Clearstone Wealth Management LLC/IPI Wealth Management Inc.
For more than twenty years, Paul Brown has worked closely with business owners, partners, professionals and family leaders to design and implement effective strategies for their company’s growth, renewal, turnaround and succession. After working as a consultant for Moss Adams, one of the nation’s largest accounting and consulting firms, he became convinced that standardized approaches and cookie-cutter solutions seldom produce lasting, meaningful results. He took a different approach; one that focused on meeting the unique needs, challenges and expectations owners face throughout the life-cycle of their business or professional practice.
Paul has been a hands-on advisor and "interim executive" in the financial industry and has worked with firms and privately owned businesses throughout the United States, including Hawaii and Alaska, and in Eastern Europe.
He started Clearstone Wealth Management, a fee-only investment advisory firm, to help business owners, family enterprises and career professionals prepare for when they face the unique challenges that come when their business, investments and other sources of income and wealth converge to support their long-term and legacy goals.
In addition to having a graduate degree from Bellevue University, Paul is a proud member of the University of Iowa Alumni Association (Go HAWKS!) and a life-long fan of the Chicago CUBS. Yes, he had tears in his eyes when the CUBS won the 2016 World Series.
In his spare time, Paul plays golf, skis and enjoys his family. In warm weather, he can be found riding his motorcycle through one of the area's beautiful mountain ranges.
MA, Leadership, University of Iowa and Bellevue University
Assets Under Management:
Investment advice offered through IPI Wealth Management, Inc., 226 W. Eldorado St. Decatur, IL 65222. PHONE: 217-425-6340. Clearstone Wealth Management LLC is not affiliated with Investment Planners, Inc. or IPI Wealth Management, Inc.
First, pay off the high balance credit card. You'll sleep better.
Second, pay off the smaller of the two personal loans. Now you'll sleep so well that you'll have a hard time getting up in the morning.
Third, take the combined amounts of what you were paying on these two paid off loans and put 50% in savings (for emergencies) and the other 50% will be added to your payment on the $4300 credit card balance because even though you are not paying interest now, you will be if you don't get this paid off!
Fourth, take the combined amounts (including for your newly paid off "non-interest" credit card) and put 50% in savings and the remainder to your outstanding personal loan.
Or instead, do what one of the other advisors recommend. Because no matter which direction you choose to go, the most important step is to create and follow a plan with both determination and discipline.
The short answer is, "Yes." The funds in your wife's 401(k) belong to her and can be used for any purchase. If she wants to buy real estate, she can. If she wants to buy an expensive sports car, she can. If she wants ... You get the idea.
That being said, there are two follow-up questions, that are actually more important.
First, "If we use my wife's 401(k) to purchase land, are there consequences?"
Now the answer changes to the expected, "It depends." The funds she withdraws will be taxed as income at the marginal rate of your return for the year the funds are withdrawn. Which means any funds withdrawn will be taxed at your highest rate for 2018 (assuming this is the year the funds are withdrawn). And if she is younger than 59 1/2, she'll pay another 10% as a penalty for early withdrawal. And, of course, she'll need to consider the impact of her state taxes.
Taken together, she could lose 40% of her withdrawn funds to taxes or, assuming a $400,000 withdrawal, $160,000. Even without the 10% penalty, the tax-hit might be too large to make this a reasonable option.
The second question has to do with options: "Is there a way for my wife and me to finances a real estate purchase without the penalties and taxes?" And as before, I'll start by answering, "It depends" (and with that I'm reminded of Jim Carrey's memorable line from the classic movie, "Dumb and Dumber" when he declares, "So there is a chance!").
If your wife is no longer working she could move her 401(k) into a rollover IRA (something she should do anyway) and create a "Self-Directed IRA" (SDI). Even here, however, the issue should be explored thoroughly as there are rules to be followed and fines to be avoided. Generally speaking, an investment property - such as a rental house - can be held inside of an SDI with the income/gains of the property flowing back into the account. In this example, rental property is an investment that has been approved by the IRS, as long as all parties follow the rules.
Without going into specifics, the property cannot be purchased from or used for the benefit of a close relative. If you and your wife, for example, intend to live on the property, the purchase would fall outside of the rules. If you are just looking at "land," and buying it from a non-relative (again, this is a general statement) with the intent of holding the land as it appreciates then selling it to an unrelated party, then you would be falling within the rules.
As a rule of thumb, when buying property and holding it inside of an SDI, the "trustee" (in this case, your wife) and her nearest relatives cannot personally benefit from the transaction. You could, as before, buy 100 acres of land, hold it, then sell it to a developer. If, however, you held onto 10 acres of land to build your personal home, you could run afoul of the rules. Planning and caution will be required.
Before proceeding you should have a conversation - or several conservations - with someone experienced in managing your entire wealth. It seems as though you have a lot of moving pieces that will need to be aligned to meet your objectives.
First, let me qualify my answer by saying that it is given in response to the limited information you have provided. As a result, if you and I were meeting and I had a better understanding of your complete financial picture I would likely make adjustments to my comments. Still, you've asked a direct question and therefore deserve as much of a direct answer as can be provided.
Having said that, you do NOT want to keep your student loans in forbearance. Although there may be some situations in which this makes sense, in most instances, it is a bad idea.
I would first encourage you to pay off your credit card debt, even if you have to take $21,000 out of your savings account to do so. In about 4 short months you would have replenished your savings account, assuming you continued to save at the rate of $1550/month.
More than likely, this would not bridge the new $700/month "gap" on your student loan requirements. The next step would be for you to contact your lenders (directly) to see what, if anything, they are willing to do to reduce your payments. As an alternative - and I would suggest a simultaneous one - see if there are other options for your student loan debt. There are refinancing companies and private lenders who may be willing to work with you, even at a lower interest rate.
Next, I would cut back on either your savings or your 401(k) contributions. At least for a time. Please note that this is where a conversation would be helpful. It looks as though you are currently putting in about $18,000 per year into your 401(k). Additionally, I'm going to assume your employer is contributing another $2500 - $5000. If I could, I would model out two or three different scenarios for you, each one taking you through to the time you actually retire.
The first one would be to stop all 401(k) contributions until your student loan is paid off. This is extreme, and probably not one that I would recommend. But people do it, or at least think about, so I believe the exercise is important.
The second would be to continue as you are while making your student loan payments. Here we would project the time before your student loan debt was paid off, estimate the wage increase(s) you would expect to receive, keep your savings, etc. If it took 20 years to pay off the loan, where would you be - in total - in 21 years? This long-view can help you find perspective.
The third would be modified. I might begin by asking, "How soon would you like to have your student loans paid off?" If you said 5 years, then I would model the 401(k) adjustments to an accelerated payment schedule. Once again, I would draw this model out until you retired by reducing your 401(k) for 5 years and then increasing the contribution thereafter.
Ultimately, the choice is yours. From my experience, the possibility of paying off student loans in a shorter period of time can be appealing. Especially if we can show that the long-term impact of doing so is not terribly difficult.
Not unless you are receiving earned income. Which sort of means you haven't really retired, right?
Here is my rule of thumb. And feel free to do with it what you want.
For someone your age who is just starting to invest, I usually recommend they keep their first $50,000 fairly clean and simple. Using low cost ETFs I would consider putting 80% of your investment funds in an all equity holding (just one) and the other 20% in a bond holding. If you used SPY for your equity (an S&P 500 index fund) and BIV for your bond (an intermediate-term bond fund) you would have a strong start.
After $50,000 (or so) you can consider breaking up your equity (by including other assets), thereby diversifying away from large U.S. companies.