a domestic destination, a little ingenuity and a lot of family unity are just what you need.

As far as COVID-19 restrictions go, federal guidelines still do not recommend travel, especially internationally. The CDC advises that if you decide to travel domestically, be sure to take precautions against catching the virus, including washing hands often, socially distancing and wearing a mask.¹

In addition, tourism experts recommend avoiding large crowds and choosing outdoor destinations. The key may be to find destinations that fewer people know about.²

Before you go too far down the road, decide how much you can spend. If previous travel plans have been canceled, consider whether you want to use a voucher to rebook in the future or be reimbursed now.³ If you choose the latter option, you might be sitting on cash you are itching to spend. But before you do, it’s a good idea to research where the U.S. is in terms of “flattening the curve” and what the economy — and your job situation — could potentially look like in the future. Many economists are concerned about the effects a possible second wave of COVID-19 infections could have on the economy, so consider whether it’s smart to hold back some that cash you haven’t spent yet.⁴

If you are concerned about the effects of the coronavirus pandemic on your retirement income, we may be able to help. Please feel free to contact us to discuss creating retirement strategies through the use of insurance products that can help you work toward your retirement income goals.

If you are up for rerouting your vacation plans, consider these ideas. On the high end of travel, an upscale hotelier, Auberge Resorts Collection, and a luxury travel company, Black Tomato, have partnered to host “Take the Open Road with Auberge and Black Tomato.” Packages offer the use of a Mercedes-Benz to take you on multiple destinations with unique experiences in a particular area, with options ranging from lobster fishing in Kennebunk, Maine, to hiking, horseback riding and fly fishing in Park City, Utah. All packages feature award-winning hotel accommodations.⁵

A more budget-friendly option could be a vacation rental. To minimize your risk of exposure to coronavirus, consider renting an all-in-one party house, complete with swimming pool and other kid-friendly accommodations. The extra expense of renting may be offset by preparing meals at home and limiting other excursions. Research to make sure that you don’t choose a “hotspot” experiencing a COVID-19 outbreak and that you’ll have access to stores, restaurants and any other venues you plan to visit.⁶

At Imber Wealth Advisors, we help people in the Ann Arbor area plan for retirement. With a strong financial plan in place, we can help you prepare to leave the workforce and live comfortably. Take control of your financialfuture and give us a call at (734) 769-1719 today!

¹ David Oliver. USA Today. May 20, 2020. “Weighing whether to travel this summer during the coronavirus pandemic? What to consider.” https://www.usatoday.com/story/travel/news/2020/05/20/coronavirus-travel-summer-vacation-what-cdc-state-department-say/5198927002/. Accessed June 9, 2020.

² Ibid.

³ Lisa Milbrand. Real Simple. May 14, 2020. “How to Handle Vacation Plans (Including Your Summer Vacation) During COVID-19.” https://www.realsimple.com/work-life/travel/travel-planning/travel-vacation-planning-covid-coronavirus. Accessed June 9, 2020.

⁴ Carmen Reinicke. Business Insider. June 8, 2020. “A 2nd wave of COVID-19 infections poses the biggest threat to the US economy this year, economist survey shows.” https://www.businessinsider.com/economy-biggest-threat-second-wave-coronavirus-infections-us-covid19-survey-2020-6. Accessed June 9, 2020.

⁵ Lauren Mowery. Forbes. June 9, 2020. “Four Ways You Should Hit America’s Roads This Summer With Black Tomato.” https://www.forbes.com/sites/lmowery/2020/06/09/four-road-trips-with-auberge-mercedes-and-black-tomato/#66e874be71f3. Accessed June 9, 2020.

⁶ Claire Ballentine. Bloomberg. May 21, 2020. “Considering a Vacation Rental? Here’s What to Know Before You Travel.” https://www.bloomberg.com/news/articles/2020-05-21/considering-a-vacation-rental-what-to-know-before-covid-travel. Accessed June 9, 2020.