Co-Founder, Financial Planner
A millennial himself, he's lived through many of the same experiences as his clients and understands first-hand their struggles and successes. Having worked with older generations and high net worth clients as well, he understands the impact financial planning can have the earlier you start.
Prior to launching Millennial Wealth, he started his career as a financial advisor at a bank-run wealth-management firm. Over the course of 3 years at the firm, he realized Millennials, for the most part, aren't able to access professional financial planning and investment management services.
He saw an enormous need to make these services available to the Millennial generation. Time is our greatest friend when it comes to building wealth. The earlier Millennials put a financial plan in place, monitor, and track towards goals, the greater the impact it can have.
Levi grew up in Eastern, Washington, and lived in Seattle since 2014. He’s always had an interest in personal finance, investing, and money. He’s a member of the Confederated Tribes of Grand Ronde and proud of his Native American heritage. In his free time, he enjoys playing golf, basketball, video games, and watching the latest binge-able Netflix shows with his girlfriend.
Millennial Wealth is an Investment Adviser registered with the State of Washington. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. We do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. The information provided is subject to change without notice.
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Financial Planning For Millennials
The new loan could temporarily reduce your credit. The reason is it makes your average credit age younger, meaning adding an account with no history of payments is viewed as higher risk. However, if consolidating at a lower interest rate will help you pay off the debt faster, lowering your credit score temporarily shouldn't be of concern. The key is to make sure you're making payments towards reducing the balance of the debt on time every month. Over time, that will improve your credit score.
If the only option is to withdraw from your Roth IRA there isn't much strategy to apply, unfortunately. All contributions (20,000) made to your Roth can be withdrawn tax and penalty free. The remaining $45,000 would be subject to a 10% penalty and income tax.
You should definitely consult with an attorney.
However, in Washington State there are community property laws. Everything earned, debts, and property acquired during marriage are joint assets. Unless there was some sort of pre-nuptial agreement, my guess would be you don't legally owe 70k. Although, you should still consult with a divorce attorney.
The amount you withdraw from a 401(k) will be taxed as ordinary income for the year you make the withdrawal. If you're under age 591/2 at the time of withdrawal you could be subject to the 10% penalty on top of paying ordinary income as well.
It's not being taxed twice because when you contributed to the 401(k) the amount wasn't being included in your taxable income. The contributions were being "tax-deferred" until withdrawal. The major benefit of tax-deferral is it allows the funds to be invested and re-allocated while they're in the 401(k) without having to pay taxes.
On the other hand, Roth 401(k) withdrawals are tax-free, meaning you don't add the amount to your ordinary income in the year you make withdrawals. That's because you ALREADY paid taxes on the contribution amounts.
Capital gains tax applies to an investment's growth, not the interest. In your example, you mention contributing $1000 to a taxable account. Once the $1000 is invested in a security (stock, ETF, mutual fund, etc) then you establish a basis. The cost basis is what is used for tax purposes to show the price you bought your investment for. Assuming it grows to $2000 and you decided to sell your investments, you would then pay capital gains tax on the growth.
$2000 (current investment value) - $1000 (cost basis) = $1000 (Subject to capital gains tax)
On the contrary, interest applies to an investment such as bonds. Investments that pay interest are subject to ordinary income tax.
Depending on how long you hold the investment before selling, the capital gains can be taxed as ordinary income, or the preferable long-term capital gains tax. Short-term capital gains tax (ordinary income tax bracket) applies to investments held for less than 1 year, and long-term capital gains tax applies to investments held for longer than 1 year.