Adam C. Harding, CFP® Investments & Financial Planning
I blend financial science, modern technology, and complex planning techniques to help my clients pursue a better investment experience.
As the son of a private practice Certified Public Accountant (CPA) I received an early start in understanding of the importance of building strong financial habits to achieve personal goals. As my first teacher, my father ingrained in me the importance of tax-efficient savings methods, deferred gratification and, by demonstration, the importance of taking care of "his people" (i.e. clients).
Formally, I have added to that original educational foundation with completed study in Economics (Arizona State University, BS), as well as the CERTIFIED FINANCIAL PLANNER™ (CFP) designation.
My professional career has been, and will continue to be, focused on acting as a fiduciary for clients, serving as a sounding board for any and all financial matters, and, to quote my first teacher, "taking care of my people."
As a CERTIFIED FINANCIAL PLANNER™ I have demonstrated competency in comprehensive financial planning and have chosen to abide by a strict Code of Ethics.
**Any comments or articles posted are strictly for informational purposes and should not be considered investment, tax, or legal advice.Nothing should be considered an offer or solicitation of services. Opinions are subject to change.
BS, Economics, Arizona State University
Assets Under Management:
Fixed Annual Fee
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.
Here's what I'd consider:
1) If you're not working, consider delaying your Social Security benefits to age 70. I'd recommend living off of your 401(k) assets if you had previously planned on receiving income from Social Security at an earlier age (like 66). This will lessen the balance in your 401(k) while also increasing your SS benefit by 8%/year for each year you defer beyond your Full Retirement Age.
2) Consider a Roth IRA conversion strategy. This approach can be systematic, like a yearly $50K conversion (or something similar), or it can be targeted. Targeted Roth IRA conversions are a result of you having a diversified portfolio with many different asset classes. When you convert assets from a traditional IRA to a Roth, income taxes will be due on the converted amount. So, assets that have declined significantly in value are ripe for a Roth conversion. You’ll pay less in taxes because of the current depressed value, then you’ll have the potential for future tax-free growth within the Roth IRA structure.
To make any Roth conversion strategy viable, the converted assets would need to perform well enough after the conversion to offset the impact of the taxes paid. If you feel that the assets are simply in a correction, and you still like the outlook for them, then this strategy becomes more attractive.
3) Lastly, if you were 70.5 today and needed to take your RMD on $1.2M, the amount would be roughly $43K that you'd have to withdrawal and claim as income. Depending on your other sources of income, I wouldn't consider this added income to be the most crucial consideration you should be focusing on for your retirement plan. Limiting taxes is important, but I think that it's more important to be sure there's a thorough understanding of the overall risk exposures within your portfolio and your projected expenses throughout retirement.
Adam C. Harding, CFP
Great question. A couple comments:
1) When you pay off debt, you know that you're going to get a "rate of return" on your dollars spent that is roughly the interest rate on the debt. Simply put, any unpaid debt you hold will grow by 4%/1.99% every year, so by paying off the debt, you're saving yourself that growth of an unpaid liability. While an investment portfolio certainly can outpace 4%, there is no guarantee that it will. Of course, your mortgage likely has interest expense deductibility for tax purposes, which complicates things slightly.
2) Be careful with UBS, or any wirehouse/broker-dealer, as they may be conflicted between doing what's best for their clients and what's best for the firm. Registered Investment Advisors, by comparison, are required to be fiduciaries for their clients. Firms like UBS may be dually-registered as investment advisors and broker dealers, which means that they can be a fiduciary sometimes and other times they may not. Your advisor is probably a good person and may be looking out for you before the firm, but just be aware of this. I'd be happy to provide a complimentary screen-through of the advice you've been given to look for inefficiencies or conflicts; feel free to ask if you like.
3) Scottrade is a solid custodian, and if you don't go with paying off your debt, I think you're just as good to put your funds here. With that said, as you continue to build your investment education and explore financial markets. I would recommend a couple resources to help along the way: "A Random Walk Down Wall Street" by Burton Malkiel and "Money: Master the Game" by Tony Robbins. If you're into audiobooks, let me know and I'll shoot you a link from Audible that let's you listen at no charge.
In any event, it sounds like you're mostly on the right path thus far. As I mentioned above, feel free to reach out if I can help further or clarify anything.
Adam C. Harding, CFP
These three are great.
'The Investment Answer' - Goldie
'A Random Walk Down Wall Street' - Malkiel
'Money: Master the Game' - Robbins
Adam Harding, CFP
The best indicator of an investment's performance is the total return of the investment, which is growth plus income.
Grading an investment's current value compared to its cost basis will only give you the holding period rate of return if the investment paid no dividends, interest, or capital gains distributions. As an example, when you review a performance chart of a mutual fund or ETF for a specified period of time, the chart should show underperformance if the fund made distributions of any kind.
To calculate your holding period rate of return you need to take the current value of the investment, subtract the cost basis, add any cash flows that do not represent return of capital (dividends, interest, capital gains), and then divide this total by your cost basis. Determining an annualized rate of return is vastly more complicated. Fortunately, most advisors have access to robust software that does this automatically for their clients.
Of course, the above is just general information. Feel free to shoot me a message if you'd like more detailed input.
Adam C. Harding, CFP
If you make post-tax contributions to a traditional IRA you will need to continually file a form with your taxes to carry forward the portion which is not tax-deferred. This is called form 8606, here is the most recent version of it: https://www.irs.gov/pub/irs-pdf/f8606.pdf
If you do not file this form and your records aren't complete upon eventual withdrawal, then you risk being required to claim these distributions as ordinary income and, thus, see double taxation on the deposited amount. The portion of the future withdrawal that is attributable to investment growth would be taxed as ordinary income.
While I do agree with the potential that tax-deferred growth allows, I also feel like the benefit in making non-deductible IRA contributions over that of a taxable account contribution is limited; especially when considering the added reporting requirements involved. That said, if making a non-deductible deposit and performing a Roth IRA conversion is an option, then the situation becomes a bit more attractive for you. There are some nuances that make this strategy more or less viable and you should speak with an informed advisor prior to implementation.
Adam C. Harding, CFP
For informational purposes only. Not to be considered investment, tax, or legal advice.