STA Wealth Management, LLC
Partner and Executive VP of Financial Planning
Scott Bishop is a Partner and is Exec. Vice President of Financial Planning at STA Wealth, a Houston based RIA Firm. In this role, Scott guides clients through the process of identifying and realizing their personal financial planning goals while working with them to help develop, implement and monitor strategies to help assure the long-term coordination of their overall financial, retirement, business planning.
Scott is also the host of STA's radio show, "Financial Planning Fridays" on The STA Money Hour, on 950AM KPRC Radio in Houston at 12pm Central where he frequently discusses tax and financial planning topics and hosts interviews of industry experts.
Scott graduated from the University of Texas at Austin with a Bachelor of Business Administration in Accounting and received his Master of Business Administration from the University of St. Thomas.
Currently, Scott is a CFP® and a CPA and also holds a PFS® designation. Scott has been active as a member of the American Institute of Certified Public Accountants (AICPA), the Texas Society of Certified Public Accountants (TSCPA) and its Houston CPA Society as a member of its Board of Directors. He has also been recognized for excellence by being named the Young CPA of the Year for 2002-2003 by the Houston CPA Society, one of the largest and most prominent CPA chapters in the United States.
In addition, Scott has both authored and has been interviewed for numerous articles in financial related publications and websites such as the Wall Street Journal, MarketWatch, CNBC, USA Today, Washington Post, The New York Times, Investopedia, Houston Chronicle, Investment News, Kiplinger, The AICPA Tax Section, BankRate.com, the Houston Business Journal and the CPA Forum. Scott is also a member of the Houston Business and Estate Planning Council.
BBA - Accounting, University of Texas at Austin
MBA - Finance, University of St. Thomas
Assets Under Management:
AUM information provide is for the firm STA Wealth Management, LLC of which Scott Bishop is a partner/shareholder. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC (“STA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. STA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request.
IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
STA Wealth Planning Process - Scott Bishop
In addition to benefits such as Estate Tax Planning and asset protection, one of the primary reasons that parents (like yours) create an irrevocable trust is to separate equity from control and to help assure that their wishes are followed after they are gone...and that the beneficiaries can enjoy their inheritance (equity) while a business can continue operating (control).
Although it is possible for an irrevocable trusts to be terminated per rules set forth in the legal document (the trust document), it is typically very difficult and it is almost never able to be done unilaterally (by just your brother). Even if it is attempted it almost always needs the consent of all parties to the trust (not just your brother...don’t let him bully you) including:
- The Trustee(s) - sometimes there is one and sometimes there is more.
- The Trust Protector - a fiduciary to help resolve arguments/disagreements if your parents included one in their document.
- ALL Beneficiaries (that will for sure include you...and possibly even your children depending on the document).
In the event of disagreement like this, each family member should get their own legal counsel that has experience in both probate/trust law AND litigation and disputes related to trusts and estates. Don’t be bullied...get an expert.
My guess is that your parents used an experienced estate attorney to set up their Business Succession Plan (that is why it is so important)...especially when there is a family business where their children work in or are financially dependent on the business continuing through multiple generations.
By the way, the trust agreeement most likely spells out all of your rights as a beneficiary (including getting income and even changing who Contoller the company). Any good attorney can help make sure that the trustee (and your brother) cannot force or “expel” whoever does not obey him.
Good luck...and I hope your brother doesn’t stop the succession of the business that you and your parents have built from going to the next generation.
Albert Einstein is often quoted as having said “Compound interest interest is the 8th wonder of the world...or a miracle”. As a financial advisor, I believe it is important for you to start saving early and often. It needs to be a discipline that you start now and continue to practice throughout your working years. Even without the emergency fund and with the credit card debt (manageable by the way), I would start saving in your company’s 401(k) immediately. It is a great way to start planning now and avoiding money worries down the road.
Also, with the 4% match, if you put it 4% of your salary ($2,400 per year or $200 a month), it will give you a 100% return on your money. In addition, the match sounds like it may be a “Safe Harbor” match and will be 100% vested to you (belong to you even if you leave the Compnay). You should ask that question as well to your boss or HR department.
I wrote a 4 part series on Investopedia called Avoiding Money Worries - Planning Through LIfe’s Stages. It would be a PERFECT time for you to start on Part One. It will help answer all of your questions...and think through all the financial questions you should be answering at your current stage in life:
- Managing your budget,
- Getting control of your credit,
- Getting control of your debt, and
- Prioritizing your Spending to Pay off Debt AND Set Goals
Good luck...a great time to start planning fo your future is NOW!
The bottom line answer is that NO you cannot leave the excess contribution in your IRA (or a Roth IRA for that matter) without incurring more penalties. Also, there is NO statute of limitations on this unless you “fess up” and file IRS Form 5329....and for a 2016 contribution (for those that have not yet filed), you have to fix it before October 16, 2017 to avoid the 6% penalty.
These excess contributions are subject to a 6% excess contribution penalty for EACH year that they remain in your IRA. The 6% excess contribution penalty is reported on IRS Form 5329, which can be filed with your tax return or can be filed as a stand-alone return. If not filed, the statute of limitations never begins to run adding more penalties plus interest. The bottom line here is that you will want to see a tax advisor to be sure that any penalties owed are paid and that the excess contributions are properly corrected.
I checked with IRA Guru Ed Slott to get some more information:
What is an excess IRA contribution?
Excess contributions to IRAs can happen for a wide variety of reasons. No one can contribute more than $5,500 if under age 50 in 2016. Those who are 50 or over in 2016 cannot exceed $6,500. If you contributed to an IRA for 2016 and you or your spouse did not have taxable compensation from an employer or self-employment income, you have made an excess IRA contribution.
For Roth IRAs, there are income limits. For 2016, the income phase-out range for contributions if you are a single filer is between $117,000 and $132,000. If you are married filing jointly, it is between $184,000 and $194,000. Making a Roth IRA contribution when your income is too high will result in you having an excess contribution. There are no income limits for traditional IRA contributions, but there are age limits. You may not contribute to a traditional IRA in a year when you are age 70 ½ or older.
If an excess contribution is not corrected in a timely manner, a 6% excess contribution penalty will apply. This penalty is not a once and done thing. It will apply each year the excess remains in the IRA. That is why it is important to correct your excess contribution as soon as possible. It is not a problem that will necessarily go away on its own.
Correcting an Excess without Penalty
How can you avoid the 6% penalty? Well, you must correct the excess contribution by the deadline. The deadline for correcting a 2016 excess IRA contribution without penalty is October 16, 2017. You will have two potential strategies for how you do the correction.
You may choose to withdraw the contribution and the earnings or loss attributable from the IRA. The contribution amount is not taxable or subject to penalty. However, any earnings would be taxable and may also be subject to the 10% early distribution penalty if you are under age 59 ½.
Your other option would be to recharacterize your contribution. When you recharacterize your contribution, plus the earnings or loss attributable the funds would be directly transferred from a traditional IRA to a Roth IRA or vice versa. Recharacterizations are not taxable or subject to penalty.
Which method of correction should you use? Well, it will depend on the facts of your situation. For example, if you have an excess traditional IRA contribution because you were age 72 in 2016, you may consider recharacterizing that contribution to a Roth IRA where there are no age limits. However, if you made a traditional IRA contribution and you have an excess contribution because you have no taxable compensation, recharacterizing will not help you. You will need to correct your excess by withdrawal.
While you still have some time before the October 16, 2017 deadline to correct your excess 2016 IRA contribution and avoid a penalty, it makes sense to take care of it now during tax season. By doing so, you can be sure that you don’t miss the deadline and you may be able to avoid the hassle of having to file an amended tax return. The excess IRA contribution rules are complicated. You may want to seek the advice of a knowledgeable tax or financial advisor.
I am an Elite IRA Advisor with Ed Slott & Co (Ed is a CPA and is known nationally as an IRA expert). Here is one of the pieces I found on Ed’s website (that I have updated for 2017) on this topic.
There’s a common belief that if you have a 401(k) plan where you work and you contribute to it, you’re not allowed to also contribute to your IRA for the same year. But that’s not true; you’re allowed to contribute to both.
As far as IRA or Roth IRA contributions go, for 2017, the maximum that you can contribute is $5,500 if you’re under age 50 or $6,500 if you’re age 50 or older this year. In fact, you can contribute to both an IRA and a Roth IRA for the year, but the total limit is $5,550 (or $6,500). For example, let’s assume you’re age 60, working this year, and eligible to contribute the full $6,500 to a Roth IRA. If you decide to only contribute $4,000 to your Roth IRA, you could choose to contribute the remaining $2,500 to your IRA, bringing the total to $6,500.
Let’s also assume you have a 401(k) plan where you work. The maximum 401(k) contributions (also known as salary deferrals) you can make for 2017 are $18,000. If you are age 50 or older and your plan allows, you can also make catch-up contributions of an additional $6,000, making your total 401(k) contributions $24,000. Oftentimes, 401(k) plans have some plan-based restrictions on salary deferrals that might reduce the maximum dollar amount you can actually save. For example, your plan might need to limit your salary deferrals to pass certain IRS nondiscrimination tests.
Contributing to a 401(k) in no way limits your ability to make contributions to an IRA or Roth IRA. Roth IRA eligibility is only limited by your modified adjusted gross income and there are no income limits for contributing to a traditional IRA. The biggest limit really is how much money you can afford to contribute. If you can afford to contribute the maximum to both your 401(k) and IRA for 2017, then you can contribute a total of $23,500 ($5,500 + 18,000) if you’re under age 50 or $30,500 ($6,500 + $24,000) if your age 50 or older.
All else being equal, yes, I think that is a good plan. The only downside would be if you drain your taxable account to a level where you don't have access to funds needed in an "emergency". I would not want you to pay any 10% penalties or have to do a 401k loan.