An X-ray of Grand Rapids Hospital Retirement Plans: Which One is Best?

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Employer Retirement Plan Details: Why Should You Care?

Employer retirement plans — such as 403(b)s and 401(k)s — are usually a large part of the financial plan for providers, nurses, and other medical professionals. The details of these plans can be confusing so I thought it would be helpful to compare and contrast the plans of the four larger hospitals in Grand Rapids, MI for you.

Understanding the details of your employer plan can lead to a huge difference in your account value at retirement. It should also be factored in when deciding where to work, as it is part of your compensation package. Different aspects of these plans can make them better or worse, I will assign them a Heath Biller score ranging from 0 to 10 — since that is the range used for pain assessments. 10 will be excellent and 0 will be horrible. Let’s X-ray the plans.

*Full disclosure, I have previously worked at Corewell Health & Mary Free Bed

Eligibility

This is when you are allowed to start participating in your company’s retirement plan. Due to compounding interest, the sooner you can start participating the better.

Automatic Deferral

This is when a company automatically enrolls you into the plan at a certain contribution rate when you get hired. The other option is having you opt into the plan yourself, which sometimes doesn’t happen. Automatic deferral is usually much better since it helps you start investing sooner. Life can get busy and procrastination is real.

Employer Matching Contributions

This is the amount of money that your employer contributes to your account on your behalf. It can be matching contributions which is usually a percentage of what you contribute. They can also make a non-elective contribution which means they contribute money to your account even if you don’t contribute anything. A higher rate here is better since that is more money towards your account.

Vesting Schedule

This is the length of time you have to stay working at the company before you are eligible for their matching contributions. If you leave the company before this period of time, they will take their matching contributions back from your account. The shorter the vesting schedule the better.

Roth Option

For a long time, most companies only offered Traditional contributions as an option for their plans. This means you get a tax deduction now but will have to pay taxes down the road when you take the money out. More companies are now offering a Roth contribution option. This means you do not get a tax deduction now but when you take the money out down the road, it will be tax-free. Sometimes Traditional contributions are better and sometimes Roth contributions are better. Having a Roth option is beneficial as it allows flexibility for your specific situation. If you want to learn more about Traditional vs. Roth contributions, read this blog post.

Plan Fees

These are the fees charged to your retirement account by the plan providers for helping set up and manage the retirement plan. Lower fees here mean less money is coming out of your account.

Investment Options

These are the range of investment options the plan offers inside the account. You want to make sure you are contributing to your account, but you also want to be aware of how the money is invested inside your account.

And the Winner is…

Saint Mary’s-Trinity Health with a score of 60/70 (86%). The aspects of their plan that stood out the most compared to the competition were: their employer contribution, their plan fees, and their investment options.

The other plans are pretty decent, I have seen much worse. I would have liked to have seen more automatic deferrals, higher employer matching contributions, and more target date funds as the default investment option. Hopefully, this has helped you better understand the plan where you work or evaluate the plans of future employers you are considering.

Please reach out if:

  • You work for one of these hospitals and have more questions about your plan and what you are invested in

  • You work for a different medical facility and would like me to help you review the retirement plan they offer

  • You work for a facility that currently does not offer a retirement plan but would like help setting one up

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Pulse Check: Why Healthcare Professionals Should Monitor Their Credit Scores

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What are Credit Scores?

Let’s start by first reviewing what a credit score is. It is a number assigned to you by a credit reporting agency that helps creditors obtain a quick snapshot of your creditworthiness. Equifax, Experian, and Transunion are the three main reporting agencies in the United States and the credit score number can range from 300 to 850. (Source: Experian; link below)  

When you apply for a credit card, a car loan, insurance, or a home mortgage; the lender is going to look at your credit report & score to help determine if you qualify and meet their standards to get approved. By proactively understanding and taking steps to get your credit score high, you should have a better chance of getting approved for credit in the future. 

There are 5 different ratings assigned based on your credit score number.

  • Poor is considered 300-579

  • Fair is considered 580-669

  • Good is considered 670-669

  • Very Good is considered 740-799

  • Exceptional is considered 800-850 

I would recommend striving to get your credit score to at least Good and if you want the best rates and approval chances then keep going until you get to Very Good or Exceptional.

Factors Contributing to Your Credit Score

Your credit score number is calculated based on six different categories: Payment History, Credit Utilization, Derogatory Marks, Length of Credit History, Total Number of Accounts, and New Credit Inquiries. Payment history, Credit card usage, and Derogatory marks have the highest impact on your credit score so those areas would be the highest priority to focus on. Credit Age has a medium impact on your overall credit score. Total accounts and Hard inquiries have the lowest impact. 

Payment History: Your goal should be to have as many on-time payments as possible. The higher the better.

  • 100% on-time payments for excellent

  • 99% for good

  • 98% for fair

  • 97% and below needs work

Credit Utilization: Your goal should be to not use all of the credit that is available to you. The lower the percentage the better

  • 0-9% of credit utilized for excellent

  • 10-29% for good

  • 30-49% for fair

  • 50-100% needs work

Derogatory Marks: These include accounts in collection, bankruptcies, civil judgments, and tax liens. Your goal should be to have as few as possible.

  • 0 is excellent

  • 1 is fair

  • 2+ needs work

Length of Credit History: This is the average age of all your open accounts. This goes up over time but you should be cognizant not to close older accounts that have been open for years or this will decrease.

  • 9+ years is excellent

  • 7-8 years is good

  • 5-6 years is fair

  • 0-4 years needs work

Total Number of Accounts: This is just based on the number of credit accounts you have overall. Having more accounts gives creditors more history and data to evaluate you on.

  • 21+ is excellent

  • 11-20 is fair

  • 0-10 needs work

New Hard Credit Inquiries: If you keep applying for a bunch of different accounts this could be a red flag. Limiting the number of accounts you apply to can help keep your credit score high. This usually looks back over the past 2 years.

  • 0 is excellent

  • 1-2 is good

  • 3-4 is fair

  • 5+ needs work

Why Your Credit Score is Important

Some people like Dave Ramsey are totally against any debt while other people like Robert Kiyosaki say you should take out as much “good” debt as possible. Both of these are extremes and most people probably fall somewhere in the middle, using credit and some debt wisely but not going overboard. 

If you are going to use debt during your lifetime then knowing what your credit score is and keeping it high should help you when you apply for a credit card or car loan, get insurance, or buy a home with a mortgage. 

I use credit karma to monitor my credit score since they were one of the first companies to offer it free years ago. Nowadays there are a plethora of options to pick from. You are also able to check your full credit report for free once a year at https://www.annualcreditreport.com/index.action

If you don’t know what your credit score is currently, take some time this week to figure it out and see if there is anything you should be doing to improve it.

Shout out to Alex Kiel with Macatawa Bank’s Mortgage team for helping me co-write this blog post. She joined their team in 2016. Alex holds her Bachelor’s degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, who did quite well this year but unfortunately weren’t able to make it to the Superbowl…next year though! I have also had the privilege of competing with Alex in beach volleyball. 🏐😎

616.502.8044 akiel@macatawabank.com Website

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Recessions Aren't Always a Roadblock - Consider These Benefits

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Defining a Recession

Let’s begin by clarifying what a recession entails. “Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s real inflation-adjusted gross domestic product (GDP)- the value of all goods and services a country produces.” (Source: International Monetary Fund; link below) According to the National Bureau of Economic Research (NBER), it’s a broader concept involving, “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” (Source: International Monetary Fund; link below) Both definitions show the negative outcomes so let's dive deeper into what some of the positive outcomes could be.

Short-Term vs. Long-Term Views

Why would a decline in economic activity be considered a positive factor? The answer lies in the window of time you view it. In a free-market economy, businesses compete for customers. During a recession, consumers tend to spend their money more wisely, favoring businesses with lower prices or higher quality to make their money go further. While this may lead to short-term challenges such as job losses and business closures, it encourages efficiency. In the long run, recessions help eliminate less efficient companies from the market, allowing more efficient ones to thrive and take their place. In the long run, this helps improve the economy's overall strength.

How to Navigate a Recession by Being an Opportunist?

Instead of being scared of a recession, why not consider it an opportunity for growth and improvement?

  • Failed businesses can make way for new enterprises, offering better jobs, products, services, and prices.

  • Individuals facing job loss can use the opportunity to learn and grow new skills, making a more significant economic impact on society and for themselves.

  • Asset value declines can create opportunities for strategic financial moves like Roth conversions, portfolio rebalancing, or tax loss harvesting.

A recession could be a great time to invest in yourself. Warren Buffett famously said, “Whatever abilities you have can't be taken away from you. They can't actually be inflated away from you. The best investment by far is anything that develops yourself, and it's not taxed at all.”

Navigating Recessions with Confidence

When news of a recession emerges, it's vital to resist succumbing to fear. Much like weightlifters intentionally break down muscle fibers for greater strength or home renovators tear down outdated designs for improved homes, recessions play a role in eliminating inefficiencies within our economic system.

Avoiding the pitfalls of political rhetoric is equally crucial during these times. Recessions often trigger frustration and political finger-pointing so it can be beneficial to remember that the benefits of a recession could be better than the harm of government intervention trying to prevent the recession from happening. Echoing one of my favorite quotes by economist Thomas Sowell, "The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

While recessions may bring short-term challenges, they are pivotal for maintaining a robust and growing economy in the long term. A recession might not fulfill every immediate desire, but it acts as a catalyst, paving the way for efficient businesses to address more needs at lower prices over time.

Sources:

International Monetary Fund https://www.imf.org/external/pubs/ft/fandd/basics/recess.htm#:~:text=Calling%20a%20recession&text=Most%20commentators%20and%20analysts%20use,and%20services%20a%20country%20produces.

International Monetary Fund

https://www.imf.org/external/pubs/ft/fandd/basics/recess.htm#:~:text=The%20NBER's%20Business%20Cycle%20Dating,real%20income%2C%20and%20other%20indicators.

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Cruisin' or Bruisin'? Why I'm Pumping the Brakes on an Electric Whip...for now

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To Buy or Not to Buy an Electric Vehicle

If you're here due to the catchy title, a big shout-out to Chat GPT for helping me craft it. Electric vehicles (EVs) have stolen the spotlight in recent years, with increasing popularity, advancing technology, extended range, and expanding infrastructure. While the perks of owning an EV have grown, let me share why I'm holding off on buying one for now.

The Charging Conundrum

Charging a vehicle differs from a quick gas fill-up. Though I have an attached garage for convenient overnight charging, Michigan needs more charging stations for me to feel at ease. I prefer a quick stop for gas; waiting 30 minutes for a full charge doesn't align with my lifestyle. As a single, one-car family, my decision becomes more nuanced. With two vehicles, an EV for local trips and a gas-powered one for longer journeys might be a consideration.

Solid-State Battery Technology on the Horizon

Current EVs boast a range of 200-400 miles, but Toyota's upcoming solid-state battery tech, expected by 2028, promises a staggering 745-mile range. While 200-400 miles may seem like a lot, weather conditions can significantly impact the range of EVs. Consumer Reports notes that cold weather can sap 25% of the range, and warm weather can sap 31%. (Source: Consumer Reports; link below)

Living in Michigan, where winters are harsh, a 25% drop would mean a range of only 150-300 miles. With future solid-state battery technology, a 25% decrease would still offer a substantial 559-mile range. The new technology is expected to improve performance in cold/warm temperatures and have faster charging capabilities.

Financial Implications

As a financial advisor, numbers matter. In July 2023, the average price of a new EV was $53,469, compared to $48,334 for a gas-powered vehicle. (Source: Kelley Blue Book; link below) The $5,135 difference could cover a lot of gas at $3.00/gallon—1,712 gallons, to be precise. Factoring in electricity costs, the payoff might not kick in until after 4.28 years, assuming you currently drive 10,000 miles a year at 25mpg.

Anticipating a potential drop in used EV prices when the new solid-state battery technology arrives, concerns arise about the long-term value of today's EVs. Battery replacement costs and additional tire wear are also negative factors; the absence of an engine, no oil changes, and fewer moving parts are positives when comparing EVs to traditional vehicles.

Reliability

Reliability is a crucial factor when I am choosing a vehicle. According to Consumer Reports, EVs have shown 79% more problems than gas vehicles, while plug-in hybrids have 146% more issues.

In contrast, hybrids have had 26% fewer problems than gas vehicles over the last three model years. (Source: Consumer Reports; link below) Better reliability gives me hope for less time and money getting things fixed in the future.


Hybrid Appeal

I currently drive a hybrid with an impressive 45-50 mpg, I find it to be the sweet spot between EVs and traditional gas vehicles. Slightly pricier than gas-powered vehicles, hybrids offer superior gas mileage, fewer gas station visits, better reliability, and no range anxiety. Their smaller, lighter, and less expensive batteries add to their appeal.

While EVs have made strides, a massive leap forward is anticipated in the next four years. From a financial perspective, sticking to a regular or hybrid vehicle for now, and re-evaluating the EV landscape when the new battery technology becomes available seems like a sensible choice.

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Is Your Financial Plan Overlooking This Vital Element — Your Health?

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The Dalai Lama, when asked what surprised him most about humanity, answered "Man! Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”

What Your Financial Plan Might be Missing

Your financial plan encompasses numerous facets of your life, covering emergency funds, income, debt, savings, budgeting, financial goals, risk tolerance, investment allocation, retirement, and tax planning. However, there's one critical aspect often missing from financial plans that can significantly impact your economic well-being – your health.

Understanding the Link Between Health and Finance

Health influences nearly every dimension of your financial plan in distinctive ways. For instance:

  • Income and Productivity: Poor health or frequent illnesses can lead to reduced overall income due to missed workdays. Maintaining good health can help you keep a stable income.

  • Emergency Fund: Health status affects the size of your emergency fund. Individuals with health challenges may require a larger fund to mitigate increased risks associated with medical expenses.

  • Budget and Savings Rate: Increased healthcare expenses can strain your budget and potentially result in a lower savings rate. Prioritizing health can positively impact your budget and allow a higher savings rate.

  • Retirement Planning: Planning for potential healthcare costs during retirement becomes crucial. An unhealthy lifestyle now may require a larger nest egg for future medical needs.

The Cost of Ignoring Health in Your Financial Plan

Neglecting health can have significant financial consequences, especially in the United States where lifestyle-related conditions like obesity, high blood pressure, high blood sugar, and high cholesterol are prevalent. Metabolic syndrome, characterized by the coexistence of three or more of these conditions, increases the risk of expensive health issues such as heart disease, stroke, diabetes, and other serious health problems. (Source: National Heart, Lung, and Blood Institute, link below)

Average cost per year in the United States

  • Heart Disease & Stroke $19,110

  • Diabetes $8,837

  • Obesity $1,405

Considering that 1 in 3 American adults has metabolic syndrome, the financial implications are substantial. However, the good news is obesity, high blood pressure, high blood sugar, and high cholesterol are all modifiable risk factors. That means, if You change YOUR lifestyle YOU can reduce or eliminate these conditions. (Source: Centers for Disease Control and Prevention, link below)

Taking Action for a Healthier Lifestyle

Recognizing the integral role of health in financial planning, here are actionable steps to improve both your health and financial future:

  • Nutrition: Eat more whole foods, fruits, and vegetables. Cooking at home and avoiding processed foods can contribute to better health and financial savings. You cannot out-exercise a poor diet.

  • Physical Activity: Find a sport you enjoy and exercise regularly. Try to meet the recommended 150 minutes of moderate exercise or 75 minutes of vigorous exercise per week.

  • Quit Smoking: Smoking is a leading cause of preventable death. Quitting not only improves health but also saves money that can be directed toward financial goals.

  • Quality Sleep: Prioritize 7-9 hours of sleep per night. Good sleep promotes overall well-being and reduces the risk of chronic diseases.

  • Hydration: Opt for water over sugary drinks and alcohol. This simple choice positively impacts both your health and your budget.

  • Mental Stimulation: Challenge your mind by continuously learning new skills. A sharp mind contributes to overall health and longevity.

(Source: American Heart Association, link below)

Advice from Warren Buffett

Warren Buffett once told a story about what he would do if a Genie appeared and granted him a wish for a brand-new car. Being a wise man, Warren knew there would be a catch, so he asked the Genie what it was. The Genie responded that this would be the only car he would have for his entire life. Warren said he would accept that stipulation to get the car. Knowing that it would be the only car he would have for his entire life though, he would take very good care of it. He would read the entire manual front to back. He would get the oil changed on time or early. He would get the recommended preventative maintenance completed. He would fix any dents to prevent rusting. He would keep it clean inside and out.

Then he broadens the analogy by equating our mind and body as the one vehicle that has to last our entire lives. Our minds and bodies are much more important than vehicles, yet we do not always treat them as such. The decisions we make today will determine how well our minds and bodies operate many years from now. 

Your health is a vital component of your financial well-being. By prioritizing your health, you can secure not only a healthier and more fulfilling life but also a more robust and resilient financial future. If you have any specific questions on this topic, feel free to reach out.

Sources:

National Heart, Lung, and Blood Institute https://www.nhlbi.nih.gov/health/metabolic-syndrome#:~:text=About%201%20in%203%20adults,that%20it%20is%20largely%20preventable.

Centers for Disease Control and Prevention https://www.cdc.gov/chronicdisease/about/costs/index.htm

American Heart Association https://www.heart.org/en/healthy-living/healthy-lifestyle/lifes-essential-8

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

A Tale of Two Doctors: Wise Money vs. Lavish Lifestyle

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After completing medical school, you face a crucial crossroads regarding how you are going to manage your finances as a high-income earner. Here is a quick story contrasting how Dr. Wise and Dr. Lavish dealt with money during their careers. As you read through their experiences, consider which one you want to emulate for your life.

Meet Dr. Wise

Dr. Wise and Dr. Lavish were both young doctors who just finished their residency programs and began their first job as an attending. Dr. Wise immediately started managing her finances wisely. She created a budget and lived within her means, even though she had a significant amount of student loan debt. She prioritized paying off her loans quickly, and with disciplined monthly payments, she managed to become debt-free in just a few years.

After becoming debt-free, Dr. Wise continued her financially responsible journey. She started contributing a significant portion of her income to retirement accounts such as a 401(k)/403(b), a Backdoor Roth IRA, and a Health Savings Account. She diversified her investments and regularly reviewed her portfolio to ensure it was aligned with her long-term goals. Over the years, her investments grew steadily, and she built a substantial nest egg for retirement.

Meet Dr. Lavish

On the other hand, Dr. Lavish had a different approach to managing his finances. He immediately purchased a luxurious house and an expensive sports car right after getting his first attending paycheck. He wasn't very concerned about his student loans so he made only minimum payments. He believed that his high income as a doctor would take care of everything.

As the years went by, Dr. Lavish found himself struggling to make ends meet. He was burdened by high mortgage payments, car maintenance costs, and growing student loan interest. He didn't have much of an emergency fund and when it came to retirement, he had very little saved.

Results After Decades of Financial Decisions

Fast forward a couple of decades, and the two doctors had vastly different financial situations. Dr. Wise had not only paid off her student loans but had also built substantial wealth through disciplined saving and investing. She was financially secure, and her retirement was looking to be quite comfortable. She continued to work as a healthcare professional because she enjoyed it, not because she had to.

In contrast, Dr. Lavish was still working long hours to maintain his expensive lifestyle and living above his means. He had only a fraction of the retirement savings and investments that Dr. Wise had. The stress of financial insecurity and the burden of debt had taken a toll on his well-being. He started regretting not being more financially responsible when he was younger.

The story of Dr. Wise and Dr. Lavish illustrates the importance of taking control of your financial life early, especially for healthcare professionals who often face significant student loan debt. Wise financial decisions, like paying off loans and investing for the future, can lead to a secure and comfortable life, while lavish spending can lead to financial stress and insecurity. 

You need to choose if you are going to be a Dr. Wise or a Dr. Lavish during your life. I think it is save to assume which one I think is the better choice. If you have questions or feel that you need help building out your financial plan, please reach out as I would be happy to meet for a Free Consult.

References:

ChatGPT was used to assist with this story creation: OpenAI. (2023). ChatGPT (September 25 Version) [Large language model]. https://chat.openai.com

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Maximizing Tax-Smart Charitable Giving: 4 Strategies to Consider

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If you are passionate about supporting your favorite charities while optimizing your tax liabilities, this blog post is tailored for you. We will explore four tax-smart strategies that could help you maximize your charitable giving. It's essential to consult your tax professional before implementing these strategies, as everyone's financial situation is unique.

1. Bunching Your Contributions

The standard deduction for 2023 varies depending on your filing status: $13,850 for Single Filers, $27,700 for Married, and $20,800 for Head of Household. To benefit from itemizing your tax return, your total deductions should exceed the standard deduction. Otherwise, choosing the standard deduction might be more straightforward.

For example, if you are married and plan to donate $15,000 annually to your preferred charity, and your standard deduction is $27,700, donating $15,000 alone wouldn't surpass the standard deduction. In this case, opting for the standard deduction makes more sense.

However, consider an alternative approach: accumulate $15,000 in year 1, year 2, and year 3, totaling $45,000. During the first two years, take the standard deduction, and in year 3 donate the $45,000 and itemize your tax return to deduct the charitable donations. This three-year "bunching" strategy could help minimize your overall tax burden.

"In general, contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income…" (Source: IRS; link below)

2. Using a Donor Advised Fund (DAF)

A Donor Advised Fund (DAF) is a specialized account designed for charitable donations. When you make an irrevocable donation to a DAF, you become eligible for a tax deduction in that year. The funds in the account can be invested and directed to specific charities in the future.

You can combine the bunching strategy with a DAF, which can be especially useful if you donate to multiple charities. It simplifies tax recordkeeping and may be appreciated by your CPA.

3. Giving Appreciated Investments Instead of Cash

Donating appreciated investments from a taxable brokerage account directly to a charity can be advantageous. When you sell an investment in such an account, you typically incur capital gains taxes. However, donating the investment directly to a charity may allow you to avoid capital gains tax. Ensure you've held the investment for at least one year to qualify for long-term capital gains treatment and claim the deduction if itemizing. (Source: Fidelity; link below)

The cash you initially intended to donate can be used to repurchase the investments, effectively resetting your cost basis. This can lead to lower capital gains when you eventually sell the investments, resulting in reduced future tax obligations.

4. Qualified Charitable Distribution (QCD)

As you approach retirement, you'll be required to take Required Minimum Distributions (RMDs) from your traditional retirement accounts, typically starting between 70.5 and 75 years old, depending on your birth year.

If you wish to allocate some or all of your RMDs to charity to avoid paying taxes on them, consider a Qualified Charitable Distribution (QCD). You can direct your RMD to your chosen charity, provided it's the first withdrawal of the year. This strategy is beneficial if you are already planning on being charitable while facing RMD requirements.

Utilizing these strategies for charitable giving can significantly reduce your tax liability. Supporting charitable causes is admirable, and doing so while optimizing your tax situation is even better.

Jurgen Longnecker

Action Tax & Accounting, PC 616.422.3297 actiontaxandaccounting.com

I'd like to extend my thanks to Jurgen Longnecker for his contributions to this blog post. Having insights from a CPA regarding charitable contributions and taxes is always incredibly valuable.

References:

https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

https://www.fidelity.com/viewpoints/personal-finance/charitable-tax-strategies

Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Waiting To Start Investing Until 40 Could Cost You Over $4 Million?

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Albert Einstein has been credited with saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” (Source: Goodreads; link below) I want to review a few scenarios to show you how powerful compounding interest can be when you start early and are consistent with investing. Hopefully, this will help you be the person who earns it throughout your life instead of the person who pays it!

Disclaimer: All these scenarios are calculated to earn the same interest rate every year. Your actual numbers in real life will be different since some years it might be higher, lower, or even negative. The average stock market return over the long term has been around 10% per year. (Source: Forbes; link below)

The Early Investor

Source: Calculator.net; link below

Iron Man has read Heath’s blog posts and knows that starting to invest early is very important so he starts investing right after high school. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 18 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $318,500. The total interest earned over those 49 years would be $4,973,043. Iron Man’s total balance when he turns 67 would be $5,291,543. That means 94% of the money inside the account is from compounding interest!

Investing A Decade Later

Source: Calculator.net; link below

Loki wants to have fun in his 20s. He goes on fancy vacations, drives fancy cars, and lives his best life. When he turns 30 he decides to start investing for retirement. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 30 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $240,500. The total interest earned over those 37 years would be $1,590,093. Loki’s total balance when he turns 67 would be $1,830,593. That means 87% of the money inside the account is from compounding interest! Still good, but $3,460,950 less than Iron Man. Those 12 years of additional investing were very powerful.

The Mid-Life Investor

Source: Calculator.net; link below

Captain America was unfortunately in cryosleep for many years so he wasn’t able to start investing until he turned 40. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 40 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $175,500. The total interest earned over those 27 years would be $552,293. His total balance when he turns 67 would be $727,793. That means 76% of the money inside the account is from compounding interest! That is still good but again $4,563,750 less than Iron Man who started 22 years sooner. 

Which superhero do you want to be?

  • It takes discipline to start investing early like Iron Man at 18 years old but the rewards down the road can be tremendous

  • If you look at the graphs in all three scenarios you will notice that compounding interest doesn’t really start to ramp up until after the first 10-20 years. Don’t get discouraged in the first 5 years if you don’t see your money growing dramatically yet

  • There’s a Chinese proverb that the best time to plant a tree was 20 years ago but the second best time is now

If you would like help to harness the power of compound interest schedule a time when we can discuss your particular situation.

Sources:

https://www.goodreads.com/quotes/76863-compound-interest-is-the-eighth-wonder-of-the-world-he

https://www.forbes.com/advisor/investing/average-stock-market-return/

https://www.calculator.net/future-value-calculator.html

Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Is A Financial Advisor Worth It?

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If you have extra time, are interested in finances, and are willing to research the actions needed to become successful financially; then you might not need a financial advisor. There are a lot of great free resources available if you are willing and able to put in the time and effort. That being said, there are also many reasons why you might choose to work with a financial advisor. 

You might:

  • Be too busy with work/life to complete research on your own

  • Deal with analysis paralysis and need some guidance on how or where to invest

  • Get nervous during periods of market volatility and need someone to give you reassurance and prevent you from making an emotional investing decision that could cost you a lot of money

  • Need someone to help keep you accountable and consistent with investing

  • Not be interested in finances/investing and would rather pay someone to help so you can spend more time on things that you enjoy

Whether you are currently working with a financial advisor or looking to work with a financial advisor, here is a review of some ways financial advisors could add value to your investing plan according to Vanguard. If you do not need/want a financial advisor you may still want to focus on these areas as you manage your own financial plan. (Source: Vanguard Advisor’s Alpha; link below)

Value a Financial Advisor Could Bring

As I review the seven modules that Vanguard presents, please keep these quotes from the paper in mind.

“Paying a fee to a professional who follows Vanguard’s Advisor’s Alpha Framework described here can add value in comparison to the average investor experience, currently advised or not. We are in no way suggesting that every advisor—charging any fee—can add value. Advisors can add value if they understand how they can best help Investors.”

“We do not believe this potential 3% improvement can be expected annually; rather, it is likely to be very irregular.”

“Some of the best opportunities to add value occur during periods of market duress or euphoria when clients are tempted to abandon their well-thought-out investment plans.”

(Source: Vanguard Advisor’s Alpha; link below)

1. Suitable Asset Allocation Using Broadly Diversified Funds/ETFs     Value: >0.00%

Asset allocation is the percentage of investments you have in stocks, bonds, cash, and alternative investments. Factors to help determine your asset allocation are your risk tolerance, risk capacity, and the goals you have for that particular sum of money. Having the right mix of investments for your specific situation and goals is very important. Vanguard found this value add to be significant but stated it was too unique to quantify.

2. Cost-Effective Implementation (expense ratios)     Value: 0.30%

After determining your asset allocation, the next step would be to decide what investments to invest in. One thing that you have a lot of control over is how much you pay to be invested in the stock market. The difference between the returns you achieve and the cost you pay is your net return. Vanguard recommends keeping your expense ratios low, and I agree. A high expense ratio for a fund could be greater than 1% whereas a low-cost index fund could be as low as 0.04%. Vanguard found this value add to be 0.30%.

3. Rebalancing     Value: 0.14%

Your asset allocation can drift over time. Let’s say you originally invested 80% in stocks and 20% in bonds. One year later if stocks perform better than bonds, you might now be 90% stocks and 10% bonds. If you want to control your risk and stick within your risk tolerance, then rebalancing back to the original 80% stocks and 20% bonds may make sense for you. Rebalancing can also help you buy low and sell high. It forces you to buy the investment that underperformed and sell the investment that overperformed. This is easier said than done. If you had an investment that did really well, emotionally you may not want to sell some of it and buy the investment that underperformed. A financial advisor could do this automatically for you. Vanguard found this value add to be 0.14%.

4. Behavioral Coaching    Value: 0.00%-2.00%

As human beings, we all have emotions. During periods of market volatility and downturns, having an advisor to help prevent you from changing your investment strategy could be very valuable. When COVID initially started, the market took a huge dive as the economy shut down. I know a few people who sold completely out of the stock market because of fear. Then when the market recovered they missed out on the huge gains that followed. They let their emotions get the best of them and ended up locking in their losses by selling. If they would have had an advisor to help them stick to a financial plan they might be in a better position today. Vanguard found this value add to be 0.00%-2.00%.

5. Asset Location     Value: 0.00%-0.60%

There are three main types of accounts where you can keep invested assets: Tax-deferred accounts, Tax-free accounts, and Taxable accounts. Having the right investments inside of the correct accounts could help you pay less in taxes, which would leave more money left over for you. Here is a figure from the Bogle Heads forum which reviews which funds might be better for the three different account types. A financial advisor could help you decide which investments should be inside which accounts. Vanguard found this value add to be 0.00%-0.60%.

(Source: Bogleheads Wiki; link below)

6. Spending Strategy (withdrawal order)     Value: 0.00%-1.20%

If you only have investments inside of one account type then this module wouldn’t bring any value to you. On the other hand, if you have some investments inside of a 401(k), a Roth IRA, a Health Savings Account, and a taxable brokerage account then which account you withdraw money from first could add a lot of value and help you save on taxes.

You might withdraw from your 401(k) for your required minimum distributions for that year first, then you might consider taking money out of your taxable brokerage account, after that you might decide to withdraw money from your Roth IRA, saving your HSA for later. Having money invested in different account types can allow you to adjust how much tax you pay during your retirement years. Withdrawing money in a sub-optimal order could cause you to pay more taxes! Vanguard found this value add to be 0.00%-1.20%.

(Source: Vanguard Advisor’s Alpha; link below)

7. Total Return Versus Income Investing     Value: >0%

This includes helping investors decide what kind of bonds to include in their portfolio such as short-term, long-term, and high-yield. Guiding investors to not focus solely on retirement income with bonds but to also consider capital appreciation that could add value over the long term. This could also help decrease risk and increase tax efficiency. Vanguard found this value add to be significant but stated it was too unique to quantify.

So Is Having a Financial Advisor Worth It?

That is a value judgment, so only you can decide if having a financial advisor is worth it. Vanguard has shown that advisors can add up to, or exceed, 3% in net returns by following their Advisor’s Alpha framework. Over a long period that could add tremendous value to your financial plan. That’s if you are being charged reasonable fees for the services provided. This figure shows the median advisory fees based on account size.

  • If you want to do it on your own, make sure to do your research so that you can invest well

  • If you currently work with a financial advisor, make sure you what they are charging you and evaluate if they are following Vanguard’s best practices in wealth management

  • If you want to work with an advisor then feel free to reach out to as I would happily meet with you to explain how I would be able to help you with your financial plan

(Source: Kitces Blog; link below)

Sources:  https://advisors.vanguard.com/content/dam/fas/pdfs/IARCQAA.pdf

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

https://www.kitces.com/blog/financial-advisor-average-fee-2020-aum-hourly-comprehensive-financial-plan-cost/

Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

What is money? Isn't it really just time?

/ Fiduciary Financial Advisors/

Time in Place of Money

What is money? If you live in the United States, you probably think of money as the US Dollar. People in Japan might think of the Yen. People in France, Germany, and Italy might think of the Euro. Economists Milton Friedman and Allan Meltzer describe money as, “a commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.” (Source: Britannica; link below)

What if you thought of money a little bit differently? When thinking about money, try substituting my time in place of money because time is what you have to give up to receive money.

Exchanging Crops for a Phone

Let's say a farmer wants a new phone. He knows how to grow crops but can’t build his own phone. The farmer sacrifices his time to grow crops that he can sell to others for money. Once he obtains this money he can buy a new phone. The owner of an electronics store sacrifices her time working at the store selling phones to earn money. What does she do with that money? She might buy the farmer's crops at the grocery store. The money is just an intermediary for the time between the farmer and the electronics store owner.

While this is a simplistic example, this is how many transactions happen in our society. If you start thinking about money as actually being your time, then it could make you wiser with your money. Being wiser with your money could lead you to be more efficient with your time!

How to Apply to Your Life

Here is a real-world scenario where you could apply this money as time principal. The average new car price as of November 2022 was $48,681. (Source: Kelley Blue Book; link below) Economics is all about opportunity costs. If you spend $48,681 purchasing a new vehicle then that is $48,681 that you do not have to purchase something else. Let’s assume that you make the average hourly wage of $32.80/hour. (Source: St. Louis Federal Reserve Bank; link below) We can find how many hours you would have to exchange for purchasing a new vehicle by dividing $48,681 by $32.80: 1,484 hours! Once you take taxes into account the number of hours will probably be even higher.

While you might normally ask if the car was worth $48k, instead ask yourself if it’s worth 1,484 hours of time working at your job. Are you willing to spend 74% (1,484/2000) of a year working to purchase that new vehicle? If the answer is “yes,” then go for it and enjoy your new vehicle. If the answer is, “Hmmm I think I might be able to use those 1,484 hours more effectively somewhere else in my life”, then keeping your current vehicle could result in a wiser use of your time!

I am currently in this scenario right now in my own life. I drive a 2011 Prius that only has around 75,000 miles. It runs great, does not need any major repairs, and gets 50 MPGs! I don’t need a new vehicle but have been intrigued with the 2023 Rav4 and 2023 Prius. I utilized this process in my head and determined that was too many hours of my working life to pay for a newer vehicle that I might want but don’t need. I would rather use those hours spending time with my friends/family, writing blog posts, creating YouTube videos, and staying healthy by playing beach volleyball/pickleball.

Words to Live By

You can utilize this thinking in many different scenarios. Just take the price of what you are considering buying and divide it by your hourly wage. That will tell you how many hours it will take you to work to pay for that next big purchase. Then decide if you are okay with that tradeoff. 

Here is one of my favorite quotes from the book, “The Psychology of Money,” by Morgan Housel. He states, “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.” Make sure you are being wise with your money so you can enjoy your time to the fullest!

Sources: https://www.britannica.com/topic/money

https://www.kbb.com/car-news/average-new-car-price-sets-record/

https://fred.stlouisfed.org/series/CES0500000003

Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Artificial Intelligence Reveals the Secrets to Being Healthy

/ Fiduciary Financial Advisors/

Health and Why it is Important

I recently posted about how I was able to have Artificial Intelligence (AI) write a blog post on how to become a successful investor. I thought it was amazing to see what the AI was able to generate on the topic. Click here to read that post. Since wealth and health usually are intertwined, I thought it would be interesting to see what AI also had to say about staying healthy. Here are two responses that the AI wrote when prompted with, “Write a blog post on how to stay healthy.” (I used the website https://openai.com/) 

AI’s First Response

When it comes to staying healthy, there’s no one-size-fits-all solution. Everyone’s body is different and requires different types of care, so it’s important to find a plan that works for you. Below are some tips that can help you stay healthy and make sure you’re getting the most out of your body. 

1. Exercise regularly: Exercise isn’t just good for your physical health, but it can also help improve your mental health as well. Whether it’s taking a walk, going for a run, or taking a yoga class, find an activity that works for you and make it part of your routine. 

2. Eat a balanced diet: Eating a balanced diet is essential for staying healthy. Make sure you’re getting enough fruits and vegetables, whole grains, and lean proteins. Also, try to limit your intake of processed foods and sugary drinks. 

3. Get enough sleep: Sleep is an important part of staying healthy. Aim for seven to nine hours of quality sleep per night and make sure you’re getting enough rest. 

4. Manage stress: Stress can have a huge impact on your physical and mental health, so it’s important to find ways to manage it. Try yoga, meditation, or simply taking some time for yourself to relax and unwind. 

5. Stay hydrated: Drinking enough water is essential for staying healthy. Make sure to drink at least 8 glasses of water a day.

AI’s Second Response

Staying healthy can be a challenge, especially when it comes to maintaining a healthy lifestyle. But with a little planning and dedication, it’s possible to keep your body in tip-top shape and enjoy a happier, healthier life. Here are some tips to help you stay healthy: 

1. Eat a Balanced Diet Eating a balanced diet is essential for maintaining good health. Focus on incorporating plenty of fruits, vegetables, and whole grains into your meals. Limit saturated fats, trans fats, and processed foods, and make sure you’re getting enough protein, fiber, vitamins, and minerals. 

2. Exercise Regularly Regular exercise is just as important as diet when it comes to staying healthy. Aim for at least 30 minutes of moderate activity each day. This can include walking, jogging, swimming, or biking. Strength training is also beneficial for maintaining muscle mass, bone density, and overall health. 

3. Get Enough Sleep Getting enough sleep is vital for your body to function properly. Try to get about eight hours of sleep each night. If you have trouble sleeping, consider making lifestyle changes such as limiting caffeine consumption, avoiding screens before bed, and establishing a regular sleep schedule. 

4. Manage Stress Stress can have a major impact on your physical and mental health, so finding ways to manage it is essential. Consider activities such as yoga, meditation, or deep breathing to help keep your stress levels in check. 

5. Practice Self-Care

Wealth and health! The healthier you are, the less money you need to spend on healthcare. The wealthier you are, the more resources you have available to stay healthy. Instead of a downward spiral, this is an upward spiral! If you want to get wealthy and stay wealthy, you should probably focus on one of your most important assets, your health! If you need help changing any of your health habits, one of the best books I read in 2022 was “Atomic Habits” by James Clear and I would highly recommend it. https://jamesclear.com/atomic-habits

“If you can get 1% better each day for one year, you’ll end up 37 times better by the time you’re done.”
— James Clear
“It is only when looking back 2, 5, or 10 years later that the value of good habits and the cost of bad ones become strikingly apparent.”
— James Clear
Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Artificial Intelligence Reveals the Secrets to Becoming a Successful Investor

/ Fiduciary Financial Advisors/

Technology and why it is Important

My brother once asked me; would you rather be who you are today with the resources you currently have, or would you rather be John D. Rockefeller back in the early 1900s? Rockefeller was estimated to have a net worth of $24.7 billion, adjusted for inflation to 2021 dollars. After considering, I decided I would rather be who I am today with my current resources even though my net worth is just slightly lower than $24.7 billion because the average person today lives a far more luxurious life than the richest person in the world did a century ago. We have:

  • Indoor plumbing

  • Air conditioning for our homes and vehicles

  • Penicillin to literally save our lives

  • Fast reliable planes that transport us around the world

  • The Internet and WiFi

  • Computers that automate many tasks for us

  • Amazon delivers almost anything to our doorstep within 2 days

  • Miniature supercomputers in our pockets that have Apps to do almost anything

I bring this up to remind us to remain grateful/humble for the things we do have instead of being jealous or resentful of the things we do not have. Some people get scared of new technology instead of embracing how it can improve our lives. 

Artificial Intelligence

One upcoming technology is Artificial Intelligence (AI). Just as I am not a billionaire, I am also not a computer programmer, so I don’t know how the technology works but find it interesting that AI is now able to write articles/blog posts. It will be interesting to see what the pros and cons of AI will be as technology advances. Below are two responses the AI wrote when I prompted, “Write a blog post on how to be a successful investor.” Let me know what you think about the AI’s advice! (I used the website https://openai.com/) 

AI’s First Response

Investing can be a great way to grow your wealth over time. It can also be intimidating for many people, especially those who are new to it. Whether you are just getting started or you’ve been investing for years, there are some key steps you can take to be a successful investor.

1. Develop an Investment Plan. Before you begin investing, it’s important to create an investment plan. This plan should include your goals, what types of investments you’d like to make, how much you are willing to invest, and your timeline for achieving your goals. This plan should be regularly updated as your goals and circumstances change.

2. Diversify Your Portfolio. Diversification is an important part of any successful investment strategy. Investing in different types of assets, such as stocks, bonds, mutual funds, and real estate, can help you reduce your risk and increase your potential returns.

3. Research Your Investments. It’s important to do your homework before investing. Research the companies or funds you’re considering investing in, and make sure you understand the risks and potential rewards.

4. Monitor Your Investments.

AI’s Second Response

Are you looking to become a successful investor? Investing can be a great way to make money, but it can also be a huge risk. To be a successful investor, you need to have a clear investment strategy and understand the risks associated with investing. Here are some tips to help you become a successful investor. 

1. Educate Yourself: Before you start investing, you need to take the time to educate yourself. Do your research and learn about different types of investments and the associated risks. You should also learn the basics of financial markets, such as how stocks and bonds are traded. 

2. Set Goals: Before you start investing, you need to set some goals. What are your long-term and short-term goals? Are you looking to make regular income or grow your wealth over the long-term? Knowing your goals will help you decide which investments are best suited to your needs. 

3. Create a Plan: Once you’ve set your goals, you should create a plan to reach them. This plan should include a timeline of when you should invest, how much money you should invest, and what types of investments you should consider. 

4. Diversify: To reduce the risk of losses, it's important to diversify your investments. Don't put all your eggs in one basket - diversify across different asset classes, such as stocks, bonds, and cash.

“The future is already here. It’s just not evenly distributed yet.”
— William Gibson
Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

How Travel Nurses Qualify for a Mortgage

/ Fiduciary Financial Advisors/

Advice From A Mortgage Loan Officer

Macatawa Bank’s Mortgage team welcomed Alex to the team in 2016. Before joining the Mortgage team she served as a Commercial Credit Analyst. Prior to her work at Macatawa Bank, Merz was a Customer Service Representative at Chemical Bank. Alex holds her Bachelor's degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, no matter how bad they might be playing.

616.502.8044 akiel@macatawabank.com Website

H: I’ve heard travel nurses say they haven’t been able to get approved for a mortgage loan. What is a bank looking for to qualify travel nurses to obtain a mortgage?

A: Ideally, an underwriter is looking for a 2+ year history of being a traveling nurse with back-to-back contracts. If the potential borrowers are able to save up for a down payment during this time and build their credit, they will end up most likely with a better interest rate and lower monthly payments once they do qualify.

H: What if the travel nurse is looking to buy a house before that 2+ year limit? Does the amount of time they worked as a full-time employee at a hospital before they started travel nursing count at all?

A: If they are not able to wait 2 years to buy, they could consider a co-borrower and then refinance the loan into their own name solely once they have the two-year history. A bank may consider an income exception if the borrower has excellent credit, a good down payment, and a low debt-to-income ratio. They would need to see at least a one-year history of income being a traveling nurse though. This is not guaranteed, but the borrowers could apply for a pre-qualification after at least one year of income and have the bank take a look at the application. The exceptions would be on a case-by-case basis, and a strong co-borrower usually helps.

H: You mentioned back-to-back contracts. It can be hard to start another travel contract the very next week so a lot of nurses take a few weeks off in-between contracts. Would that still count as back-to-back? Any recommendations in the timeframe between contracts if someone is looking to obtain a mortgage?

A: A few weeks off would likely still be considered back-to-back. It’s understood that the industry norm could have a week or two in between contracts. Once a nurse starts approaching a month between each contract, there may be an explanation required for the gap in employment. Since the time in between each contract could vary, that’s another reason a two-year history is helpful to see the average income and the average amount of time worked year over year.

H: A decent chunk of travel nurse income comes in the form of tax-free stipends for housing and food. Does the bank consider this when evaluating the debt-to-income ratio?

A: The stipend would have to be documented and consistent to be considered income. The structure of income needs to remain the same year over year to be calculated as an average. If not every contract has a stipend, it may be difficult to consider it as income. However, when calculating the debt-to-income ratio, items like food expenses are not necessarily counted against the borrower. For example, the total debt considered in that ratio are items like loans from the credit report, property taxes, homeowners insurance, the proposed new loan, and HOA payments if applicable. Items like food expenses, gas, utilities, etc. are not counted as a debt payment each month. So the stipend portion of payment could go towards personal expenses and not necessarily considered to help with the loan repayment.

H: What percent would you recommend for a down payment?

A: Most of our loan options require at least a 5% down payment. If you don’t have 20% down, that is okay, but there will be PMI payments required. PMI stands for private mortgage insurance and is an extra portion of the monthly payment that does not go toward the principal balance of the loan. The more one puts down, the lower the PMI payment will be. I would never recommend someone use all of their liquid funds towards the down payment in case a large expense comes up unexpectedly. If someone can’t come up with 20% down, it shouldn’t necessarily stop them from buying a home.

H: I’ve heard it is not good to take out a new credit card or loan before applying to get a mortgage. Any other things that nurses should try not to do?

A: That is true, if the loan can wait, don’t apply for it until after the home purchase. Also, don’t apply for these things during the loan process either. If one does, the new loans have to be counted in the debt-to-income ratio on the mortgage application. Try not to save your down payment in cash under your bed. We cannot accept funds for a mortgage in cash because we have to source where those funds came from. Have the funds deposited in a savings, checking, or money-market account.

H: How soon would you recommend a travel nurse start talking with a mortgage broker when they want to start the process of getting a home mortgage loan?

Each scenario is different for each person. If someone is serious about trying to buy a home in the future, they can truly reach out to a mortgage lender at any time. The lender can explain if they couldn’t get approval now, what it would take to get approval and what the borrower should be working on. The lender could also go through options that would involve a co-borrower if the income of the traveling nurse can’t be considered at that time. They can also review how much income would be required based on the purchase price desired.

Heath BIller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Are Your Financial Passwords Leaked On The Dark Web?

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Advice From A Cyber Security Expert

Andrew Rathbun is a cyber security professional with seven years of experience between local/federal Law Enforcement and the Private Sector. Andrew has spent the last 2.5 years responding to ransomware incidents for businesses at every scale. Andrew is heavily involved in the Digital Forensics and Incident Response (DFIR) community. He enjoys writing blog posts, sharing research, contributing to open source projects, publishing books, and learning from and collaborating with other professionals in the field. Below are Andrew’s answers to a few questions I had for him regarding online financial accounts.

1. What are the biggest threats to keeping online financial accounts secure?

The biggest threat is when people use the same passwords that have long since been compromised in numerous hacks. You should make sure your current passwords aren’t in the infamous “RockYou” password leak, which can be found here. This is a commonly used password list by hackers when they want to attempt brute forcing (trying many passwords to see if one will work) accounts to gain access and carry out their goal of stealing all your money!

Additionally, some financial institutions do not have multi-factor authentication (MFA). My credit union doesn’t currently, which is crazy to me! Email/Password combinations used for some of the most important accounts people own are floating about on the dark web. You should use multi-factor authentication for every financial account if possible.

2. What is the best way to create a secure online password?

Using a random password generator is the best thing you can do. This can make it difficult to remember all of the random passwords though. So once the random password is generated, you then have to decide the best way to store/remember it. For examples of strong passwords, use a site like this one to create a password that is difficult to crack.

3. What is the safest way to save/store these secure passwords?

It is vital to use a password manager. I use 1Password as my password manager. I like it because I can use my email and an easy-to-remember password to access my password vault, which contains ALL of my passwords for every login I have. What makes it secure is that not only do you need the typical email/password combination to log in, but you also need a secret key that is unique to your account. If you use a password that has long since been leaked as associated with your email, a hacker will need to know your secret key, which is a random string of numbers and letters, before they can log in to your password vault.

Within my 1Password vault, I don’t know any of my passwords by heart. They are often 20+ characters and include lowercase characters, uppercase characters, symbols, numbers, and other special characters. There’s no way I could remember one let alone hundreds of different passwords. On some of my most valuable accounts, I have 50+ character passwords! I use 1Password on my phone and computer to log in to my accounts, so I don’t have to remember those passwords because they are simply too secure to remember. If ever they get leaked and therefore associated with my email account, I’ll just regenerate a new 20+ character password and replace it in my vault with the one that was compromised.

4. Any password managers that you would recommend that are free?

I’ve personally not used any free password managers, but one free password manager I would not recommend is your web browser. Obtaining your saved passwords from a browser like Firefox or Chrome is trivial for a motivated bad actor, and frankly, I could download a free tool right now and obtain the passwords stored in my web browser without much effort. 

If I had to choose a free password manager, the first I would consider looking into would be BitWarden on account of the program being open-source. What does this mean? That means the source code that makes it work is completely transparent to the public. If there are vulnerabilities, those who have the knowledge can identify them and suggest changes to the program to make it more secure so everyone benefits. For those not in the cyber security industry, this is a very common occurrence where a tool is free and open-source where improvements, bug fixes, and any other feature requests are encouraged. 

5. What is a VPN, how does it work, and should the everyday person use one?

A virtual private network (VPN) is something that people can use to make their internet traffic secure from people who are trying to steal their data. VPNs are secure but they can be very slow. Without a VPN, if you go to a website, data travels from your computer directly to the website’s servers. With a VPN, the data travels from your computer, to Israel, to Switzerland, to Brazil, and then to the website you’re trying to go to. Therefore, the website will load much slower than without a VPN.

The everyday person should strongly consider using a VPN when connecting to public Wi-Fi, such as the airport or a local diner. Unsecured Wi-Fi networks allow bad actors to easily sniff for packets of your data going to and from your computer, including but not limited to your email/password combinations when you’re logging into your bank account on said public Wi-Fi network.

6. Any good VPN services that you would recommend?

If you care about privacy, then you want to use a VPN that’s based out of a country with favorable privacy laws. Switzerland is widely considered to have the most robust laws on privacy when it comes to consumer data. ProtonMail, a privacy-focused email provider based out of Switzerland, has a VPN service called ProtonVPN. I use it and I very much recommend it. The philosophy of Proton is admirable and the fact it’s based out of Switzerland is a huge plus for privacy. Proton also embraces the open-source mindset that I admire about BitWarden and many other projects within my field of work.

7. Any other best practice recommendations?

Use a password manager, enable multi-factor authentication (MFA) on every account that provides that as an option, and change any passwords that you’ve been using since high school! 

Remember if something is free and you are not paying for it, then you are the product. Your data, your interests, your everything is being sold by advertisers like Google for profit. It’s not that any of us have anything to hide, but there’s a reason why we all don’t have 24/7 freely accessible streaming cameras in our bedrooms for all the world to see. 

Also, if you try to sell something on Facebook like I did tonight for the first time in a few years, and multiple accounts message you asking if the item is available within a minute of the posting, they are very likely bots. Sure enough, the first 4 accounts that asked me if the item was available ALL asked if they could call me with their second message. In the next message after I said “no, I don’t give out my phone number” they asked if I could post my phone number so they could call me. I immediately blocked them at that point. You have to take a moment, slow down, and not be in such a hurry to make the sale and ensure your data’s privacy is maintained as much as possible. Why would this person want my phone so badly? I thought they were interested in the mattress I’m trying to sell. Truthfully, my phone number is more valuable to them than the mattress, and they know I want to sell the item badly enough because otherwise why would I be posting about it on Facebook where there are tens of thousands of people on each of these 10+ groups I posted the item in? Much like the term innocent until proven guilty, nowadays I see things as scams until proven otherwise.

Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Is This Jar Full? Is Your Life Full?

/ Fiduciary Financial Advisors/

After watching this video, take a minute to reflect on what your current “golf balls” are in your life. If they aren’t what you want them to be then make a plan to change your priorities and start allocating your time differently!

“When you create a difference in someone’s life, you not only impact their life, you impact everyone influenced by them throughout their entire lifetime. No act is ever too small. One by one, this is how to make an ocean rise.”
— Danielle Doby
Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

How to Beat Inflation

/ Fiduciary Financial Advisors/

What is Inflation?

Recently inflation has been a hot topic, but what exactly is inflation and why does it matter so much? Inflation is the rate of increase in prices over a given period of time caused by an increase in the money supply. Since this causes more money to chase after the same amount of goods and services in our economy, prices increase. Our money then has less purchasing power because we end up paying more for things than before. Inflation is not a new phenomenon but hasn’t been a big issue since the early 1980s.

If we look at the M2 money supply data below, which is how the Federal Reserve broadly measures the money supply, you will notice the large increase that happened during the COVID pandemic to try and help stimulate the economy. People can debate back and forth if that was the right or wrong thing for politicians and the Federal Reserve to do. I would like to instead focus on some practical tips to help weather the “inflation storm” and potentially come out on the other side unscathed or even better than before!

Have an Emergency Fund!

Having money sitting in an emergency fund is not the most exciting tip, and inflation will indeed decrease that purchasing power. However, the purpose of an emergency fund is not to make a high return. It is to have a liquid supply of money available in an emergency. Going without one could lead to more serious financial issues if something unexpected happens and you don’t have enough cash to cover it. Since the Federal Reserve has started to increase interest rates, we should see that translate into higher yields on savings accounts soon!  

Typically, I’d recommend 3-6 months of living expenses in your emergency fund, but you may want more or less depending on your situation.

  • Are you single? 

  • Do you have children? 

  • Are you a one-income or two-income household? 

  • Is your job in a high-demand sector?

  • Could you easily find another job quickly if needed?

These are some questions you should consider when deciding how much money you should keep in your emergency fund. 

Own Assets!

Owning assets that produce income could help during high inflation and protect your purchasing power. As inflation increases, these income-producing assets should be able to increase their rates to help soften the blow felt by inflation. Real estate properties can command higher rents as inflation increases. If you can’t afford to purchase an entire property then REITs (Real Estate Investment Trusts) are the other potential option to gain access to that asset class with smaller capital amounts. 

Owning businesses is similar. The money the business receives as income may become less valuable due to inflation. If the business can increase the prices charged for goods and services, then the greater amount of income could offset the money being worth less. If you can’t afford to purchase an entire business, then consider owning parts of businesses through stocks, mutual funds, or index funds.

Own Debt?

I wouldn’t encourage anyone to go out and accumulate more debt. If you already have a fixed low-interest debt such as a mortgage, it may make sense to delay paying it off early. If inflation remains high, the money you use to pay back that debt will be worth a lot less in the future than the money you originally received. Using that money to invest in other assets could be a much better option.

Review Your Expenses

With inflation running high it’s the perfect time to look at your expenses. Review what you are spending your money on to figure out if it aligns with your long-term goals. Do you need five different streaming services? Is it time to stop eating out as often and start cooking more at home? Is it time to start carpooling to save on gas prices? Incorporating some of these ideas to help reduce your expenses is another potential way to decrease the effect felt by high inflation.

Invest in Yourself

I saved the best for last! Investing in yourself is one of the best ways to deal with inflation. Learn a new skill, read a new book, take a new class/certification program, and grow your knowledge base. By making yourself more marketable to your current/future employer and providing more value for them, you should be able to command a higher salary. That can help make inflation not sting quite as much. Even though things will cost you more, earning more money to help offset those costs can be a difference-maker. 

James Clear, the author of Atomic Habits, shared a powerful principle: a 1% improvement every day leads to you being 37x better at the end of the year. And I’m confident you can get 1% better at something every day! Inflation does not prevent you from improving yourself.

Heath Biller
“If you have any financial questions I would love to connect with you to help”
— Heath Biller
“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you. The best investment by far is anything that develops yourself, and it’s not taxed at all.”
— Warren Buffett

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Following Your Financial Plan in 2022

/ Fiduciary Financial Advisors/

Video Transcript:

0:06 Hi, everybody wanted to get a video out, to give an overview of the market and to help give some reassurance about current investment strategies and plans.

0:16 I'm sending this out to all of my clients, as well as people I've interacted with during my financial advising career and people that I have meetings coming up with.

0:26 So I hope you find it helpful and feel free to share it with anybody else that you think might also find this helpful.

0:32 So wanting to jump right in the current stock market this year for 2022 is down over 20%. And so if you've watch any of the news read any financial articles, lots of people are talking about bear market recession and the media thrives on negativity and fear gives 'em a lot more views.

0:54 And so I wanted to give, uh, a few different data points to help give a longer-term picture and a different point of view.

1:01 I, so this first one it shows the history of the bear and bull markets in us since 1942. Visually I like it.

1:12 You can see, but I'll just explain it. The bull market on average has lasted around 4.4 years since 1942, when we've had a bull market, it compared to only 11.3 months of a bear market.

1:26 And the returns of those bull markets have averaged around 154% compared to the loss of only 32% during a bear market.

1:37 And so looking at a bigger, longer-term picture like this helps reassure me that even when we do go into years like we have had in 2022, I'm not investing year to year.

1:49 I'm looking at the long term, 10, 15, 30 years out, from when I'm gonna need that money. And whenever I talk to people, I always tell them that if you need money in the next three, four years, you should’t be investing it in the stock market, or at least not super aggressively.

2:05 If you do you wanna make sure you don't need that money for at least five years or more because that'll give markets time to recover when we come across situations like we are today, this one shows data a little bit differently.

2:19 I like this one because the gold shows how much the stock market has been down at some point throughout this, that year where the blue shows the overall returns of the stock market, S&P 500 for that year.

2:34 And so you'll see that there's lots of times where the gold is down quite a bit at some point during that year, but at the end of the year, the blue ends up still being in the positive.

2:45 And so I don't know if that's gonna be one of those years that we're in for 2022, but I do know that looking at this, it helps reassure me that I'm investing for the long term.

2:58 And then this last one, if you focus on the blue line, the stocks, you can see that they dipped quite a bit in 2008 with the great financial crisis, the housing market crash, and then following all the way through, you can see how stocks have performed.

3:12 They did dip for the COVID crisis when that started. But again, looking long term, looking back since 2007, I would much rather be invested in stocks than invested in some of these other, you know, gold, cash, oil, because in the long term stocks have outperformed quite a bit more than these other categories.

3:36 Again, I can't predict the future, but this data helps reassure me that I'm gonna stick to my own financial plan.

3:44 And I'd advise you guys to stick to your yours as well and not let emotions or fear control what your investing decisions are.

3:53 So I will leave you with a quote by Warren Buffet, which I know lots of people use it, but they use it because it's really good.

4:02 And so he says that people should try to be greedy when others are fearful and fearful when others are greedy.

4:10 And right now there seems to be like, there's quite a few people that are fearful, and that might lead to a really great buying opportunity, uh, with stocks being, uh, quite a bit cheaper now than the, what they were at the beginning of the year.

4:24 And so if you don't have a financial plan, I'm happy to, uh, help build one out for you. And if you're a current client and you wanna review yours or get more in-depth with it, I'm happy to meet and I'll leave you with my contact information.

4:39 Feel free to call email. If you wanna schedule a meeting directly on my calendar, there's a Calendly link there where you can sign up for that.

4:47 So hopefully this helped and feel free to reach out if you have any other questions. Thanks.

Heath Biller
“If you have any financial questions I would love to connect with you to help.”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Is it too late to start living like a Millionaire?

/ Fiduciary Financial Advisors/

Do you want to become a millionaire? Do you want to live like a millionaire? It might not be what you envision. One author spent over a decade researching, investigating, and interviewing millionaires to explore how the average millionaire lives. Here are his insights from Thomas Stanley’s book, The Millionaire Next Door.

They live well below their means

The average millionaire doesn’t spend more than they earn. They don't buy fancy clothes; they shop for clothes at places like Target, Meijer, and Wal-Mart. They don't drive fancy car brands like Porsche, Ferrari, and Lamborghini. They drive cars made by Toyota, Honda, and General Motors. They don't live in mansions overlooking the ocean. They live in a well-taken-care-of home next door to you which explains the title of the book.

True millionaires allocate their time, energy, and money efficiently, in ways conducive to building wealth.

The average millionaire is productive with their time. They spend much more time reading and much less time watching TV than non-millionaires. They don’t waste their money on lottery tickets or get-rich-quick schemes hoping to become rich. They invest their time and money improving themselves, learning new skills, starting businesses, and networking with other successful people. They exercise more and eat healthier. They start investing in their tax advantage accounts early!

They believe that financial independence is more important than displaying high social status. 

The average millionaire understands that being wealthy isn’t about showing off or one-upping their neighbor. Instead of buying a bigger house or fancier car, they would rather build wealth. They understand that building wealth allows them to gain back control of their time. Being financially independent allows them to spend more time with their family, volunteer more, work at a job they enjoy, and participate in hobbies they love. They understand the difference between appearing rich and being wealthy.

Their parents did not provide economic outpatient care.

The average millionaire did not inherit their wealth as many people assume. While some families do pass down wealth from generation to generation, research shows that the vast majority of millionaires are self-made. They did not receive large inheritances but built their wealth slowly over time.

Their adult children are economically self-sufficient.

The average millionaire is not supporting their adult children. They taught their children the principles of finance, which include delayed gratification and the power of compounding interest. They discussed their family finances early and often. They provided for their children's needs but did not fulfill every want. They taught them to work hard and to work smart. They taught them how to make their money work for them instead of the other way around.

They are proficient in targeting market opportunities.

The average millionaire learns that money is a medium for transferring value. If they provide a product or service to somebody they receive money, which can then be spent to receive a product or service back. They use this information to stay on the lookout for opportunities where there is a lack of products or services. Then they use their knowledge and resources to provide that need which is in high demand. Improving efficiency is another value add opportunity the millionaires use to generate wealth. Money flows to wherever value is created.

They chose the right occupation.

The average millionaire has found an occupation that matches their skill set and personality well. They enjoy going to work most days and look forward to being productive. Enjoying their job allows them to excel, which leads to being compensated well.

I encourage you to start implementing these insights in your life. If you enjoyed this overview, I would highly recommend reading the book!

“You will be the same person in five years as you are today except for the people you meet and the books you read”
— Charlie Tremendous Jones
Heath Biller
“If you have any financial questions I would love to connect with you to help.”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

If the stock market is crashing! What should I do?

/ Fiduciary Financial Advisors/

One of the most important rules when it comes to investing is to buy low and sell high. And yet, some people end up getting nervous when the stock market is “crashing” and end up selling low. Then, after the market recovers, they regain confidence and end up buying high. Letting one’s emotions control investing decisions is a recipe for poor returns.

You may see on the news or social media people claim that they know what the market is going to do in the future. Often people say these things to try and get more viewership and clicks instead of trying to give sound financial advice. But recall the adage that “even a broken clock is right twice a day”. Don’t be surprised when someone’s lucky guess happens to be accurate from time to time. Instead, focus on taking financial advice from a fiduciary, someone who is legally required to act in your best interest and not their own.

So what should you do during a volatile market? Without knowing the details of your financial situation, I can’t provide specific advice. However, I would like to review some data from the past to help you gain a better understanding of the markets and consider a “market crash” as a potential opportunity to buy. This is looking back at previous returns so make sure to note that past performance is no guarantee of future results.

In the world of finance, there are two different types of markets: a bull market and a bear market. A bull market is a time frame when the economy is expanding and stock prices are increasing, while a bear market is when the economy is experiencing a recession and stock prices are decreasing. As you can see from the chart below, bull markets typically last longer than bear markets and produce greater returns compared to the losses of a bear market. The U.S. has been in a bull market for a while so when it transitions to a bear market or recession that will not be out of the norm when looking back in history.

Since bull markets typically last longer than bear markets, the odds that someone makes money investing in the stock market could increase significantly the longer they leave their money invested. The chart below shows the probability of someone having positive returns investing in the S&P 500 index since 1937. If someone only invested for 1 day they had a 53.4% probability of having positive returns but if they stayed invested for 10 years they had a 97.3% probability of having positive returns! I prefer the much higher probability of higher returns by not trying to time the market.

The chart below shows the 15 largest single-day percentage losses for the S&P 500 since 1960. If you look at the right side you will see in the one year later column that only one time was the market negative one year post the corresponding single-day percentage loss. That was back in 2008 during the global financial crisis. Instead of becoming nervous about large single-day losses reassure yourself that more than likely the market will recover within one year.

Think about it this way, I LOVE Heath candy bars for obvious reasons. If I bought them as a snack and then Meijer sent me a coupon for 50% off, I wouldn’t get upset that I had just paid full price. I’d go and buy more. Selling stock when the market plummets would be a lot like me selling my Heath candy bars for 50% less than what I paid for them vs. buying more at such a great price!

Hopefully, this has helped you gain a better perspective on making investing decisions. I believe that having a longer-term outlook can help you keep emotions in check and not get as nervous/scared when you see people on the news and social media talking about a stock market crash.

Just like gym workouts are more productive with a trainer, folks often are better able to keep their emotions in check by having a talented financial advisor on their team. If you don’t have a financial plan established now might be as good of a time as any to get that put in place. I would be happy to meet with you to discuss your financial plan.

“We simply attempt to be fearful when others are greedy and to be greedy when others are fearful”
— Warren Buffett
Heath Biller
“If you have any financial questions I would love to connect with you to help.”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.

Traditional vs Roth Retirement Account, Which Is Better?

/ Fiduciary Financial Advisors/

What is the difference between a traditional account and a Roth account? Which one is better for you? Which one should you invest in? Several factors can affect your decision. I will help you explore concepts to think about to assist when making that decision.

The main difference between a traditional account and a Roth account is the timing of when you pay taxes on the money. When you make a contribution to a traditional account you normally would be able to deduct that amount from your taxable income, which would reduce your taxable income the year you make the contribution. Then at retirement when you withdraw the money, you would pay taxes on the contributions and growth of the account. This is called tax-deferred money since you are deferring the taxes until later 

A Roth account works the opposite way. You do not reduce your taxable income the year you contribute the money, but then when you withdraw the money you do not have to pay taxes since you already paid them on the money contributed. This is called tax-free money since it is tax-free upon withdrawal.

Income Tax Brackets

One of the first things you will want to figure out is what federal income tax bracket you will be in for the current tax year. This is an important part of your decision when deciding if you should contribute to a traditional or a Roth account. Here are the federal income tax brackets for 2023. (Source: Voya 2023; link below)

 

If you are in one of the higher income tax brackets (32%, 35%, or 37%) it may make sense to contribute to a traditional instead of a Roth account since you would save more now on taxes than you would if you were in one of the lower income tax brackets (12%, 22%, 24%). If you think you are in a higher tax bracket now and will be in a lower tax bracket at retirement then it may make sense to contribute to a traditional instead of a Roth account. Keep in mind that politicians have adjusted the tax brackets many times in the past and will probably adjust them again before you reach retirement.

Time Horizon

Time until retirement is another factor to consider when making your decision. Generally, someone who is younger will have a lot more time for their money to earn compound interest and could be better off contributing to a Roth account. This way all of the principal & compound interest they withdraw at retirement would be tax-free, whereas if it was in a traditional account you would owe taxes on that money instead. My brother explains it as “would you rather pay taxes on the seeds or pay taxes on the entire tree once it is fully grown.” 

You might be someone who would rather lock in their tax rate now and not have to worry about if it will be higher or lower at retirement. If you are that type of person then you will want to consider contributing to a Roth account. If you are someone who believes your tax rate at retirement will be lower than what it is currently, then you will want to consider contributing to a traditional account.

Required Minimum Distributions

Required Minimum Distributions (RMDs) are another reason why you might decide to contribute to a Roth instead of a traditional account. After a certain age (as of 2022 it is 72) the government requires that you withdraw a specified amount of money every year from your accounts as they want to get their tax money back on that tax-deferred money. If you have that money in a Roth IRA then there are no RMDs, unless it is an inherited Roth IRA. (Source; Fidelity; link below)

Employer Plans

If you participate in a retirement plan at work, most companies offer some type of matching program. If you contribute a certain amount they will contribute a match. Dollar on the dollar or fifty cents on the dollar up to a certain amount appears to be the most common matching contributions. More employers are now offering a Roth option. If you elect to have your contributions go toward the Roth bucket be aware that your employer will more than likely contribute their match into the traditional bucket, so they are able to receive the tax deduction. This may be a good thing as it could help you diversify your risk by having some money tax-deferred and some money tax-free at retirement.

If you are a participant in an employer-sponsored retirement plan at work then there is a deductibility phase-out for IRA’s if your modified adjusted gross income (MAGI) is above a certain amount. In other words, you wouldn’t get the tax deduction by contributing to a traditional IRA plan if your income is over a certain amount and you have a retirement plan at work. For Roth IRA’s there is a phase-out limit. As your MAGI increases, the amount the IRS allows you to contribute decreases until you are no longer allowed to contribute. Refer to the Voya 2022 Quick Tax Reference Guide if you are curious as to the specific ranges. (Source: Voya 2023; link below)

If you have more questions about if you should contribute to a Roth or a traditional account feel free to set up a meeting with me as I am happy to discuss strategies personalized to your situation. If you are looking for the best of both traditional and Roth accounts then click here to learn more about how Health Savings Accounts can be used as a stealth retirement account.

Sources: https://www.kiplinger.com/retirement/retirement-plans/roth-iras

https://individuals.voya.com/document/tax-center/2023-quick-tax-reference.pdf

https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/overview

Heath Biller
“If you have any financial questions I would love to connect with you to help.”
— Heath Biller

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.