Silber Bennett Financial
Rebecca Dawson is an experienced, independent financial advisor offering personalized wealth and investment management guidance to a select group of individuals, families, and businesses in Southern California and around the country. Her mission is to be a trusted advisor to her clients by partnering with them to identify what is most important in their financial lives while providing tailored solutions to help achieve their goals.
For over 20 years, Rebecca has served as a financial advisor. She has developed highly refined methods for evaluating client's needs and formulating successful investment strategies. She and her staff provide an exceptional level of service to her clients, who are typically worth well in excess of $1 million and include some of the most prominent people in the United States.
Before joining Silber Bennett, Rebecca managed her own independent brokerage office since 1999. Prior to that she held similar positions with PaineWebber, Merrill Lynch, and Alex.Brown & Sons.
Her clientele have included corporate presidents, and officers, charitable foundations, pension funds, business owners, and wealthy retirees. Her affiliation with Silber Bennett Financial provides her clients with full service wealth strategies.
BA, Liberal Arts, University of Texas at Austin
SECURITIES AND ADVISORY SERVICES OFFERED THROUGH SILBER BENNETT FINANCIAL, INC.
DOI: CA 0H72697 | MEMBER: FINRA / SIPC
Why Choose Rebecca Dawson
Rebecca Dawson on To The Point
In order to buy a publicly traded stock you must buy the stock listed on one of the stock exchanges such as the NYSE, AMEX, or NASDAQ. Either when it first goes public (IPO) or thereafter in the secondary market.
When a private company goes public it is referred to as an Initial Public Offering, or IPO, by selling shares of stock to the public usually to raise additional capital. After its IPO, the company will be subject to public reporting requirements and its shares often become listed on a stock exchange. Then the shares trade openly in the secondary market.
There is one simple reason why most private business owners decide to sell ownership in their company in order to trade on the stock market: to raise money. Going public is often the best way for an already successful business to raise capital.
There are two major options for businesses to raise money:
- Take out a business loan
- Sell ownership in the company
When a company goes public they are selling ownership in their company.
They may want to expand their business, hire new talented individuals, open more locations or any number of reasons that require obtaining more capital at the risk of giving up ownership in their business.
One process of taking a company public involves hiring a large investment bank, who acts as underwriter for an initial public offering. The underwriter decides how much money investors are willing to offer for shares in the company. An initial public offering (IPO) is then planned out and the company shares hit the stock market at a predetermined price.
While ultimately the initial capital raised for the company through the IPO will come from individual investors who purchase shares, the underwriter will usually finance the transaction, providing capital to the issuing company in advance of the stock going public.
Yes, taking a large withdrawal from your traditional IRA could potentially put you in a higher tax bracket and it could also increase the threshold for provisional income which could cause your Social Security to be taxed. This would be an issue you should discuss with your CPA for your personal financial situation.
Here are the differences between IRAs:
- Traditional IRA - You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
- Roth IRA - You make contributions with money you’ve already paid taxes on (after-tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
- Rollover IRA - A Traditional IRA intended for money "rolled over" from a qualified retirement plan. Rollovers involve moving eligible assets from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA.
I have attached an article addressing this very issue below:
Depending on your view of where you believe taxes are headed, it might be a concern when making your retirement investment decisions. We have all been advised to put money away for retirement in tax deferred accounts like 401(k)s and IRAs. As your 401(k) and IRAs grow, so does the government’s share since they are your uninvited partner. Unlike most business partnerships, the IRS can increase their percentage of your hard-earned tax deferred savings at their discretion.
Look at where federal income tax rates have historically ranged:
History of Tax Rates: 1913 – 2014
Tax Rates Throughout History
In 1913, the United States endorsed the 16th Amendment and instituted the federal income tax. That year the top tax bracket was 7% on income over $500,000 (in today’s dollars that amount would equal approximately $11 million). Conversely, the lowest tax bracket in 1913 was 1%. Lawmakers use taxes to stimulate a sector of the economy or to raise revenue. You have heard the saying that the two things you can count on are death and taxes? Well death does not get any worse (to my knowledge) every time Congress meets.
To finance World War I, Congress passed the 1916 Revenue Act and thereafter the War Revenue Act of 1917, which increased the highest federal income tax rate from 15% in 1916 to 67% in 1917 and 77% in 1918. We all know war is very expensive. After the war in the roaring 1920s, federal income tax rates decreased to 25% from 1925 to 1931.
Then came the Great Depression, and Congress decided to raise federal income tax rates again in 1932 from 25% to 63% for those in the top tax brackets. Then came another war, WWII, and in 1944 the top rate was 94% on income over $200,000 (in today’s dollars that amount would be approximately $2.5 million). Top tax rates didn't decrease below 70% through the 1950s, 1960s or 1970s. (For related reading, see: The History of Taxes in the U.S.)
The Economic Recovery Tax Act of 1981
In 1981, the Economic Recovery Tax Act of 1981 decreased the top bracket from 70% all the way down to 50%, indexing the brackets for inflation. Then in 1986, lawmakers enacted the Tax Reform Act of 1986, expanding the tax base and dropping the top income tax rate to 28% beginning in 1988. The theory was that having a broader base had fewer deductions and would bring in the same revenue. That 28% income tax rate only lasted three years.
In the 1990s, federal income tax rates went to 39.6%. Then the Economic Growth and Tax Relief and Reconciliation Act of 2001 decreased the top income tax rate to 35% where it stayed from 2003 through 2012.
More recently, the American Taxpayer Relief Act of 2012 raised the top federal income tax rate to 39.6%. Then the Patient Protection and Affordable Care Act added another 3.8%, making the total maximum income tax rate 43.4%.
In summary, I find it imperative to look at history to predict the future since these changes can affect your investments. Higher taxes mean less money for your retirement years. Moving your tax deferred funds from accounts that are forever being taxed to accounts that are never taxed is one solution.
Converting to a Roth IRA
Converting your traditional IRA or 401(k) (or at least a portion of these funds depending on what taxes could easily be paid on those dollars that year or over a series of years) into a Roth IRA is a simple solution. By converting your traditional IRA into a Roth IRA you will:
- Reduce your tax rate risk: The risk that taxes in the future could be higher than they are today. Once it is converted, any withdrawals from the Roth account after five years and achieving the age of 59.5 will be tax-free. (For related reading, see: How a Roth IRA Works After Retirement.)
- Eliminate your Required Minimum Distribution (RMD): Once you turn 70.5 years of age the government wants your tax dollars so badly that they require you to take these funds out of your traditional IRA every year. If you forget or choose not to take these funds out of your traditional IRA, the IRS will impose an excise tax. It is a 50% penalty. The IRS is a greedy partner.
- When withdrawing funds from your traditional IRA, the income counts as provisional income, whereas when withdrawing funds from your Roth IRA, the distributions have no Social Security tax. Roth IRA distributions do not count against income thresholds that may cause Social Security benefits to be taxed.*
- Your heirs will receive your Roth funds tax-free. (For related reading, see: 4 Mistakes Clients Make With Roth IRAs and Their Estate.)
- Roth IRA conversions may be re-characterized if your financial situation changes that year.
Converting from a traditional IRA to a Roth could be a useful tool. By paying taxes today you can take advantage of historically low rates. Also, if you are young enough you may still have plenty of deductions that could potentially help offset the taxes. Additionally, our new White House administration’s tax plan could potentially make it an even more attractive time.
(For more from this author, see: Tax Savings with a Roth IRA and Real Estate.)
*In 1983, President Ronald Reagan and House Speaker Tip O’Neill passed a law that would tax Social Security benefits in order to ensure the long-term viability of the program. The IRS created income limits, or thresholds, that determine whether or not your benefits will be taxed. Now we understand what actions the IRS will take if you do not take your RMDs from your traditional IRA, if you take out too much you will pay higher taxes on your Social Security benefits.
Investing in individual stocks is dependent on the size of your investment portfolio. Keeping your portfolio diversified with a mix of stocks, bonds, and/or other fixed income investments would increase the likelihood of a successful portfolio. Also, looking at alternative investments that are non correlated with the markets.
If investing in individual stocks you would need to have enough funds to buy a diversified portfolio of different stocks. There are large cap, small cap, mid cap then you would want to look at diversifying by industry and sector. The most succesful way to do this is by buying funds or hiring a professional money manager. The best way to determine this is to consult with a financial advisor in order to indentify your investment goals and risk tolerance. Picking the right stocks requires in depth analysis and requires daily monitoring. The stock market can be volatile and unpredictable so having your risk spread over a basket of individual stocks and other investments would be the best way to potentially increase the growth of your portfolio along with taking some additional exposure.
Mutual funds, unit investment trusts, closed end funds, and ETFs are all ways of investing in stocks that would give you the diversification you need along with professional management.
I do not know your age although I have had many clients approaching retirement sell their rental properties because of the experiences you mentioned, as well as not wanting to deal with the three Ts: Tenants, Toilets, and Trash.
If you are looking for an alternative that would save on taxes, I would recommend a 1031 Exchange. Sell both properties then do a 1031 Exchange. The purchase or sale of a beneficial interest in a Delaware Statutory Trust qualifies for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code ("1031 Exchange"). Investors can sell their existing investment property and 1031 Exchange into a beneficial interest in one or more Delaware Statutory Trusts. They can also sell their beneficial interest in a Delaware Statutory Trust and 1031 Exchange into another DST or into other property selected through the assistance of their financial advisor.
The following sequence represents the order of steps in a typical 1031 exchange:
- An investor decides to sell investment property and do a 1031 exchange. He contacts a qualified intermediary (QI) and they enter into an agreement.
- The investment property is placed on the market.
- An offer to purchase the investment property is accepted and signed by the QI.
- Escrow for the sale is opened, and a preliminary title report is produced.
- The QI sends required exchange documents to the escrow closer for signing at property closing.
- Escrow closes.
- Within the first 45 days after the close of escrow on the sale of the relinquished property, the investor identifies replacement properties as required by law. This is known as the "Identification Period".
- Within 180 days after the close of escrow on the sale of the relinquished property, the investor closes on one of the replacement properties which he has identified. This is called the "Exchange Period". This completes the exchange. No cash – or ‘’boot’’, as it is known – is taken by the exchanger.
The target market for 1031 exchange ownership are taxpayers with a net worth in excess of $1,000,000 who are seeking a monthly cash flow without the headaches of being a landlord. You may also upgrade your real estate to say ownership of a class A office building and receive a monthly check from the DST sponsor. Picking the right property and sponsor with a good track record will afford you better success than you have had and take away all the headaches.
If you are currently using Robinhood, you understand the ease of use is what attracts young people, but it could also be expensive not from fees since the app is free but from your investment portfolio. An app that allows you to trade in the stock market, with no knowledge, could get more expensive versus paying the fees from an experienced financial advisor. Especially if you are buying individual stocks unless you are spending more time following them.
ETFs would be a good supplement to your individual stocks. You could also look at Unit Investment Trusts since they would give you more diversification in your portfolio and have set terms, usually 12 to 24 months.
The only way to potentially increase your investment returns is by diversifying your portfolio, utilizing an investment discipline, and doing your homework. If you want to increase your return or become more speculative, I would advise using the services of a financial advisor.
Adding ETFs to a portfolio of stocks may or may not increase your overall return. Increasing the performance of your portfolio is dependent on actively managing your portfolio. It is important to identify your investment risk tolerance, your time horizon, and investment goals. It sounds like you are young enough to build a successful portfolio although starting out without any experience and then having to rebuild would not be worth the savings from Robinhood.