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Pre-Retirement Spring Cleaning Checklist

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

Spring is in the air, and that means it’s time for spring cleaning.  But wait!  Before you pick up that dustpan, give a thought to your financial spring cleaning first. 

What do finances and spring cleaning have to do with each other?  If you’re preparing for retirement, the answer is “A lot!” 

These days, the term spring cleaning is often used as a metaphor for getting your affairs in order.  As you can imagine, getting your retirement affairs in order is critical if you intend to actually retire when and how you want.  There are many things to keep track of, many tasks that need doing, and many decisions to make. 

So, how do you begin?  Well, when many people do their actual spring cleaning, they make a checklist.  What supplies they’ll need, what rooms to organize, what needs to be mopped, vacuumed, dusted…it’s the most efficient way to clean.  We suggest doing the same for your finances.  So, without further ado, here is a sample Spring Cleaning Checklist to help you better prepare for retirement. 

Pre-Retirement Spring Cleaning Checklist

  • Contribute the maximum amount to your IRA if you have one.  Remember, an IRA is a valuable way to save for retirement in a simple, tax-advantaged way.  For 2024, the annual IRA contribution limit is $7,000 up to age 49, and $8,000 for those 50 and older.1 
  • Review your 401(k) and increase your contributions if necessary.  How has your 401(k) been performing?  Do you understand how your money is being invested and why?  Are you contributing enough to take advantage of any employer matching?
  • Start looking at your existing expenses.  Which are likely to continue after retirement?  What expenses can you remove right now?  This is a good way to find extra ways to save for retirement, and it will make your life a lot simpler once retirement comes. 
  • Make sure you know where all your estate planning documents are.  You should have a copy of your will, power of attorney, advance medical directives, letter of instructions, and other documents in a secure but easily accessible place.  Make sure your spouse (or other loved ones) knows where these documents are kept. 
  • Review your current insurance policies.  Are there any potential gaps you see?  (For example, Critical Illness and Long-Term Care insurance are two types of policies many people don’t have but are often extremely valuable for retirees.)  

But most of all …

  • Make a list of your top retirement concerns.  Is there anything you are confused or nervous about?  If so, start getting the answers you need now instead of waiting till you’re already retired.  Remember, you want to enjoy your golden years, not stress over them. 
  • Similarly, make a list of any new goals or dreams you have for retirement.  What will it take to achieve or afford them?  Are you on track?  If you’re not sure, it’s time to start planning. 

Spring cleaning is never the most fun thing in the world, but it’s often one of the most beneficial.  Just as you probably enjoy living in a clean, organized home, you’ll enjoy the peace of mind that comes with getting your finances in order.  Trust us: if there’s one thing we’ve learned in all our years of helping people plan for retirement, it’s that a little organization today can make for a much happier retirement tomorrow. 

Of course, if you need help with any of the items on this checklist, please let us know.  For example, if you aren’t sure how your 401(k) is doing, we’d be happy to help you analyze it.  If there’s a valuable estate planning document you don’t have, we can point you in the right direction.  And if you have any questions or concerns about retirement, the chances are good that we have the answers. 

In the meantime, we wish you a happy spring—and a happy spring cleaning! 

1 “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000” Internal Revenue Service, accessed November 9, 2023.  https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

Tools for investing

Questions You Were Afraid to Ask #10

Written by Minich MacGregor Wealth Management on . Posted in Featured, News, Posts, Uncategorized.

The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask.  So far, we’ve discussed the essentials of how the markets work, the differences between various types of investment funds, and the ins and outs of stocks and bonds. 

A few months ago, however, an acquaintance of ours asked us a question not about investments but investing.  Specifically, she wanted to know our thoughts on the modern trend of using mobile investing platforms — aka “investing apps.” 

It’s a terrific question, because the use of such apps — and the number of apps available — has exploded in the past few years.  So, in this message, we’d like to continue our series by answering:

Questions You Were Afraid to Ask #10:
What are the pros and cons of investing apps? 

Mobile investing apps enable people to buy and sell certain types of securities right from their phone.  They have provided investors with a quick and easy way to access the markets.  For new investors who are just getting started, these apps have made the act of investing more accessible than ever before. 

That’s a good thing!  Even today, many people only invest through an employer-sponsored retirement account, like a 401(k).  That’s because they may lack the resources, confidence, or ability to invest in any other way.  But not everyone has access to a 401(k).  And while 401(k)s are a great way to save for retirement, many people have other financial goals they want to invest for, too.  Mobile apps provide a handy, ready-made way to do just that. 

Continuing with the accessibility theme, many apps enable you to invest right from your phone, anytime, anywhere.  In addition, many apps don’t require a minimum deposit, so you can start investing with just a few dollars.  Finally, the most popular apps often charge extremely low fees – or even no fees at all – to buy or sell stocks and ETFs. 

Many apps also come with features beyond just trading.  Some apps will help you invest any spare change or extra money, rather than let it simply lie around in a bank account.  Others enable you to invest automatically – daily, weekly, bi-weekly, monthly, etc.  That’s neat because investing regularly is a key part of building a nest egg. 

It’s no surprise, then, that these apps have skyrocketed in popularity.  In fact, app usage increased from 28.9 million in 2016 to more than 137 million in 2021.1  Part of this surge was undoubtedly due to the pandemic.  With social distancing, many used the time to try new activities and learn new skills from the safety of their own home…investing included. 

But before you whip out your phone and start trading, there are some important things to know, first.  Investment apps come with definite advantages…but also some unquestionable downsides.  When you think about it, an app is essentially a tool.  Like any tool, there are things it does well…and things it can’t do at all.  And, like any tool, it can even be dangerous if misused. 

The first issue: the very accessibility that makes these apps so popular is also what makes them so risky.  When you have a tool that provides easy, no-cost trading, it can be extremely tempting to overuse it.  Researchers have found that this temptation can lead to overly risky and emotional decision-making, as investors try to chase the latest hot stock or constantly guess what tomorrow will bring.2  The result: Pennies saved on fees; fortunes potentially lost on speculation. 

The second and biggest issue is that while these apps make it easy to invest, they provide no help with reaching your financial goals.  No app, no matter how sophisticated, can answer your questions.  Especially when you don’t even know the questions to ask.  No app can hold your hand and help you judge between emotion-driving headlines and events that necessitate changes to a portfolio.  No app can help you determine which investments are right for your situation.  Just as you can’t hammer nails with a saw, or tighten a bolt with a screwdriver, no app can help you plan for where you want to go and what you need to get there. 

Take a moment to think about the goals you have in your life.  They could be anything.  For instance, here are a few our clients have expressed to me over the years: Start a new business.  Visit the country of their ancestors.  Support local charities and causes.  Design and build their own house.  Play as much golf as possible.  Volunteer.  Visit every MLB stadium.  Send their kids to college.  Read more books on the beach.  Tour national parks in a motorhome.  Spend time with family.

Achieving these goals often requires investing.  But there is more to investing than just buying and selling stocks.  More to investing than simply trading.  Investing, when you get down to it, is the process of determining what you want, what kind of return you need to get it, and where to place your money for the long term to maximize your chance of earning that return.  It’s a process.  A process that should start now, and last for the rest of your life.  A process that an app alone cannot handle – just as you can’t build a house with only a saw. 

So, our thoughts on mobile investing apps?  They are a tool, and for some people, a very useful one.  But they should never be the only one in your toolbox. 

In our next post, we’ll look at two other modern investing trends. 

1 “Investing App Usage Statistics,” Business of Apps, January 9, 2023.  https://www.businessofapps.com/data/stock-trading-app-market/

2 “Gamified apps push traders to make riskier investments,” The Star, January 18, 2022.  https://www.thestar.com/business/2022/01/18/gamified-apps-push-diy-traders-to-make-riskier-investments-study.html

Breaking Down the Secure Act

Written by Minich MacGregor Wealth Management on . Posted in Minich MacGregor Missive, News, Uncategorized.

Important Provisions of the SECURE Act

Before we dive in, understand, that the SECURE Act is over 20,000 words long.  (And in fact, the Senate had to tuck it away in a much, much larger appropriations bill to pass it.)  That means there isn’t room to cover every provision of the new law, and many won’t apply to you anyway.  So, what follows is a brief overview of the major changes that could affect your finances.

Are you ready?  Then take a deep breath as we go over…     

Changes to the IRA “stretch” provisions2

For years, one of the most popular estate planning strategies was the use of Stretch IRAs.  When a parent or grandparent dies, they can leave their IRA to their children, grandchildren, or other heirs.  Under the old rules, these beneficiaries could take distributions from their inherited IRA based on their official life expectancy.  This allowed them to “stretch out” the value of the IRA – and the tax advantages that come with it – for a longer period.  For example, if a 50-year old with a life expectancy of 85 inherited her mother’s IRA, she could stretch out her distributions over the next 35 years.  

Now, non-spousal beneficiaries who inherit an IRA in 2020 or beyond can no longer do this.  Instead, inherited IRAs fall under the new “10-Year Rule”.  This means that all the money in the IRA must be withdrawn by the end of the 10th year following the year of inheritance.  At that point, the beneficiary must pay taxes on that money.

Note that the rule does not require the beneficiary to take withdrawals during the 10-year period if he or she doesn’t want to.  That’s important!  Deciding when to take withdrawals should be based on several factors, including the beneficiary’s current financial situation, how close they are to retirement, and when they plan on taking Social Security benefits.  

Something else to note: The new 10-Year Rule does not apply to spouses, disabled and chronically ill beneficiaries, and minors.  For the last group, the exception lasts until the child reaches the “age of majority”, which is 18 to 21 depending on the state.  Once they reach that age, the 10-Year Rule kicks in.  

Make no mistake: This new rule will have a profound impact on beneficiaries, especially those who are younger and could otherwise have waited decades before making withdrawals (and paying taxes on those withdrawals).  For this reason, if you are either planning to bequeath an IRA to your beneficiaries, or are expecting to inherit one yourself, we should have a conversation about your options.  We want to do everything we can to help you and your heirs maximize your retirement savings while minimizing your tax burden.   

Changes to Required Minimum Distributions for IRAs2

Speaking of maximizing your retirement savings…

Another change the bill makes is to lengthen the time people can contribute to their IRAs. Currently, retirees can only contribute to an IRA up to age 70½.  Once they hit this milestone, they are required to begin making withdrawals. (These are called required minimum distributions, or RMDs.) Under the SECURE Act, that age would increase to 72. That means retirees have an additional 18 months to benefit from the tax advantages that come with IRAs. 

Note: This change only applies to those who turn 70½ in 2020 or later.  Even people who turned 70½ in December of 2019 would still have to take an RMD for 2020.

That’s it for this provision.  See?  We told you some of the changes were simple.  

Other IRA Changes2

Here’s another simple change.  Under the old rules, contributions to a traditional IRA were prohibited once a person reached the year they turned 70½.  No longer.  Now, anyone, even those older than 70½, can keep contributing to their IRA so long as they continue to work.  

Here’s an example.  Jane turns 70½ in 2020 but decides she wants to continue working.  So rather than withdraw money from her IRA, she decides to make a tax-deductible contribution to it instead.  While Jane must still take RMDs once she turns 72, she decides to keep making contributions every year until she actually retires, as the math still works in her favor.  

Obviously, this change only benefits those who continue working into their seventies.  And even then, it may not always make sense to keep contributing to your IRA.  But it’s always nice to have options!    

Another change is for new parents.  Under current law, a person must be 59½ years old to make withdrawals from a traditional IRA. If they withdraw money earlier than that, they must pay a penalty of 10% on the amount you took out. There are a few exceptions, such as if they need the money to pay large medical bills, buy a home, or manage a disability. But, generally speaking, the government wants the money inside a retirement account to be saved for retirement. 

Under the SECURE Act, new parents can now withdraw funds penalty-free to help cover birth and adoption expenses.  This is especially helpful for younger parents who have high deductible insurance plans. There is a $5,000 cap on withdrawals, though, and they need to be made within one year of the birth or adoption.

Changes to 401(k)s2

The SECURE Act brings many changes to 401(k)s, but most are for businesses to worry about.  There is one change you should know about, though, and it involves annuities.  

A type of insurance product, many annuities offer a monthly stream of income, sometimes for life.  This can make them attractive for retirees.  Historically, few 401(k)s contained annuities.  The SECURE Act makes it easier for employers to offer this as an option.    

The reason we mention this is because you should talk to us before putting your money in an annuity.  Choosing the right annuity can be difficult, as there are many types and features, and some annuities come with high costs.  So, while an annuity may be right for some people, that doesn’t necessarily mean it’s right for you.  

If you have questions about this, let’s chat!

Changes 529 Plans2

For many Americans, paying off student loans is a difficult financial burden.

To help pay for their loved ones’ higher education, some parents and grandparents use 529 plans.  Any funds invested in a 529 plan can be used to help pay for college expenses, like room and board or tuition.  The best part is that the funds are exempt from federal taxes, and often state taxes, too, so long as they’re used solely for education expenses.  

Under the SECURE Act, parents with 529 plans can make a tax-free withdrawal of up to $10,000 to help pay off their child’s student loans.  This $10,000 limit is per person, not per plan, which means another $10,000 can be withdrawn to help pay the student debt for each of a 529 plan beneficiary’s siblings.

If you have invested in a 529 plan for a child or grandchild with lots of student debt to pay off, let’s talk to see if it makes sense to take advantage of this.    

Conclusion

As you can see, the SECURE Act is loaded with changes and provisions for those saving for retirement.  So, again, if you have any questions or concerns, please don’t hesitate to contact us!  

In the meantime, remember that we’re here to help you work toward your financial goals.  Please let us know if there’s ever anything we can do – in 2020 and beyond.

Happy New Year!  

Sources

1 Anne Tergesen, “Congress Passes Sweeping Overhaul of Retirement System,” The Wall Street Journal, December 19, 2019.  https://www.wsj.com/articles/senate-spending-bill-includes-significant-changes-to-u-s-retirement-system-11576780736

2 Text of “SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT” (page 1532), Senate Appropriations Committee, December 16, 2019.  https://www.appropriations.senate.gov/imo/media/doc/H1865PLT_44.PDF

Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor Jason Macgregor portfolio manager, financial advisor

401k Rollover for Orphaned Accounts – Is it Worth It?

Written by Minich MacGregor Wealth Management on . Posted in Archives.

Orphaned Accounts – Is a 401k Rollover Worth It?

On average, Americans change jobs every five years. Over the course of a 35- to 40-year career, that’s a fair number of business cards and, more than likely, a lot of straggling retirement accounts left behind in the wake. Commonly referred to as “orphan accounts,” these accounts tend to garner a couple of typical responses from their owners. Often it comes down to a choice of leaving it at your previous employer, bringing it over to your new employer or putting it in an IRA account – commonly called a 401k rollover.

401k Rollover

The first one I refer to as the “Hannigan” approach. Like the character in Annie, this approach involves doing nothing to change the state of affairs for the orphan. The other, and polar opposite approach, is the “Warbucks.” This involves finding a new and, presumably, good home for it as fast possible. But unlike adorable, musically gifted orphans, orphan retirement accounts may not always need saving.

Here’s why:

THE HANNIGAN

While this leave-it-be approach may seem a bit cold, neglectful, it may not actually be so bad. If the company you worked for offered a very competitive plan it could be a good idea just to leave it as is. Competitive plans typically offer a wide assortment of fund choices, some sort of investment advice, and, a total cost of ownership less than 1 percent. You may also want to look at things like how much education is provided and what tools are available to assist you in saving for retirement. If your old job was with a very large corporation there is a good chance they’ve negotiated lower fees than smaller companies might be able to offer.

THE WARBUCKS

A common approach, but one I strongly discourage, is to take all the money out of your retirement account. While some might perceive this approach as ‘saving’ their account, it does come with consequence. By taking the money out before retirement there is usually a 10 percent penalty imposed by the IRS. In addition, the money gets included and taxed as ordinary income which can take another 30 percent plus. Add it all up and the 40 percent or so you lose is near impossible to be made up and what was supposed to be savings for retirement is long gone before you get close to that magical age.

A variation on the Warbucks, is to move your retirement account into the plan your new employer is offering. This is a great option if your new plan is more competitive (i.e. lower fees, more options, investment advice). The benefit is even greater if consolidating your old accounts into one leads you to actively monitoring and managing your account(s) more frequently.

Alternatively, you might look to roll your money into an IRA account. This option will most likely give you the most investment options and control over how to direct the money, which investments to make, and the option to work with or without an advisor.

Regardless of which approach you choose, the most important thing is really the fact that you’re making a choice. Simply ignoring your money with no regard to the consequences is more likely to lead to a hard-knock lesson than it is a happy ending.