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.
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.
Yes, you are eligible to collect spousal benefits on your wife’s account. You can file a “restricted application” for spousal benefits in May 2016 to start receiving half of your wife’s full retirement age benefit and allow your benefit to continue to increase until age 70. For every year that you delay taking your own benefit until age 70, your benefit will increase 8% a year. Once you turn 70, you can either switch to your benefit if the benefit is higher than the spousal benefit or you can continue to receive the spousal benefit.
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.
Thank you for providing detailed information on your situation. It helps me to provide a more detailed response.
Your situation seems complex, so I will give you some things to think about. But ultimately, you should meet with a financial planner and your CPA to get specific information for your situation—so you can know the tradeoffs you’re making and the tax ramifications of your investment decisions. From the information you provided, I think your intuition that your “biggest concern is becoming house poor” is correct for your situation. I would consider taking the steps below to save for the down payment. As difficult as it may sound, I would recommend not using your 403(b) account for the down payment, and waiting until you save enough money for it instead.
- Determine what your price range is for the 1-bedroom condo
- Create a savings goal for your down payment
- Potentially change your savings plan to decrease the amount you are saving in your 457 to save more for your down payment in a savings account
- Keep the down payment funds in cash/money market accounts so that you are not affected by the stock market.
- Review your current monthly spending to determine how much you spend in the big categories (housing, retirement savings, car, student loans, vacation, eating out, insurance, etc.). Then you can create a projected budget if you were to purchase a home.
I don’t recommend using your 403(b) as a down payment vehicle because you would be taxed on the distribution and decrease your long-term retirement savings. If you were to take funds from your 403(b) plan as a hardship distribution, the distribution would be added to your earned income and be fully taxable to you by Federal and State taxes, which I estimate to be close to 35% of the distribution. For example, if you took a $100,000 distribution, you would need to come up with $35,000 in cash for your tax bill next April to pay these taxes on the distribution.
In addition, you would most likely not be able to contribute to your 403(b) for a 6-month period (best to check with you plan administrator). You potentially could take a loan on your 403(b) plan, but then you would increase your total loan amounts, which is why I think a loan on your 403b or 457 is counter-productive. Taking funds from your 403(b) will significantly decrease your long-term retirement balance because you’re not allowing the invested funds to compound over the next 30 years.
As an example, I searched the price ranges for a 1-bedroom condo in the Marina del Rey area, which is a fairly large range of $450,000 - $750,000. Let’s take the example of the 1-bedroom condo for $750,000. A 15% down payment would be $112,000. A 30-year mortgage at a 4% interest rate will cost $3,039 a month. Property tax and insurance will cost approximately another $1,000 a month. HOA fees might cost $500-$1,000 a month. This creates a total expense of $54,000 -$60,000 a year in total payments for the condo.
What is your current savings account balance set aside for a home purchase? Remember to set aside funds for moving, appliances and potential furniture. How much have you been saving outside of your retirement account for the down payment? You could potentially decrease your 457 contribution to increase the amount you can save for the down payment. Check to see if the 457 plan matches your contribution. Don’t go below the match percentage. Decrease your 403(b) plan contribution next.
Rent vs. Buy Calculator
I’ve used this calculator also and it’s pretty thorough. The one big downside to this calculator for your situation is that it assumes you have the down payment in cash. If you would need to cash out a significant amount of your 403(b) plan, this would increase the cost of the capital and would potentially change the recommendation to buy or rent.
Real Estate vs. Stock Market Return
The growth rates of real estate and the stock markets are going to fluctuate. I agree with you that rents and home prices in Marina del Rey and the surrounding area have been pretty dramatic. I lived in Santa Monica for two years and now live in Long Beach, so I’ve definitely seen the housing market get fairly crazy in the area. It may seem like a race to buy something, but the growth rates will slow down and even decrease at some point once we go through our next recession. I would recommend that you change your savings plan to build up the cash savings for the down payment and be patient. Don’t let the race to “get in” force you to buy something when you are not quite ready, especially while you have a large student loan payment.
The best advice I can give you is to meet with a financial planner and CPA. They can provide you with an outside prospective, and help you to understand your options better and create a savings plan to meet your goals.