Mothers are busy people, which means saving and investing for the future can often take the back burner to more urgent priorities. Not only that, but the stock market can seem risky. During the Great Recession, the value of the average retirement account dropped greatly, by about 25%.[1] Unfortunately, if you did not start investing early in life, you could have more ground to make up for later.² Below, we’ll discuss three key tips that can help mothers clarify and work toward their financial goals.

Make Your Goals As Specific As Possible

Creating goals can be tough—especially when retirement is decades in the future. But while you may not yet be able to calculate the precise amount of money you’ll need in 2050, setting specific and measurable goals can help guide your financial path. For example, if you’d prefer to retire early, you may want to pursue aggressive investments and save a significant amount of your pay.³

By writing down why you want to invest, what your financial goals are (for the short, medium, and long term), and what assets and resources you have available to work toward these goals, you’ll have a plan to help guide your path.

Consider Different Investment Accounts Available

Not all investing is created equal, even if you’re investing in the exact same assets in each account. Some investment accounts like a 401(k) or traditional individual retirement account (IRA) are pre-tax, where contributions reduce your taxable income now but are taxed upon withdrawal; others, like a Roth 401(k) or Roth IRA accept post-tax funds and offer tax-free growth in return.⁴ There are also Health Savings Accounts (HSAs), 529 college savings accounts, and Uniform Transfers to Minors (UTMA) accounts that generally allow you to purchase investments within them.

To determine which accounts you should prioritize over others, you may want to answer a few questions with a financial professional:

●      When do you hope to retire?

●      What’s your effective tax rate?

●      How close are you to the next tax bracket?

●      Do you expect to be in a higher tax bracket at retirement than you are now?

●      Do you have a pension or another source of retirement income?

The answers to these questions, and more, may help you decide between accounts that are taxable, tax-deferred, and tax-advantaged. You don’t need to commit to one of these accounts for life; one year you may want to fund your Roth IRA, the next year you could focus on your traditional IRA or 401(k).

Know Your Risk Tolerance

Investing doesn’t just require the diligence to set aside funds regularly. It also requires knowing your tolerance level when it comes to downward-trending stocks. By ensuring that all your investments fit cleanly within your risk tolerance, you can help avoid the temptation to make sudden market moves that are driven by emotion rather than logic or analysis. Generally, the higher your risk tolerance and the longer your horizon, the more aggressively you can invest.

1 https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-retirement.htm

²

https://economictimes.indiatimes.com/wealth/invest/starting-early-will-help-you-make-the-most-of-power-of-compounding-how-investing-in-your-20s-helps/articleshow/83058683.cms?from=mdr

³

https://www.investopedia.com/terms/a/aggressiveinvestmentstrategy.asp

⁴

https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal.  No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking #1-05257096

Do you consider yourself a high-net-worth individual (HNWI)? Most people tend not to categorize themselves or see themselves as anything more than a spouse, parent, sibling, neighbor, boss, or business owner. However, society does classify people. HNWIs typically have at least $1 million in cash or assets that can be converted to cash easily, which could make planning for retirement more complex. Organizing your financial life can seem daunting at first, so here are 6 ideas to help you get started.

1. Goal setting and money management

People of significant means are often interested in wealth preservation and growing their savings and investments. They are also noticeably concerned with the social impact their money will have on the world. According to the Oxford Press, wealth managers have shifted their focus from specific investment vehicles and strategies to a more holistic investment approach and goal setting. With goals in place, cash flow projections with inflation adjustments will be easier to design.

Historically, inflation averages around 2.5% annually; however, recently, this average has deviated. A financial professional can help you adjust your long-term strategy to include a rise in future inflation and assist with planning how to save enough money to stretch 30+ years without getting sidetracked by expenses such as college tuitions or weddings. Thirty-four percent of U.S. HNWIs claim retirement savings as a top goal, while 26 percent cite preserving wealth for their children as their highest priority. The reality is that creating a comprehensive plan can be challenging and careful planning is critical.

2. Max out your retirement accounts

A 401(k) can be a powerful tool. If you have access to a plan through your employment, it may be beneficial to max out your 401(k) each year and take advantage of any match offered by your employer. The contributions are tax-deductible in the year that they are made. Any money left over can be put into an individual retirement account (IRA), health savings account (HAS), annuity, or another taxable account.

Some retirement accounts have required minimum distributions (RMDs) which, by law, you must withdraw once you attain age 73. In some cases, you may be able to delay RMDs until after you retire if you are still working at 73. Other complexities may arise if you inherit a retirement account, but consulting a financial professional can help you determine how to proceed depending on your relationship with the account holder, the type of account, and the decedent’s date of death.

The following accounts generally required minimum distributions after a certain age:

• Traditional IRAs

• SIMPLE IRAs

• Inherited IRAs (typically, however, there are some exceptions)

• Simplified Employee Pension IRAs (SEPs)

• Qualified stock bonus plans

• Qualified pension plans

• Qualified profit-sharing plans, which include 401(k) plans

Section 403(b) and Section 457(b) plans

3. Stay up to date with tax law changes

• Estate and gift tax changes – As of January 1, 2023, the federal gift/estate tax exemption increased to $12,920,000, while the federal annual exclusion amount increased to $17,000 per person per parent. So, in effect, any individual may receive up to $34,000 per couple per year. Any amount over the $34,000 threshold can be put toward the lifetime exemption amount. Utilizing this benefit now may be a good idea as come January 1, 2026, unless Congress decides otherwise, these high exemptions are scheduled to sunset and return to the previous Tax Cuts and Jobs Act amounts.

• Modifications to charitable deductions – Currently, you are permitted to deduct 60% of adjusted gross income (AGI) for cash contributions held for over a year. For non-cash assets (property and long-term appreciated stocks), you generally deduct, at fair market value, up to 30% of your AGI for charitable contributions to an IRS-qualified 501 (c)(3) public charity if you select to itemize, which means forgoing the standard deduction. To account for inflation, the standard deduction is higher in 2023, up to $13,850 for individuals, $20,800 for head of household, and $27,700 for married couples who file joint returns. When you itemize, you should expect the sum of your itemized deductions to be greater than the standard deduction.

• Home sale exclusion for primary residence (Statue 26 U.S. Code 121) – Exclusion of gain on the sale of principal residence allows an exclusion of $250,000 (for individuals) and a $500,000 (for married couples) on home sale gains. People who own a home as a primary residence for at least two of the five years immediately before selling their home can qualify for capital gains tax exclusion. There are many moving parts and rules to this exclusion, and getting help from a financial professional is highly encouraged.

• The impact from Medicare surtax – Taxpayers that are above certain income thresholds of $125,000 (married and filing separately), $200,000 (single, head of household or qualifying widow or widower with dependent child), or $250,000 (married and filing jointly) may be subject to the Medicare surtax of an additional 0.9% tax rate. This can be a bit confusing. HelpAdvisor gives a good example; if you make $150,000 per year and are married and filing separately, you pay the standard 1.45% on the first $125,000 and 2.35% (1.45% + 0.9%) on the remaining $25,000.

• Other expenses that qualify for deductions along with charitable donations include:

• State and local tax

• Mortgage interest

• Medical and dental expenses

4. Confirm and communicate your charitable goals

• An estimated 95% of HNWI gives to charity. A financial professional will want to know the details about your philanthropy efforts to help you get the most out of your giving strategy.

o   How are you involved in a charity? Are you just a donor, or do you sit on the board?

o   Why do you support the charities that you do?

o   What types of assets do you typically donate?

o   Have you always donated, or do you plan to wait and donate after you die?

5. Create a withdrawal strategy

The question many retirees have is, “How do we deal with withdrawing our money when the time comes”? When it comes to your retirement, having a well-defined plan can help mitigate stress and frustration and potentially preserve wealth.

Some of the concepts you may want to explore include:

• Focusing on the lower tax brackets first – Typically, the income of a high net-worth individual will dip after you stop working. Depending on your age and other requirements, you can consider withdrawing from your IRA and paying the taxes at the lowest marginal tax rate, especially in that window before social security benefits kick in. And if you can, delay taking social security benefits until the maximum age, maximizing the amount you will receive.

• Review where your assets are located – Where are your stocks and bonds, for example, located? Are they in a tax shield IRA account where you may benefit because the bonds produce income taxed at ordinary income rates?

• IRA Conversion (Traditional IRA -> Roth IRA) and Recharacterization (Roth IRA -> Traditional IRA) – A potentially helpful strategy, albeit complicated, involves converting assets from an IRA to a Roth IRA in what is called a Roth conversion. You pay taxes on any assets converted, and money is withdrawn later tax-free. This strategy could be beneficial if you suspect you may be in a higher tax bracket in the future. A recharacterization is converting assets from a Roth IRA to a traditional IRA. So, for example, you convert assets to a Roth account, and the market happens to drop after your conversion. You can recharacterize those assets back to a traditional IRA, removing the tax liability resulting from the conversion.

• Don’t get bullied by the tax rates – You can’t predict the future of the tax rates and where you will be within them down the road. If taxes happen to go up, which they tend to do, then your tax-deferred money suddenly has less value than before since it gets taxed at a greater rate upon coming out of the account. Because this is possible, you should consult a financial professional and let them help you create a strategy that aligns with your financial goals.

6. Seek professional financial guidance

Managing your finances in an ever-changing world can be overwhelming, especially if you are someone with significant wealth. It would help if you had someone to guide you along your financial journey. Working with a financial professional can help you mitigate risk, consider options you might not have considered before, and stay aligned with your financial goals. Schedule a meeting with a financial professional and get the help you need to start your retirement planning journey today.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

An annuity is a financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by LPL Marketing Solutions

Sources:

Medicare Tax Rate 2023 | HelpAdvisor.com

For high-net-worth investors in America, planning is key to confidence in financial goals (rbcwealthmanagement.com)

How to Receive a Charitable Tax Deduction | Fidelity Charitable

2023 Tax Rules and Tips for Easier, Cost-Effective Charitable Giving | UNICEF USA

Tax Considerations for High-Net-Worth Individuals in 2023 – CPA Practice Advisor

High-Net-Worth Retirement Planning Guide – SmartAsset

You Can Contribute Even More To Your 401(K) In 2023, But Should You? (forbes.com)

High Net Worth Individuals and Donor Advised Funds (aefonline.org)

Avoiding capital gains tax on real estate: how the home sale exclusion works (hackyourwealth.com)

Guardrails Approach: A Flexible Retirement Withdrawal Strategy (cnbc.com)

LPL Tracking #1-05374400

Retirement is a time that many of us look forward to our entire careers. It is the reward for a lifetime of work and the time to indulge in hobbies and enjoy much-needed vacations. While everyone looks forward to this seemingly-magical moment, if it is not the ideal time or plan, you may be in a poor financial position and unable to enjoy your retirement as you envisioned. Not sure if your retirement plan is still in line with your future life or financial goals? Below are a few reasons to give your current retirement plan a second look.

1. Your 401k Has Not Grown as Much as You Expected

Decades ago, pensions provided a significant income for retirees who had worked with a large corporation for a specified number of years. Over time, pensions have gone by the wayside, and employers have replaced this option with company matches for 401k contributions. Unfortunately, 401ks require employees to determine contributions. If they fail to consider possible market fluctuations with their funds, they may not be contributing enough to save for their retirement. Now that most pensions are a thing of the past and 401ks are the primary retirement vessel, almost half of American households are finding they will not be able to retire with enough savings to maintain their desired standard of living. If your accounts are not where you expected them to be, it may be ideal to increase your contributions or reconsider what you need for retirement.1

2. You Still Have a Lot of Debt

With the cost of living continuing to go up, your expenses in retirement will continue to rise as well. If you already have a significant amount of debt to pay down, that may make living on your retirement savings even more difficult. While some debt may be hard to avoid in retirement, significant debt, high-interest rates, or debt requiring large monthly payments may derail your retirement plans. If this is the case, you may need to push off retirement a few more years and work hard at paying down your debt to a more manageable level.2

3. You Don’t Have a Plan in Place for Major Expenses

While everyone hopes to avoid major expenses, they are, unfortunately, a part of life. Eventually, you may need to buy a new car, pay for a new roof, or upgrade your HVAC system. Ideally, you should tackle as many of these large expenses as you may anticipate before you retire so that they do not eat into your retirement savings. After you have taken care of what you know you will need to take care of, you should also put away more into your savings for possible large future expenses so that you won’t need to pull the money out of savings that you are relying on for monthly expenses.2

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking #1-05370165

Footnotes

1 Now Is The Time To Re-Think Retirement Plan Conventional Wisdom, Forbes, https://www.forbes.com/sites/dandoonan/2021/06/30/now-is-the-time-to-re-think-retirement-plan-design/?sh=29b3aa7eae53

2 10 Signs You Are Not Financially OK to Retire, Investopedia, https://www.investopedia.com/articles/personal-finance/021716/10-signs-you-are-not-ok-retire.asp

Deciding which one comes first so you know where to focus your efforts

When it comes to personal finance, there are a number of competing priorities that can make it difficult to determine where to focus your efforts. For many people, the choice between building emergency savings and working towards their retirement goals is one of the biggest dilemmas they face. So, which should you focus on first?

In order to answer this question, it’s important to understand what emergency savings and retirement goals are and why they are both important. Emergency savings refers to the amount of money you have set aside in a readily accessible account to cover unexpected expenses, such as a job loss, medical emergency, or major home repair. Retirement goals, on the other hand, are the plans you have in place to provide for yourself financially once you stop working.

Both emergency savings and retirement goals are important, but the order in which you focus on them will depend on your individual financial situation. If you have a stable income and few financial obligations, you may be able to focus more on your retirement goals, knowing that you have a safety net in place in the form of your emergency savings. However, if you have limited income and high debt, you may need to prioritize building up your emergency savings in order to protect yourself from financial shocks.

Emergency Savings First

Here are a few reasons why emergency savings should come first:

1. Peace of mind: Having a solid emergency fund in place can help you sleep better at night, knowing that you have a safety net in case of an unexpected expense.

2. Protects against debt: If you don’t have emergency savings, you may turn to credit cards or loans to cover unexpected expenses, which can quickly spiral into debt. Building up your emergency savings can help you avoid this trap.

3. Provides flexibility: With an emergency fund in place, you have more flexibility to make decisions about your financial future, such as taking on a new job or starting a new business.

Retirement Goals First

However, there are also some good reasons why focusing on your retirement goals first can make sense:

Time value of money: The earlier you start saving for retirement, the more time your money has to grow, which can make a big difference in the amount you have saved when you retire.

Compound interest: The power of compound interest means that the earlier you start saving, the less you have to save each month in order to work towards your goals.

Employer matching: If you participate in a 401(k) or other retirement plan at work, your employer may match a portion of your contributions. By maximizing this match, you can significantly increase your retirement savings.

Emergency Savings vs. Retirement Goals

So, which should come first? Ultimately, the answer will depend on your individual financial situation and goals. In any case, it’s important to find a balance between the two. You don’t want to neglect your emergency savings and end up in debt when an unexpected expense arises, but you also don’t want to neglect your retirement savings and end up struggling to make ends meet in your later years. A good rule of thumb is to aim to have three to six months of living expenses in your emergency fund, and then start contributing to your retirement goals as soon as you can.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This article was prepared by FMeX.

LPL Tracking #1-05358627

Spring can be a fantastic time to refresh your retirement plan and savings habits. With 2023 bringing increased limits for 401(k)s, individual retirement accounts (IRAs), Health Savings Accounts (HSAs), and other tax-advantaged accounts, it’s worth taking a closer look at your retirement savings. Below, we discuss three ways to refresh your retirement plan this spring.

Maintain Consistent Savings

With inflation taking a bite out of just about everyone’s paychecks, it can sometimes be tempting to decrease the amount you’re contributing to retirement just to gain a bit of breathing room. However, maintaining a consistent rate of savings even through lean times can go a long way toward securing your financial future. When it comes to saving for retirement, time is on your side—and the more you can contribute at a younger age, the more time this money will have to grow.

If your savings rate has been at the same level for more than a few years, it may be time to revisit this contribution. You may discover that you can afford to set aside a little more; in other cases, it may make sense to switch from a tax-deferred account to a post-tax account like a Roth 401(k) or Roth IRA.

Review Your Asset Allocation

When it comes to investing for retirement through an employer plan, the options available to you may sometimes seem overwhelming. Far beyond mere “stocks vs. bonds,” employees are asked to choose from accounts ranging from growth to stability, domestic to international, and tech to blue chips. For some plans, the default option is to put contributions into a money market account rather than investing them in the stock market.

Does your asset allocation appropriately reflect your risk tolerance and investment timeline? It can be tough to know.

Fortunately, you don’t have to do it alone. A financial professional can work with you on your strategies and goals, making adjustments where necessary to keep you on the right path. Don’t wait until you get closer to retirement to realize you haven’t been investing as efficiently as you would have liked.

Check Your Beneficiaries

One last thing that is important to keep an eye on involves the disposition of your assets once you’ve passed away.

Many financial accounts like 401(k)s, IRAs, and even some bank accounts may require you to name a beneficiary. And for life insurance policies, the beneficiary is key—this is the person to whom the benefits pass, regardless what a marriage decree or executed will may say to the contrary.

If you’ve gotten married or divorced, had children recently, or if it’s been more than a year since you evaluated your beneficiary designations, it’s important to revisit each of your financial accounts to ensure your beneficiary designations continue to reflect your wishes. In many cases, a surviving family member has discovered too late that their loved one named an ex-spouse or estranged family member as their beneficiary, leaving those who depend on them in the lurch.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

An investment in the Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Asset allocation does not ensure a profit or protect against a loss.

This article was prepared by WriterAccess.

LPL Tracking # 1-05355828

Veterans’ retirement benefits are among some of the most generous out there, in large part due to the risks and sacrifices that come from military service. But navigating this array of benefits may seem complicated. What should veterans know about their military retirement plans?

When are Veterans Eligible for Retirement?

Veterans who are injured in the service may be eligible for retirement benefits within five years of sustaining a disability. Others may be eligible after accruing 25 years of service or at age 50 after accruing 20 years of service. Other retirement eligibility dates may apply to those whose agencies are being reorganized, those who have been laid off through a reduction in force (RIF), or those who have transferred to a new employer. For veterans, there’s rarely a one-size-fits-all answer to “when can I retire?” It’s a good idea to talk through your retirement plans with an OPM employee to make sure you’re on track.

Veteran Retirement Benefits

Some of the retirement benefits that are available to veterans include:

• A monthly pension

• Health insurance through Tricare

• Additional disability benefits for disabled veterans

These benefits are in addition to any other retirement benefits that a veteran may have accrued, like an individual retirement account (IRA), Health Savings Account (HSA), or other savings plans. The amount you may receive depends on factors like your length of service, your age at retirement, the amount you’ve contributed to your Thrift Savings Plan or other 401(k)-like plan, and your average earnings over your career. In general, the higher your regular pay, the greater your pension payment.

Preparing for Retirement

During the year or two before your retirement, it may make sense to prepare to make the retirement process as streamlined as possible. Some key steps include:

• Confirming your retirement eligibility

• Choosing a retirement date

• Getting information about your available retirement benefits

• Reviewing your official personnel folder (OPF) or equivalent folder to ensure that your records include all eligible service

• Choosing eligible beneficiaries (like a spouse or children)

• Checking your health benefits records

If there are errors or omissions in any of these records, it’s important to correct them as quickly as possible. Otherwise, you may not be able to receive all the retirement benefits to which you’re entitled.

Important Disclosures

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

LPL Tracking # 1-05186914

Sources

https://www.opm.gov/retirement-services/csrs-information/eligibility/

https://www.va.gov/pension/

A 401(k) retirement savings plan is one of the most desirable fringe benefits a small business can offer. For a business owner, it can help strengthen a company’s position when competing for top talent. It can also be structured to help retain employees once they are hired. For employees, a company-sponsored 401(k) plan offers an excellent way to build a retirement nest egg through tax-deferred savings.

In Brief

A 401(k) plan allows each employee to set aside part of his or her salary, subject to certain limitations, in a separate account to grow on a tax-deferred basis. Participants have the flexibility to choose from among a variety of funding options offered by the plan. Employers may contribute to employee accounts by matching a percentage of their employees’ contributions. Withdrawals usually occur at retirement—when plan participants are more likely to be in a lower income tax bracket.

Possible Advantages

The benefits of a 401(k) plan are numerous and may include some, or all, of the following:

Pre-Tax Contributions Employee contributions are typically made on a pre-tax basis, subject to certain limitations. By lowering their taxable salary or wages, plan participants are able to lower their income tax for each year they participate.

Employer Matching Contributions Some employers match contributions up to a certain percentage. For instance, with a 50% match, an employer would contribute $0.50 for every $1.00 an employee contributes. The advantage of matching contributions generally depends on the level of the match and the employer’s vesting requirements.

“Vesting” refers to an employee’s right to the funds in his or her account. An employee’s contributions, and the earnings on those contributions, are fully vested from his or her start in the plan. An employer’s matching contributions vest according to a schedule that usually depends on the employee’s length of service. Thus, an employer can arrange the vesting schedule to reward and retain employees by fully vesting plan participants after, say, five years.

Variety of Funding Options Plan participants may select from a variety of funding options. Most plans also allow employees to change their funding choices periodically to reflect their individual needs and goals.

Tax-Deferred Earnings Earnings on any contributions accumulate on a tax-deferred basis. This includes earnings on matching contributions made by employers.

After-Tax Contributions Many plans also allow employees to make after-tax contributions, subject to certain limitations. While these contributions do not lower the current year’s income tax, as do pre-tax contributions, they accumulate earnings on a tax-deferred basis.

Restrictions

As with all retirement plans, 401(k) plans have certain limitations:

Limits for Highly Compensated Employees (HCEs) The contributions of HCEs may be limited if lower paid employees do not contribute a sufficient amount. Every year, plan administrators must perform certain “top-heavy” tests to determine the maximum amount HCEs may contribute.

Taxation at Withdrawal Plan participants are subject to income taxes for pre-tax contributions when they withdraw the funds. However, after-tax contributions are not subject to further taxation when withdrawn.

Early Withdrawal Penalty Withdrawals prior to age 59½ may occur only under certain circumstances and, when allowed, may be subject to a 10% early withdrawal penalty.

A 401(k) plan offers advantages for both employer and employees. For business owners, it can help attract and retain desirable employees. For employees, a 401(k) plan, when combined with income from other sources, such as Social Security, a pension, and personal savings, can help them work towards their retirement objectives. It’s no wonder that, for many, 401(k) plans have become the preferred vehicle for retirement savings.

Important Disclosures

This material was created for educational and informational purposes only and is not intended as ERISA or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Investing involves risks including possible loss of principal.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by Liberty Publishing, Inc.

LPL Tracking #1-05306507

Whether you dream of a travel-filled retirement or would prefer to relax and enjoy spending more time at home, you are probably wondering what you might consider to make your golden years as stress-free as possible.

For those who spent the last several decades in a wealth-accumulation mode, withdrawing savings may trigger anxieties about the future. Some of the choices you may make during the earliest years of retirement may significantly alter the speed with which you spend down your retirement savings.

Moving to a State with No (or Low) Income Taxes

Nine states do not have any income tax on personal income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Although New Hampshire does not tax wage income, it does charge a 5% state tax on dividend payments and interest income received by individuals.1

Retiring and establishing residence in one of these states with no personal income tax can save the significant amount of state income tax levied in other states for every 401(k) or individual retirement account (IRA) withdrawal you may take. For example, California, Hawaii, and New Jersey have the highest tax rates for those in the top income brackets.

California’s personal income tax rates start at 1% and go up to 13.3% for income above $599,012. Hawaii’s personal income tax rates start at 1.4% go up to 11% for income above $200,000. New Jersey’s personal income tax rates start at 1.4% go up to 10.75%.2

There are certainly trade-offs to this approach, as low-income-tax states may have significant sales taxes, higher property taxes, or may offer fewer public services than those found in states with higher taxes. Nevertheless, state income tax rates are worth investigating for those looking to preserve their retirement savings.

In some cases, it may make sense to plan a move to a no-tax state to establish residency in the year before you begin taking any required minimum distributions (RMDs). Use this strategy correctly, and you have to pay only federal income taxes on these RMDs.

For most states, spending more than 183 days (half a year) in that state during a single year makes a person a resident of that state. 3

Deciding When to Take Social Security Benefits

Another important factor in preserving your retirement savings involves when to take Social Security benefits. The earlier you claim, the less you receive per month. Waiting until age 70 to request Social Security benefits increases the monthly payment.

But while it may seem sensible to put off Social Security so that your total benefit is as large as possible, this approach has other considerations. Taking Social Security earlier may reduce the amount you need to withdraw from retirement accounts, helping these funds continue to grow until your RMDs begin at age 72 (70 ½ if you reached 70 ½ before January 1, 2020). If you have health problems that could shorten your life, taking early Social Security payments may also make sense.

A financial professional may help you consider different scenarios to get ideas of when it makes sense for you to claim Social Security.

Considering Guaranteed Income Products

Social Security benefits are one form of guaranteed income. But because these benefits cap out at $4,194 in 2022 (for the highest earners who delay claiming until they are 70 years old), the benefits may not be enough to support a previously high-income household.4

Guaranteed income products such as annuities have the potential to provide a monthly source of extra income to help maintain an acceptable lifestyle during retirement.

Important Disclosures

This material was created for educational and informational purposes only and is not intended as ERISA, tax or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

We suggest that you discuss your specific tax issues with a qualified tax advisor.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

1 https://www.bankrate.com/taxes/state-with-no-income-tax-better-or-worse/ (Nov. 21 2021)

2 https://www.nerdwallet.com/article/taxes/state-income-tax-rates (Dec. 9 2021)

3 https://www.nerdwallet.com/article/investing/state-residency-for-tax-purposes (Dec. 14 2021)

4 https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp (updated Dec. 22 2021)

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