Wealth Planning Newsletter | Q2 2023

Retirement Planning Tips

Create and Review Your Budget

Budgeting can feel like an overwhelming task for some people but keep in mind that the best budgeting method is one that works for you! A budget can also be crucial to understanding and directing where your money goes. Here are a few tips that can help you get started:

Don’t Wait to Save! Create a Consistent Savings Strategy

The "pay yourself first" adage effectively ensures you are continually routing a specified savings contribution from each paycheck each month to achieve your financial goals. Begin by taking advantage of any employer-benefit plans at your disposal. Often there is a company match program ranging from 3-6% where the employer matches the employee contribution dollar for dollar (if one is made) up to that limit. Review the types of plans available and contribution limits:

Take Advantage of Other Savings Vehicles

Health Savings Accounts (HSAs) are a great vehicle to save for future healthcare expenses in retirement. Their triple tax advantage sets them apart from other savings vehicles, making them excellent ways to fund medical expenses in the coming years.  

Roth Conversions & Ideal Timing

What is a Roth Conversion?

A Roth conversion is the movement of funds from a pre-tax retirement account, like a 401(k) or Traditional IRA, to, most commonly, a Roth IRA. During the conversion, you move funds from pre-tax status to post-tax status. While this can cause some discomfort in the tax that will be charged on any amount converted, this is done voluntarily and purposefully. The idea is to take money from accounts that have an embedded tax liability and move that money to a Roth account, which is permanently tax-exempt. This allows any money converted to grow freely without worrying about future taxation.

When Is the Best Time to Do a Roth Conversion?

The best time to do a Roth conversion is in a lower-income year. If you earn less money than you usually do in any given year, you'll fall into a lower tax bracket. While you'll make less money overall, this can be an opportunity to convert pre-tax assets to Roth status. Within the low income year of your choice, it's best to wait until the end of the year to complete a Roth conversion, as you'll have a better idea of your total income for the year and, ultimately, your marginal tax bracket. If you complete Roth conversions too early in the year, you may accumulate income later on and be pushed into a higher tax bracket than you intended.

Remember, Roth Conversions Are Entirely Voluntary

You can leave all of your money in pre-tax retirement accounts for as long as the IRS allows. At 72 (or 75 by 2033), you'll be required to take a portion of your money out in the form of Required Minimum Distributions (RMDs). However, you can get away with paying as little as possible in federal tax if you time your Roth conversions correctly.

Concentrated Stocks

Whether it is from a savvy investment made years ago or a generous benefit from your employer, many investors find themselves with a large stock position in a single company. If you own a high-flying stock, the pain of selling and creating significant capital gains tax can be too great to face despite wanting the benefits of a diversified portfolio.

What happens when you own $1 million in a company but feel you can’t sell? Or if that $1 million turns into $700k? If you find yourself in a similar dilemma, it is worth speaking to your Main Street Research advisor if the "Set it and Forget it" strategy is not for you. We offer many different solutions – from creating a path to sell to gifting to options trading – and will work with you to determine what works best to match your financial goals.

Calling All Business Owners

What SECURE Act 2.0 Means for Your Company and Retirement Savings

The Secure Act 2.0, signed into law on December 23, 2022, contains several provisions that aim to make it easier and more affordable for small businesses to offer retirement plans to their employees. Here are some of the key provisions related to small businesses:

If you are a small business owner, please feel free to reach out to learn more about the tax incentives of SECURE Act 2.0 and the benefits of simplifying retirement plan administration.

If you'd like to update your wealth plan or learn more about our risk management strategies beyond stop-losses to mitigate catastrophic decline, please don't hesitate to contact your Main Street advisor or reach us at team@ms-research.com.