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The safest and surest way to climb a truly big mountain is to halve the load and cache stores of food and fuel deep in the snow between advancing camps for later retrieval. This caching system helps the mountaineer climatize, but it also distributes the weight for a more methodical progression up the mountain, and evades the risk of getting caught in a blizzard carrying 130 pounds of gear, or getting buried under it in a crevasse. Many Americans store the vast majority of their retirement capital in traditional, “yet to be taxed”, accounts, like 401(k)’s, 403(b)’s, and IRA’s, thereby consolidating the period of taxation on all future, fully taxable distributions exclusively to their retirement years. Consider the process, implications, and benefits of strategic Roth Conversions as you thoughtfully distribute the weight of planning your own retirement.

The process:

• Dollars converted from traditional retirement accounts to a Roth Conversion account are taxed as income in the year of conversion.

• Conversions should be accomplished by direct transfer, as opposed to rollover, to avoid penalties for improper procedure. In other words, never have a Roth Conversion check made out to you.

The implications:

• Be sure to know the rates at which converted dollars will be taxed by the Federal government and the state. A small amount of tax planning is involved in every Roth Conversion, so do the work.

• Concentrate conversions to ‘lower-than-average’ income years, especially those between partial retirement and when required minimum distributions (RMD’s) begin, “filling-up” the associative lower brackets with partial conversions. This will maximize income taxed at lower tax rates, a smart move!

• If you are under age 59½, be sure to pay the tax on a Roth Conversion from savings, not from the IRA, which would involve an early distribution penalty and defeat the purpose. Try to always pay Roth Conversion taxes from savings, as this will place more dollars in the Roth account growing tax free.

The benefits:

• Distributions from Roth Conversion accounts are tax free.

• Roth Conversion accounts have no RMD’s, so all conversions effectively reduce traditional retirement assets and future RMD amounts.1 This is especially beneficial to retirees in high tax brackets, and those who are forced to take RMD’s they don’t need.

• Roth Conversions, though taxed at the estate tax level, can be left to heirs income tax free. The Secure Act now requires full (tax free) distribution by non-spousal beneficiaries within 10 years. Educate your beneficiaries so they use the whole 10 years of continued tax free growth, and so they don’t miss the deadline for full distribution.

The cumulative benefit of strategic Roth Conversions to the wealth producer resembles that of the cache system to the mountaineer. Never allow a highly beneficial Roth Conversion opportunity to pass you by!

Think about it, Shaun.

“The prudent sees danger and hides himself, but the simple go on and suffer for it.”  ~Proverbs 2:3

1 Smart Money Minute, “How to Minimize Your Taxes on a Roth Conversion”, October 5, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Scores of mountain climbers have perished for misjudging the objective to be the illustrious summit, and forgetting it was to return home to their loved ones. This misappropriation of priority is further demonstrated in the fact 80% expired on the descent, indicating that in many cases too little energy was preserved to make it down the mountain. Consider the following practices for a successful transition from late career to early retirement, so that your financial estate can survive you, and not the other way around.

• Review both the spending and income sides of your budget every year. Never has this been more important than in the early years of living on a fixed income, when most retirees unexpectedly spend more money due to the availability of time, and never has it been more consequential.

• Make sure your investment portfolio reflects your risk tolerance, risk requirement, and risk capacity. Risk tolerance is subjective and involves the level of volatility you can stomach. Risk requirement measures the minimum risk level required to attain your retirement goals. Risk capacity measures the maximum risk which will allow for both income need and the ability to endure a prolonged down market.

• Boost emergency savings to avoid a large unexpected withdrawal from your retirement portfolio, which taken during a down market can cost you years of lost income and growth.

• Maintain a tax-smart withdrawal strategy. Take Required Minimum Distributions (RMD’s), dividends, and interest first, and sell capital investments last to meet the income need. Consider small annual Roth Conversions between your retirement date and when RMD’s begin. Encourage your investment advisor and tax consultant to work together on your behalf.

• Create a plan for your long-term care. The lack of one is the equivalent of a climber who packs enough food for ideal weather conditions only, and seldom does it work out.

• Update titling of assets, beneficiary designations, and estate planning documents. Appropriate powers for financial and health proxies to trusted individuals.¹

• Remain thankful, stay engaged in serving others, and enjoy a blessed and fruitful retirement!   

Think about it, Shaun.

“A wise man leaves an inheritance to his children’s children”  ~Proverbs 13:22

1 Yahoo Finance, “9 Things Every Retired Person Should Do”, Charles Schwab, September 22, 2023.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

In the Noah Webster 1828 Dictionary, “labor” is defined as an exertion of muscular strength occasioning weariness, by which subsistence is obtained, and which contributes to health. According to The U.S. Department of Labor, Labor Day is an annual celebration on the first Monday in September of the economic achievements of the American worker. America is the most opportunistic, inventive, industrious and productive nation in world history, and it’s appropriate for Americans take a day each year to recognize those who toil, and have toiled, in the accomplishment of such historic, international stature.

Production is the backbone of an economically sustainable society. Properly defined by Austrian economists as the process by which a person works, is duly compensated, prudently spends less than earnings on sustenance, and invests the difference wisely, production is revealed to stand on the foundation of labor. On the other hand, lest we inappropriately congratulate our own efforts, the true light of “ole-fashioned hard work” must be seen for what it is: the use of a God-given strength or ability to provide for the needs of others, which happens to be the occasion of our own sustenance. It is a reflection of the Giver! The purpose of mountaineering is not to accomplish a feat or prove one’s own ability, but to witness the creativity, power, and glory of the Maker of the mountains! Labor serves the very same purpose.

The news on labor in America today is mixed but mostly positive. Though a strong work ethic is not prized as it once was, and with more Americans reliant on public assistance these days, a recent FRED report affirms 62.5% of eligible American workers still participate in the work force.¹ Scarcity of workers, in fact, is what is holding the economy out of recession today. Also, the increase in productivity associated with unprecedented technological advancement seems to be presently offsetting the reduction in human labor, sufficient even to support the higher voluntarily non-working component, given recent levels of monetary debasement. While it’s concerning that this trend is probably unsustainable long-term, the labor market has been the economic standout of late. A deep or lengthy recession will not likely accompany a tight labor market, and given the probability the Fed is approaching a cyclical peak in rate hikes, further asset price appreciation is supported in the midst of decelerating inflation. This favorable short-term outlook is mostly attributable to the output of working Americans.   

I hope these thoughts are a blessing to you and your family in the celebration of Labor Day this weekend. Shaun

“Do you see a man skillful in his work? He will stand before kings; he will not stand before obscure men.” ~Proverbs 22:29

“The laborer is worthy of his wages.” ~1Timothy 5:18

“Aspire to live quietly, and to mind your own affairs, and to work with your hands, so that you may be dependent on no one.” ~1Thessalonians 4:11-12   

“The LORD made the heavens and the earth; the sea, and everything in them in six days, and on the seventh day he rested.” ~Exodus 20:11

1 Fred, Economic Research, “labor Participation Report”, August 30, 2023

https://fred.stlouisfed.org/series/CIVPART

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

In the great endurance sailing races of the world, competing teams must continuously judge the winds and engage the race, even during extreme weather events. As a mountaineer, many times have I thanked God I was not suffering in a high mountain storm, but hunkered down in a 25 below bag sipping tea; but that luxury excludes racing teams, and this gives me both admiration and pity for sailors! Investing often resembles endurance sailboat racing in this respect, so let’s investigate what present weather patterns are saying about the strength and direction of the financial markets today.

Negatives

• Market sentiment has been registering “extreme greed” in recent weeks, a precursor to the market stumble now underway. Young and healthy bull markets climb “the wall of worry” in widespread fear and pessimism, emotions which may return expediently amidst renewed volatility and the most forewarned recession in history.

• New warnings the banking crisis isn’t over could prove destabilizing if true, a probability given where interest rates reside today. That said, big U.S. banks are incomparably better capitalized than in 2008, and any further trouble increases the probability the Fed, which fears crisis and deflation, will stop raising rates.

• The inverted yield curve (and its recession warning) and the tightening credit market are noteworthy, but the former hasn’t been substantiated by alternative data, and the latter has thus far been modest.

Positives

• Inflation continues to decelerate, and “less bad” conditions present an early impetus for higher asset prices.

• Interest rates approach a cyclable peak, a second Fed “pause” may be in order for the September meeting, and reputable sources suggest the Fed is altogether done raising rates.

• Unemployment remains low, labor remains scarce, and so far, the most forewarned recession in history remains elusive.

• Considering historical valuations, stock prices appear to be fairly priced today.

• The S&P 500 remains considerably above its 200 “daily moving average”, widely regarded as a time to buy stocks.

These factors suggest it is not time to throw our tackle overboard to lighten the ship for turbulent seas! Rather, take a long-term approach with a strong focus on quality, both on the equity and fixed income side, and compound returns with systematic purchases and the reinvestment of all distributions. Understand your investment objective and risk tolerance, and be sure your asset allocation reflects both.

Think about it, Shaun.

“Go to the ant, O sluggard; consider her ways, and be wise.  Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.” ~Proverbs 6:6-8 ESV

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

A great deal of the planning for our 23-day Denali climb in 2017 involved food. Bulk, weight, caloric type and content, prep and cook time, cold tolerance, and savor were all important considerations. A frozen chocolate bar will break your teeth. At 17,000 feet, your body struggles to digest beef jerky. A food allergy can end your climb, and your life! Meticulous meal planning was required for such a long excursion in such a threatening environment. Income planning, and more particularly, the withdrawal decisions retirees make from investment accounts, are equally critical, as a lengthier retirement, and, therefore, a bigger cumulative retirement income need, have accompanied a longer life expectancy for many Americans. What are the withdrawal options? What are the advantages and risks of each? How will you know which to choose?

Trail snacks on Denali came every 75 minutes and equated to a decision over protein and sugar. Smart climbers ate their protein on the lower mountain, and their sugar at high altitude. The two general retirement withdrawal options from investment accounts are systematic withdrawals and annuitization payments.

• Systematic withdrawals are voluntary distributions taken at regular intervals, and can be increased or decreased, and started or stopped, at any time. Besides flexibility, advantages include low expenses, access to a lump sum, growth potential and the ability to raise the income amount to combat inflation, and control to withdraw what is needed each year. Risks include premature depletion, inequitable distribution of returns due to a major bear market during early withdrawals (understand the Monte Carlo Analysis), and the weight of knowing you may outlive the account.

• Annuitization is the formal conversion of an annuity from accumulation to a fixed stream of payments. During accumulation the account is allocated based on investment objective and contributions may be made. During annuitization payments are made in the amount, and for the duration chosen. The two main advantages to annuitized payments are lifetime benefits and the absence of market risk. Disadvantages include higher expenses, loss of access to principle, loss of income flexibility, and loss of purchasing power to inflation.

Other considerations regarding these asymmetrical withdrawal options include differing tax treatment, potential withdrawal penalties, and coinciding with required minimum distributions (RMD’s). In case you still think this exercise is elementary, consider the withdrawal program must also a) accurately meet the annual need, b) minimize your annual tax burden AND be consistent with your long-term tax plan, c) not disrupt your estate plan, and d) represent the wisest overall financial decision for you and your family, all factors considered.

Precious few mountaineers have ever climbed Denali alone; it is for the vast majority a team effort. Whether it is you, or someone else on your behalf, make sure your investment advisor, tax planner, and estate planner are aware of these issues, considerate of both withdrawal options, and that they work together to find the balance of these options that works best together for you.       

Think about it, Shaun.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I remember on day one of a three-day winter climb in the White Mountains of New Hampshire my Whisper Lite stove, the only option for heating our freeze-dried food, malfunctioned. While I weighed the options of feeding the caloric crave with yet more frozen trail bars, or raw, freeze-dried dinners, a gracious and more prepared camper restored my defunctive apparatus with the required spare parts in minutes, before his meal was cooked, with a smile! Returning home, I immediately purchased a second stove and full repair kit, and repeatedly disassembled and reassembled it. Knowledge is useful in the adventures of life, and often critical, especially in the world of investing. Consider the consistent practices of many professionals as you strive to become a better investor yourself:

• Understand the underlying security options available to you. Common and preferred stocks, bonds, managed futures, REIT’s, MLP’s, and cash equivalents each possess distinct characteristics, risks and potential, and behavior patterns in specific market environments. Gain a basic knowledge of both the favorable and unfavorable conditions for each asset class.

• Understand the account types available to you. Direct mutual funds, brokerage accounts, company retirement plans, traditional and Roth IRA’s, and dividend reinvestment plans are common account types. Each has peculiar characteristics and varying qualifications and expenses. Discover the combination of these which best aligns with your financial plan and can offer the most comprehensive long-term tax benefits.

• Have a specific “BUY” strategy and stick to it. Building an investment portfolio requires investing, so get to it! Dollar-cost average long-term investment programs, especially in the early years. Never miss an employer-matched contribution. Follow strict parameters when making single purchases. Do not attempt to catch a falling knife by purchasing a cratering stock, avoid ‘doubling down’ on a losing position, and don’t feel rushed or pressured to buy. Courageously add to winning positions.

• Maintain an exit plan on all trades at the time of purchase, and honor it. Run with your winning trades, but dump losers with ruthless expediency! Maintain stop-loss orders on all non-forever holdings privately; avoid entering a stop-loss order as a pending trade with your broker. Know the conditions in which you will sell a given holding.

• Diversify your investment portfolio across various industries and asset classes. In the mountains it is said, “cotton kills”, but in the financial world it is said, “concentration can kill”!

• Favor capital-efficient, dividend-paying businesses in leading industries, and automatically reinvest all distributions. Limit speculations in both size and frequency. 

Seek to become a methodical wealth producer by consistently making wise investment decisions with tested investing techniques. Think about it, and blessings on your efforts!

Shaun

“Rule #1 is never lose money. Rule #2 is never forget rule #1.” ~Warren Buffet

“Give a portion to seven, and even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“Know well the condition of your flocks, and give attention to your herds.” ~Proverbs 27:23

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I’m no Master Gardener, but I do immensely enjoy time in my vegetable garden, and so appreciate the opportunity to grow my own healthy food. People see my garden and assume it requires an absurd amount of time to cultivate and maintain; the truth is it takes a small amount of time every day. Appropriating daily attention to a thing requires the understanding it is a process, not an event. Most gardeners do a big planting in the spring, enjoy a big harvest in the fall, and apart from the grocery store, otherwise might starve! How will you replace a sufficient portion of your earned income for a 25 year period in a high inflation environment without outliving your capital? Consider the following ‘best practices’ as you cultivate, and then receive from, your own retirement income plan:

• Healthy vegetables require nutrition, hydration, proper P/H, and sunshine. Your future retirement will likely require income-producing capital, and to build capital, you must invest. Many people strive to invest at least 10% (and even 20%) of their gross income for retirement, appropriate it primarily to the ownership of great businesses in tax-advantaged investment accounts, and fund it with hard work, career advancement, and frugality.

• Manage the risk level (and stock exposure) of each retirement asset based on two things: 1) your investment objective for that asset, and 2) time until drawdown begins.

• Advanced gardeners incorporate companion planting to reduce weeds, and to increase yields by more efficiently tapping into the base of nutrients. Consider developing a thoughtful withdrawal strategy from a companion of income sources that meets the annual need in a tax-efficient and wise investment manner without disrupting your estate plan. Employ the assistance you need to pull this off.  

• Understand the rules and taxability of your Social Security benefits, and how this income source fits into your plan. Make your Social Security election based on the highest probable lifetime net income benefit, considering all factors. 

• The ‘staples’ of my vegetable garden are asparagus, beans, potatoes, tomatoes, and green zucchini; everything else is experimental. Often a staple of successful retirement plans is an income source you can’t outlive. If Social Security is your only source of permanent income, consider the guaranteed income benefit of annuities for a select portion of your retirement capital. Scrutinize annuity expenses ruthlessly.

• Consider a Roth Conversion in low AGI tax years.1 Realize the period between partial retirement, and when Required Minimum Distributions (RMD’s) begin, are often the most beneficial years to “fill up” a lower tax bracket with an annual Roth Conversion. Never miss a high benefit Roth Conversion opportunity to neglect! Touch base with your CPA on this issue annually. The second beet planting must go in before August!     

Teach these things to your children when they are young. Enjoy the process. Think about it. Shaun

“Never depend on a single income. Make an investment to create a second source”. ~Warren Buffet

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”  ~Proverbs 13:11

1 Smart Asset, “8 Steps to Building a Successful Retirement Income Planning Strategy”, Javier Simon, July 11, 2023. https://smartasset.com/retirement/7-situations-when-you-need-a-financial-advisor-most

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Investing in stocks offers no guarantees and involves various risks and the potential for loss of principle. Investors should consider the risks before investing in stocks.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.  Variable annuities are subject to market risk and may lose value.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Some climbers think of mountaineering as a challenging event and an opportunity for accomplishment. Though these are aspects of climbing, defining the sport this way can lead to summit fever, which can kill you. Climbers who learn to embrace the process of mountaineering think of each climb as a unique and exciting adventure, from choosing a mountain wilderness to call home, to unpacking and penning a narrative of the expedition. Which perspective do you suppose offers a safer, more fulfilling, and more enduring experience? I have started to think about those to whom I will leave my cache of climbing gear when the time arrives. That gear will come with a history, stories and memories, and a renewed life and mission! Estate planning and mountaineering share these dynamics. Carefully working through the following estate planning list is akin to mapping a major mountain excursion:

• The wise mountaineer always knows exactly what, and where each item is in the pack. Store a well-protected digital and/or hard-copy spreadsheet of all physical, functional, collective and financial assets, and share it with your executor. Feel free to request an Estate Planning Checklist from my office.

• List your debts. Include monthly payment amount with method, payment date, loan duration, and contact information.

• Experienced climbers think in grams not ounces. Consolidate individual security positions with the same registration into a brokerage account. Name, and periodically update beneficiary designations for every ‘beneficiary-eligible’ asset. Store your most recent beneficiary list with vital documents.        

• Make a membership list. This will benefit organizational members, family and friends, and may cash in on otherwise forfeited life insurance coverage.

• Gather vital papers, like estate planning and personal identity documents, and deeds to vehicles and property, and safekeep them together with your executor’s knowledge and access. Take this opportunity to review the specific “present” funding of your estate plan with your attorney.

• Permit closure of your digital life with a list of websites, usernames, and passwords.  

• Every mountaineer needs a partner, and is only as good as that partner. Become a discerner of character and do business with those you trust, and with whom you communicate well. Instigate an ongoing dialogue between your tax preparer, esquire, and wealth manager. Have one agree to ‘moderate’ the process with exceptional note-keeping.¹ 

• Understand the legal authority your designated Powers of Attorney and Health Proxies will have over you in the case of your incapacity, and appoint such powers exclusively to those whom you trust with your welfare and life.

• Put in place the legal documents required to best protect and distribute your estate, in all matters perceived, and keep them current. Include a personal letter to convey your purposes and intentions in the bequest of your earthly belongings.¹   

Enjoy your estate planning journey, and may it bless your heirs as you intend. Think about it, Shaun.

“Know well the condition of your flocks, and give attention to your herds.” ~Proverbs 27:23

“A wise man leaves an inheritance to his children’s children.” ~Proverbs 13:22

1 TRW LAW, “25 Steps for Estate Planning”, 2023 The Law Offices of Travis R. Walker, P.A. https://www.traviswalkerlaw.com/25-steps-for-estate-planning/

  The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Newton’s First Law of Motion, that a moving object will persist in both speed and direction unless interrupted by an external force, has significant financial implications. The ethic to habitually save and invest a portion of one’s monthly excess minimizes external forces of derailment with the wealth it creates. Dollar-cost averaging, matched and/or deductible contributions, tax deferred growth, low expense index funds, and penalized early withdrawals are contributing factors to continuous wealth production. The portion of your retirement expenses attributable to future healthcare costs, which the Bureau of Labor Statistics suggests for Americans is presently 8.1%, or $13,000 annually,¹ is treated preferentially to your other investments in a Health Savings Account (HSA), and can, therefore, compound that portion of your retirement wealth more efficiently.

HSA’s offer for qualified expenses what Traditional and Roth IRA’s don’t: tax-deductible contributions, tax-deferred growth, and tax-free withdrawals, whoa! Since future qualified healthcare costs will likely exceed what is accumulated in a HSA, most Americans should be utilizing this super tax-efficient means of wealth production. Consider the rules, dynamics, and primary benefit of a HSA:

HSA RULES

• 2023 HSA contributions require enrollment in a health plan with a minimum individual deductible of $1,500 ($3,000 for a family), and an out of pocket maximum of $7,500 ($15,000 for family).

• Participants may not be enrolled in Medicare, and may not be claimed as a dependent on someone else’s tax return.

• The 2023 contribution limit is $3,850 ($7,750 for family), though participants over age 55 can invest an extra $1,000.

• Contributions must be made by the tax filing deadline, like IRA’s (April 18, 2023 for 2022 contributions).

• A 6% excise tax applies to overcontributions, and stiff taxes and penalties apply to distributions spent on nonqualified expenses,² so know HSA rules.

• Qualified medical expenses include co-pays, dental treatments, medications, and many over-the-counter products, but do not include cosmetic services, gym memberships or supplements. IRS Publication 502 provides a more exhaustive list.³

HSA Dynamics

• Tax-deferred growth is a key benefit of the program, yet only 15% of current HSA’s are invested! Some custodians offer stocks, bonds, mutual funds and ETF’s. Consider your time horizon, risk tolerance and investment objective before investing HSA funds.

• Keep receipts and an expense log for HSA transactions.

• Name beneficiaries on a HSA account. Spouses inherit all tax benefits, but non-spouses lose the tax-free withdrawal benefit.⁴  

HSA Primary Benefit 

Deducting an investment (into a great business at a fair price) from your taxable income, then compounding the dividends and growth of that investment on a tax-deferred basis for decades, then withdrawing the funds to pay for future health expenses tax free, are the unequalled tax and investment benefits of the HSA.

The HSA, now that is an object in motion!

Think about it, Shaun.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”  ~Warren Buffet

“The prudent sees danger and hides himself, but the simple go on and suffer for it.” ~Proverbs 27:12

1,3,4 Evergreen Gavekal, “Utilizing a Health Savings Account”, by Katie Vercio, June 22, 2023 https://evergreengavekal.com/utilizing-a-health-savings-account/

2 Fidelity, “HSA Contribution Limits and Eligibility Rules”, September, 2022. https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.