Asset Architects LLC
John R. McGonagle Jr. CFP®,CRPC®, is the owner of Asset Architects LLC located in Northville, MI.
John was born and raised in Plymouth Michigan a small Midwest town. He has six brothers and sisters, he's right in the middle. Both his parents worked hard and instilled a work ethic in him that is still drives him today.
After high school John attended, Eastern Michigan University business school, but the pull to own his own business was strong and at the age of 21 his parents remortgaged their home to allow him to buy into a local business. John worked long hard hours and was able to pay off that note in eleven months.
Owning his own business introduced John to the realities of running a business (not just theory you learn in school). One of those realities was paying taxes, it quickly became apparent that earning money was only part of the game. He needed to learn how to hang on to it. This led him to learning what people with money did with their money and how to make it grow.
Keeping a long term perspective. Some of the best things John has done in his life have been long term commitments. He has been married to his wife for 36 years and have a commercial property they've owned for 37 years, both were good decisions.
John and his wife have two children, his son graduated from University of Michigan and his daughter graduated from Indiana University. They are very proud of them both.
John made a decision to make investing and Investment Advisory a full time avocation in 1983.
Along the way, John has acquired his CFP® and CRPC®, Series 7, Series 63, Series 24, Series 65, Life and Health and 31 years of experience (another long term commitment).
Over the years John and his wife have invested in annuities, life insurance, more real estate, managed money, stocks and bonds. He truly practice what he preaches to his clients.
When giving Financial Planning advice to a client, it is based on several assumptions. A lot of those assumptions in your question are missing.
Here are a few off the top of my head. Do you quality to participate in a 401(k), does it have a match, does your employer’s plan have a 401(k) Roth option, your age, tax bracket, anticipated future tax brackets, expected retirement age, retirement income goal, life expectancy, sources of income in retirement, rate of return now and in retirement, do you think taxes are going up in the future, and inflation rate?
A simple way to approach your decision is purely mathematical.
I’ll use the following assumptions.
Age 45, rate of return 5%, current tax bracket 25%, and retirement tax bracket 15%
Traditional IRA Deposit = $1,000
Roth IRA Deposit (after tax) = $750
If both accounts grow at 5%, the values at full retirement age (67) would be $3,071.52 (traditional IRA) and $2,303.64 (Roth IRA). If you withdraw the entire traditional IRA and pay 15% tax rate, the net would be $2,610.80. The net balance will always be more from the traditional IRA with the above assumptions.
So, let me give some advice based on my experience in planning for my client’s income stream in retirement.
Taxes will be one of the largest expenses in retirement. The more options you have the better. You stated in your question that contributions to a traditional IRA are tax-free. They are tax deferred and you pay those taxes in retirement.
Unlike income taxes prior to retirement, the calculation is far more complex. In addition to the regular tax brackets, you have thresholds for when your Social Security becomes taxable. RMDs, if not properly planned for, can push you into the bracket, and Medicare premiums are now based on reported income two years prior.
In most cases, I’m able to design a withdrawal strategy that includes a recommendation for the client to systematically convert a portion of their qualified accounts to a Roth IRA. This is done to maximize their tax capacity within each tax bracket to give them the ability to control the taxable amount of future income. The goal is to reduce the overall tax liability over the retirement timeline and possibly their Medicare premium.
If done properly, this will result in a lower overall tax liability in retirement and make your retirement assets last longer.
Now would be a great time to start a partnership with a qualified financial planner to help you with this question. They can tailor a plan to match your assumptions and expectations of the future.
The bible verse, “A fool and his money is soon parted” comes to mind when I read this question. I would do neither. You need to give careful consideration to the impact of this decision. Don’t be in a hurry.
Financial Planning is more than taxes, rates of return, investment options, and debt reduction. It’s about understanding the person the advisor is giving the advice to.
This windfall sounds like it could be a life changing event. Think about what this change should be for you.
Then interview multiple Advisors and ask them how best you can achieve the outcome you desire.
Make sure you do your homework on the advisor. Ask for a copy of their ADV and their CRD Number.
Here are some links to do a background check on the Advisors you interview.
Certified Financial Planner http://cfp.net/utility/verify-an-individual-s-cfp-certification-and-background
Registered Investment Advisor http://www.adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?
Best of luck with this opportunity.
Exchange rates will tell you how far your US Dollar will go. Today One US Dollar will get you 57.11 Russian Ruble.
The true value is only known when you purchase goods or service. Here is an example, if you can get a hotel room in the New York City for 300.00 per night and a room in Moscow, if the price were the same would be 17,133 Rubles. If the room rate in Moscow is less than 17,133 rubles, your US Dollar goes farther.
Cost of Living is an attempt to measure a local currency purching power relative to local income, and does not evaluate any exchange rates.
FDIC insurance is provided Banks and only covers deposit products (CD, Savings). FDIC insurance protects you from Bank failure.
All bank that provide investment securities thru a brokerage department are required to give the disclaimer "Not FDIC Insured" so the investor is not given the impression FDIC covers the investment.
Brokerage accounts are covered by SPIC and protects the investor from Brokerage failure.
Neither FDIC or SPIC coverage is designed to guarantee the principal amount invested.
You need to sit down with the Broker that your employer is using to establish this account and have the investment options reviewed so you can select the type of investment that best suits your risk tolerances. The good news is that your employer is matching a portion of the investment and that will give you an immediate return on your investment.
Best of Luck with this new account.
Based on your question, I'll assume you understand the benefits of having a Business/Financial Plan, but don't know how to go about it.
Most community colleges have an office that will assist local businesses in writing a business plan, review demographic information and other considerations in assessing the viability of the business concept or to improve your bottom line. They often collaborate with local banks to provide guidance on what should be in the plan to be able to obtain financing if needed.
You could also contact SCORE at www.score.org to speak with a business mentor to answer your questions.
Good Luck in your new adventure.