D3 Financial Counselors, LLC
Senior Financial Planner
Prior to joining D3, Michael Smith spent several years with a large, regional bank as a Wealth Management Advisor within their private bank. He specialized in serving HNW business owners, professionals, and corporate executives. In this capacity, he collaborated with a customized team of specialist to deliver high-quality client service and comprehensive advice-based solutions to help his client’s achieve their financial goals.
Michael also has over a decade of experience with a large, global money manager where he helped business owners, professionals, and corporate executives accomplish their financial goals through holistic financial planning. He was responsible for assembling financial plans, managing the investment process and ongoing relationship.
Academically, Michael has earned his Master’s in Science in the area of Personal Financial Planning. Combined with his CFP designation, this combination has provided him with the necessary expertise in his profession.
Additionally, since the area of retirement planning and working with high net worth individuals have their own inherent nuances, Michael earned the Chartered Retirement Planning Counselor (CRPC) designation that focuses only in the area of retirement planning and the Accredited Wealth Management Advisor (AWMA) designation that focus solely on the needs of high net worth clients.
In addition to the required continuing education that is required with each designation, Michael also stays abreast of the ongoing changes in his profession as a member of the Financial Planning Association (FPA) and local estate planning councils.
Personally, Michael is a lifelong resident of the Chicagoland area and the four seasons (but not the extremes) and the urban diversity are what keep him here. He enjoys spending his free time with his wife and three children. When sports activities aren’t in the weekend plans, they enjoy exploring new restaurants, areas of the city, taking short weekend trips and just hanging out.
MS, Financial Planning, College for Financial Planning
There are no easy answers or one solution to protecting assets. It typically comes down to establishing multiple layers of different types of asset protection with the goal to make it as difficult as possible for a creditor to get to your assets. Since the area of asset protection is different in every state and a very complex and technical concept, it is advised to consult with a reputable attorney in your area that specializes in asset protection. Just as important, in order for an asset protection plan to be successful, it would need to be in place prior to any sort of litigation, so don't procrastinate. Since you are a property owner, you are open to potentially more issues.
In general, one of the first steps is to separate your investment properties from your personal assets. This can be typically done by setting up some sort of Limited Liability Company (LLC). In addition, make certain you have sufficient limits of liability coverage on both your investment properties and personal home to cover your net worth. This will usually require an umbrella policy to accomplish. These are just a few ideas of the different layers of asset protection. As mentioned above, be sure to work with an attorney that specializes in this area.
You state that last years gross income was $183,000 and that 2019 will be $199,000. Roth IRA eligibility is based on your adjusted gross income (AGI), which is usually less than your gross income. Your AGI can be found on line 37 of your IRS Form 1040. Therefore, you may still be eligible to make a Roth IRA contribution if your AGI is below the $199,000 phase-out limit.
Additionally, unlike tradtional IRAs, Roth eligibility has nothing to do with whether you or your spouse participate in an your respective 401(k)s.
In the event your AGI is over $199,000, there is an IRS rule that states thay you can contribute to a traditional IRA and immediately recharacterize the account as a Roth IRA, regardless of your income. This is know as a backdoor Roth IRA contribution. This is an indirect way of making a Roth IRA contribution.
As with most tax strategies, before pursuing such a back door Roth IRA contribution, it would be advised to discuss with a qualified financial planner or tax accountant the nuances of a back door Roth IRA contribution and whether it makes sense for your specific situation.
Regarding whether to maximize your spouse's 401(k) contribution, it would be recommended at a minimum to contribute up to her employer's matching contribution. The match is risk- free money being given to you therefore take advantage of it. Thereafter, it would not be a bad idea to maximize her plan contributions only if the plan expenses are reasonable and the investment options are good. Otherwise, consider making a direct or an indirect (back-door) Roth IRA contribution prior to adding more money to the 401(k). This would especially hold true if you do not have the discreationary money to maximize contributions to both your company plans and Roth IRAs.
Often the question whether to pay off a home is made more from an emotional rather than a economic perspective. In other words, the quest to pay off the house early just feels good from a psychological perspective of not having that mortgage payment from month to month irregardless of whether it made financial sense.
To help you make your decision, consider the following:
- If you were to payoff the $95,000 mortgage balance, would you still have enough cash or cash equivalients available both now and in retirement in the event of an emergency? Investing more into your home in the form of equity reduces your overall liquidity. You do not want to lock all of your cash in home equity and limit the amount of free cash in the event you need it. Yes, you can get a home equity loan, but you will pay interest on any amounts you borrow.
- If you were not to payoff the mortgage, what would you do with the $95,000? If it is the only cash available for emergency reasons, than paying off the mortgage would not be a good idea. If you were going to invest it and the expected long-term average return on your investments is greater than your mortgage interest rate, it may not be a good idea to payoff your mortgage from a finanical perspective since you could potentially earn more on your investment than interest saved by paying off the mortgage. One key consideration is whether you are comfortable with the potential volatility of your investment portfolio. If you cannot sleep at night as a result of being invested in the market, perhaps paying off the mortgage is the right idea.
- When you file your Federal income taxes, do you itemize deductions? With the 2017 passing of the new tax law that incorporates a higher standard deduction, determine whether or not you will be itemizing going forward. The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deduction go from $6,350 for 2017 taxes to $12,000 for 2018 taxes. Married couples filing joinlty will see an increase from $12,700 to $24,000. If you find yourself not being able to itemize, you will no longer benefit from a mortgage interest deduction. Keep in mind that these recent tax law changes won't be permanent since many of the bills provisions are set to expire after 2025.
Unfortunately, the answer to your question isn't straight forward. As with all decisions that are intertwined with multiple variables that impact your decision, it is recommended that you consult with a qualified financial planner that can review your entire situation in detail before paying off your mortgage early.
One of the biggest risk a retiree will face in retirement is the risk of outliving their savings. This is often referred to as "longevity risk". One way to protect against this risk is to maximize your fixed sources of income, i.e. Social Security. Although you can sustain a standard of living currently on Social Security, this may not always be true. Therefore, consider depending on your portfolio of $750,000 for income and delay taking Social Security for as long as possible. Each year that you delay taking Social Scurity benefits, if will increase the amount you receive annually by approximately 7% to 8%. This can be viewed as a guaranteed rate of return that would be hard to earn elsewhere.
In general, if you do not anticipate needing your Roth IRA savings now or in the future for retirement income, it makes sense to leave that alone since unlike your 401k, the IRS will not require you to take minimum distributions from the Roth at age 70 1/2. Thus you will be able to let that grow tax deferred and tax free to your heirs or charity.
On the otherhand, depending on your circumstances, you may want to consider taking distributions from your Roth IRA sooner to manage your taxes in retirement. For example, in the event your 401k distribution is putting you into a higher tax bracket, or causing Social Security to be taxed, or causing your Medicare premium to go up (surcharge), consider taking tax-free distributions from your Roth IRA instead of the 401k to prevent undesirable tax consequences.
Tax management in retirement can be complicated and is often overlooked. Depending on your situation, consider consulting with a qualified tax planner.