15720 Brixham Hill Avenue Suite 575
Charlotte, NC 28277
Having a career that brings you personal satisfaction and financial success places many demands on your time and energy. You may find yourself putting off important tasks simply because there’s no strict deadline for completing them. But, no matter how busy you are, there’s one task you shouldn’t put off—planning for your financial future. Married or single, with or without dependents, you need a comprehensive financial plan.
Chances are, you’ve taken care of the basics. You’ve set goals, diversified your investments to mitigate risk and help outpace inflation, and started saving for retirement. Now it’s time to consider additional strategies. A financial plan tailored to your needs and personal circumstances can help maximize your assets potential and preserve them for your loved ones.
Whenever appropriate, consider using tax-advantaged investment strategies to help you toward reaching your goals. Tax-deferred investing, allows your investment to work harder for you. For instance, the tax rates on long-term capital gains and qualified dividend income are generally lower than the rates on ordinary income. Taking advantage of the difference could help you toward realizing investment growth potential. Consider holding interest-bearing and other investments that generate income that’s taxable at higher rates in a tax-deferred retirement account, and keeping investments that produce qualified dividends and long-term capital gains in a taxable account. But remember that taxes, typically at ordinary income rates, would be due upon redemption of assets from a tax-deferred investment.
If employee stock options are part of your compensation package, your professional financial planner can explain the tax implications of exercising your options and help you integrate them into your investment and estate plans in a tax-efficient way.
Perhaps funding a college education for your children or grandchildren is one of your goals. Some state-sponsored 529 college savings accounts and prepaid tuition programs offer tax advantages to domiciled residents. All 529 plan qualified withdrawals are free of federal tax if used for qualified tuition expenses. The Coverdell Education Savings Account (ESA) is another tax-advantaged option you might consider, if it applies to your financial situation.
Tax-advantaged retirement plans present another opportunity to grow and preserve wealth. If you participate in an employer-sponsored plan at work, such as a 401(k) or 403(b) plan, you have a solid head start on saving for your future. You and your husband can also contribute to a traditional individual retirement account (IRA), even if he isn’t employed outside the home. And, if appropriate, the Roth IRA offers qualified distributions of earnings that are tax-exempt after five years from the contribution date and after age 59½.
If you’re self-employed, you have several options for tax-deferred retirement saving. In addition to a traditional IRA, you can save through a Keogh plan, a Simplified Employee Pension (SEP) plan, or a Savings Incentive Match Plan for Employees (SIMPLE). Your financial advisor can give you the details.
Looking beyond retirement, you might want to consider a “stretch” distribution strategy from an IRA to help pass retirement savings you won’t need on to a future generation in a tax-advantaged way. This strategy increases the period of tax-deferred growth beyond your lifetime. A “stretch” distribution strategy from an IRA is a sophisticated financial planning strategy that is designed for investors who will not need money in the account for their own retirement needs. These types of distribution strategies from an IRA may require professional assistance to implement.
You probably already have the fundamentals of your estate plan taken care of: a will, a living will, and a health-care power of attorney. But, if you have considerable assets, you may need a detailed, comprehensive financial plan to help control estate taxes and preserve your wealth for your heirs.
One way to reduce your taxable estate is to make gifts of cash or other assets to family and friends during your lifetime. Making charitable gifts, either during your lifetime or in your will, can also help reduce estate taxes. If you make charitable gifts during your lifetime—through a charitable remainder trust or a family foundation—you can also reduce your estate’s tax burden.
To help preserve your wealth and provide for your heirs, consider establishing a testamentary trust in your will. Placing assets in a trust will allow them to be professionally managed after your death according to your wishes.
Insurance may also play a key role in your estate plan. If you’re a business owner, having a business succession plan in place is essential. Funding a buy-sell agreement with life insurance guarantees a smooth transition if you suddenly die or are unable to continue working. Having long-term care insurance and disability income insurance coverage can help ensure that your assets remain intact for your heirs should you become permanently disabled.
Financial planning is a complex process. The approaches mentioned here provide an overview of some of the options available to you and is is for informational or educational purposes. It is not intended as investment advice and is not a recommendation for retirement savings. Your financial advisor can suggest a variety of strategies for preserving, protecting and enhancing your wealth.