Blog

Enjoy this month’s edition that features some tax planning reminders about Required Minimum Distributions.

As a Kentucky fan, think back to the end of last year’s Florida game and allow yourself to remember that feeling for a moment. That feeling of “what if” is what we’re trying to avoid in our investing. As a recap, we beat Florida like a rented mule through three quarters. Then, it happened. Florida scored not once, but twice, in the fourth quarter to erase a big lead. Two plays turned a 27-14 Kentucky lead into a 28-27 Kentucky loss. Not only did we lose the game but perhaps our best opportunity to beat the Gators in the last 31 years.

What does that have to do with investing? Always keep your focus on the wide receiver, I mean, your goals.

With football starting this week I thought I’d talk some defensive strategy. Namely, the prevent defense – pronounced, inexplicably, preee-vent. For those of you new to this, the prevent defense is often employed by teams with leads more than 3 points and less than 8 with just a few minutes to play. The theory is bend, but don’t break. More specifically, you put just 3 down lineman to pressure the Quarterback and 8 Defensive Backs to cover receivers and prevent a deep pass from reaching the end zone. The result is the offensive team often completes a flurry of passes for 10-15 yards, while burning valuable clock, but never reaches the end zone.

The new tax law (Tax Cuts and Jobs Act) passed in December of 2017 marks the biggest overhaul in the tax code in many years. The impact of these changes is far reaching and will impact most of us in some way. As we are now over half-way through 2018, this is a good time to look at your tax situation in light of the new tax law and make any necessary adjustments prior to year-end.

I have a 20-year old memory of asking Bob Bova, the founder of Moneywatch Advisors, if he thought I could retire if we could accumulate $1 Million. At the time the company I worked for was being acquired – there’s no such thing as a merger – and I was particularly frustrated with the new management team. Bob and I were playing golf at Andover Country Club where it was abundantly clear that the PGA Tour was not a viable fallback career and I was at a professional low point and looking for some hope. In typical fashion, Bob didn’t say, “sure” and give me false hope. Or, “no way” and dash my hopes. He said, “Let’s sharpen our pencils and make a plan.”

Lisa and I had been clients of Moneywatch for 2-3 years at this point, signing on after observing my parents’ outstanding experience as clients for about a decade. Until then, they had primarily focused on managing the investments within our 401(k)s. But, what Bob developed for us now changed the course of our financial lives.

Recently a client of my approximate vintage asked if he should start contributing to his employer’s Roth 401(k) rather than the traditional 401(k). Roth 401(k)s and Roth 403(b)s are retirement account options commonly offered by employers, such as the University of Kentucky. The difference is that you put after-tax dollars into a Roth rather than pre-tax dollars and, when you take a withdrawal in retirement, you won’t pay income tax on that amount. In other words, the earnings growth is tax-free. Cool, you say, gimme some of that. But, the real question is, which account option will produce the most money in the long run?

Recently a client of my approximate vintage asked if he should start contributing to his employer’s Roth 401(k) rather than the traditional 401(k). Roth 401(k)s and Roth 403(b)s are retirement account options commonly offered by employers, such as the University of Kentucky. The difference is that you put after-tax dollars into a Roth rather than pre-tax dollars and, when you take a withdrawal in retirement, you won’t pay income tax on that amount. In other words, the earnings growth is tax-free. Cool, you say, gimme some of that. But, the real question is, which account option will produce the most money in the long run?

I have a faint memory of a family in our church when I was in middle school, probably, selling their house and all their possessions to buy a boat and sail around the world. I occasionally wonder what happened to them. Did they find happiness? Fulfillment? Adventure? Terror? Were the kids able to finish school? Are they, ahem, normal after such an experience?

I refer to those in their 40’s and early 50’s as the “financial sandwich generation.” Many are paying off student loan debt, possibly saving money for children’s education, maybe even helping aging parents – all while trying to save for their own retirement. Talk about a squeeze! Here is some advice to help put a little more jelly on that sandwich.