Most common forms of retirement vehicles include: Roth IRA’s, 401(k)’s, and Traditional IRA’s. These are but a sample from the entire retirement vehicle “garage”, and accessible to most of the general public. The plans mentioned all share one common characteristic that offers tremendous benefit to the individual; tax-deferred growth. The aforementioned plans utilize tax-deferral as the Internal Revenue Service deems them “qualified plans”.  For the long haul of retirement planning, utilizing tax-deferred growth via a qualified plan relieves the investor from taxes until withdrawals occur during retirement. For an example of tax-deferred versus taxable, please click the following link:

https://3.bp.blogspot.com/-suvfGBrD8HQ/V75vNqKJetI/AAAAAAAAAJI/Uvis3JePWYAPwsqoCFnQPqMn0HnpL-5nQCLcB/s640/Taxable-and-TaxDefer.png

While the aforementioned vehicles all offer tax-deferred growth, critically understanding how and when taxes are applied take precedence. Traditional IRA’s and 401(k)’s generally offer an upfront tax break. For example, a person earning $50,000/year contributes $5,000 to her 401(k) she will effectively lower her taxable income to $45,000. The tax benefit realizes immediately in this example. Now the IRS is smart, they won’t let you have your cake and eat it too. Once in retirement, or at least by age 70.5, a Traditional IRA account holder must begin withdrawing funds from the IRA which will be considered taxable income.

Alternatively to Traditional IRA’s, the ROTH IRA tax benefit functions in the opposite. A contribution to a ROTH receives NO initial tax break, the tax relief occurs during retirement. Under certain conditions (click here for details) Roth IRA distributions are tax free. For individuals planning on higher income during retirement can strongly benefit from the Roth IRA vehicle. No requirement exists for mandatory withdrawals from a Roth, yet another reason to consider when planning.

Ultimately the choice between tax savings now or tax savings later, determines which vehicle to pull from the garage. Alongside your financial advisor, a solid accountant can facilitate the decision of which option is viable for you.

Nate Lovik

Invesment Advisor Representative

Why bother creating an estate plan? For starters, dying without a plan (or will) in place means you have died “intestate”.  In plain English this means your possessions will now be passed on through the court system of your home state. If you’re not okay with complete strangers divvying out your assets or have an extra needs child requiring care and wish to have a trusted family member provide care, creating an estate plan is imperative.

Three distinct tools exist to plan for one’s passing of an estate; beneficiary designations, wills, and trusts all facilitate the transfer of assets while hopefully saving time and money for your heirs.

Beneficiaries: The most basic step to planning your estate. Naming a beneficiary to assets such as IRA’s or bank accounts, assets can transfer without the need of probate. A common term for this is “Transfer on Death” literally meaning that a beneficiary will receive the asset once they have a death certificate to commence the transfer. This can be helpful in the event that final expenses (funeral costs, medical bills, outstanding debts, etc.) can be handled by the decedent’s executor in a timely fashion. Reviewing beneficiaries on a regular basis (yearly or after life events, for example) is highly recommended. For example, a person divorces and remarries without updating beneficiaries, this person then dies leaving their assets to the previous spouse probably won’t go over well!

Wills: In essence, the legally documented will provides a list of “who gets what” when a person passes away. Physical possessions such as a vehicle, heirlooms, money, etc. can be named to a beneficiary within the will. While the will provides direction of assets after death, the probate process still occurs. Heirs to an estate must note that any outstanding debts of the deceased are open to creditors for collection (for a certain period of time) and in some cases, heirs may be “disinherited” if outstanding debts outweigh the value of the estate. Another crucial part of a will pertains to parents of minor children. For instance, in a simultaneous passing of parents without a will, the courts determine who will take custody of their minor children, thus naming a “guardian” within a will can offer peace of mind knowing that the state won’t appoint a complete stranger to foster the children. Coinciding with beneficiaries, reviewing a will on occasion is critical.

Trusts: For those that truly wish to dictate how assets are handled at death, the creation of a trust can simplify the process. A trust, in a way, is a living document that can act as if the deceased person remained alive to provide instruction perpetually in some cases.  A “trustee” is named at creation of the trust and must adhere to carrying out the provisions of the trust. In retrospect to a will, trusts can avoid the probate process and more than likely save time and money by abstaining from the court system. Another benefit is that almost anything can be named to a trust. A vacation home in another state, life insurance proceeds, etc. can all be the beneficiary of a trust. At passing, a properly designed trust can literally contain all the assets of the deceased and the trustee will have instant access to properly divide the assets amongst beneficiaries.

Quick Comparison:

Probate

• Public disclosure of your assets
• Court approved Guardians/Conservators
• Potentially expensive costs
• Controlled by court

Trust

• No probate
• You appoint who handles your assets
• You appoint guardians
• Privately controlled
• Perpetuity of control

A comprehensive total of your assets, including life insurance (which is included in estate taxation) are critical to planning for your estate. If you could care less what happens at your passing, disregard any of this article and let the courts do their job. However, if you wish to have control and better ensure your loved ones are cared for financially after your passing, seeking legal counsel is the first step to creating a plan.

Nate Lovik

Investment Advisor Representative

12-20-2016

Though it might be awhile before we notice anything any benefit from interest on our bank deposits, a rate hike would be a step in the right direction. For a more in depth explanation of the effect of rate increases, please check out the information provided on Investopedia below:

How Interest Rates Affect The Stock Market

11-29-2016

Nate Lovik Investment Advisor Representative