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Slick TV ads often make financial planning and wealth management sound simple, but it’s usually not. Managing wealth requires knowing a lot about highly technical topics, like taxes, government regulations, and finance as well as history, psychology and how to communicate with loved ones about sensitive issues. This article highlights some of the knowledge needed to manage wealth and why it’s often so daunting without the help of an independent personal financial advisor who is familiar with your situation.
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Understanding The Federal Reserve Mandate To End Inflation
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Fed Governor Kugler Details Inflation And Economic Outlook
The 12-month inflation rate, as measured by the personal consumption expenditures (PCE) index, was 2.6% in December, down from its peak of 7.1% in June 2022, and the six-month rate for PCE inflation was even lower, at 2%, which is the target rate set by the Federal Reserve.
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Why Rates May Not Be Cut Until June
The cost of a loan to buy a home, car, college education, and achieve the American Dream is staying the same for now. As expected, Federal Reserve Chairman Jerome Powell said the central bank did not lower loan rates following the Fed’s Wednesday, Jan. 31, 2024, policy meeting.
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Practical Suggestions For Achieving Your 2024 Resolutions
New Year’s resolutions usually fail because they‘re often too hard to achieve. After six months, only 10% of people who make resolutions achieve them or remain committed to them, , according to a study by Dr. Mark Griffiths, a Chartered Psychologist and Distinguished Professor of Behavioral Addiction at the Nottingham Trent University. What can you do to make financial, medical, or other personal resolutions more likely to be achieved?
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A Sign Of Progress In Solving U.S. Economic Problems
The Federal Reserve appears to be pulling off a feat most experts did not believe it could: ending its aggressive inflation-fighting campaign of 11 interest rate hikes without tipping the U.S. economy into a recession.
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Fed Keeps Rates Unchanged; Expects Easing In 2024
To promote transparency and free markets, the Federal Reserve System began publishing the opinions of the 19 U.S. central bankers that decide interest rate policy.
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Have You Logged Into Your Social Security Account?
Have you logged in to your Social Security account? Creating an online account at SSA.gov is an important first step in understanding your retirement income situation. However, only about 60 million of the 160 million individuals in the U.S. labor force who have Social Security accounts have created a way to access the Social Security Administration’s website.
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The Great Fake Out Of 2023 Is Poised To Extend Into 2024
All year long, the economy and stock prices have fooled experts and consumers, outperforming expectations month after month.
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Test Your Financial Planning IQ
The five questions below are a challenge meant to allow you to assess your knowledge of investing, tax and financial planning. If you have been following our news stream, this quiz draws on familiar ground. The answers are below.
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Planning Briefs
Last Chance In 2019 For Pre-Retired Professionals & Biz Owners
Published Wednesday, November 13, 2019 at: 7:00 AM EST
Doctors, dentists and business owners with more than $321,400 of 2019 adjusted gross income have one last chance not to pass up on this tax and retirement planning opportunity.
With just weeks before the end of the year, time is running out to reduce your 2019 tax bill while socking away a large sum in federally tax-advantaged retirement savings accounts. These tax breaks written and ratified by the U.S. Congress and signed by the President, and their enactment meets judicial standards. Although the government never gets credit for doing anything right, these laws provide a reliable framework for strategic tax and financial planning.
This strategy is particularly useful to professionals and business owners in their peak earning years, who have not saved enough to retire or want to jump-start the process and try to retire as soon as possible.
The linchpin of this tax and retirement planning strategy is a defined benefit (DB) plan. DB plans are tax-advantaged under federal law. This strategy is subject to the risk that the U.S. Government could become irrational and U.S. law could be less reliable and subject to change.
Past performance is never guaranteed to be the same in the future. However, America has a history of meriting the full financial faith of investors, and investors are rational to rely on federal law, which is a great strength of the United States. If U.S. law is a contract with Americans, the U.S. Government will remain faithful to federal laws, such as those treating IRA withdrawals as income and other laws exempting Roth IRA withdrawals from income tax. Assuming the U.S. keeps such implicit promises in the U.S. Internal Revenue Code, this is a highly effective strategy for putting retirement savings on steroids.
DB plans are much less well-known than defined contribution (DC) plans. It's retirement savings on steroids; a way to catch up fast on years of neglecting to properly fund your lifestyle retirement.
Professionals and business owners must spend years learning, testing, and gaining experience to be great at their chosen paths. Delayed gratification makes it common for high-income professionals and entrepreneurs to live well but not save nearly enough. A DB plan bursts savings in a federally empowered tax-advantaged account.
With a DB plan, your retirement contribution is defined; your retirement benefit is not. DC plans pose less financial risk to employers, so they are much more common. The federal tax code imposes much higher contributions than on DC plans as well as more elaborate rules because a DB plan is designed to last your actuarially-expected lifespan. DC plans are not intended to last your lifetime.
High-income business owners and professionals often find that, after their children are launched, having paid for college and maybe a wedding, a sudden glut of free cash enables stashing away a large sum and funding the comfortable retirement they have earned.
Here an illustration showing just how much retirement savings accelerates in a DB plan:
In 2019, the maximum contribution to a DB plan is $225,000 versus $56,000 for a DC plan. If a business owner has a DC plan already and now adds a DB plan, they could reduce their taxable income by as much as $281,000! If socking away $281,000 would make it impossible to meet current expenses, you can contribute less.
Consider a dentist, doctor or business owner in her peak earnings years and married. Her annual income of $515,000 is diminished by a 37% federal tax rate and high living expenses, which made it difficult to save enough for retirement. Funding a DB plan as well maxing out a DC plan lowers her taxable income and lowers her tax bracket. If this dentist places $200,000 into the retirement accounts, it would reduce her $515,000 taxable income to $315,000, putting her in the 24% federal tax bracket instead of the 37% bracket. The point is, you want to manage your tax bracket to optimize your personal situation.
Because her dental business is NOT a "C corporation," she also qualifies for a 20% deduction under Section 199A of the new tax code for owners of S corps, LLCs, sole proprietorships, and other pass-through entities. To get this extra tax break, her taxable income must not exceed $321,400 for a married couple in 2019.
If she hadn't taken steps to whittle down her high income, her taxes would be much higher. Moreover, she has socked away a large defined benefit for retirement!
Setting up a DB plan requires tax and actuarial expertise and careful planning but can be worth the trouble, especially because of the new 20% tax deduction and the opportunity to accelerate your retirement savings. But it takes time to set up your plan, and you only have until the end of the year. If you wait any longer, you will be passing up on this opportunity.
This article was written by a veteran financial journalist. While we believe the source of the information to be reliable, it is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change.
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