School is back in session and usually the first essay that a student does is writing about what they did this past summer. So for that theme, we wanted to let you know what we have been up to at Oldfather Financial Services.
Reduce Fees - Troy was able to get a new sizeable client by demonstrating the value of working with Oldfather Financial Services. The client had been with the same broker that his father started with many years ago. The client had various types of accounts. Some accounts had been “grandfathered”, so there had been no attention to the mutual funds for many years even with the market gains. Other accounts were being advised, but at high fee structure with a lot of trades/turnover each month. Troy was able to show the client the value of using index ETFs for tax efficiency and substantially reducing the fees and number of trades each month. The client was so happy he even referred his neighbor to us.
ROTH Conversion-The buzzword for the Summer of 2019 has been ROTH. Bill was able to demonstrate to a 66 year old couple that we could convert part of their IRA into a ROTH account. Taxes need to be paid today on the conversion but since they were already retired they were in a low tax bracket. This financial move will help their tax situation when they turn 70 ½ and have RMD and Social Security income which will put them in a higher tax bracket. A ROTH conversion isn’t for everyone, so give us a call for the analysis.
Backdoor ROTH - For clients that are still working and have a high income, Troy has been able to demonstrate how to do a backdoor ROTH contribution. A couple in their 30’s with income of over $200,000 cannot contribute directly to a ROTH because of IRS limitations. However, using a backdoor process, the client was able to make an after tax contribution of $6,000 each into an IRA and then have the contribution converted to a ROTH for both spouses. With over 30 years to retirement, this money and future contributions will grow tax free.
Qualified Charitable Donation - With the tax cuts of 2018, clients are looking for tax advantages for their charitable giving. If you are over the age of 70 ½ and have Required Minimum Distributions from your qualified retirement account, you have a great opportunity. We were able to show a prospective client that they can have a portion of their RMD (up to $100,000) paid to their church (or any 501c(3)) instead of taking the distribution themselves. Their gift to the church is a Qualified Charitable Donation and the new client doesn’t have to pay income tax on the charitable distribution.
Tax Loss Harvesting - The market keeps moving higher, but as we all know there are a few moments when volatility rises and the prices fall. During this last fall, Troy was able to sell Emerging Markets ETF for clients for a tax loss in a taxable accounts which will be offset toward a S&P 500 ETF with a sizeable taxable gain reducing the capital gains the clients will pay this year. If you have a taxable account and your broker is not constantly monitoring for these opportunity you are probably paying too much in taxes.
College Savings Plan – With me having one kid in college and a couple of more coming, I have first hand experience is the value of setting up a 529 plan for my kids. Giving your child $20 for a Friday night seems like a great deal compared to when the University wants $10,000. I am glad I was able to do it when they were young and have seen their contributions easily more than double. We help a lot of our clients go direct to the State of Nebraska at www.nest529direct.com to set up a plan for their child or grandchild. If you are paying a broker for a 529 College Savings Plan, you are paying too much.
Social Security Planning - A couple stopped in knowing that the longer you wait to claim Social Security the bigger the benefit. So, they had planned to wait until they each turned 70 before they were going to start. However, there was a seven year age difference between the two and Brandi was able to demonstrate with our Social Security software that it makes sense for the older client to take Social Security at 70 and the spouse to start at 63. By doing so, it would allow them both to retire at the same time and give them the cash flow they were needing.
If you have any questions about these situations, give us a call. Or, forward this newsletter on to someone in these circumstances.