Make Tax Efficiency a Part of Your Investment Strategy

Make Tax Efficiency a Part of Your Investment Strategy

When reviewing investment options, many people focus strictly on returns. But it’s critical to also consider tax efficiency as you build a portfolio. 

There are two types of investment accounts: tax-advantaged and taxable. Tax-advantaged accounts are any investment or savings option thats either tax-exempt, tax-deferred or offers some other kind of tax benefit. When you take advantage of tax-advantaged investing, you can reduce the impact when Uncle Sam comes calling on April 15th.  

401(k) Plans  

One of the most common and well-known tax-advantaged accounts is the 401(k). Many employers offer a 401(k) as part of their workplace benefits. There are two main types: 

  • A traditional 401(k) grows tax-deferred. You contribute money from your paycheck before taxes are taken out, lowering your taxable income today. You save money on taxes now, but you pay taxes on your withdrawals later. If you think you’ll be in a lower bracket during retirement, this can be one way to realize tax savings over time. 

  • A Roth 401(k) grows tax-free. You make your contributions with after-tax dollars. So, even though you pay taxes today, you don’t have to pay taxes when you withdraw during retirement. If you think your taxes will be higher in the future, this can be a good move, reducing your tax liability during retirement. 

HSA (Health Savings Account) The “Triple Tax Advantage 

If you have a high-deductible health plan and meet other requirements, you might be able to contribute to an HSA. With this type of account, you get what’s often called a triple tax advantage: 

  1. Contributions are made with pre-tax dollars, resulting in tax savings today. 

  1. Money in the HSA grows tax-deferred, allowing it to accumulate without the drawback of paying taxes as you accrue earnings from investments. 

  1. Withdrawals aren’t taxed if they’re used for qualified medical expenses. 

Some retirees use an HSA in conjunction with other tax-advantaged investing accounts. For example, an HSA can pay for health costs during retirement, while money from the 401(k) is used toward everyday expenses. 

529 Savings Plans  

After you’ve shored up your own finances, you might want to use a tax-advantaged account to save for your kids’ education. Many states offer 529 savings plans that can help you do just that, whether you’re putting money away for college or even K-12 tuition. Both prepaid tuition and savings plans are available but investment options and fees may differ by state. Contributions are made with after-tax dollars, but money in the account grows tax-free if withdrawals are used for eligible education expenses.  

Understand Your Options 

Taxes can have a big impact on your financial picture and can sometimes be complicated to fully understand. Nonetheless, it’s important to consider tax-advantaged investing when establishing your personal financial plan. If you have questions, speak with your qualified financial professional about which tax-advantaged investment options might be best for you. 




Enrolling in Your First 401(k)

Enrolling in Your First 401(k)

Youre probably aware of 401(k) plans and may have even heard how they can give you a leg up on your retirement goals. If you have a 401(k) available to you through your job, however, you might still want to know more. Lets look at some answers to frequently asked questions about your employer-sponsored retirement plan. 

Q: Why is a 401(k) better than a savings account? 

A: For the most part, a traditional savings account doesnt offer tax advantages. A 401(k), though, allows you to put money aside for the future before you pay taxes on it. You also dont have to pay taxes on investment earnings from the account as they come. Instead, you only pay taxes when you withdraw from your 401(k) during retirement. By then, youll hopefully be in a lower tax bracket. 

Q: How can a 401(k) improve your retirement readiness? 

A: Since your 401(k) is an investment account, you can take advantage of the considerable benefits of compounding returns, which can allow your money to grow at a faster pace than it would in a traditional savings account. This can help put you in an accelerated position to achieve your retirement dreams. Plus, having the money deducted from your paycheck automatically makes it easier to stay consistent with your investment goals over time you can build wealth without having to think about it as much. 

Q: What are the risks of participating? 

A: Market volatility is always a possibility, so its important to understand your personal risk tolerance and create an investment plan that works for you. Its also why its critical to review your retirement plan regularly and rebalance your asset allocation as needed. 

Q: Are there other advantages? 

A: Your employer might offer a match, providing you with a way to put even more money into your retirement account. Additionally, your employer might give you the option of a Roth 401(k), which can result in lower taxes during retirement. Carefully consider your tax situation and individual needs when deciding if a Roth 401(k) makes sense for you. 

Q: What if I quit my job? 

A: Money you put in, plus your investment earnings, stay with you no matter what. Money your company puts in becomes yours based on a vesting schedule. You can roll your 401(k) over to a new employer-sponsored retirement account or an IRA if you leave your job. 

Q: How much do I need to contribute? 

A: Work with your qualified financial professional to figure out how much you need to meet your specific retirement goals. You decide how much you put in from 1% of your salary up to the annual contribution limit. Some retirement plans also allow you to automatically increase your contributions each year, or you can bump up your deferral rate when you receive a promotion or bonus. Consider what you should set aside each paycheck to help you achieve your long-term goals. 

Q: When is a good time to join? 

A: Sign up for your 401(k) as soon as you can. Put time on your side when it comes to reaping the benefits of compounding returns. There can be significant opportunity costs by sitting on the sidelines too long, which can hamper your retirement readiness over the long term. 

Q: How do I sign up? 

A: Contact your companys HR department for help opening your account and setting up payroll deductions. Enrolling isnt hard at all and it can be one of the most important items to check off on your to-do list in order to help ensure a more secure financial future. The specifics of 401(k) plans can vary from company to company, and theres more to know than what weve covered here.  

Contact your qualified financial professional if you have additional questions or to learn more. 

Understanding Life Insurance Basics

Understanding Life Insurance Basics

It’s not a topic anyone particularly enjoys thinking about, but life insurance can be a crucial pillar of financial protection for those who mean the most to you. It helps ensure your loved ones are better able to meet their future expenses — no matter what should happen to you.  

In return for your policy premium payments, the insurer promises to pay a predetermined benefit upon your passing. Your beneficiary can use the money toward whatever financial needs they may have at that time or in the future. Depending on the provisions of your policy, your beneficiary may receive their benefit as a single lump-sum payment, a series of installment payments or by some other means. Here are some things the payout from a life insurance policy could be applied toward:  

  • Paying off the mortgage on a family home. 
  • Sending your children or grandchildren to college.  
  • Supporting a favorite charitable cause. 
  • Paying estate taxes. 
  • Covering funeral expenses. 
  • Helping your spouse pay everyday bills. 
  • Providing for long term care. 
  • Paying off student, credit card or other debt. 
  • Protecting a business. 
  • Supplementing retirement income. 

But you have a number of decisions to make before you purchase a policy. First, youll have to choose between the two basic types of life insurance: term life and permanent life.  

Term life insurance provides protection for a predetermined period of time: That could be 10, 20 or 30 years, for example. If the loss occurs within the period you’re covered for, your designated beneficiaries receive the benefit. If not, no benefit is paid out. You might be interested in this type of policy for income replacement prior to retirement or to provide care for your children until they become financially self-sufficient 

And you also have two options when it comes to permanent insurance: whole life or universal life insurancewith either able to provide lifetime coverage. Permanent life generally costs significantly more than term life policies, but it also accumulates cash value that you may even be able to borrow against should the need arise. 

Whole life insurance coverage is more predictable as the premiums, rates of return and amount of benefit are guaranteed and fixed. These policies can be useful to help provide for longer term needs such as ongoing care for an adult child. Universal life insurance, on the other hand, can offer an adjustable death benefit as well as premiums, within certain parameters. Cash value growth is dependent on the interest rate climate, so it’s important to consider that potential impact when looking at this type of coverage. Finally, look into fees, no matter what type of policy you select. 

Life insurance can be an important foundation of financial protection for your family. And while it may seem complicated, it doesn’t have to be. Your financial professional can explain the options available and help you determine which type of insurance best meets your needs and budget. 


How to Afford a House With Rising Prices and Interest Rates

How to Afford a House With Rising Prices and Interest Rates

In the third quarter of 2022, the median home price in the U.S. was around $400,000. That means the average homebuyer required a six-figure income to afford their purchase — and the $2,682/month payment that accompanied it. If that seems steep, don’t lose hope. Here are six strategies to help you afford that new home you’ve been dreaming of when prices and mortgage rates are high.


1. Choosing a property. There’s an old real estate saying: “Location, location, location.” And that’s because location is such an important driver of price and value. While picking a prime location can drive price up, moving a little further from a city or choosing a less sought-after neighborhood can help control costs. You can also consider an older home — taking into account the cost of potential repairs — or one with a smaller footprint. These moves may also lower your property taxes.


2. Adjustable-rate mortgages (ARMs). Unlike a fixed-rate mortgage, the interest rate of an ARM can vary over the loan term. The “start rate,” also called an intro or teaser rate, is fixed for a predetermined period (such as five years for a 5/1 ARM), but then can fluctuate according to an index — typically the secured overnight financing rate, or SOFR, plus a margin. The 1 in a 5/1 ARM means that the interest rate can subsequently adjust every (one) year. ARMs typically carry a lower rate than fixed-rate mortgages but carry the risk of going higher over time. An ARM may make more sense if you’re confident you will sell the home within the period of your start rate; otherwise you risk not being able to afford your payments in the future.


3. Higher down payment. If you can scrape together a higher down payment, it can lower your monthly payment significantly. And by exceeding the 20% threshold, you can save even more by dropping private mortgage insurance, or PMI.


4. Put time on your side. Real estate deals may be few and far between in a competitive real estate environment, but you have a better chance of scoring one if you’re not in a hurry. Allow plenty of time to shop around so you can take advantage of any lulls in the market.


5. Negotiate and lowball. It may be a tougher sell in a hot market, but you still may get lucky by putting in low offers. Consult with an experienced real estate professional for advice on getting your best chance of having a seller accept a lowball offer, knowing you may need to make a bunch of them before someone bites.


6. Get preapproved. Do what you can to make your offer more attractive by getting your financing preapproved by your lender. If a seller needs more time to get out of their home, you may be able to contract to let them stay and rent it out from you. Waiving contingencies comes with risks, so don’t do this without careful consideration.


Buying a home is one of the biggest purchasing decisions anyone ever makes. A consultation with a qualified financial professional can help you weigh your options.



10 Ways to Save Money on Health Care Costs

10 Ways to Save Money on Health Care Costs

We all know that health insurance can cost a lot. In 2022, the average American who received coverage through their employer paid more than $6,100 for a family plan — or about $500 per month. That’s nearly 10% of the typical household budget.


But there are also many expenses outside of premiums to contend with, including copays, deductibles, medications and medical devices. Here are 10 strategies to save on out-of-pocket medical costs.


1. Health Savings Account (HSA). HSAs are available to employees with a high-deductible health plan (HDHP). They let you set aside pre-tax dollars to cover certain qualified health care costs. In 2022, the minimum deductible for an HDHP was $1,400 for an individual and $2,800 for a family, and you could contribute up to $3,650 for individual coverage and up to $7,300 for family coverage. The money invested in an HSA is tax deductible, and it can grow and be withdrawn for qualified medical expenses tax free, giving it a triple tax advantage.


2. Flexible Spending Account (FSA). FSA funds can be used to pay for qualified medical expenses, such as health plan deductibles, copayments, prescriptions and medical devices. Your employer sets the limit on deposits, and this money isn’t taxed. You may be allowed to roll over up to $500 of whatever you don’t spend from one year into the next, or your employer may allow up to 2.5 additional months to use up those funds. See your human resources department for more information.


3. Pharmacy discount programs. Pharmacy discount programs offered by major chains as well as independent companies operate outside your insurance plan and can help save you money on prescriptions. Discounts may vary, so research a number of different programs.


4. Urgent care. Some facilities that look like urgent care clinics are actually associated with hospitals and bill at much higher “emergency room rates.” So it’s important to understand which type of facility you visit.


5. Generic medications. Once a drug manufacturer’s patent lapses, other companies can make it in a less expensive but chemically equivalent generic form. Ask your doctor how much a prescribed medicine will cost and if a generic would be appropriate.


6. Free health services. Many free preventive and wellness benefits, as well as maternity and newborn care, are provided under the Affordable Care Act (some restrictions may apply, contact your health plan provider for more information). Take advantage of those you qualify for.

7. Shop around. We routinely shop around for a new phone or TV, yet often fail to do so when it comes to our medications, provider services and medical procedures. Hospitals are now required to publish prices for many services, which makes comparison shopping easier. Shop the cost of nonemergency procedures to see where you can save, but also research your providers’ health and safety outcomes.

8. Time your procedures. Health plan deductibles renew yearly. Be mindful of the calendar and get nonemergency procedures scheduled before your deductible rolls over each year.

9. Hire a medical billing advocate. If you have a serious medical condition, consider hiring a medical billing advocate to review bills to look for errors that can cost you money. They can challenge any discrepancies and negotiate with health care providers on your behalf.

10. Protect your health. One of the best ways to save on health care is to do what you can to keep yourself healthy. Stay up to date on screenings and recommended vaccinations, don’t smoke or drink excessively, maintain a healthy weight, stay active and manage stress.

Medical bills can be overwhelming and threaten your financial wellness, but armed with information and smart strategies, you can fight back.


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