We all know and have been told that we need to save for retirement. The IRS recognizes the need to save for retirement so much that they have created several tax-advantaged accounts such as the 401(k) and individual retirement accounts (IRAs). There are a lot of choices when it comes to retirement saving. The number of choices can sometimes intimidate us so that we are not sure which is the better choice for ourselves or our family. But waiting until we “have more time” or until we get to that “dream career” or until we move to that “next stage of life” can cost us big-time in lost earning years and compound interest. Now is the time to take specific steps to plan and save for the future.
For most people, especially those who are young in the workforce, the best place to start is with the 401(k) retirement plan at work. This is particularly enticing if your employer matches a portion of your contribution. For all practical purposes, the match is essentially free money. Contribute at least enough to achieve the match, and then try to increase the amount contributed over time. Currently, the 2018 annual participant contribution limit is $18,500 or $24,500 for those 50 or over. The money is withheld through payroll deduction and you can save up to the contribution limit of your pretax income, in a Traditional 401(k), or after tax in a Roth IRA. If you leave your job, you can typically keep it in the plan, roll the account over into a new employer’s 401(k) (if allowable), or rollover to your own IRA. This type of retirement plan is more typical, employees of nonprofits may be offered a 403(b) instead. They have similar rules.
Anyone can contribute to an Individual Retirement Account (IRA). The 2018 annual limit is $5,500 and $6,500 if you are 50 or over. The money grows tax-free. You can contribute to both an IRA and a 401(k), but if you are covered by a plan at work, you cannot deduct your IRA contributions from your taxable income if you earn more than $73,000 for individuals (phase out from $63,000-$73,000) and $121,000 for married couples filing jointly (phase out from $101,000-$121,000). If you are not covered by a retirement plan at work, you get the full deduction no matter your income, unless you file jointly with a spouse who has a retirement plan at work.
With a Roth IRA, you are contributing with after-tax dollars and there is no tax deduction for your contribution. The money you earn grows tax-free, but unlike Traditional IRAs, you pay no tax on withdrawals after you reach 59 ½ and there is no mandatory withdrawal at age 70 ½. You can also withdraw the amount you contributed (not earnings, though) at any time with no penalty or no taxes due. The contribution amounts are the same as a Traditional IRA, but to contribute to a Roth IRA, you must make less than $135,000 for singles and $199,000 for married filers. If your income is more than or equal to $120,000 (single) or $189,000 (married filing jointly), your allowed contribution is reduced. You can contribute to both a Roth IRA and a traditional IRAs, but the limits apply to your total contribution.
Another less known way to save where you can also minimize taxes and prepare for health care costs is with a Health Savings Account. You can use the money for medications and doctor visits not covered by insurance, but you can also pay those expenses out of pocket and leave the money in your HSA to grow. If you need the money later, you can be reimbursed for past expenses. The annual HSA contribution limit is $3,450 for singles and $6,850 for families covered under qualifying family medical plans, with an additional $1,000 contribution if you’re 55 or older. If you leave the money in the account, it can stay in the account, unlike FSA accounts that must be used by the end of each year. Once you are 65, you can withdraw money for any reason without penalty, but you must pay income taxes on the money you withdraw if it’s not for qualified medical expenses. Or, you can use it for qualified medical expenses tax-free. If you withdraw the money before you are 65 for any reason other than qualified medical expenses, you will have to pay taxes plus a 20 percent penalty, thus the need to save medical receipts!
If you are a sole proprietor, you can set up an individual 401(k) or solo 401(k) and make contributions as both the employee and employer. The business owner can contribute elective deferrals up to 100% of compensation up to the annual contribution limit of $18,500 ($24,500 if age 50 or over) plus employer nonelective contributions up to 25% of compensation as defined by the plan. Total contributions cannot exceed the 2018 limit of $55,000 (not counting catch-up contributions for those 50 and over). Self-employed individuals must make a special computation using the rate table in Chapter 5 of IRS Publication 560 to figure out the maximum amount of elective deferrals and nonelective contributions.
A SEP IRA is used primarily by the self-employed or small business owner. SEP stands for simplified employee pension and is usually easier to set up than a solo 401(k). Contributions are made to an Individual Retirement Account established for each plan participant and it follows the same investment, distribution, and rollover rules as traditional IRAs. The contributions you can make to each employee’s SEP-IRA cannot exceed the lesser of 25% of compensation or the 2018 limit of $55,000. The same percentage the employer contributes to the owner’s plan must be given to employees too. Again, if you are self-employed, you must use special rules to calculate contributions for yourself.
Simple IRAs allow employers with fewer than 100 employees to set up IRAs with less paperwork. Employers must either match employee contributions or make unmatched contributions. Employees can contribute/defer up to $12,500 annually with catch-up contributions of $3,000 for those 50+.
So many good choices! Which plan, or combination of plans is right for you? If you have limited funds to start with, what to do first? If you have contributed the max to one, which is next? As financial planners our job is to walk you through your particular situation, needs and goals to determine the better choice(s) for you and your family. It is not only about dollar amounts, though that is a significant factor. Retirement is also about quality of life, expectations, and what is truly important to you. Is it family? Health? Travel? Giving? What is important to you now and in the future needs to match where and how you spend and invest those dollars. No more putting it off. Start today.
Chances are, you have just finished or are finishing up filing your taxes for 2017.
Whew! It’s over!
Until next year!!
This time of year is stressful:
Waiting on your W-2s, 1099s, and other documentation that only shows up once a year. Realizing how much of your annual salary that you worked so hard to achieve was paid out in taxes last year. Dreading the amount of paperwork. Looking the whole house over for receipts and statements. Ensuring every possible deductible business expense and mile driven was recorded. Making last minute contributions, medical appointments, and use of childcare services to avoid missing out on any qualified deductions and credits. Nervously completing forms in hopes that you are doing everything correctly. And then the kicker – am I getting a refund or do I owe Uncle Sam.
And now the rules are changing?!
It all adds up to a feverish frenzy in the months of March and April!!
What if we make a plan now that will avoid some of the stress in 2019, so we will actually get to stop and smell the roses when they begin blooming next spring.
We all know we could be more organized. Let’s start there. For many, the standard deduction will be so high next year that you might not itemize, but keep everything anyway just in case. This will require a system of record-keeping, but a simple set of folders will do. Some common deductions that you may qualify for and therefore should keep records of include:
- Medical, Dental, Vision Expenses
- Health Savings Account Contributions
- Childcare and Dependent Care Expenses
- Educational Expenses
- Home Expenses
- Contributions to Charities
- Self-Employment Expenses
- Job-Related Expenses
- Taxes Paid
Just make a place to categorize them as they occur, store them there, and forget about them. Fifteen minutes of assembling will save hours of searching after the new year.
But let’s dig deeper. Get a real plan together, one that is better by design. Decide now what our goals are for the coming year. After all, do we know what we want to contribute to our HSA next year? What medical costs can we expect? How much would we like to give to church and charities? Would we like to renovate a room in our home? Is this the year to start our own business? What are our options for childcare and support with dependent family members? Which preschool/grade school/college is the best choice for our child?
These are great questions and the answers can inform us as we consider our comprehensive financial picture. We can make filing taxes simpler, but we can do so much more! We can endeavor to make all of our financial decisions less stressful by determining today what our goals are and have a strategy in place to best achieve them. In so doing, we will be more efficient in our tax planning.
As fiduciary financial planners, our job is to examine your finances in an all-encompassing manner so that we help you define your goals, analyze and evaluate your current status, and develop recommendations to help you reach those goals.
If your dream is to pay off your debt and save for a home of your own, the time to start paying it off is today. It takes planning. If your desire is to send your children to college or to retire by a certain age, the time to start saving is today. To determine amounts and timings of contributions and do it tax efficiently takes planning. Did you know that you might be able to make enough charitable contributions to deduct and itemize them by batching your charitable giving? It takes planning. We can accomplish more of our financial goals faster when we keep more of our paycheck and don’t give Uncle Sam a loan. This, too, takes planning. In the end, it is all about making wise choices with what we have been given.
And we have been given much. When I find myself complaining about taxes, I must remember where much of our tax money is spent: education, public assistance, technology, state and national defense, Social Security to include Medicare and Medicaid, unemployment services, and so much more. My life would not be the same if there were no taxes. I would not be able to use some of the transportation that I use. I would not have had the same education I was provided. I would live more fearful for my ongoing safety.
So, I am going to prepare ahead of time so that next year is not as stressful. And I am going to count my blessings.
Volatility is back in the market. If your strategy is sound, you should feel confident.
If you are unsure of your strategy and need professional guidance for your investments, we can help.
In times of volatility count on discipline, calm, and strategy.
To tune out the noise, skip to the 0:58 second mark, or give us a call...
In times of market volatility.
To Our Clients:
First of all, thank you for the opportunity to be a trusted advisor for your financial planning & investment needs. We take our responsibility very seriously and know it's important to you to be informed about the status of your financial plan and investment accounts.
After several years of very low volatility and new market highs, the last few months have reacquainted us with market volatility.
It is our goal to have done a good job of assessing your risk tolerance and time horizon to build a portfolio that will meet your long term investment needs. We hope to have achieved this during the conversations we've had at our review meetings about market cycles and the inevitable return of market volatility and potential losses during those cycles.
None of us know what the future will hold, but we do know that the path to long term success in the market is comprised of a few key principles:
- Develop a sound strategy, and stick with it unless something significant has fundamentally changed.
- Keep fees in check. We use investment options that keep fees much lower than industry average!
- Stay consistent. Choosing to 'change horse mid-race' introduces additional risk to the portfolio at exactly the wrong time.
- For those that are still in the accumulation phase, a market downturn represents an opportunity to buy the same assets at a reduced price, as hard as it may be to see it that way at the time.
- Stay focused on your long term goals. Stay calm even when it seems tough.
If you do have any questions or concerns, we are available. We want you to feel confident in your financial future!
Bridge Financial Planning
Many clients have told us that they’ve wanted help with their financial planning & investing work in the past and have tried only to feel overwhelmed, intimidated, or felt like the process ‘wasn’t for me’.
Bridge Financial Planning was built with these insights in mind. We think financial planning should be empowering and engaging. We know that when there’s a clear direction and less stress involved with financial decisions, you have more time to spend on the things that are most meaningful to you!
We can help you understand the implications of financial decisions and take the guesswork and stress out of managing your finances. Each aspect of your financial life is only a part of the larger picture. For example, a decision about your child’s education may have a direct effect on how and when you meet your retirement goals. Or an investment decision may have tax consequences that are harmful to your estate plans. Often, monthly spending habits affect your long-term goals. Your financial decisions are interrelated.
If you need help identifying risks and establishing and prioritizing goals or if you are not sure where and how to start, we may be the solution.
What should I expect from a financial planning relationship?
A professional advisor should always place the interest of the client ahead of his or her own – the definition of being a fiduciary. If a planner is a fiduciary, then he or she must understand the client’s goals, needs, and current financial situation; and make recommendations based on the best available options.
That’s why we are proud to be one of only a few firms that voluntarily holds ourselves to the highest standards in the industry by being a member of NAPFA (1 of only 4 in the Chattanooga area). Jennifer Harper has been a CFP® professional since 2006, and Allyson Hauss is a candidate for CFP® certification. We are a fee-only firm. That means we do not accept commissions, referral fees, or kickbacks from anyone. That allows our clients to focus on what’s important to them and know that we’re doing the same. We have signed a fiduciary oath.
Not all advisors are held to this standard. You should ask about it as you interview planners.
From the beginning, Bridge Financial Planning, LLC set out to make financial planning more welcoming.
What does it look like to become a client?
It all begins with a no-cost, no-obligation Initial Consultation. This meeting can be held in person, or by phone or video conference.
During this meeting, you can ask questions, give us insight about your current situation and share your goals and objectives. With the goal of understanding the scope of your needs, we’ll ask questions, and give information on our background, fees, investment philosophy, and explain the expectations of the client/planner relationship.
After our meeting, we take a bit of time to develop a proposal that we believe is best suited to you, based on the initial consultation conversation.
Each client and their situation are unique. We offer 3 service options to meet your needs.
1. Some clients are comfortable receiving their financial plan and implementing the plan on their own. For them, we offer hourly planning on an as needed basis. It can be customized to focus on one, several, or all financial planning topics.
Even ‘do-it-yourselfers’ that have the time and expertise to do their own planning and/or investing have received value from our professional and objective advice.
2. Others would benefit from more ongoing accountability to be sure they stay focused and on-track. But, they may not have a lot of assets to manage – yet, or may have a lot of investments held in an employer retirement plan. For clients like this, we offer a monthly retainer service model. We work together closely in the early months to be sure everything is moving in the right direction. From there, we can meet as needed and tackle any revisions or updates that are needed along the way to stay on track.
3. We also offer asset management services. Asset management includes financial planning when assets are greater than $250,000.
After mutually determining the scope of the financial planning engagement, the proposal will clarify the goals discussed and the steps going forward. Client agreements and regulatory compliance documents are shared and completed. Questionnaires will follow to further determine not only your stated needs and goals, but also values, priorities, and risk tolerance.
A secure Client Dashboard is created for each client to log into and add sensitive information as well as link accounts to ensure the most accurate details are used to develop planning and recommendations.
Information we often request include:
· Tax returns
· Credit card Statements
· Bank and Investment Account Statements
· Social Security Documents
· Company Benefits
· Retirement Account Statements and Information
· Insurance policy information (health, property, life, disability, etc.)
· Education Accounts
Next, a Base Facts Review meeting either in person or by phone/video is scheduled to be sure both client and planner are on the same page and all facts and assumptions are correct. After all, a plan is only as good as the information and assumptions going into the plan!
Then we’ll analyze and evaluate your financial details and develop financial planning recommendations, choices, and alternatives based on your circumstances. This is when we create alternative scenarios that will help answer your questions. Common questions include:
· Is it possible for me to retire when I plan to?
· Am I taking enough/too-much risk in my investment portfolio? Am I well diversified?
· Do I have enough/too-much insurance?
· Can I afford to fully fund my child(ren’s) education and retirement too?
· Should I focus on paying down debt or saving more?
· Which is better for me: renting or buying a home?
· Should I keep my mortgage or pay it down quickly?
· What if we moved to another state in retirement?
· Can I still meet my long-term goals if I took a pay cut for better quality of life?
· As a business owner, how can I manage the financial interconnection between my business and personal finances?
Once we’ve spent time creating your plan, we schedule a time for the Plan Delivery meeting. This is a time for us to share our observations and advice. It is also a time for educating and understanding the impacts of different scenarios. We’ll cover each of the topics outlined in our client agreement.
When we have an ongoing client relationship, the next step is implementing the plan. We can help implement investment strategies and help you stay on track with other tasks such as debt reduction, employee benefit changes, and provide support and encouragement as you become more financially empowered and your plan is more aligned with your goals.
We can help you avoid financial setbacks, deal with unexpected life events, get out of and/or avoid debt, evaluate education and retirement spending and scenarios, and decide where to put your money to reach your goals.
Have confidence that with clear direction you can make progress toward your financial goals.
Will it take time, determination, and discipline on your part? YES!
Schedule your Initial Consultation HERE.
Three years ago today I started Bridge Financial Planning. After 15 years in the industry, I knew the ins and outs, and knew a few changes to the traditional model were needed to build what I would want for my family if we were in the client seat.
Clients don’t come in standard packages, so why make service models (and yes, fee models) be one size fits all? Why build a model that's solely based on investments, when financial planning is SO much more? Too often I saw business owners and families that needed professional advice be turned away or poorly served by the standard model.
Eliminating commissions and taking the steps to become a NAPFA fee-only firm is another way we align our services with the needs of our clients. No one should have to concern themselves about that distinction, but until we have professional standards in the industry that unequivocally put the client first, we believe it’s a necessary step to distinguish product sales from professional advice.
We still have a long way to go to reach the goals I’ve set – for our clients and for the business. But after three years, I’m happy to see that our vision has come to life and it's working to help our clients make progress toward their goals.
Seeing our clients make progress will always be our greatest joy. We’ve helped clients become more tax efficient with their investments, address their insurance needs, business planning, and education funding goals. We’ve had the opportunity to work with business owners through the process of discovering their business’ value and exploring the opportunities they have. We've helped our clients have meaningful conversations with their children about their values and dreams for the next generation. We've been inspired by their charitable giving. We've watched families and businesses grow! Many clients have greatly reduced or eliminated debt, created an estate plan, aligned their investment portfolios, and put their long-term goals and dreams in writing. Without that step, too often we can feel that saving and investing is an act of sacrifice instead of an act of progress toward meaningful goals.
We continue to commit to the cornerstones that built our foundation. We know that when our clients are served well, we will do well. We know that transparency is simply a great policy. We know that financial planning and investing can be complex, but it doesn’t have to be intimidating or overwhelming.
We love what we do and hope that it shows through our work.
To our clients – A heartfelt Thank You!
Jennifer B. Harper, CFP®
This year, we’re happy to announce that our Associate Advisor, Allyson Hauss, will be accepting new clients. Her specialties are working with professionals in early to mid-career, and with independent women in search of financial serenity. She is a candidate for CFP® certification.