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:
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.
Good question. While I can't give specific guidance without knowing more about your unique circumstances, here are some things to consider:
1) Do you anticipate paying a higher or lower income tax rate during retirement? If you think it is going to be higher because of new tax law or because you'll have significant income, then it may be better to pay the tax on contributions today and make Roth 401(k) contributions. If you think your rate will be lower due to the fact that you're not earning income anymore or because income taxes have declined, then a traditional contribution may be more appropriate.
2) Any employer match in the plan is going to be made pre-tax (traditional). So if you elect to make Roth contributions and your employer matches some amount, both pre-tax and Roth assets will begin to build within your plan.
3) I like clients to have a nice blend of both, as maintaining asset pools with different tax classifications can have the effect of allowing a tax-sensitive, strategic withdrawal plan in retirement.
In any event, both routes require making some assumptions about current and future tax rates. There is no single perfect answer to this, as we can only fully grade our decisions in hindsight.
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
Are you still contributing to the HSA each year? This may help you make a more confident decision towards a slightly more aggressive allocation. HSA investment strategies can be particularly challenging to implement, as really any investment strategy is mostly dependent on estimating a timeline for withdrawals and the amount of those withdrawals. Retirement income, for example, is usually pretty predictable in both date and regular amount needed. The sheer nature of many major medical expenses is that they occur unpredictably.
Clearly, you can expect medical expenses to mount later on in life, so any growth you may be able to achieve would certainly help. I would recommend running a few scenarios where you anticipate the worst-case situations around declines of 20%, 30%, 50% in the HSA and how that might affect you if this decline coincided directly with a major need from the HSA account.
Of course, this is just general commentary, but if you'd like some more specific insight, I'd be happy to give an opinion at no cost. I would just need a few more details.
Adam Harding, CFP
There should be no fees for the rollover; if anything, there should be incentives. Many custodians will offer free trades or cash incentives to move your accounts to their platform. I'd ask Fidelity for their policy prior to performing the rollover.
From there, your son will incur trading costs when adjustments are made to the portfolio (whereas the 401(k) used to cover those), but he'll be saving the embedded expenses within his 401(k).
Of course, if I can answer anything else, clarify something, or help in any way, please feel free to reach out.
Adam C. Harding, CFP
Unfortunately, you cannot contribute securities to a Roth IRA in kind. If you don't have the cash on hand to make a Roth IRA contribution, then you would need to sell the stocks, realize any gains or losses, and make a cash contribution to the Roth IRA. Then, if you'd prefer to continue holding those same stocks, you can re-purchase them within the Roth IRA.
This situation becomes more or less attractive depending on the nature of your gains/losses (short or long term), your individual income tax rate, and your age/time horizon for investing.
Adam C. Harding, CFP