Financial Planning

Have you changed jobs recently and need to rollover your old 401k? Need help with estate planning or business continuity planning? Want to start that college savings fund? Those are all things that Generations Wealth Advisors can help with. We take time to learn about your needs and wants and help you implement a plan to help you reach your goals.

A mutual fund pools the money of many investors to purchase securities. The fund's manager buys securities to pursue a stated investment strategy. By investing in the fund, you'll own a piece of the total portfolio of securities, which could be anywhere from a few dozen to hundreds of stocks. This provides you with a convenient way to obtain instant diversification that would be harder to achieve on your own.

Types of mutual funds

There are many mutual funds to choose from. The two most common types are stock mutual funds and bond mutual funds. A stock fund invests in common stocks issued by U.S. and/or international companies. Funds are often named and classified according to investment style or objective, which can be stated in various ways. For example, some stock mutual funds buy stocks in companies believed to have potential for long-term growth in share price. Other stock mutual funds look for current income by focusing on companies that pay dividends. Sector funds buy stocks in a particular sector, such as technology or health care. Still other mutual funds may purchase stocks based on the size of the company (e.g., stocks of large, mid-size, or small companies).

An individual retirement arrangement (IRA) is a personal retirement savings plan that offers specific tax benefits. In fact, IRAs are one of the most powerful retirement savings tools available to you. Even if you're contributing to a 401(k) or other plan at work, you might also consider investing in an IRA.

What types of IRAs are available?

There are two major types of IRAs: traditional IRAs and Roth IRAs. Both allow you to make annual contributions of up to $6,000 in 2020 (unchanged from 2019). Generally, you must have at least as much taxable compensation as the amount of your IRA contribution. But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional "catch-up" contributions. These folks can put up to an additional $1,000 in their IRAs in 2020 (unchanged from 2019).

Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both typically offer a wide range of investment choices. However, there are important differences between these two types of IRAs. You must understand these differences before you can choose the type of IRA that may be appropriate for your needs.

Traditional IRAs

Practically anyone can open and contribute to a traditional IRA. The only requirement is that you must have taxable compensation. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pre-tax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status. You may qualify for a full deduction, a partial deduction, or no deduction at all.

What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you're under age 59½, unless you meet one of the exceptions. For details on these exceptions, please visit the IRS website.

If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 72. That's when you have to take your first required minimum distribution (RMD) from the IRA. After that, you must take a distribution by the end of every calendar year until your funds are exhausted or you die. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you're required to in any year. However, if you withdraw less, you'll be hit with a 50% penalty on the difference between the required minimum and the amount you actually withdrew.

Roth IRAs

Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation is at least $6,000 in 2020 (unchanged from 2019), you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status. Your allowable contribution may be less than the maximum possible, or nothing at all.

Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good news is that, if you meet certain conditions, your withdrawals from a Roth IRA will be completely free from federal income tax, including both contributions and investment earnings. To be eligible for these qualifying distributions, you must meet a five-year holding period requirement. In addition, one of the following must apply:

  • You have reached age 59½ by the time of the withdrawal
  • The withdrawal is made because of disability
  • The withdrawal is made to pay first-time homebuyer expenses ($10,000 lifetime limit from all IRAs)
  • The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalty is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.

Another advantage of the Roth IRA is that there are no required distributions after age 72 or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution.

Making the choice

Assuming you qualify to use both, which type of IRA might be appropriate for your needs? The Roth IRA might be a more effective tool if you don't qualify for tax-deductible contributions to a traditional IRA or if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you're still working (and possibly in a higher tax bracket than you'll be in after you retire).-+

You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $6,000 in 2020 ($7,000 if you're age 50 or older).

A rollover is the movement of funds from one retirement savings vehicle to another. You may want to make a rollover for any number of reasons — your employment situation has changed, you want to switch investments, or you've received death benefits from your spouse's retirement plan.

There are two possible ways that retirement funds can be rolled over — the indirect (60-day) rollover and the direct rollover (or trustee-to-trustee transfer).

The indirect, or 60-day, rollover

With this method, you actually receive a distribution from your retirement plan and then, to complete the transaction, you deposit the funds into the new retirement plan account or IRA. You can make a rollover at any age, but there are specific rules that must be followed. Most importantly, you must generally complete the rollover within 60 days of the date the funds are paid from the distributing plan.

If properly completed, rollovers aren't subject to income tax. But if you fail to complete the rollover or miss the 60-day deadline, all or part of your distribution may be taxed, and subject to a 10% early distribution penalty (unless you're age 59½ or another exception applies).

Further, if you receive a distribution from an employer retirement plan, your employer must withhold 20% of the payment for taxes. This means that if you want to roll over the entire distribution amount (and avoid taxes and possible penalties on the amount withheld), you'll need to come up with that extra 20% from other funds. You'll be able to recover the withheld amount when you file your tax return.

The direct rollover, or trustee-to-trustee transfer

The second type of rollover transaction occurs directly between the trustee or custodian of your old retirement plan, and the trustee or custodian of your new plan or IRA. You never actually receive the funds or have control of them, so a trustee-to-trustee transfer is not treated as a distribution. Direct rollovers avoid both the danger of missing the 60-day deadline and the 20% withholding problem.

If you stand to receive a distribution from your employer's plan that's eligible for rollover, your employer must give you the option of making a direct rollover to another employer plan or IRA.

A trustee-to-trustee transfer is generally the most efficient way to move retirement funds. Taking a distribution yourself and rolling it over may make sense only if you need to use the funds temporarily, and are certain you can roll over the full amount within 60 days.

You're ready to start saving, but where should you put your money? It's smart to consider tax-advantaged strategies whenever possible. Here are some options.

529 plans

529 plans are one of the most popular tax-advantaged college savings options. Contributions accumulate tax deferred and withdrawals are tax free at the federal level if the money is used for qualified education expenses. States may also offer their own tax advantages. (For withdrawals not used for qualified expenses, earnings are subject to income tax and a 10% federal penalty.) 529 plans are open to anyone and lifetime contribution limits are high, typically $350,000 and up (limits vary by state). In 2020, lump sum gifting up to $75,000 is allowed ($150,000 for joint gifts) with no gift tax implications if certain requirements are met.

There are two types of 529 plans: savings plans and prepaid tuition plans. A 529 savings plan is an individual investment account similar to a 401(k) plan where you direct your contributions to one or more of the plan's investment portfolios. Funds in the account can be used to pay tuition, fees, room and board, books, and supplies at any accredited college in the United States or abroad. Funds can also be used to pay K-12 tuition expenses, up to $10,000 per year. By contrast, the less common 529 prepaid tuition plan allows you to purchase college tuition credits at today's prices for use in the future at a limited group of colleges that participate in the plan, typically in-state public colleges.

Coverdell ESA

A Coverdell education savings account (ESA) is a tax-advantaged education savings vehicle that lets you contribute up to $2,000 per year for a beneficiary's K-12 or college expenses. Your contributions grow tax deferred and earnings are tax free at the federal level if the money is used for qualified education expenses. You have complete control over the investments you hold in the account, but there are income restrictions on who can participate, and the $2,000 annual contribution limit isn't likely to put much of a dent in college expenses.

Custodial account (UTMA/UGMA)

A custodial account allows a minor to hold investment assets in his or her own name with an adult as custodian. All contributions to the account are irrevocable gifts to your child, and assets in the account can be used to pay for college. When your child turns 18 or 21 (depending on state law), he or she will gain control of the account. Earnings and capital gains generated by the account are taxed to your child each year under the "kiddie tax" rules. Under the kiddie tax rules, a child's unearned income over a certain threshold ($2,200 in 2020) is taxed at parent income tax rates.

Roth IRA

Though technically not a college savings option, some parents use Roth IRAs to save and pay for college. Contributions to a Roth IRA can be withdrawn at any time and are always tax free. For parents age 59½ and older, a withdrawal of earnings is also tax free if the account has been open for at least five years. For parents younger than 59½, a withdrawal of earnings — typically subject to income tax and a 10% premature distribution penalty — is spared the 10% penalty if the withdrawal is used to pay for a child's college expenses.

With the wide variety of stocks in the market, figuring out which ones you want to invest in can be a challenging task. Many investors feel it's useful to have a system for finding stocks that might be worth buying, deciding what price to pay, and identifying when a stock should be sold. Bull markets — periods in which prices as a group tend to rise — and bear markets — periods of declining prices — can lead investors to make irrational choices. Having objective criteria for buying and selling can help you avoid emotional decision-making.

There are two fundamental ways that you can profit from owning bonds: from the interest that bonds pay, or from any increase in the bond's price. Many people who invest in bonds because they want a steady stream of income are surprised to learn that bond prices can fluctuate, just as they do with any security traded in the secondary market. If you sell a bond before its maturity date, you may get more than its face value; you could also receive less if you must sell when bond prices are down. The closer the bond is to its maturity date, the closer to its face value the price is likely to be.

Though the ups and downs of the bond market are not usually as dramatic as the movements of the stock market, they can still have a significant impact on your overall return. If you're considering investing in bonds, either directly or through a mutual fund or exchange-traded fund, it's important to understand how bonds behave and what can affect your investment in them.

Generations Wealth Advisors can work with you to create a managed portfolio of bonds, purchase bond mutual funds, or find an individual bond that fits your needs.

Need help with a budget? Want to know if you are on track for Retirement? Generations Wealth Advisors will work with you to determine your track and provide you with a comprehensive financial plan.

Retirement planning is vital to maintaining a financially independent lifestyle once your working years are behind you. Perhaps you know what kind of retirement you would like to have, but until you break down this vision into concrete goals, it can be difficult to figure out what you need to do to get there.

At what age would you like to retire? How much money do you need to save to meet your post-retirement income needs? How will your IRA distributions be taxed? Is your investment plan on track? Our retirement planning services aim to help you answer these and other important questions.

You have worked hard to grow your business. Are you confident that it will continue to prosper once you step back and let someone else take the reins? Business continuity planning focuses on preparing your business for this transition and enhancing its potential for future growth and long-term success.

A key area of focus is helping you attract and retain top talent through a competitive retirement package. We can help you identify your business needs and the needs of your employees, then choose a 401(k) plan and group benefits to serve both. We offer a full suite of business continuity solutions.

The transfer of wealth through an estate is the method by which legacies are built. Estate planning allows for the orderly distribution, administration and management of an estate. An estate plan aims to maximize the value you pass on to the next generations by minimizing taxes and other expenses.

We work with your legal counsel and tax advisors to coordinate an estate plan that prioritizes preserving your family legacy for your children and your grandchildren. One goal motivates our estate planning solutions: to keep the wealth you worked a lifetime to earn in your family, where it belongs.

  • Asset titling
  • Beneficiary designation
  • Family business planning
  • Charitable planning
  • Gifting strategies