The #1 Thing I Wish Every CalSTRS Employee Knew [video]

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If you're a CalSTRS employee, you likely need to supplement your pension with additional retirement savings.

You have a LOT of options. Don’t let that paralyze you.

Now this is where people get stuck. So for the rest of us, we typically have one employer plan that we choose from and we just have to pick the investment options within there. For CalSTRS employees, they have dozens of employer plan options and each of those options has a list of investment funds that they could be choosing. So they are paralyzed by all of these choices. When I talk to people about why they're invested where they are, they say they pretty much just chose whoever came to their lunchroom and whatever they were selling, which ends up mostly being high-cost annuities. But there is a better alternative that is really simple once you know the process and what to look for.

403bcompare.com is a great site that will help you find the best plan for you.

That is the website that you want to go to. In the upper left-hand corner, you're going to choose "Find Employer" so that you can see the investment options available for your particular employer.

I am in Coronado now, so why don't we look for "Coronado Unified" to see what options these employees have available to them. So it's easy to search that up and we can see here the list of all of the investment companies, which– it's just so many - again, non-CalSTRS employees have one to choose from - I'm going to click on Vanguard because I do like their options.

You can also see here if this plan is "Roth eligible" or not. So I'm going to go ahead and just look at all of the investment funds available to Vanguard. It's going to show me the list as well as the expense ratios so you can go ahead and decide what you want to invest in going forward.

How to sign up for a 403b as a CalSTRS employee.

One final tip - when you go to open the account, I would follow the instructions on the 403b Compare site. I would use those links, those phone numbers. They will lead you to fill out a salary reduction agreement with the district. I have had people try and go to their HR person, their point of contact, and they have not been super helpful. They're not very informed on the plan options. They didn't even know, for example, Vanguard was an option. So I try to instead have people go through the website, follow up directly with the investment companies and they have more success with that.

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Ask Linda: What should I do with this unexpected bonus?

Dear Linda,

I will be receiving an unexpected bonus shortly. I want to do something smart with the money - any ideas?

Congrats! It is that time of year. Companies are wrapping up the previous year’s numbers and issuing bonuses. Here are some thoughts.

#1 Treat yourself with part of the bonus.

While it would be nice if you saved the entire bonus, it is equally important to have a healthy balance to combat burnout. You worked hard last year to earn this bonus. Decide on a portion that you could carve out for yourself. Use it towards something that makes you happy and energized to have another successful year.

#2 Use it to pay your tax liability.

It’s the end of March already and Tax Day is right around the corner. Complete your previous year’s return to confirm where you stand. If you will owe taxes, use the bonus to pay the tax bill on 4/15. Ev 

#3 Pay off high-interest rate debt.

This could be credit card debt, personal loans, auto loans, or a HELOC (home equity line of credit). Knocking out a high-interest loan feels great and it will improve your cash flow.

#4 Augment your cash reserve.

If you don't already have this in place, now is a good time to start building a cash reserve that will cover at least 3 months' worth of expenses in a high-interest savings account (6 months is even better if you are single or have someone else dependent on your income). If your savings is earning less than 1%, move it. There are plenty of other options these days that will pay 4+%.

How to Find a Better Bank

#5 Increase your retirement savings.

Whatever retirement plan you are saving to – a 401k, 403b, TSP, SEP IRA, etc - see if you can save more. If you are already hitting the IRS limit, increase your savings elsewhere.

• Evaluate if a Roth IRA, Traditional IRA, or Backdoor Roth contribution makes sense.

• Save to a Health Savings Account if you qualify.

Read more about HSAs  

• Consider after-tax 401k contributions, if available. After-tax 401k contributions are different than Roth contributions. There is no tax deduction on the savings, but the money will grow tax-deferred and can be rolled into a Roth IRA (without limitation) after you leave the company. Not every company offers this option.

• Save to a Brokerage account. There is no tax deduction on contributions but it is still a good option. Qualified retirement accounts (such as a 401k or TSP) are taxed differently than a brokerage account. When you have a mix of account types, you have more flexibility to utilize asset location strategies and manage your tax bill in retirement.

• Save to a donor-advised fund (DAF). A DAF is an investment account for charitable purposes. You invest as you would with any investment account and when you are ready to donate to a qualified charity, use the money from the DAF. Assuming you are eligible for charitable deductions, you will receive the deduction when you place money into the DAF, not when money is withdrawn. If you are charitably inclined and expect to be in a higher tax bracket now than in the future, take advantage of the tax deduction now while it provides a greater benefit to you.

DAFs with Impact Investing Options

• Save $10K to an I-Bond. I-Bonds are government bonds adjusted for inflation. You are allowed to buy $10K each calendar year per person.

See What are I Bonds?

• Fund other goals you may have. If you are saving for a house, earmark some of the bonus for the down payment. If you are saving for a child's college education, consider a 529 plan.

originally published 5/4/2018

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

No tax benefit for your charitable giving? Here are 2 workarounds.

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If you're taking the standard deduction on your tax return in 2023, it means that you will not get any tax benefit for any charitable contributions that you made last year. It doesn't mean that you shouldn't give to charity, but that is something that does confuse a lot of people.

You need to itemize your deductions on the Schedule A to get any tax benefit for charitable contributions.

There are a couple of workarounds.

#1 Bunching your contributions.

So let's say that you give $5,000 to charity every year. You could give $10,000 in one year and nothing the following year if giving that $10,000 bumps you up enough to be able to get a little bit of a tax benefit and itemize your deduction for those contributions.

The other strategy is for people over the age of 70 1/2.

#2 The QCD Strategy - qualified charitable distribution strategy.

This is where you donate funds directly from your IRA to charity. While this is not a deduction, the IRA distribution is not fully taxable as it should be. So it saves you money in taxes and it gets around the fact that you don't itemize. The QCD limit is $105,000 for 2024 per person and the money must go directly to a 501(c)(3) charity, it cannot go to a donor-advised fund (DAF). The donation must be received by 12/31 and the QCD can count towards your required minimum distribution (RMD). Verify that the charity receives the donation and obtain a letter noting that you did not receive any benefit for this contribution.

Really important - that 1099R that you receive when you distribute money from your IRA will not indicate how much of that distribution was a QCD. So if you just enter the information as shown on the form, or you don't tell your tax person, you're not going to get that tax savings. Make sure you keep good records and keep your tax person in the loop so that you can benefit from this strategy.

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Deciding whether to Rent versus Buy - The Non-Financial Factors that you Can't Ignore

a family friend’s house & garden in belgium

Rent versus Buy

This is one of the more common dilemmas that we evaluate with clients.  Everyone is eager to dive into the numbers, but the numbers are the easy part.

The non-financial factors to consider before deciding whether to buy or rent.

(1) What is the probability that you will be in this same location in 2-5 years?

The shorter the time horizon, the stronger the case for renting. Nobody can consistently predict what the real estate market will do in the short term. If you decide to buy and find yourself moving shortly afterward, you take the risk of losing money on the property when you sell. Unless you are okay with that risk (or the idea of renting if needed versus selling), keep it simple and continue to rent.

(2) How stable is your job and career?

If you have a stable job (or you can find another job easily in the same area), you can likely manage the added risk that comes with owning a home.

Others, however, know that they are at the top of the payscale and worry about their current employer’s future. Or maybe they are working at the only place in town that could employ their skillset. If they lose their job, they will have to move. For this latter half, renting may be worth it for the flexibility.

(3) Do you want to spend your free time keeping a house and yard up?

Even if you buy a house that is mostly done, there will be projects. If you are the type of person who enjoys that, you may love homeownership and the ability to customize your living space and learn new skills.

Others prefer being able to call the landlord with issues and having someone else responsible for fixing (and paying for) the problem.  

(4) Do you value stability above all else?

Many people love renting until the landlord decides to sell their house, leaving them scrambling for a new place. Children and pets add a new layer to this challenge. You may prioritize keeping your children in a particular school district with their same friends. For that reason, buying a home may outweigh uncertainty in other areas of your life.

The numbers are essential – you have to see how a house purchase impacts your financial goals – but it is only one piece of the puzzle. Honest conversations about how long you plan to live somewhere, how invested you are in an area, and how much time you have to commit to house projects can help you solidify the best choice for you.

originally published 10/28/2014

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

3 Tax Mistakes I Saw This Year [video]

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Here are 3 tax mistakes that I saw this year.

#1 Missing expenses on the Schedule E, the form that tracks income and expenses related to a rental property.

I knew that this client was paying HOA fees for his rental because I saw it on the expense sheet. But when I looked at his Schedule E, he didn't have anything listed there for the HOA fees.

We had him go ahead and amend previous returns and he was able to get over $1,000 back.

#2 The wrong name listed on the Schedule C.

The Schedule C is for self-employed people to document their income and expenses related to their business. When you look at your 1040, so that first page of the tax return, the first name listed, that's the primary tax person.

So let's say it was the husband in this case, that is the name that automatically gets filled into the Schedule C's in many tax software. It wasn't the husband's business, it was the wife's business. But because the default was the husband, it wasn't checked, it wasn't updated. That was filed incorrectly.

#3 Not understanding the pro-rata rule for backdoor Roth conversions.

This is not necessarily a mistake, but people do come to me and say, "I made a mistake with my backdoor Roth conversion because, oops, I owe taxes. What did I do wrong?"

You did it correctly. You just don't understand why you owe the taxes. So let's go through that.

The rule is that if you have traditional IRA money, such as from an IRA rollover, when you do the conversion, you can't just convert that after-tax money. The conversion will be taxed proportionate to your pre-tax and after-tax percentages. This is how you may end up paying more tax than you thought you should have on that conversion.

What tax mistakes have you made that you've learned from?

My name is Linda Rogers, Owner Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

How to Buy Your First Real Estate Investment Property

First, stop and answer this question – do you want to be a landlord?

I have met people over the years who hate owning property. They can’t sleep at night because they worry about the HVAC system dying or some other large, unpredictable expense popping up. When I ask why they went down this path, they say they thought it was the best way to build wealth and get real estate exposure in their portfolio. Neither is true.

Document your goal with the property.

If your only goal is to add real estate to your investment portfolio for diversification purposes, there is an easier way to achieve this than buying a house. You can buy a real estate investment trust, otherwise known as a REIT. It does not come with the tax benefits of real property and the risk and return characteristics are different, but it is more diversified, more liquid (easier to buy and sell), and you do not have to be a landlord.

If your goal, however, is to have passive income, take advantage of dislocations in the real estate market, invest in an area you see gentrifying first-hand, or hold onto a home you may want to move back to someday, then owning a rental property might be a good option.

Here are the basics on how to evaluate, buy, and manage properties that will be a good fit for you and your portfolio.

Have a strong financial foundation before getting started in real estate.

Real estate should be a supplement, versus a core part of your portfolio because it is not liquid - you cannot instantly sell a home or access the equity. You should first have the following:

- A secure job, an emergency fund, and zero high-interest rate loans

- Retirement savings where you are maximizing your annual contributions (or saving a healthy amount, at least taking advantage of your employer’s match)

- An adequate amount of insurance coverage, such as life and disability

When looking for potential investments, focus on buying in areas with growing demand and amenities that strengthen the community.

- Find desirable areas with low crime rates, good public schools, growing job markets, and public parks. This will help you attract and keep tenants and it will help with your home’s resale value.

- Understand the current laws (and pending laws) regarding rentals in the area. Short-term rentals, in particular, have changing laws that could greatly impact your investment’s profitability.

In preparing to buy an investment property, aim for at least a 20% down payment.

Mortgage lenders typically require a 20% down payment on rental properties because the loans are considered higher risk than for a primary residence. If you are going to default on a loan, you will likely default on your investment property before you default on your home mortgage.

The mortgage interest rate for an investment property is also higher for the same reason. You will likely be able to get a lower rate the more you put down (which might be a good option during this interest rate environment).

In evaluating potential properties, pencil out the projected pre-tax cash flow.

Rental Income - Rental Expenses = Pre-Tax Cash Flow

Rental Income - Search for rental listings online that are comparable to your potential investment properties. This will give you an idea of what you can expect to receive in terms of rental income. Helpful sites include HotPads, Zillow, Craigslist, and Realtor.com.

Rental Expenses - Determine estimates for the mortgage, property taxes, insurance, and pest control. Other expenses that may need to be included are homeowner’s association (HOA) fees and landscaping. A rule of thumb is to estimate that your repairs will be about 1% of the home value per year. You may also want to factor in a cushion in case the property is vacant or there is a large unexpected expense.

More about vacancy…

I hardly ever include vacancies in projections for southern California clients – housing is crazy here. But I hear of other places where vacancy is a big issue that came out of nowhere. One friend has a short-term rental in Florida that was great for a couple of years until the market became flooded with properties. They had to pivot to a long-term, furnished rental instead, which is a good alternative, but that speaks to being in a good financial position before the purchase so you can manage this risk.

Putting it all together.

How does your annual pre-tax cash flow look? You can stop here and see how it flows through to your financial plan. Even if the cash flow is negative right now, you may be willing to accept that deficit temporarily with the understanding that your cash flow can support it and the rental price will keep increasing with inflation, but your mortgage will stay the same.

Here is the formula if you want to go one step further and evaluate your cash on cash return.

Annual pre-tax cash flow / Total cash invested = Cash on cash return

Consider using a property management company.

Property managers charge between 6 and 10% of the monthly rental income. It is possible to manage the property yourself to save money, but many people use a property manager to have a degree of separation between the tenants and avoid calls in the middle of the night with home emergencies. If you are unsure, include the property management fee in your projections to be conservative.

Obtain a lease.

LegalZoom has a rental lease agreement that is customizable and easy to read. You can contact a real estate attorney if you feel more comfortable working with a professional.

Run a background and credit check on potential tenants.

Do not skip this step, even if you know the tenants personally. Most of the horror stories I hear from landlords are because these checks were skipped during the due diligence process – the tenant was a friend of their sister, or a friend of a friend.

There are unique tax benefits available to owners of real estate investment properties. Find a knowledgeable tax preparer.

• Rental income is not subject to Social Security and Medicare tax in most cases. There are exceptions, such as if you are providing substantial services to your tenants for their convenience or you are a real estate professional.

• A portion of your rental income can also be shielded from income tax. You are allowed to deduct items such as mortgage interest, property taxes, homeowner's association (HOA) fees, insurance and depreciation. With regards to depreciation, it is a "non-cash expense" meaning it is not something you pay for out of pocket. It lowers your tax bill by increasing rental losses, which can offset earned income by up to $25,000 in some cases (it depends on your income and your “level of participation” with regards to the management of the property).

• Keep records of capital improvements. If you sell the property at some point, you will need the tax basis to determine the amount of tax due. Capital improvements increase tax basis and therefore, reduce taxable gain. Examples include replacing an entire roof, paving your driveway and installing central air conditioning. Keep receipts of all capital improvements to the property so they are organized when you sell.

Interested in adding real estate to your investment portfolio?

There are financial and tax implications that need to be considered before designing the best strategy for you. PWR can help you plan, implement, and monitor your investments to ensure they are working for you to the greatest extent possible.

originally published 8/28/2019

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Yours, Mine, Ours Cash Flow System [video]

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Combining all of their money the day after they say "I do" doesn't make sense to everyone. Perhaps they have significant assets prior to marriage. Maybe they come from a divorced family. It really doesn't matter the reason. More and more people are opting to do things differently than their parents did.

Yours, Mine, Ours Cash Flow System

Instead, they feel more comfortable maintaining separate accounts - and we're talking banking here, so checking and savings accounts, for example - and having one joint account where they both contribute a certain amount to the joint account and joint expenses are paid from there. That's the yours, mine, ours strategy.

The concept is simple, but when it comes to implementing it, questions do come up and there can be confusion. We want to avoid it being a source of tension. So you need to just get ahead of it and have a system in place. There can be disagreements about what a joint expense actually is, who contributes what to the account. Certain people could be paying for a joint expense from their payroll deduction. So how do we account for that?

So here's a quick yours, mine, ours strategy that I would set up.

#1 Document your total expenses.

This is probably everyone's least favorite part of the process, but we have to do it. We need good numbers to be able to come up with good recommendations. I recommend people go back at least 3 months, if you can, looking at credit card statements, all of your banking information, and documenting the best you can, the average over those 3 months. If that's overwhelming, then 1 month will be fine. It's not going to be great, but it will at least be a good starting point and you can update that in the future.

#2 Determine your joint expenses.

After you have your expenses written down, the next column over, you want to note "J" next to joint expenses. This is the time to have that discussion and agreement on what a ‘joint expense’ is. Be as detailed as possible. For example, I've seen it where people will have a golf expense, but there is golfing together, which they would consider joint, but then golfing with separate friends or by themselves, which they do not consider joint. So I thought that was a great way to drill down and get at the heart of what they consider joint expense.

Once you have all of your "J"s, now you want to go back and see which ones are from payroll. So for example, if one person is paying the medical expenses from their payroll deduction, that would be a joint payroll expense. So change that "J" to "JP", all the other J's, change them to "JN" non-payroll. So now you've got all of your expenses. The next column over, you've noted which are joint either joint payroll "JP" or joint non-payroll "JN".

#3 Calculate each partner’s income percentage.

Next, we list each person's gross income and determine their percentage of total income. So let's say it's 60/40 for this example.

A common question is how do we handle RSUs and bonuses? Add them in. I consider RSUs a bonus in stock form. That's what they are. So we want to include that as well. I know that these numbers vary. I know that the bonus can vary. But that's why we're doing this in Excel. We're setting up the template and the system so we can update it as needed.

And notice I recommend using gross income, not net income. Net income doesn't make sense to me because people could have different withholding amounts. Gross income is more apples-to-apples.

#4 Determine how much each person needs to contribute to the joint account.

Now we have everything that we need. So the "JN" expenses, joint non-payroll, we could just divide that 60/40 and assign how much each person needs to contribute to the joint account for those.

For the joint payroll, it can be a little more complicated. This just requires 2 calculations. So we're still going to add up all the joint payroll and calculate the 60/40 split. So we've calculated what they should be contributing for the joint payroll. Now we just need to compare that with what they're actually contributing. Because remember, one person might just have the better benefits, so they are contributing more than their 60/40 split requirement and we just need to true it up there. We'll have all those numbers. If you do this in Excel, it will become clear that yes, they're over - over-contributing or under-contributing and we can kind of true that up with regards to what they have to contribute to the joint account.

This is not the only method. Here are the 3 Different Methods for Managing Household Expenses with your Spouse.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Don't understand your annuity? This video will help. [video]

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You have an annuity but you don’t understand it. This video will help.

I don't sell annuities. I don't recommend them for the vast majority of my clients, although there can be cases where they make sense. But I have seen a lot of annuities over the years, and most of the time people don't know what they have or how to begin evaluating them, and I don't blame them. They can be really complex.

I come across a lot of people who just want out of the annuity. Many times it's because the person who previously sold them the annuity is now trying to push other products. But it could also just be that they've read about the high fees or they're just questioning if this was the most suitable product for them. Once you have an annuity, though, you need to slow down, be clear on what you have, and be really smart about that next move. This video is going to help you do that. Just see what you have, what options you have available within the product you already hold, and get the information that you need in case you do want to make a change.

#1 Obtain a copy of your most recent statement.

Determine the surrender charge.

First thing you need to do is grab your statement. So this comes out annually. It should be really easy to obtain. It's typically just 1-2 pages, and you want to look first at the account value, see that number, and compare it to the surrender value. I've also seen it listed as withdrawal value. If those numbers are different, that means there will be a surrender charge if you were to go ahead and liquidate that annuity. The surrender charge goes down over time and eventually gets to zero. We'll talk later about where you can get that information, but just knowing - do I have a surrender charge - is really helpful.

Determine the name and type of annuity.

Next, you want to look at the name of the annuity and the type of the annuity. Sometimes the type is not clearly listed on the statement, but even if you have the name, which will be there, you can google it and just see what that type of annuity is. The most common that I tend to see that people aren't happy with are the variable annuity and the equity-indexed annuity.

So just to give you some background there, on the statement, if it's a variable annuity, you will see some subholdings, some mutual funds listed there. If it is an equity-indexed annuity, you will see a reference to an index like the S&P 500 Index. You'll see words like point-to-point or participation rate. You know then, you've got an equity-indexed annuity.

Specify if it is a qualified or non-qualified annuity.

While you're on the statement go ahead and determine how this annuity is being held. Is it a qualified or non-qualified annuity? This tells you how it will be taxed and different details. So you need that before you go ahead and decide if you want to make any changes.

#2 Obtain a copy of your signed contract.

You have to get this to get a lot more detail and background on what you saw on the statement. So if you can't find it, contact the annuity company or the person who sold you the annuity because it is essential. It's many, many more pages than the statement.

Look for the surrender table or withdrawal table.

So if you did have a surrender charge on the statement, you want to look at that table to see when that surrender charge will go away.

Find the fees.

Then you want to look at the fee and expense table. That will go through the contract fee, M&E fee, different fees associated with the underlying investments. You can go ahead and add everything up that relates to you that you saw in the statement so that you can have a better picture of what this contract is costing you.

Look up any riders you are paying for.

This is where you will also find more detail on riders if those were selected or interest crediting options. Again, the statement is going to in many cases, just list something vague in terms of a rider, but the contract, you are be able to look up that specific rider and see exactly what it is and how it can help.

You also will see other available options. You can see payout tables, everything you need to be able to evaluate this annuity.

You now should have a good baseline about what you have and how to determine other options that are available to you.

#Start listing and evaluating your options.

You can look at do I want to liquidate this, annuitize it, take some amount annually, roll it over to another annuity that perhaps doesn't have surrender charges or has lower fees? Do you want to roll it over to a different investment product altogether? What are the tax consequences of each of these options? These are the things you can begin evaluating now with your partners, your advisors to determine what is the best option for you. And of course, keeping in mind, does this product help me meet my goal with this money?

My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Everything you need to know about Required Minimum Distributions (RMDs)

401k and Traditional IRA accounts are examples of tax-deferred accounts, meaning you pay tax at a later date.

How long can you defer taxes in a tax-deferred account?

Until you take distributions from the account.

If you take $10,000 from your Traditional IRA and transfer it to your checking account, the investment company issues a 1099R tax form to you and the IRS documenting the distribution.

Here is the thing that not everyone realizes…

At age 73, the IRS requires you to start taking Required Minimum Distributions (RMD) every year from your tax-deferred accounts.

There are exceptions, but this is the rule that most people are subject to and need to remember.

Why do RMDs exist?

Plenty of people tell me – “I don’t want to distribute this money! Why are they forcing me to?”

Tax-deferred accounts were created to help people save money for retirement – not to pass on wealth to the next generation.

You don’t get a lifetime of tax-deferred growth, but you get many, many years of tax-deferred growth before you need to start systematically distributing from these accounts.

Which accounts require an RMD?

• Traditional IRA

• SEP IRA

• Simple IRA

• 401(k)

• Thrift Savings Plan

• 403(b)

• 457(b)

• profit sharing plans

• other defined contribution plans

Roth 401ks and Roth IRAs do not require withdrawals until after the death of the account owner.

What if I have multiple accounts that are subject to an RMD?

You have to calculate the RMD for each account separately, but you may withdraw the total amount from a single account if you wish.

How do I calculate my RMD?

Your plan sponsor will calculate the RMD for you. Typically, your statement will list the RMD amount for the current year and the total distributions-to-date so you can confirm that you are on track with your distributions.

In general, you divide the market value of your account on 12/31 of the previous year by the appropriate life expectancy factor on the IRS Uniform Lifetime Table. If your spouse is your sole beneficiary and is more than 10 years younger than you, you need to use a different table. Here is the IRS site with the details and worksheets. There are many online RMD calculators available as well which I highly recommend as a double check.

When do I have to take my first RMD?

Your first RMD must be taken by 4/1 in the year after you turn 73. After that first year, which has a bit of a grace period, you must distribute RMDs by 12/31 (no grace period).

What is the penalty if I fail to take out the appropriate amount?

The required amount not withdrawn is subject to a 25% penalty (or 10% if you meet certain requirements).

What should I do with the money?

Here are your options:

Use it to pay for living expenses.

If you are retired and distributing from your portfolio, using the RMDs to cover your expenses may make sense.  

Transfer it in-kind to your brokerage account.

For people who don’t need the money yet, such as those who inherited an IRA subject to RMDs but are still working, you can transfer shares equivalent to the RMD amount to a Brokerage account. That allows you to satisfy the RMD but keep the money invested.

Utilize the QCD strategy

If you are subject to RMDs and giving to charity, you can transfer the RMD amount directly from a traditional IRA to a qualified charity. While an RMD is typically taxable income, when you execute a QCD, it is excluded from taxable income. It gives you the same benefit as if you took a taxable distribution from your IRA, gave the money to charity, and then deducted the donation. The limit on QCDs is $100,000 in 2024. Here is more information at the IRS site and be sure to consult with your tax person before implementing this strategy.

originally published 4/23/2019

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

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The 3 Biggest Mistakes I see with DIY Plans [video]

transcript

I've seen a lot of DIY financial plans over the years, and these are the 3 biggest mistakes that I typically find.

Health care costs.

Let's start there. If you are using the number that you spend on health care now and assuming that is what you're going to spend in retirement, it's probably not enough. There are exceptions, but for most people, what they're spending right now on health care is subsidized by an employer. When they are on Medicare, that number is going to be bigger. You need to make sure you're using an accurate assumption there.

The other big mistake that I typically see is people that retire before 65, so before you're eligible for Medicare, and you need health insurance, you're going to have to get a private policy which is really expensive. You need to make sure you have a high enough number there to be conservative.

The other piece of that is the inflation rate. If you are assuming that healthcare costs are inflating at the same rate as groceries, that's inaccurate. Historically, it's inflated at a much higher rate. So you want to make sure you account for that.

Sequence of Return Risk

When I look at these DIY plans, they typically show an average rate of return, let's say 6% every single year. Of course, that is not what the market does. We're going to see above-average and below-average to come to that 6% over the long term.

You might think that the sequence of returns that you see don't matter as long as you hit that average, but that's not true. It actually matters a lot.

If you retire and you have below-average returns for that first decade, followed by above-average returns for the next decade, you may find yourself in a worse position than someone who saw the opposite. And of course, we don't know when you're going to retire and what your luck is going to be. You need to be able to stress test your portfolio just to make sure that it's resilient and you can meet your financial goals no matter what you end up facing.

Taxes

I understand the taxes are so complicated that people tend to want to oversimplify, but that's just not going to cut it for your retirement plan. I've seen a lot of different mistakes. Here are the most common:

(1) Not understanding how withdrawals will be taxed.

It depends on the different types of accounts it comes from, basis, is it a non-deductible IRA? All of those things are going to relate into how much your tax bill will be that year.

(2) Not understanding RMDs and how that's going to affect other things.

(3) Not understanding the implication if there's a law change.

The Tax Cuts and Jobs Act, for example, is set to sunset in 2025. If that changes, how does that flow through to your financial plan and meeting your goals?

If you're a DIYer and you've got your financial plan, pay special attention to these 3 items - the healthcare cost and the inflation rate associated with it, sequence of return risk, and the tax implication of moving into your retirement. My name is Linda Rogers, Owner of Planning Within Reach.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.