Halbert Hargrove Global Advisors, LLC
Relationship Manager & Chair of Wealth Advisory Committee
In his advisory work with clients, Nick’s objective is to deliver an integrated strategy for their wealth. In addition to his investment expertise, Nick says he brings two key strengths to his client relationships. The first is educating them about their investments. “I make an effort to excel at this; it’s extremely important for clients’ peace of mind to understand that we invest with the intention of excelling in good markets and weathering challenging ones.”
Nick is also an excellent listener. “Through listening, I can suggest relevant solutions. I enjoy helping clients work towards goals, solve problems that arise, and uncover risks that they might not have considered.”
As Chair of Halbert Hargrove’s Wealth Advisory Committee, Nick leads the group in exploring financial planning issues that impact clients—and creating responsive solutions. Nick sees his role as “ensuring that we have a diverse set of ideas on the table to make the right decisions.” Nick is based in Halbert Hargrove’s Long Beach headquarters. He was named to his current management role in 2012; he joined the firm in 2005.
Nick holds an MBA from UC Irvine; he earned his B.S. degree in Management Science from University of California, San Diego, where he played college basketball and studied abroad in Florence, Italy. He was awarded the ACCREDITED INVESTMENT FIDUCIARY designation by the University of Pittsburgh-affiliated Center for Fiduciary Studies and is a CERTIFIED FINANCIAL PLANNER.
Nick and his wife Carrie love to travel; being part of close families, they also frequently head to central and northern California for visits. Ever hear of the Calaveras County Frog Jump? His extended family, aka the Gustine Frog Team, has participated in this event for over 50 years. Back home, Nick thinks a good start to the weekend is a morning run or hike in Rancho Palos Verdes.
BS, Management Science, University of California, San Diego
MBA, University of California, Irvine
Nothing contained in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Yes, an individual can contribute to both a 401k and a Roth 401k. The total contribution into both types of deferrals cannot exceed $18,000 for individuals under 50, and $24,000 for those 50 and over. For example, a 30-year-old person could contribute $9,000 into his or her regular 401k and $9,000 into the Roth 401k portion, for a total of $18,000 in 2016.
There are two key factors that should be considered when deciding between making regular 401k contributions vs. Roth 401k contributions—or potentially a combination of both:
- Current taxable income and expected future taxable income
- Discretionary income
Current Taxable Income and Expected Future Taxable Income
Contributing into a regular 401k will help reduce your taxable income: The contributions you make are “pre-tax.” Invested assets in these accounts grow tax deferred; the distributions you ultimately take are taxable at ordinary income levels. Making Roth 401k contributions, on the other hand, will not reduce taxable income because contributions are “after-tax.” But your investments in a Roth 401k will grow tax free and distributions are tax free as well.
The main reason most individuals contribute to a Roth 401k is they believe tax rates will increase in the future. The thinking here is that contributing into a Roth 401k will help decrease their potential taxes when they start to take distributions from their accounts since distributions from Roth 401ks are tax free.
If you’re planning to contribute into a Roth 401k (vs. a regular 401k), keep in mind that you will have a higher taxable income at the end of the year. You’ll need to budget and have funds available to pay any potential taxes.
For example, an individual who earns $100,000 and makes a regular 401k maximum contribution of $18,000 will have a taxable income of $82,000 because regular 401k contributions decrease taxable income. If the same person were to make an $18,000 Roth 401k contribution, he or she would be taxed on $100,000 of taxable income—because these contributions are “after-tax.” This would amount to paying approximately $4,500 in additional taxes.
Contributions into Roth 401ks generally favor investors who are younger, with lower taxable incomes. Regular 401k plan contributions favor higher earners because contributions decrease taxable income and allow for individuals to have a higher take-home pay after withholdings.
No, you do not need a stock broker—or to get a stock broker’s license—to buy stocks, bonds, mutual funds or ETFs. You can buy any of the above-named securities directly through a custodian (Fidelity, Schwab, TD Ameritrade, Scottrade), or through any other trading platform. The trading cost will vary with each custodian, so I would recommend that you search each custodian’s website. Also, keep in mind that trading fees for stocks might be different than those for mutual funds.
There are several options available to you to save for retirement and reduce your tax liability as a self-employed individual. What’s best for you will depend on how much you want to save per year and the potential costs of setting up a more complex plan. I would suggest consulting with your CPA and a financial advisor to determine your best options. The descriptions below should provide you with a good starting point. Trading fees will vary between institutions.
An IRA will allow you to save $5,500 a year ($6,500 a year if you are over 50 years old). You can establish an IRA with most financial institutions for a small setup fee or annual fee. Very little paperwork is needed, and no additional IRS filing forms are required.
Self-Employed 401k Plan
The Self-Employed 401k plan allows a person to contribute up to $53,000 in 2016. The contribution is a combination of employee and employer contributions. The plan has to be set up by December 31st to make contributions for that tax year. The setup fees and/or annual fees are normally not charged or very small. Once the value of the plan exceeds $250,000, the IRS requires that you file a form (Form 5500) with them.
A SEP IRA allows you to contribute 25% of your compensation or $53,000 (for 2016), whichever is less. The plan needs to be established by the tax-filing deadline or by April 15th at the latest. There are no IRS filing requirements, but the employer does need to complete Form 5305 SEP for their records. The plan setup and/or annual maintenance fees are typically small—or not charged by the custodian,
A Simple IRA allows you to contribute up to $12,500 (in 2016)—$15,500 if you’re over 50. The account setup or annual expenses can be higher than the other types of retirement plans. Simple IRAs are normally used for companies with multiple employees, but this is an option for the self-employed as well. The plan must be set up by October 1st of the year you want to start to contribute. There are no annual IRS filing requirements.
Cash Balance / Defined Benefit Plan
Cash Balance and Defined Benefit Plans are typically set up for individuals who are very high earners. These plans allow much higher contribution amounts than the other retirement plans. The maximum contribution for a Defined Benefit Plan is $210,000 in 2016; the contributions for Cash Balance Plans are normally based on a percentage of a person’s income, but not to exceed $210,000.
The setup costs for these plans can range, depending on which pension consultant or Third Party Administrator (TPA) you hire to create the plan. This fee is usually a few thousand dollars at a minimum. These plans also pose annual tax filing requirements along with a greater administrative burden to establish and maintain them, but they do allow for a much higher contribution amount.
There are a few steps you can take to understand your advisor’s investment strategy and fee structure. This should either give you confidence—or compel you to consider finding a new advisor.
I would first ask your advisor how they are being compensated. Are they receiving a sales commission for each trade? Or is the fee structure based upon assets they manage for you? They should be able to provide you with a detailed fee structure and an annual summary of fees.
If the advisor is charging you a sales commission on trades, you should also ask for reports that detail unrealized gains and losses, and realized gains and losses. This will enable you to see how much each purchase has gained or lost in value. The unrealized gain/loss report is a report on stock holdings that you have purchased that have not been sold; it will show you how much these stocks have increased or decreased in value since you purchased them. The realized gain/loss report will show the value that was earned after the security you purchased was sold.
You should also ask for the commission amount for each of the security purchases, and designate the time period you’d like the realized gain/loss report to cover. For example, you could ask for two reports: a 2015 year-to-date realized gain/loss report, and a realized gain/loss report for 2014. You can then compare how much you earned per transaction vs. the commission earned by the advisor.
The second step you should take is to ask your advisor about the investment strategy that is being implemented. How was the strategy created? Is the strategy based on a well-known process that you can research to understand better?
A key focus of every advisor’s strategy is their process for selecting investments, along with how they go about setting targets that determine when to sell them. Ask your advisor how their “recommended” stock purchases are identified. How do they identify “sell” recommendations?
Collecting all of this information and organizing it will take work and effort on your part, but you will become more knowledgeable about investment strategies and fee structures. This should give you a better opportunity to be successful in the future.
I would advise you to ask the attorney who created your family trust the above questions. Your attorney should know the approximate size of your assets, the terms of your life insurance policy, the trust structure, and your wishes to determine the appropriate beneficiary selections.
The decision to either name your children or your family trust as contingent beneficiary will depend on how your family trust is structured and how the assets within your trust and IRAs are scheduled to pass on to your children. If you want your family trust to govern how assets and IRAs pass to your children, then you should name your family trust as the contingent beneficiary after naming your spouse as the primary beneficiary.? Parents who are concerned that an adult child will mismanage their finances—or potentially fall into “Lottery Syndrome”—name the trust as contingent beneficiary. You can direct a trust company, professional fiduciary, or other third party to become the trustee of the assets to ensure that the IRA is managed appropriately and the instructions within the trust are followed. The trust should also be named as contingent beneficiary if your children are minors.
If you would like your children to receive your IRA assets with no restrictions, you can name them as contingent beneficiaries. This gives them the flexibility to manage the inherited IRA and take distributions as they deem appropriate once both parents both pass away.
Naming a beneficiary within a life insurance policy will depend on the purpose of the life insurance policy, the size of your estate, the amount of liquid assets, and the types of assets within an estate. If the life insurance policy is a relatively small amount and is intended to cover burial expenses, naming the children the beneficiaries will allow them to receive funds fairly quickly to pay for burial expenses and other arrangements—without first having to go through the long estate-settling process.
If the death benefit of the life insurance policy is in the hundreds of thousands of dollars—or more—the decision to name the children outright becomes more complex and will depend again on the purpose of the life insurance policy.