Taxes

SECURE 2.0 Offers New Wealth-Boosting and Charitable Opportunities

June 15, 2023 by Hans Blake, CFA, CPA

Congress

The SECURE 2.0 Act is now law. The legislation provides a slate of changes that could help strengthen the retirement system—and Americans’ financial readiness for retirement.

The law builds on earlier legislation that increased the age at which retirees must take required minimum distributions (RMDs) and allowed workplace saving plans to offer annuities, capping years of discussions aimed at bolstering retirement savings through employer plans and IRAs.

While SECURE 2.0 contains dozens of provisions, the highlights we feel most pertinent include the following:

New rules for required minimum distributions (RMDs): The start of RMDs is delayed to age 73, gradually increasing to age 75 by 2033. This benefits seniors who don’t need immediate access to retirement funds, allowing them to keep money in tax-advantaged accounts for longer.
Reduced penalties: The penalty for failing to take RMDs is reduced from a 50% excise tax to 25%. Those who take the necessary RMD and pay the excise tax within a specified correction window face a reduced penalty of 10%.
Waived RMDs for Roth 401(k) accounts: Roth 401(k) accounts will no longer be subject to RMD rules during the account holder’s lifetime, aligning them with Roth IRA distribution rules. (effective 2024)
Broader qualified charitable distributions (QCD) rules: People aged 70½ or older can donate up to $100,000 directly from an IRA to a qualified charity using a QCD. The annual cap of $100,000 will be indexed to inflation.
Supersized catch-up contributions and expanded Roth options: Defined contribution participants aged 60-63 can make catch-up contributions of up to $10,000 ($5,000 for SIMPLE plans), 50% more than the standard catch-up amount. Catch-up contributions for employees earning over $145,000 must be made in an after-tax Roth account. Roth options are expanded for SIMPLE and SEP IRAs and employers can match contributions in 401k and 403b accounts with Roth dollars.
529 to Roth IRA conversions for beneficiaries: Starting in 2024, up to $35,000 of unused 529 plan assets can be transferred to a Roth IRA for the same beneficiary, provided certain conditions are met. This allows for intergenerational wealth transfer and potential growth.

It’s important to note that while SECURE 2.0 offers these opportunities, it may also create complex tax situations for high-net-worth individuals. Some savers may face higher tax brackets, Medicare surcharges, increased taxes on Social Security payments, and tax burdens on heirs. It is important that you have a financial advisor who understands and can help assist you with these planning ideas. Please reach out if you would like to learn more about how you can become the next intelligent investor.

Why Ignoring Your 401k or 403b Could Cost You More Than You Think

April 24, 2023 by Hans Blake, CFA, CPA

Are you maximizing your wealth potential? A recent study found that high-net-worth individuals have over half their wealth in IRAs and 401ks. If you’re like many investors, you may be overlooking a crucial component of your financial portfolio: your 401k or 403b accounts. These accounts, known as held-away assets, can play a significant role in your overall investment strategy.

In this blog, we’ll show you why considering these held-away assets is essential for investment diversification, risk management, and increased efficiency, and why you should consider having a professional financial advisor optimally integrate these assets into your overall portfolio and financial plan. If we reference a 401k, and you have a 403b, just keep in mind it works the same way. It is just another held-away asset.

Here’s the punch line: Intelligent Investing is able to monitor, manage, and trade 401k, 403b, or other retirement assets while you are still employed. We can do this using our Intelligrations® and it helps minimize our clients’ financial stress so they can maximize their lives.

What are Held-Away Assets?

Held-away assets are investment accounts that are held by an investor at a financial institution other than the one where their primary investment portfolio is managed. These assets typically include 401(k) plans, 403(b) plans, 529 plans, and other employer-sponsored retirement plans. Held-away assets are typically not managed directly by a financial advisor or wealth management firm, but rather are held with a separate institution, and managed by the individual employee. Despite being held separately, these assets should still be considered and incorporated into an investor’s overall financial strategy and investment portfolio, making it important for financial advisors to consider them when working with clients.

A 401k or 403b is considered a defined contribution (DC) plan. A defined contribution (DC) plan is a retirement plan that’s typically tax-deferred, in which employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements. In addition, the sponsor company can match a portion of employee contributions as an added benefit. Employers like DC plans because the risk of the underlying investments are placed upon the employee. This is why America has shifted away from having pension plans (defined benefit plans) where they were on the hook for the underlying investment results.

Let’s take a look at some of the benefits of integrating your held-away assets into your overall financial picture.

Benefits of Integrating Your 401k

Improved Investment Diversification

Investment diversification is a key factor in reducing risk and maximizing returns in a portfolio. However, holding assets in multiple accounts at different institutions can make it difficult for investors to achieve true diversification. This is where considering held-away assets can play a crucial role. By taking these assets into account and incorporating them into an overall investment strategy, financial advisors can help clients achieve a more diversified portfolio.

Improved Tax Efficiency

When managing a portfolio, it’s important to consider not just the type of investments being held, but also the tax implications of those investments. For example, qualified accounts like 401(k)s and IRAs offer tax benefits, but also come with limitations on when and how funds can be withdrawn. On the other hand, taxable accounts (i.e., brokerage account) offer more flexibility, but may have higher tax implications. By integrating your 401k, financial advisors can assist clients in balancing the tax location of investments and create a more diverse portfolio that takes into account both qualified and non-qualified (taxable) accounts.

Improved Risk Management

If you’re like most employees, you do not know what kinds of risk there are in your 401ks at any given point in time. If you don’t get the risk right, then you may not stick with the portfolio and financial plan.

Risk management is a critical component of any successful investment strategy. By integrating held-away assets, financial advisors can help clients better manage risk and achieve their investment goals. One of the primary benefits of incorporating held-away assets into an overall investment strategy is that it allows for a more comprehensive view of your financial situation. This increased visibility can help financial advisors make more informed decisions about the allocation of investments, allowing them to manage risk more effectively.

For example, you might have a bunch of U.S. large cap equities in your brokerage account, and then you decide to buy a U.S. stock market ETF index for your 401k. By not considering both buckets, you could essentially “double-up” and have a concentrated risk position.

When financial advisors have access to all of a client’s 401k and retirement plan information, including held-away assets, they can better track investment performance and rebalance as needed to manage risk. This can be especially important in times of market volatility, when swift action may be needed to protect a client’s investments.

Increased Efficiency

Employees are often busy with their job or their family and don’t have time, nor the expertise to research 401k options or rebalance their 401ks.

Incorporating held-away assets into an overall investment strategy can streamline the investment process. When assets are held in multiple accounts at different institutions, it can be time-consuming for clients to manage their investments and keep track of their portfolio performance. By considering held-away assets, financial advisors can provide clients with a more comprehensive view of their investments, reducing the need for them to constantly monitor multiple accounts. This can save clients time and increase efficiency, allowing them to focus on other aspects of their lives.

Expertise Management

Managing a 401(k) can be a complex and challenging task for individual employees who lack the necessary knowledge, skills, and experience in trading and asset allocation. Without a proper understanding of the markets, investment risks, and the various investment options available, employees may make costly mistakes that can have a significant impact on their retirement savings.

For example, an employee may be too aggressive or too conservative in their investment decisions, leading to a portfolio that is either heavily invested in risky assets or lacking the diversification needed to mitigate risk. In some cases, employees may even miss out on investment opportunities due to a lack of knowledge or a tendency to make emotionally driven decisions based on short-term market movements.

Moreover, managing a 401(k) involves more than just selecting investment options. Employees must also monitor their portfolios, rebalance as needed, and make trades based on their long-term investment goals and risk tolerance. Without the expertise and resources of a professional financial advisor, it can be difficult for individual employees to effectively manage these tasks and make informed decisions that align with their investment objectives.

Studies have shown the shortcomings for investors managing their own 401(k)s and retirement accounts. These studies by Vanguard, Russell, and Envestnet conclude that having professional management on these accounts may generate up to 3% better performance each year net of fees.

How Our Intelligrations® Integrate Held-Away Assets

At Intelligent Investing, our passion is to minimize financial stress and maximize lives. Efficiency is a critical component of any successful investment strategy, as it allows clients to minimize their time and effort.

Previously, the tools were not available to fully manage held-away assets, which can be a significant part of clients’ overall portfolios. However, recent technology has allowed us to be able to manage these assets alongside the other assets we manage, giving us a fuller understanding of our clients’ financial picture.

Using our proprietary Intelligrations®, we now can use innovative technology to provide even better service on these accounts. Intelligent Investing is now able to make sure the entirety of our clients’ portfolios are taken care of including their 401(k), 403(b), and other retirement accounts. Our clients receive a personalized risk number that encompasses their entire portfolio in real time (assets we are directly managing, and assets that we manage in their held-away accounts (i.e., your 401(k), 403(b), etc…)

When markets get fearful or greedy, we can trade assets including the ones in their 401(k) or 403(b). We think this is a fantastic way to minimize their financial stress and maximize their lives.

Now our clients don’t have to wonder, should I be doing some rebalancing or making trades inside my 401(k), or wondering what their asset allocation should be inside their 401(k).

We can now proactively manage, monitor and trade these accounts just like your other assets with us. We are really excited about what this can do for our clients to make sure all of their assets align to their goals. This truly is intelligent investing.

Learn More About Intelligently Integrating Your 401K or 403b

Conclusion

In conclusion, considering held-away assets can provide numerous benefits for both financial advisors and their clients. It can improve investment diversification, allowing for a more comprehensive and balanced portfolio. It can also improve risk management by providing a more complete picture of a client’s financial situation and reducing the risk associated with an over-reliance on any one particular investment. Additionally, considering held-away assets can increase efficiency by streamlining the investment process, reducing the need for frequent transfers, and allowing financial advisors to more effectively track investment performance. By considering held-away assets and incorporating them into an overall investment strategy, financial advisors can help clients achieve their investment goals with greater ease and confidence.

At Intelligent Investing, we have the ability through our proprietary Intelligrations® to monitor, manage, and trade within accounts that are held-away (401k, 403b, etc…).

How Intelligent Investing Leverages Financial Technology

One of our unique factors is to leverage technology, and we have leveraged financial technology such as artificial intelligence to help craft the above blog. We have modified the results of the blog to reflect our opinions. Leveraging this technology helps us be more efficient and serve our high-net-worth clients in other ways.

If you would like to learn more about our proprietary Intelligrations®, we’d love to have a complimentary call or coffee with you. Click here to get started.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

2023 IRA and Retirement Plan Limits

January 19, 2023 by Hans Blake, CFA, CPA

We all know it is important to plan for the future. This is a time of year where we set new resolutions and a great time to make a plan for your investable dollars. Note the following chart which shows the annual savings limits of the plan for this year and adjust your savings to take full advantage of the annual contributions. Remember, a missed year is a missed opportunity that does not come back.

We love automating this for our clients to improve their behavior and increase their odds of reaching their goals.

How to Use the Above Chart

Identify the type(s) of retirement saving that you currently use.

If you are 50 years or older, add the catch-up amount to your potential savings total.

Take note of the income limits within each plan type. For traditional IRA’s, if your income is below the noted threshold, your taxable income is reduced by your contributions. The deductibility of your contributions is also limited if your spouse has access to a plan. In the case of Roth IRAs, the income limits restrict who can participate in the plan.

Consider setting up new accounts for a spouse and set up automatic savings on a regularly-scheduled basis.

Please click here to connect with us if you need help in automating your contributions to help you reach your long-term retirement goals.

8 Key Takeaways from the SECURE 2.0 Act

January 19, 2023 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

Do you have questions about SECURE 2.0 Act that passed in the final hours last year? You are not alone. I’ve been reading a lot about it and I too even have some questions for lawmakers.

As we wrapped up 2022, President Biden signed the SECURE 2.0 Act into law on December 29th.[1] The new act is being called SECURE 2.0 based on the name of its thematic predecessor, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”). This legislation makes notable changes to qualified retirement plans. These will increase the age for RMDs, make enrollment and escalation automatic for most new 401(k)s and 403(b)s, and increase tax credits for low-income retirement savers, among other changes. Here’s a summary of some notable changes that occurred.

The age for RMDs goes up to 73 for those who turn 72 in 2023 and 75 in 2033. This is great news for those who don’t need the funds from qualified accounts. We help our clients with Roth conversions, and this allows more years to do this.
Most of the new 401(k)s and 403(b)s will be required to enroll employees automatically and escalate contributions automatically after December 31, 2024. This is what we preach about–improving investor behavior. Check out our behavioral finance page to learn more.
RMDs are eliminated from Roth accounts in 401(k)s and 403(b)s for tax years after December 31, 2023. As a result of SECURE Act 2.0, plan Roth accounts and Roth IRAs will be on more of a level playing field. It won’t be quite so obvious to determine whether or not rolling over a plan Roth account to a Roth IRA is in your best interest going forward. (We can help you with the decision)
Catch-up contribution limits will go up for those age 60 and 63 after December 31, 2024 to the greater of two: either $10,000 or 150% of the regular catch-up amount for those 50 and older. (Keep in mind that high wage earners will be required to use Roth option for catch-up contributions.)
The bill decreases the penalty for missed RMDs (or distributing too little) from 50% to 25% of the shortfall, and if the mistake is corrected in a timely manner, the penalty is reduced to 10%. (If you are a client of Intelligent Investing–we handle this automatically for you.)
There are some great (and complicated) planning options around Roth accounts inside and outside your employer plans. The Act authorizes the creation of both SIMPLE Roth accounts, as well as SEP Roth IRAs, for 2023 and beyond. Previously, SIMPLE and SEP plans could only include pre-tax funds. We help business owners setup Simple IRAs and manage their wealth in a cohesive way. (Side note: do you know it typically makes sense to put your “efficient” assets in a Roth IRA and your “less-efficient” assets in qualified accounts. It’s called tax location and something we love doing for our clients to reduce their tax bills)
Transfers from 529 plans to Roth IRAs (max amount in individual’s lifetime is $35,000) may be an area for high-net-worth families to consider. Great planning opportunity for high-net-worth families who have been funding their 529 Plans for a long time.
Those who are charitably inclined can give from qualified accounts directly to charities via Qualified Charitable Contributions (QCDs) and they can still be taken at 70.5 before reaching the new RMD ages. (We currently do this for some clients and can help you with this)

This summary scratches the surface on what all is in the SECURE 2.0 Act. Taxpayers (and especially those approaching retirement) are all but guaranteed to continue to have an endless stream of questions with respect to this complicated area.

Ask yourself: Do I have a trusted advisor who specializes in tax planning? Does my financial advisor have the right credentials (such as being a qualified CPA?) Is my advisor a true fiduciary? (i.e., do they put your interest AHEAD of their own at ALL times?)

Why don’t you make a new year’s resolution to get your “financial junk drawer” in order this year. We would love to help. We love serving our high-net-worth clients by minimizing financial stress and maximize their lives using our proprietary Intelligrations™.

You can start by subscribing to our Intelligent Money Minute podcasts or by subscribing to our Intelligent Insights blogs. Or if you are finally ready to get some professional help, please let us know.

If you want to collaborate or outsource this to qualified fiduciary professionals, please click here to reach out for a complimentary call or coffee.

Reference: Michael Kitces’ Perspective on the Secure Act 2.0

Matt Hougan’s ETF & FinTech Journey

December 22, 2022 by Hans Blake, CFA, CPA

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In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs, on his journey in the ETF and FinTech industry. As Matt Hougan states, his passion is identifying and developing technology that elevates the finance industry. Matt used this passion to build the world’s first ETF data and analytics system. During this episode, Matt shares the backstory of his financial career and how he landed in the ETF and FinTech industries.

As a reminder, the views and opinions expressed on the Intelligent Money Minute podcast are those of the interviewee and do not necessarily reflect the views of Intelligent Investing, LLC. Intelligent Investing does not imply any endorsement or approval of any of the investments mentioned on the podcast. This podcast is to educate the public, and the investment strategy and themes discussed may not be unsuitable for investors depending on their specific investment objectives and financial situation.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.

We are excited to be interviewing Matt Hougan, and we have several more episodes where we explore the ins and outs of ETFs, bitcoin, and blockchain, so be sure to subscribe to our podcasts to hear all the interviews.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is the Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.

Crypto’s Impact on the War in Ukraine

October 27, 2022 by Hans Blake, CFA, CPA

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In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs on the crypto’s impact on the war in Ukraine. During the war in Ukraine, Ukraine President Zelenskyy called upon other nations to donate via cryptocurrency in an effort to combat Russia. As Matt Hougan states, war is chaotic derailing standard infrastructure while crypto remained intact. Matt highlights the potential positives of an established cryptocurrency as a means of anti-fragility in the midst of uncertainty.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.

Matt Hougan Bio

The Implications of Heading Towards a Digital Dollar?

September 15, 2022 by Hans Blake, CFA, CPA

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In this episode of Intelligent Money Minute, we interviewed Matt Hougan, Chairman of Inside ETFs on the implications of implementing a digital dollar. The world is changing rapidly, and so is our financial system. As Matt mentioned, it appears to be easier and cheaper to transfer money digitally using blockchain and cryptocurrency technologies. There are of course many risks, so you may need a financial guide on your journey. We’d love to be considered your financial accountability partner to help you navigate through the emotional rollercoaster our markets provide.

Our boutique firm serves high-net-worth individuals and families. We would be honored to sit down with you to discuss your investment objectives and financial situation.

Matt Hougan Bio

Dangerous Assumptions in Retirement Pt.2

September 1, 2022 by Hans Blake, CFA, CPA

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On today’s Intelligent Money Minute, we continue our conversation with Morningstar’s director of personal finance, Christine Benz on dangerous assumptions made in retirement. Hans and Christine highlight the value of being conservative in your assumptions and expectations. During this episode, Christine breaks down another area retirees often make dangerous assumptions. Christine talks about setting a legitimate return assumption that factors in all areas realistically.

If you are wondering what kinds of risks are in your current portfolio, or where there may be an unforeseen risk you aren’t aware of, consider contacting us for a complimentary call or coffee. If it makes sense, we may perform a complimentary portfolio review for you so you can get an idea of the types and current risk level in your portfolio.

Schedule a short discovery call or meeting

We’ll be interviewing Christine on several podcasts regarding retirement strategies, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Christine Benz Bio

Christine Benz is Morningstar’s director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. She holds a bachelor’s degree in political science and Russian/East European studies from the University of Illinois. Christine lives in the Chicago suburbs with her husband, Greg. She is an avid cook, a political junkie, and a long-suffering Chicago Cubs fan. Follow Christine on Twitter.