Flourish Wealth Management
Director of Wealth Management
Derek Hagen has close to 15 years of wealth management experience. Derek has gained valuable expertise in leveraging technology to support the financial planning process. Derek has a passion for helping clients understand their relationship with money and aligning their money with their lives.
Derek worked full time while attending Minnesota State University Moorhead in his hometown of Moorhead, Minnesota. After earning his degree in Economics, Derek moved to the Twin Cities in Minnesota and started his career working for an investment management firm. There, he gained valueable knowledge about financial technology, calculating and reporting investment performance, trading investment portfolios, and investment operations. He later moved to an investment advisory firm helping clients determine the best portfolio to reach their financial goals. Derek emphasizes deeply listening to clients to fully understand their financial situation and long- and short-term goals. Only after diagnosing does he offer a prescription.
Derek lives in Minnetonka, Minnesota with his wife Katie and their animals, Whiskers the cat and Bingo the dog.
BA, Economics, Minnesota State University Moorhead
Assets Under Management:
Flourish Wealth Management is a Registered Investment Adviser. No information provided here is a solicitation or offer to sell investment advisory services. Flourish Wealth Management provides individual client services only in states in which it has filed or where an exemption or exclusion from such filing exists. Registration as an Adviser does not imply a certain level of skill or training.
It sounds like your son wants to buy a home but doesn't have the credit needed to get a mortgage, and you are interested in buying the home for him.
I would not advise doing this for several reasons. Your son can likely still rent an apartment and be happy. While renting, he can save money for a down payment and work on repairing his credit. You don't want to jeopardize your retirement to purchase someone else a house. Your retirement account is likely tax-deferred, so you would have to pay taxes on any withdrawals that come out of the account, and if you are under 59.5 years old you would have a penalty on top of that. Your son has more time than you do. Taking a withdrawal from your retirement account could mean you would have to work longer than you would want to. Lastly, consider what your son did in order to get bad credit. I don't know the backstory, but it's common to hear that kids in this situation have bad spending habits. So if that's the case her and your plan was for your son to pay you back, you have to at least consider the scenario where he doesn't or can't pay you back.
I am happy to hear you have taken steps to make smart decisions with your money. Great work.
It sounds like you want to take some of your savings and try to get a better rate of return. You may know this, but I'll point out that greater returns come with greater risk, meaning that the investments could fall in value. If you keep the long run in mind and study a little bit of market history, this shouldn't be too much a problem for you, though. Don't put any money into the stock markets that you might need within a few years.
Index investing is an efficient way to gain exposure to stocks. Props to you for knowing that. The first thing I would suggest is figuring out what areas of the market you are comfortable with. You can invest in an all-U.S. index or in an all-world index. I would suggest looking for funds that are broadly diversified. You should be able to find which index each fund tracks and find out what kinds of companies and how many companies are in that index. A good indicator is to look at the number of holdings (if you are looking for exchange-traded funds you can use ETF.com to find these data). Ideally this number will be very high. You also want to look for funds with low expenses. Look at thinks like the expense ratio, which is how much to pay to the fund company, and the turnover ratio, which indicates how much the fund buys and sells stocks. You want both of these number to be low.
If you have a brokerage account open (like at Vanguard, Schwab, Fidelity) than you can buy ETFs in your account. I would suggest looking at fund companies like Vanguard, Schwab, iShares, or SPDRs.
This is a personal decision. Consider, though, that the cost of a 4-year public school is around $25,000 per year and by the time your child goes to college in 15 years that number could be as high as $50,000 per year. That's the case for continuing your contributions to the plan.
There are some drawbacks, however. If you child decides not to go to college or goes to a community college or other less-expensive route, you would have a large amount of money built up and would be unable to use all of it on your child's education. That's not the worst thing in the world - you won't have to pay penalties or taxes on the amount of the contributions, and on the gains in the account you will have to pay taxes and a penalty if you were to withdraw that money for non-education expenses.
One thing to note is that you can always change the beneficiary on 529 plans. So if you decide to have more children you can change the beneficiary to them. Some people keep the accounts for their grandchildren. You can even change the beneficiary to yourself if you wanted to go back to school for any reason.
If you are able to contribute to a Roth IRA in addition to your retirement account at work, you might consider redirecting your contributions to the Roth IRA. With a Roth, you can take withdrawals to pay for eduation without paying penalties (although you would have to pay taxes on the gains if you are under 59.5 years old when your child went to school).
I hope that helps. Great work establishing an education fund for your child!
It sounds like you want to help your son further his education and don't want to miss out on any tax breaks that might be available to you.
The short answer is no. You may have heard of an education savings account, called a 529 plan. Even with these there are no federal tax breaks, but some states allow a state tax benefit. If you live in California, then they do not offer a tax break. If there was sufficient time between your gift and when the money would be needed, then the money in the 529 plan gets to grow and be withdrawn tax free if the money is used for college, but if your son is going to grad school soon, then you wouldn't get much, if any, benefit from this.
The only other reason to consider a 529 plan is to get this money to your son without having to pay gift taxes. You can front load five years worth of gifts up front, which is currently $70,000, or $140,000 for both of you. However, if you pay directly to the school and not to your son, then it doesn't count as a gift, anyway.
So, long story short, paying money to the school directly would allow you to avoid paying gift tax, and that is the only real tax break that you have available to you.
I hope this helps.
It sounds like you have done a lot of research - great work!
I like the simplicity of your approach and it may be a great strategy for you. I think the experts you refer to prefer different strategies because they want to either spend down the taxable accounts first since those are the least tax advantaged, or withdraw from retirement accounts if you are in low tax brackets so you can get money out of your retirement accounts at lower rates.
One option is to consider consolidating accounts. Depending on who the account holders are, you should be able to get all your retirement accounts down to two IRAs (one in your name and the other in your wife's name). That way you would only have 2 Required Minimum Distributions (RMDs) when you turn 70.5.
Until then, since you will not be makign earned income, your income will come from interest, dividends, and capital gains on from your brokerage accounts, and wirhdrawals from your retirement accounts. So, depending on the balances in your accounts and the amount of income you receive, one strategy is to "fill up" the lower tax brackets with money from your retirement accounts. That way to you don't waste the opportunity to get money out of your accounts at lower rates and it will get the balances of your retirement accounts down so that your RMDs aren't so high.
At the end of the day, your comfort level is more important than finding the mathematically optimal strategy. Research "tax efficient withdrawals in retirement" and find a strategy that work for you and your situation.