Homeowners Policy Review - Part 1 of 2 [video]

transcript

Let's review our Homeowners Insurance policy together.

This is something that I do review during the planning process and at Annual Reviews, but it's towards the end of the meeting. Sometimes we're tired and kind of rushing to wrap things up. I really wanted to be able to go through it in detail with you in this 2-part series. So grab your homeowner's insurance policy and let's get started.

Start by looking at the deductible amount.

This is the amount that you need to pay out of pocket before coverage kicks in. The default is typically something like $1,000. You may consider increasing that to $2,500 or $5,000 if you're in a good cash situation. If you have a higher deductible, your premium or your annual cost may be lower. So it's just a trade off.

Different damages may have different deductible amounts.

We had what was categorized as wind damage in our house and we got a $300 check from the insurance company versus thousands of dollars, which we were expecting, because we had a much higher deductible for wind damage. So make sure that you do review that so there's no surprises there.

You also have the option to do a percentage deductible.

Instead of it being a flat amount, like $2,500, it might be a 2% deductible. The way you calculate that dollar amount is 2% times the home's insured value. So 2% x $400,000, for example, is $8,000 per year. That's a high deductible. But I'm seeing higher deductibles, at least in California. The insurance market here is not pretty. People are being dropped with their coverage. They're unable to have their policies renewed. This is with no explanation or weird explanations. So I am seeing higher deductibles. This could be part of it, but I mention this because some people are having luck keeping their policy by choosing something higher. So if your cash flow supports that, it may be something that you look into.

Next, let's look at Coverage A - Dwelling Protection.

This is going to help you pay to repair or rebuild your home if it's damaged due to a covered hazard. So we're seeking replacement cost here, not market value. Take the Dwelling A amount divided by the square footage of your home, and that's going to tell you your coverage per square foot. So compare that to the construction costs per square foot in your area, which is something that your homeowner's insurance company or broker should be able to help you verify or come up with. I used to have an online tool where I logged into my insurance company, and they provided something along those lines which was helpful. They don't offer that anymore, but your company may do that. So when you log in, see if there's something available there.

Make sure that if you have recently remodeled and added square footage, you increase your Coverage A amount.

That is something, a mistake that I'll find fairly often, where people do the remodel, they add the square footage, they don't think or don't remember to increase that in their homeowner's insurance so that they have the appropriate coverage.

And then you also want to make sure that you've elected extended replacement coverage, which is a default for me, but I don't know that it is for everyone.

Let's review the rest in another video. I will see you there. 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.

Restricted Stock Units (RSUs) [video]

RSUs, or restricted stock units, are a type of stock-based compensation.

They're "restricted" because you typically cannot sell them right away. There is some sort of vesting schedule that will depend on the company. But when the shares do vest, you have 2 options - to keep the shares or sell them.

Now, the default setting for the most part seems to be sell just enough shares to pay the tax due and keep the rest. But what happens is people find themselves with a lot of in their company's stock, and many times there's people that have never sold any shares. When I ask why, they say they're not clear on the tax consequences of doing so, so they tend to do nothing.

Let's go through all the details.

If you received a cash bonus, would you take the entire thing and buy your company stock with it?

That's what you're doing when you are keeping the vested RSU shares in your company stock. Here's the tax piece. And really, there are 2 pieces.

The first is the vested amount is taxed at ordinary rates on the vesting date. There's nothing you can do about that. That is happening regardless of whether you keep or sell the shares after vest.

The second piece is the same as if you sold a stock from your brokerage account. Before you do that, you need to be clear on the cost basis, the market value, the holding period. These are the important pieces that are going to help you understand the tax consequences of making that sale.

With RSUs, the acquisition date is the date of vest and the cost basis is the vested amount on that day.

Decide if you want to change the default setting for the RSUs.

Something you may consider is changing that default setting from selling just enough shares to pay the tax to selling all. That way you're taking your bonus, turning it to cash, and you're diversifying it as you want to.

Organize the previously vested shares and document a sale strategy.

You also want to start organizing the shares you already have a spreadsheet, in a software, so you're clear on the cost basis, the gain, the loss, the holding period. Holding period is important, of course, because if we held it for less than a year, it's going to be taxed at ordinary rates versus more than a year capital rates.

• Start thinking through important questions such as how much of your company stock do you actually want to hold?

• How else could you maybe reduce that over-concentration in the meantime, as you come up with a strategy?

• How best can you start unloading these shares in a tax efficient way?

All questions you want answers to before you start making trades. 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.

Our Current Chore System [video]

transcript

Do your kids have allowances?

I get this question a lot and I wrote a post in 2017 about the jar system, which worked really well when our kids were younger. But now that we have teenagers in the house, that has really gone out the window. So here's an update on what we're doing right now.

#1 Basic non-paid chores

These need to be done before the kids leave the house on the weekend. This has always been the case but the newest improvement has been to go into extreme detail about defining what each chore is.

For example, for cleaning your room, we listed out every action item. Make your bed, pick the items up off the floor (including under the bed and in the closet) take the trash out, replace the trash bag, take the laundry basket down, replace the laundry basket, etc. All things that seemed very obvious to us, but we were having disagreements with the kids about what the definition of a clean room is. That eliminates all of that. We typed it up and posted it on each of their doors so they can easily look at it and just make sure they knock off their items before they have us come check.

#2 Paid chores are optional, but very popular at the moment.

So especially for my 11 and 13 year old that want money to be able to spend on their own they can't have consistent, real jobs. We've tried to do babysitting and dog sitting, but they're just not there yet with things that are consistent. The paid chores have really helped with that piece and gives them opportunity to build some more responsibility within the house.

There is a list of the paid chores with the corresponding dollar amount. I keep the tally on an app on my phone. It's just a standard list app that I share with my husband. It's the same app we use for groceries, which also prevents the issue where in the past, the tally was publicly displayed and kids were erasing their sister's tally and adding to their own, as you can imagine. Having that app piece that they can't touch or really see has been helpful.

Once the kids hit $20, we will cash them out. I just didn't want to deal with smaller bills. I know people use debit cards and I would love to hear what works for you. They like the cash at the moment and that's just been easy. So we've been doing that.

We don't pay advances. We had kids saying, we want the money, can we do the chore later? That hasn't worked out so well. We have a zero advance policy, and we don't let them go into debt, we say, in the house. So they do need to do their chores up front.

#3 The last thing we do is an annual goal page.

That is the highest paid chore by far. It only happens once a year. And really, it just came from the fact that they're older now, they're a little more self-conscious. Peers have a big influence. They're less likely to get out of their comfort zone, and push themselves a little. We wanted to just have a way of encouraging that and it's something that can't just be achieved as fast as folding a load of laundry. We have this annual goal page where they document their goals over the next year that are achievable and measurable and we do whatever we can to help support them to meet those goals.

The goal with the chore system.

One of the biggest things that resonated with me when I was researching what I wanted to do with the chore system is to just remember that you're not going to be around forever. The goal really is to build age-appropriate responsibility within the house, but also with money skills, just so that they have the opportunity to make mistakes now, while the stakes are low versus when they're older, with much more serious consequences. Keep that in mind and I would love to hear what is working for you.

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.

4 Things To Do When Moving from W-2 to Consulting Status

transcript

So you just moved from a W-2 employee to a consultant or self employed. Here's the 4 things that you need to know when making that transition so you don't make the same mistakes that I did.

My first real job was in New York City as a financial software consultant. After a couple of years, I got married, left the city, my firm asked me to stay on as a consultant to help ease the transition for the new person. So it was the same job, same pay, but there were big differences that I was not clear on. I made every mistake possible. Here's what you need to know to have a much smoother transition than I did.

#1) Track all income and expenses related to the consulting work.

For me, when it came around a tax time, it had been months since I finished this consulting gig and I completely forgot to send my income to my tax person. In my defense, we had just moved, things were not all electronic like they are now, so I was just more disorganized than I should have been. And I never received the tax form from the company, which would have reminded me to put it on my return - they sent it to the old address. It was fine. I reached out to them, I got a copy of that form, I amended my return, but definitely more stressful than it needed to be. Here's what you should do instead.

Open a separate bank account just for that consulting work so all income and expenses can come from there. It can be a backup to your documentation, which hopefully is all electronic now. And you also want to have a bookkeeping software that's going to be a great way to generate invoices and categorize expenses so when it comes time to tax time, you can actually generate reports really easily. I missed out on deductions that would have reduced my tax due by not having all of this set up.

#2) Pay your taxes throughout the year.

As you can guess, I also did not do that. W-2 income has your taxes withheld for you (and that is all I had known up to this point). Your consulting income does not. You likely need to pay estimated quarterly taxes throughout the year on the IRS and the state websites.

They don't tell you how much to pay. You have to come up with the amount, submit it. If it's too low, you may owe a penalty. So you do want to talk to your tax person just to make sure that you're clear on the process and the amounts. Another option is if you're married and filing jointly, is you could also have your spouse increase their withholding.

#3) Continue saving for retirement.

Check with your financial planner on the best vehicles that you should utilize and how much you should save. Potentially, it could be the Solo 401K, Traditional IRA, Roth IRA, SEP IRA. You could do more than one. I just saved that year to my Roth IRA. I could have done much more, but I just had no idea where to get started.

#4) Re-evaluate your insurance coverage.

You are likely going to lose a lot of benefits when you move to consulting status. I know that I was exposed during this time.You are likely tracking medical insurance, but of course there's also basic life, disability insurance, and other benefits that you want to look into to see if they're portable and you can bring them from your old job or if you need to obtain a private policy. This is just a short list of top priority things that you need to focus on.

Meet with your team of professionals to see if there's anything else that needs to be on your radar, such as planning for uneven income, building up your cash reserve because you no longer have PTO, verifying that you're setting up the best tax structure for your business. Whatever it is, they will help you get on track and have a lot less mistakes than I did. 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.

Asset Location - Why are My Accounts Performing Differently? [video]

transcript

So here's a common question I'll get from someone who went through the planning process maybe a year or two ago. They're looking at their account statements and wanting to know - Linda, why are my accounts performing differently? Maybe - my account is performing this way, my spouse's is doing so much better, should I just move into her funds?

Why accounts perform differently

We looked at things with an overall perspective, your overall portfolio, and we purposely set things up certain ways. When accounts are performing differently, clearly it is because their composition is not the same. One account that's mostly in stocks is going to perform and differently than an account that is mostly bonds. Why would we do things this way?

Reasons to invest accounts differently

Well, you may have different risk tolerances for different pots of money, different holding periods, or maybe we're facing restrictions somewhere. An example of that would be with the 401K. You typically have a limited list of options that you can choose to invest in, unless you have a self-directed brokerage. Most people don't have that option. So if the list of 401K options is not great, maybe there's one we liked, we'll pick that one, and then we'll round out the portfolio using the rest of the accounts.

Another reason is that you want to be as tax-efficient as possible. And this is the shift in thinking for many people. Many people that come to me that have never had a plan before have the same target date funds in all of their accounts, or their accounts are invested as mirrors of each other. So each account has the same composition, same allocation, same funds, so they are used to seeing the accounts perform exactly the same.

The benefits of asset location

Once you start having different types of accounts, we need to be aware of the tax piece and this concept called asset location. There's different types of accounts that we can use to hold and invest our money. Each of those types of accounts have different tax characteristics, and we can use those differences to our advantage.

For example, your 401k and your IRA - when those accounts generate income, you're not receiving a 1099-MISC at the end of the year to go on to your tax return, right? That income is tax deferred, so you're not paying taxes on those accounts until the money comes out and they will be taxed at ordinary rates.

Now, this is different for taxable accounts. With those types of accounts, you are paying tax on the income generated every year. You also have the ability to claim losses, donate highly appreciated stock, potentially pay more favorable tax rates when you sell at a gain.

So it makes sense to put in the taxable accounts assets that have the potential for high appreciation but generate less taxable income. Likewise, it makes sense to put assets that generate more taxable income in the tax deferred accounts.

With the Roth money, that's typically the last pot of money that we're going to touch. It grows tax free, it comes out tax free, it's a great asset for kids to inherit, if that's something that you're interested in. It makes sense to put assets that have the potential for high appreciation but are less tax efficient in the Roth accounts.

You want to have a thought out investment process that's going to look at all of these considerations and look at your entire pot of money, all the types of accounts, and put what makes sense where. But yes, that means that accounts are not going to behave the same and that's not necessarily a bad thing. 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.

Contemplating a Career Change? [video]

transcript

We spend so much time at work. Of course, ideally, we all have a very fulfilling profession, something that we love doing that gives us purpose, but also suits our strengths and pays the bills.

People come to me pretty often not happy in their current career and wanting to see if they can do a career change. They're concerned because perhaps they would be making less with the new career or they'll be out of the workforce for a period of time as they make the change. These are all things that I can help you with - I can analyze how that's going to affect your financial plan and your goals. Set up a roadmap for you to be successful. First, I need you to do a little bit of homework for me.

#1 Start talking to people that are in the profession that you're interested in.

You want to both get an idea of what a typical day is like, just to make sure it's what you expected, but also understand what the spectrum of possibilities are. What I mean by that - with most professions, there's different avenues you can take. You can work for a big firm, small firm, be self-employed, work hourly. Just seeing what is possible and what avenue you're most attracted to is going to help me do a better job running the numbers.

#2 Get an idea of the income that you can expect in a new career.

So when you're talking to people, don't be afraid to bring up that topic. Do research online. Get an idea of what the average salaries you can expect are. Say, does this seem appropriate? This is what I found. Can I expect something like this when I'm starting out? Just to get other people's perspectives as well.

For the people that are self-employed especially, you want to dig a little bit deeper. You want to get an idea of what their overhead costs are because they're paying for a lot out of pocket. What are they paying for registration, licensing, insurance? How many projects can they take per month? What are they charging per month? Whatever is appropriate for whatever industry you're looking into. We just want to be able to build that income and expenses expectation into the plan as accurately as possible.

#3 Research and document the time and the money that it's going to take for you to complete the career change.

Be as specific as possible about how you're going from Point A to Point B. Do you have to go back to school where you're paying tuition? Are you going to have to do an internship? I need to get an idea of how much of a cash reserve we need to account for in the plan to be able to support you during this process.

That's it. If you can get me that stuff, then I can do the rest.

Career changes can be really exciting, and it's easy to get wrapped up in the fun things but following this process just makes sure that we are clear on the costs and the time that you need to give yourself to be able to complete the transition successfully. My name is Linda Rogers, Owner of Planning Within Reach.

Content originally posted in blog form 3/28/2013.

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.

When HSAs get Complicated [video]

transcript

Health savings accounts are tax-advantaged accounts used for qualified medical expenses.

To be able to save to an HSA, you need to be on a high deductible health plan or HDHP. And really, they're pretty straightforward. But I'm realizing as I have more and more clients with them as they are working past age 65 and staying on their employer health plan, things can get really complicated quick. So here's what you need to know to be able to stay compliant and avoid a tax penalty.

Medicare is not considered a HDHP.

While there's no age limit for being able to save to an HSA, people over the age of 65 in the U.S. are eligible for Medicare. Now, Medicare is not considered an HDHP. So once you're on Medicare, you cannot save any more to an HSA. You can still use the money you've accumulated to pay for qualified expenses when you're on Medicare. You just can't save anything else into the account.

Medicare’s 6-month lookback

Here's the tricky part. It's a 6-month look back. If you are applying for Medicare after age 65, Medicare coverage is considered to begin the later of the month that you turned age 65 or 6 months prior the application date. That's the application date, not the enrollment date. That is what confuses people. They think that they can save to the HSA up until they apply to Medicare, but that's not the way it works. There's that 6-month look back. So 6 months before they applied, they are considered being on Medicare. They can't save to the HSA during that time, although they did, and that's where people get caught up. The look back provision was just put into place to make sure there was no gap in coverage for people transitioning to Medicare. But if you're not clear on the details and the nuances, you can get caught up with that quickly.

HSA Contribution Eligibility is Pro-Rata

The HSA contribution amount is also pro rata. So if you end up only being eligible to save to an HSA for half the year, you can only save half of the annual allowable amount. You cannot front load. So a common question is, can I just contribute the full amount in January while I'm eligible? And the answer is no. You'll have to be able to plan and be proactive and know how much you're going to be eligible for to save the appropriate amount.

When you are on Medicare but your spouse is not.

And one final twist. If you are on Medicare but your spouse is still working, they are on an HDHP, not covered by Medicare, but the HDHP also covers you, they can save to an HSA the family contribution amount. If their HDHP just covers them, they can just save the individual contribution amount.

So if you have an HSA that you're actively contributing to, but you're planning to work past 65, you're not on Medicare yet, you're still on your employer plan, this is all going to be important information for you to know.Look into the details, make sure you're clear, so that you don't find yourself out of compliance and owing a penalty. 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.

Why I ask both spouses to be part of the planning process [video]

transcript

Many times in a couple, one person ends up taking the lead in the household finances, which is fine. However, both people should be part of the financial planning process and attend meetings, even if it's a once-a-year touch base. If anything happens to the person that takes the lead, the remaining spouse needs to know what the plan has been for all of these years and where you're headed.

People tell me all the time, well, she takes the lead, she's great at it, she enjoys it. If anything happens to her, then I'll just find someone then. But there's a couple things that you're not considering with that.

You are greatly discounting the emotional toll that comes with losing a spouse.

Surviving spouses have told me that after the death of a loved one, they've had trouble getting out of bed in the morning, making coffee, never mind wrapping their head around all of the accounts that they had, the investments, making really important decisions that needed an immediate answer. Finding an advisor now that you both can connect with, that you both trust, that understands your strategy, can be a person you can turn to Day 1 when tragedy strikes.

The lead spouse may appreciate having a sounding board.

Outside of that peace of mind, I also see visible relief when I work with these couples. Even if the person who takes the lead enjoys it, and many times they do, they sometimes feel the weight of everything on their shoulders. It is nice to have someone else who now understands the complexities of their individual situation and just having someone else to bounce ideas off of. And I'm not necessarily referring to just me, also the spouse that has come along with the process - even if they don't understand the details as well - they do now understand the big picture in a completely different way. And I have found that that has also just made both of them feel stronger.

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.

Don't miss this opportunity if taxable income dips [video]

transcript

Here's a missed opportunity that I tend to see every year when reviewing tax returns. Let's say you just filed your return in April and you realize your income was a lot lower than it typically is because of some sort of change. You may be happy that your tax bill was a lot lower, you got a big refund, but you likely had a big missed opportunity as well.

What is a Roth Conversion?

When your taxable income temporarily dips, that's a good time to evaluate Roth Conversions. That's when you take a pre-tax IRA or 401K money and convert it to Roth money. The amount that you convert is taxable income.

Why many people miss out on strategic Roth Conversions

Doing this when your income is much lower than usual or when you even have negative taxable income often makes sense. While people are almost universally on board with this strategy, the problem is you need to be proactive, and that's how a lot of people miss out. You can't file your taxes in April and realize, oh, I should have done a Roth conversion last year. You have to finish the conversion by 12/31 to have that taxable income reported in that year. So you can still do a conversion this year, but it will be reported on this year's tax return, which might not be the best strategy.

Examples of when Roth Conversions Make Sense

Here are a few cases that I see over and over again where this strategy does make sense.

#1) A professional that goes back to school.

They have no income this year, they are paying tuition, they're living off of their cash reserve, their income is the lowest it's been for years and probably the lowest it will be for decades to come. So taking advantage of that dip is smart.

#2) The business owner that just had a rough year.

A lot of deductions, very low income, whatever it is, but it's going to end up being a lot less taxable income than in the past.

#3) Early Retirees

People that retire before Social Security, before RMD's, again, that situation, it just depends. You have to look at it, but there could be an opportunity there in the dip of income to do conversions as well.

Do a tax projection well before year-end.

If you're anticipating any of these situations, or really any reason why you think that your income, your taxable income will be a lot lower this year, make sure you're doing a tax projection at least by August, so you have time to check your calculations just to be clear on how to execute the conversion. And honestly, doing a tax projection every year in August is not a bad habit to get into just to make sure that you are taking advantage of any opportunities that make sense for you by year end.

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.

Rolling Excess 529 Contributions into a Roth IRA [video]

transcript

Excess 529 money can now be rolled into a Roth IRA. There are a long list of requirements to be eligible for this, but I actually had my first few clients where this would make sense so I dove into the details and want to share with you what I learned.

Rolling Excess 529 Contributions into a Roth IRA

#1) You need to have owned the 529 plan for 15 years before executing the rollover.

#2) The beneficiary of the 529 plan needs to be the same beneficiary for the Roth IRA.

#3) The max amount that you can roll over every year is equal to the Roth IRA contribution (limit) for that year, minus any contributions you've already made to the Roth IRA. So in 2024, the Roth IRA contribution limit for under 50 is $7,000. If you've already contributed $1,000 to your Roth IRA, then the rollover limit is going to be $6,000.

#4) This could be further limited by the requirement that the beneficiary of the Roth IRA has to have earned income at least equal to the amount of the rollover in that year. So keep that in mind.

#5) The max amount that can be rolled over during a beneficiary's lifetime is $35,000. That is a per beneficiary limit.

#6) 529 contributions that you have made in the last 5 years are ineligible for the rollover.

There are a lot of boxes to check with this, however, if you find yourself with some extra 529 money and you don't have another beneficiary that could use that money for education, this could be a better alternative than paying taxes and a penalty.

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.