ReSure Financial Advisors LLC
Bernard Reisz's deep and broad experience in corporate and personal finance enables him to provide clients with comprehensive services - an alternative to a fragmented financial profile. He consistently meets people whose finances are composed of a patchwork of financial products sold to them. As an alternative to selling products and services, Bernard and his team leverage academic research and analytical rigor to empower clients to choose the strategies that suit them best.
Bernard and his team constantly research new approaches to wealth management. There are an overwhelming array of products and strategies available and "you don't know what you don't know." They do the "knowing" for clients and create a financial plan that they'll be confident about. Incorporating risk management and insurance, tax strategy, asset management, and financial planning gives clients the framework to grow their wealth with minimal risk.
For traditional securities investments - equities and fixed income - Bernard and his team recommend investment strategies that are backed by decades of academic research and a proven track record. For alternatives, such as real estate, private lending, private equity, and tax liens, leverage their knowledge of unique tax vehicles to profitably invest.
BS, Business with Accounting Concentration, Excelsior College
Amazing question and powerful strategy!
Contributing to a Roth IRA for a child is a powerful strategy and is definitely doable, but requires an awareness and understanding of the terms listed below. Before getting to that list, let’s understand the power of a child’s Roth IRA.
Roth IRAs allow for totally tax-free growth, as opposed to Traditional IRAs that are only tax deferred but benefit from an upfront tax deduction. Assessing whether to use a Roth IRA vs. a Traditional IRA requires an analysis of the value of an upfront tax deduction of the Traditional IRA, as opposed to the value of tax free earnings. Naturally, the greater the projected investment earnings the more appealing the Roth option. Likewise, the lower the investor's current income tax rate the greater the appeal of a Roth contribution.
For children who have (a) little or no income tax to pay and (b) an additional 20 years of investment compounding growth a Roth IRA is an incredibly powerful vehicle. A no brainer, really!
Now, for that list:
- Gift tax/Transfer Tax
- College Financial aid/FAFSA
- FICA, FUTA, SUTA
- Dependency Exemption
- Workman’s comp
- Payroll processing
- Earned Income
- Standard Deduction
- Roth IRA
- Kiddie Tax
- Passive Income
- Portfolio Income
- Roth IRA contribution limits
- Income Shifting
- Self-directed IRA
- Solo 401(k)
I won’t get into too much detail in this post so as not to overburden you, but the key is to understand that IRA contributions can only be made by those that have earned income – and paying children to do household chores does not qualify. So the first step to making Roth IRA contributions for your child is to get them some earned income, either by having them assist you in your business (assuming you have one) or have them do work for someone else.
Earned income, as opposed to passive income and portfolio income, is generated when the earners material participation resulted in income – whether that be self-employment income or W-2 wages.
Which raises the following question: Do FICA, FUTA, SUTA, and income tax have to be withheld from the child’s earnings? Is Workers’ Compensation insurance required? Is a payroll processing company required? Will my child have to pay income taxes and file an income tax return? Will we be paying tax prep fees? Will I lose the ability to claim them as dependents on my income tax return?
If you’ve got a business and it’s not an S-corp or C-corp, the amazing news is that you can pay your children and not withhold any taxes. Any payments must be reasonable – don’t pay them $5,500 for shredding a few sheets of paper. They must actually do work for your business, which can be paper-shredding, cleaning, or something that they excel at - assisting with social media marketing, such as Facebook, Twitter, and Instagram.
Children are entitled to the standard deduction, so no income tax liability on up to $6,300 of income. Beyond that may want to set-up a Solo 401k.
You'll still get to claim them as dependents on your tax return, unless they provide most of their own financial support. Not likely (wishful thinking).
As you may be able to intuit, there are some incredible tax opportunities available. Some absolutely astounding planning options, which can only be touched upon here.
Get a business. Get your kids involved. Pay them a reasonable wage for services performed. Get a TAX DEDUCTION for paying your child, which would be an ordinary and reasonable business expense. Have your children pay for many of their needs and wants from their wages. Make Roth IRA contribution on their behalf, up to the lower of their earned income or the Roth IRA contribution limits.
Do you realize that by emplying this strategy you're getting a tax deduction for "personal expenses?"
A powerful strategy to consider is forming a self-directed Roth IRA in their names, or a Roth IRA-LLC, which can invest in real estate and many other assets.
An important compliance note: document everything so that your IRS audit proof. As you can see, while these are legitimate strategies, they are ripe for abuse.
You can certainly move funds from a former employer 401(k) Plan to a Solo 401k Plan, assuming you qualify for a Solo 401k. Solo 401(k)s are also known as Individual 401(k)s, Uni (K)s, and Solo (k)s.
To qualify for a Solo 401k you must have self-employment income and no full-time employees. Those are the general guidelines, but the actual determination of “no full time employees” can be complicated due to controlled group rules, affiliated service group rules, and ownership attribution rules.
Having self-employment income is the easy part, because any type and amount of SE income qualifies whether it be from an unincorporated sole-proprietorship, LLC, partnership, or corporation. The amount of income does not have to be high, because you’re going to be moving funds into the account through a rollover. There does have to an expectation of permanence regarding the Solo 401k plan, so if it’s unlikely that you’ll have SE income next year it’s not advisable to set it up this year.
Solo 401k plans differ drastically in their features, such as Roth subaccounts, after-tax contributions, in-plan conversions, in-service withdrawals, alternative investments.
Standardized Solo 401(k)s can be obtained from large brokerages, while plan documents that give you maximum flexibility are available from specialized providers. If you’d like the option of investing your retirement funds in real estate, tax liens, private loans, mortgage notes, and precious metals you’ll need plan documents from a specialized provider.
Congrats on asking this question at your age and stage - which is the biggest determinant of successfully growing money!
Your investment time horizon is the key to investment strategy - and the longer it is, the better. Time horizon impacts (a) the compounding of returns and (b) the amount of risk you can accept. Compounding of returns results in exponential growth, which begins to rapidly accelerate over time. Accepting risk, which in this context refers to volatility, provides you with much higher returns.
Responsible and intelligent investing may not shield you from volatility, but will give you the best the markets have to offer over an extended periods of time. And the market has been generous over extended periods. In other words, you won't face the risk of losing money so long as ready for the ups and downs of the ride.
There are those that can't accept that volatility for a myriad of reasons. They may have constraints that impact their time horizon or be risk averse. Factors to consider are age, retirement plans, college expenses, home buying, investing in a business, and any other anticipated and unanticipated expenditures. For those operating with such constraints, the investment strategy must modified accordingly.
As important as it is to know what to do, it’s equally important to know what not to do. Get educated. Today, more than ever, there are incredible resources available for those that want to educate themselves about investing and financial pitfalls. Before implementing any financial strategies or purchasing financial products, make sure you understand what’s being done, who’s promoting it and why they’re promoting it.
Keep a close watch on your investments costs because you’ll never get those back and you lose the compounding on those funds, as well.
Investment advice is meaningful for those that have assets to invest. Begin saving and contributing to investment accounts on a consistent basis (weekly/monthly), leveraging the power of dollar-cost averaging.
- What is your time horizon?
- What is your risk profile?
- How often and how much can you contribute to your investment accounts?
- Start investing as soon as possible
- Invest intelligently and responsibly
- Choose the optimal asset allocation
- Rebalance periodically
- Tax harvest, if appropriate
- Let the market do its work
Of course, there are many ways to invest, depending on the investors circumstances and temperament so the foregoing should only be understood as good starting point.
If you have the time and interest, you may want to explore investing in real estate and other alternative assets. Alternative assest classes are only for those that understand them and are ready to accept the risks associsted with them. Unlike investing in the stock market, you can directly mitigate the risks with your actions. The potential payoff is higher, but the risks of losing your money are higher, as well. These are not passive investments and require substantial time and effort on your part. Investment in real estate can be pursued with tax-advantaged retirement accounts, such as IRAs and 401(k) Plans.