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Should I Set Up a Traditional 401(k) for my Business?

When you are a small business owner interested in offering a retirement plan for your business you have plenty of options to choose from. 401(k) plans are one of the many ways in which small business owners can help themselves and their employees save for retirement. However, 401(k) plans are not the right answer for every employer, nor are they ideal for every employee. Is a 401(k) plan right for your business? Consider the following factors when reviewing your company’s retirement benefits package.

How Many Employees Does Your Business Have?

The good news is there are plans for business of every size. If you have employees, consider if you are willing to contribute to your employees’ accounts. Employer contributions are tax-deductible from current taxes; some plans give more flexibility than others in regards to these contributions while others do not require an employer contribution at all.

What are Your Primary Goals?

When you consider offering a retirement plan for your employees, it’s important to think about what you would like to accomplish and what is most important to you. Are you looking for a retirement plan that allows for flexibility in plan rules and employer contributions? You may find that that a 401(k) plan meets your needs, since this plan allows you discretionary employer contributions, as long as they fit within certain parameters. 401(k) plans also have higher contribution limits than many other plans and can be a great fit if your goal is to save as much as possible for your own retirement. If your main priority is finding a retirement option that is easy to set up and administer, a 401(k) plan may not be the idea retirement option for your employees. Depending on the number of employees you have, how much they earn, and the contributions you’d like to make, you may consider a SIMPLE IRA or SEP IRA as alternatives.

Have You Considered Alternative Retirement Investment Options?

Even if you think that a 401(k) plan is the ideal investment option for your business, you may want to consider other retirement investment options before making a final decision. Here are some other retirement options you might want to think through:
  • Solo 401(k) - Easier to set up than a 401(k) plan and can be ideal for a solo entrepreneur; contributions cannot exceed the lesser of 100% of compensation or $56,000
  • Defined Benefit Pension Plan - Can be flexible for the older solo business owner or employer who wishes to contribute a mandatorily set amount for employees’ plans
  • SEP IRAs - One of the easiest plans to administer; contributions cannot exceed the lesser of 25% of compensation or $56,000
  • SIMPLE IRA - Easy to set up and administer; employee contributions cannot exceed $13,000 and require mandatory employer contributions of 2%-3%
  • SIMPLE 401(k) - Similar to a SIMPLE IRA, but offers the loan options of a 401(k) plan
  • Safe Harbor 401(k) - Another option that is easier to set up and administer than a 401(k); employee contributions cannot exceed $19,000 and require mandatory employer contributions of 3%-4%

To learn more about your business’s retirement investment options, contact Certified Financial Planner, Jacob Sturgill, for a personalized approach to uncovering your retirement investment priorities and to review your potential options.

[contact-form-7 id="3520" title="Schedule a Free Consultation w Jacob Sturgill"] For Plan Sponsor Use Only - Not for Use with Participants or the General Public. This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
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What are the Most Important Issues to Consider Before Retirement

When it comes time to plan for retirement, there’s a lot to think about before making the plunge. From your cash flow needs to insurance requirements and tax strategy, your finances are a central factor when answering questions like: “When can I retire?” and “How long can I expect my retirement to last?” As you prepare to discuss your retirement planning with your financial advisor, consider some of the most important issues that may influence your retirement goals and planning:

Anticipate Your Future Cash Flow Needs

In order to establish a retirement investing strategy, you need to know what you’re saving for. First, you want to consider how your cash flow needs will change as you transition from full employment to retirement. Factors like your anticipated income and expenses will help you to determine your cash flow expenses from month to month and year to year. Basic living expenses, such as housing and healthcare, will remain somewhat consistent throughout your retirement, though things like downsizing your home can influence whether these will remain similar to your pre-retirement expenses. Variable expenses, such as food, travel, entertainment, and taxes are more dependent on your lifestyle expectations and other plans, and are likely going to fluctuate from time to time throughout your retirement. Your target savings goals for retirement should factor in both your expected basic and variable expenses. Ideally, your retirement portfolio should provide the supplemental cash flow that you need to sustain your anticipated standard of living during your retirement. You will also want to consider how Social Security and pension benefits play into your retirement planning. Your financial advisor can help you to determine the optimal time for claiming your benefits and taking advantage of any for which you qualify.

Review Your Health Insurance Coverage and Future Situation

Another essential aspect of planning for retirement expenses is ensuring your ongoing health insurance coverage. For retirees aged 65 and older, Medicare is an option. If you plan to retire before 65, you’ll need to look into other options, like extending your health insurance coverage from your previous employer or your eligibility to save on premiums for a plan from the Health Insurance Marketplace. Looking beyond your initial insurance coverage needs, you will also want to make plans for long-term care, should you eventually require it. Long-term care insurance, self-funded insurance, and assisted living programs can provide the path for funding your care needs and should factor into your retirement savings strategy.

Plan for Taxes

Taxes are an unavoidable part of your retirement planning and you should prepare an advance tax strategy to compensate for these expenses. If you anticipate that you’ll have a high RMD, look into possible Roth conversion strategies or charitable distributions, if you are inclined to use your funds in such a manner. If your income will be considerably lower after retirement, then a Roth IRA conversion strategy may relieve some of your tax burden during those low income years.

Take Stock of Additional Situations that May Apply

Lastly, you want to take a look at other situations that may impact your retirement strategy and make a plan for handling them. These include things like:
  • Updating an old or outdated estate plan
  • Updating beneficiaries
  • Outstanding loans on employer retirement plans
  • Multiple accounts with similar tax treatment
  • A change of residence or house sale
  • Business ownership issues, including exit strategy and succession planning
Your financial advisor is the an ideal sounding board as you sort through retirement planning and other related issues. Not only can they offer practical advice for organizing your pre-retirement thought process, but they can provide the tools you need to make informed investment decisions to fund your future.

Contact Jacob Sturgill of Puckett & Sturgill Financial Group to learn more about our retirement planning services and start planning your future today!

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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How to Maximize Your Social Security Benefits

Are you approaching retirement age and considering how your Social Security benefit plays into your plans? Did you know that there are a variety factors that can contribute to your ability collect your full potential benefit? When it comes to understanding your Social Security benefit, you may be wondering about your eligibility and how to maximize your Social Security income. Here are some of the most important factors to keep in mind when calculating your potential Social Security benefit.

Requirements to Qualify For Social Security Retirement Benefits

Social Security retirement benefits are based on your lifetime average earnings and your age when payments begin. In order to qualify, you must work for at least 40 quarters (10 years of work where you paid Social Security taxes) and have attained age 62.

Determine Your Full Retirement Age

Before you can figure out what your Social Security benefit will be, you need to determine your full retirement age (FRA), which is calculated based on your birth year. You can use this chart to find yours:
Birth Year FRA
1943-1954 Age 66
1955 Age 66 + 2 months
1956 Age 66 + 4 months
1957 Age 66 + 6 months
1958 Age 66 + 8 months
1959 Age 66 + 10 months
1960+ Age 67
Once you know your FRA, you can strategize the timing for collecting your benefit. There are certain advantages to waiting until you reach your FRA, rather than cashing in early. If you wait until you reach your FRA, you can collect 100% of your benefit. And if you wait until between your FRA and age 70, your benefits have the potential to increase by 32% by the time you reach 70. On the other hand, if you begin to collect before you reach your FRA, you risk losing out on some of your benefit. You can start benefits as early as 62 but in doing so your benefits may be reduced by as much as 30%. If you collect between age 62 and FRA, you may end up with up to a 25% reduction in the total benefit you receive.

Look into the Impact of Your Marital Status*

Your marital status impacts your Social Security benefit, depending on whether you are married, widowed, or divorced. In any of these cases, you may be eligible to collect benefits based off of your spouse’s past earnings. Speak with your financial advisor to learn more about how your situation will affect your benefit.

Consider Your Employment Situation

Your past and current (if applicable) employment situations will also affect your Social security benefit. While your FRA and retirement status are the biggest factors here, other retirement benefits and your income leading up to the year of your FRA may also come into play. For example, if you qualify for an employer sponsored pension plan that is not covered by Social Security, such as Federal Civil Service, your Social Security benefit may be lessened or eliminated. You also want to take care to pay close attention to your income in the years leading up to your FRA. If you plan to work between age 62 and your FRA and will be earning more than $17,640, you’ll lose out on $1 in benefit for every $2 you earn above the income threshold. If you do not plan to work beyond age 62 but still have income in excess of $46,920 in the year before the month that you reach your FRA, you’ll lose out on $1 for every $3 you earn above the threshold. Note: the earnings limits are as of 2019 and adjusted annually for national wage trends.

Calculate Your Tax Responsibility

Lastly, once you’ve run the numbers on your anticipated Social Security benefit, you’ll want to take a look into how this benefit will be taxed once you begin receiving checks in the mail. To calculate your tax responsibility, you can add your provisional income plus 50% of your Social Security income and see which tax bracket you fall into.

If you’d like to learn more about planning for retirement, contact Jacob Sturgill today!

[contact-form-7 id="3520" title="Schedule a Free Consultation w Jacob Sturgill"] *Information received from MFS 2019 Social Security Reference Guide. MFSP-SSREFER-GDE-12/18
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What Issues are Important to Consider if My Spouse Passes Away

Dealing with death is never easy and always comes too soon for those we love. Putting your estate in order can allow your loved ones to transfer your assets in an orderly, timely, and tax-efficient manner in order to minimize their burden after you pass and allow you disburse your assets as you intend. Here are some other factors to consider if your spouse passes away.

Are Your Cash Flow Needs the Same?

After a loss, your lifestyle needs, including income and spending, will probably change. It’s possible that your sources of income may change and important to consider how these factors might impact your budget and other aspects of your financial situation. You may need to look into ways to provide a continued cash flow to sustain your lifestyle, as well as issues pertaining to handling your spouse’s IRA, pension, and other benefits. Your income, personal budget, investments, and other financial decisions may all be impacted in the aftermath of a loss.

Was Your Spouse Receiving Social Security Benefits or a Pension?

If your spouse was receiving Social Security benefits or a pension from a previous employer, you may be eligible to collect survivor benefits, have payments that will stop, or payments that could be reduced. Depending on your spouse’s employer and career history, you may be eligible for certain benefits on their behalf. And if your spouse was a veteran, you may be eligible to receive death and burial benefits, as well as other survivor benefits.

Are You Aware of All of Your Spouse’s Property and Assets?

Your spouse’s employer may offer a life insurance policy that you can collect after your spouse’s passing. You may also be eligible to collect credit card points, airline miles, unclaimed property, safe boxes and other assets your spouse had accumulated throughout their life.

How is Your Tax Situation Impacted?

Taxation on your assets may look a little different after your spouse passes away. You home is one area where you need to research your tax benefit through selling (you can qualify for the $500,000 housing exclusion if you sell within two years of your spouse’s death). For property owned jointly with your spouse, expect to receive a step-up in basis adjustment for each joint property. Additionally, if you filed “married filing jointly”, you may continue to do so for the year your spouse passed away.

Are Your Risk Tolerance and/or Investment Objectives Different?

As a newly single investor, your investment needs may be different than they were when you and your spouse invested jointly. Perhaps your retirement figures require adjustment or your risk tolerance has changed. Regardless of your specific situation, it’s important to look for ways in which your future financial plans may be impacted by the loss and to strategize a plan for moving forward.

Do Other Special Situations Apply?

Sometimes, there are unique situations that further impact your estate planning needs. If your spouse was a business owner, you will need to make accommodation for their business assets and close or transfer accounts to the proper parties. You will also want to take a second look at assets and make proper accommodations for out-of-state properties and other accounts with unique needs. Lastly, you may wish to reduce the risk of identity theft by closing your spouse’s online accounts, canceling their driver’s license, and notifying official parties of their passing.

We’re Here for You

There is never a convenient time to deal with loss, but you don’t need to navigate these unknown waters alone. Contact Puckett & Sturgill Financial Group today to learn more about our estate planning services and how we can lend a helping hand during challenging times. [contact-form-7 id="3520" title="Schedule a Free Consultation w Jacob Sturgill"] Important Disclosures This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
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Handling the Hard Stuff: How Your Financial Advisor Can Help After a Loss

Working through loss is draining, both physically and emotionally. And while it’s hard to imagine how you might handle the passing of a loved one or another unexpected loss, it can bring some comfort to have provisions in place that’ll protect you or your loved ones when these hard times come along. An important aspect for working through troubling times is surrounding yourself with a community that will offer support and a helping hand. Your financial advisor can be an invaluable part of this team. From helping you work through important paperwork to ensuring that you have all of your ducks in a row when it comes to making adjustments to your own legacy planning, your financial advisor can play a critical role in helping you stay on track in the aftermath of a personal loss. And when you can trust your advisor to help you with the details, you have the confidence to work through everything else that comes along with this life event. Here are some of the roles that your financial advisor may play after a loss:

A Balancing Voice

Dealing with grief is different for every individual. After a loss, you may not have the desire or expertise to work through some of the necessary paperwork and decisions that now fall to you. Your financial advisor can provide a welcome balance to your internal feelings and can help you work through the required steps without getting mired down in emotion or indecision. If you’re newly handling joint finances on your own, your advisor can provide professional guidance in working through the decisions that you now face. Your advisor can also help you to prioritize decisions to give you clarity on which issues must be handled immediately and which can wait until a later time. You may be tempted to jump into making financial decisions by the dozen in the weeks and months following a loss, but if these decisions are emotionally motivated, they could be dangerous for your financial future. When you work with a trusted advisor, they can give you the balanced guidance you need to keep emotional thinking at bay and work through your issues holistically, with your entire lifestyle and values-system in mind.

A Helping Hand

Often after loss, there are mountains of papers to be signed and letters to be sent. Sometimes this work can seem daunting, even to the most ambitious family member. If you find yourself dealing with more paperwork than you can handle, talk to your financial advisor about whether they can help you sort through some of your financial paperwork to ensure that nothing is missed. With this task off of your plate, you can focus on other details and not worry whether you’re going to overlook an important document to file in the meantime.

A Trusted Guide

After loss, your financial status is likely to change to some degree. Whether you’re dealing with a change in income and expenses or want to adjust your retirement goals, you will want to have an in-depth discussion with your financial advisor regarding your financial status as you move forward. Your advisor will know the right questions to ask in order to help you sort through which changes you’ll need to make to your financial strategy. They can also help you to determine how your new status will impact your current holdings and provide advice on how to avoid tax penalties and other unwelcome impacts. Part of your financial advisor’s job is to help you work through life changes as they happen, and your advisor has likely worked with plenty of other clients in a similar situation to yours. They are familiar with the territory and can provide counsel on which steps you need to take in order for you to articulate and work toward your new financial future.

Important Steps to Take Today

Of course, it’s the relationship you build with your financial advisor during the good times that allows them to compassionately help you work through loss and other life events. You want your financial advisor to be someone that you can trust to look out for your best interest in the aftermath of loss. In order to establish that relationship, you need to have deep conversations with your advisor about concerns regarding your estate planning and long-term wealth goals. Here are some things to do in the short-term to help you establish confidence and a solid ongoing relationship with your financial advisor:

Work through Estate Planning Documents

When it comes to confidence in the aftermath of loss, you may be motivated to work through through as much of your own estate planning process as possible if you haven’t done so already. Your financial advisor can provide you with the documents you need to prepare your assets and can also provide valuable feedback as you work through the planning process. The earlier you start your estate planning, the more time you have to ensure that all of your documents are in place and to make adjustments as you go along. Since your future plans tie into your overall financial planning journey, it only makes sense to talk about how they impact one another and to make plans for your asset allocation in the event of you or your spouse’s passing.

Work with an Advisor who Cultivates an Atmosphere of Openness

Ideally, your financial advisor is a person who you trust and who has already helped you work through certain financial planning decisions. But if they’re not, or you don’t have a financial advisor that you feel you can trust, perhaps it’s time to find someone that you feel comfortable working with in both the good times and the bad. Your advisor should work with you to determine your financial goals and provide helpful, reasonable recommendations that balance your values and ideals. At Puckett & Sturgill Financial Group, we believe that all of our clients deserve personalized service that is built on a relationship of mutual trust. If you’d like to learn more about how working with a trusted financial advisor can pave the way for your future confidence, contact us to schedule a discovery meeting with one of our Certified Financial Planners! [contact-form-7 id="386" title="Schedule a Free Consultation"]
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Ask David: How Do I Create Retirement Strategies?

When you’re looking toward retirement, there are plenty of considerations to make as you put investment strategies into motion. You, like many investors, are probably interested in learning how to make smart moves today in the hopes of building a solid nest egg for tomorrow. But what are some ways to strategize for retirement? Today, we’re talking to our very own David Hemler, MS, MPAS, CFP to learn more about some of the most important factors to consider when planning your retirement income.

Take Your Lifestyle Needs into Account

Before you plot a course for retirement investing, it’s important to consider your lifestyle, both your present preferences and what you anticipate your future to look like. If you’re married and plan to retire, you also need to take into consideration your spouse’s preferences when factoring your future cash flow needs. For example, if you and your spouse enjoy activities with different cost factors, you need to reconcile the differences and make a plan that accommodates your combined ideal lifestyle. Additionally, you want to factor in your anticipated health and activity levels, as well as the length you desire your retirement to be. Once you have these parameters in place, you can start to put together a plan that encompasses the future period of time that is “your retirement”. Factors like average costs of living can be a general guide, but the cost of funding your lifestyle is an important way to figure your retirement needs.

Start Investing as Early as Possible

The ideal time to start investing in your retirement is as soon as you start to earn income. For a majority of earners, this would put the beginning of retirement savings in their teens or early twenties. But even if this doesn’t apply to your situation, it’s never too late to start putting money aside for your retirement needs. There are two factors that play into your retirement savings planning. The first is the amount of money you need to save, or your capital needs planning goals. The second is the compounding power of the money you’ve already set aside. When you have funds set aside from your first job or two -even a small amount -, that money can potentially earn more over decades of your career and put you closer to your goals.

Find a Strategy that Works for You

Retirement planning would be easy if there were a safe investment vehicle, like a CD, that guaranteed 6% or 7% in interest. Then you could take what you needed and would allow the rest to compound over time. But in reality, these types of investments don’t exist these days and it can be difficult to predict what today’s investments will yield tomorrow. Instead, it’s much more important to put together a retirement strategy that suits your income needs and cash flow specifically.

Partner with an Advisor who can Help You put it all Together

This leads to the most important factor in putting together a retirement savings plan that can put you in a position to work toward your retirement income needs: working with a financial professional who can help you find the pieces you need to put it all together. When you meet with a financial advisor for planning your retirement needs, you need to work with someone who spends time getting to know you before ever offering any specific advice. At Puckett & Sturgill Financial Group, we take the time to get to know our clients in order to provide the ideal recommendations for each individual’s retirement planning needs. If you’d like to learn more about our personalized approach to retirement planning, contact us today to set up an initial meeting!

Schedule Your Free Consultation

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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Your Advisor’s Role in Helping You Navigate the Path to Financial Success

We’ve talked about how your financial advisor is an essential guide on your journey toward your financial future. But what exactly should your financial advisor do as you navigate the highs and lows, twists and turns of your financial journey?

Your Advisor can Help You Look Beyond the Plan

Even though your financial advisor will offer you a plan to help you set your strategy in motion, at the end of the day, the plan isn’t the final destination in your planning journey. In a dynamic market and ever-changing financial environment, a financial plan can only offer so much.

This isn’t to say there is no value in a plan. After all, a plan gives you an idea of where you’re going and some steps you’ll take to get there. A plan helps you to organize your activities around an end goal, but it’s not the only thing you should focus on.

Your Advisor is Prepared to Guide You Through

Your advisor doesn’t have a crystal ball to see into the future and give you clear numbers to expect one year, five years, 25 years down the line. But your advisor does have tools to help you get through whatever obstacles you’ll encounter on your financial journey.

If you were to take a backpacking trek through a mountain range you’ve never traveled before, you’d hire a guide to help you get through safely and help you find views and scenery you might not have reasonably found on your own. However, you’d never expect your guide to give you a detailed weather forecast for each hour of your trek. Nor would you expect details about when you’d encounter wild animals, a downed tree across a portion of the path or an unforgettable sunset scene.

You would want your guide to have some essentials, like a knowledge of the trails you’ll travel and a sense of the natural features and climate in the area. You’d also expect them to carry equipment like a first aid kit and radio communication device in their backpack.

Similarly, your financial advisor is equipped to help you with the ups and downs you’ll encounter as you navigate your financial journey. They have the tools to help you work through unexpected portions of the path and the insight to help you prioritize your path depending on the outcomes you’re looking to achieve.

They can guide you through these events with pointed advice or recommendations that you wouldn’t have otherwise considered. Even though your advisor can’t predict every twist and turn, they can help you select products, actions and services to help you navigate terrain with which you’re unfamiliar.

Gear Up for Your Financial Journey

Whether you’re ready to start your financial journey or want to correct your course, look to a financial advisor who has the tools to help you navigate your pursuit of financial success. After all, the journey is a lot easier and more enjoyable when you use the help of a guide who knows the ins and out better than you do.

Your financial advisor can give you the guidance you need to monitor your progress along the path and help you update your plans along the way. Remember, just because you’ve chosen a route doesn’t mean you can’t benefit from regular updates and assistance with making implementation decisions as you go.

Your next step is as easy as contacting Certified Financial Planner, Jacob Sturgill

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Why Work With a Local Advisor?

Managing and growing money, especially for retirement, are common areas where people are looking for advice. But finding the right information in those areas can be challenging. There are more resources than ever for advice on how to allocate, save, and invest, which can be useful for someone trying to navigate the nuances of personal finance. However, this information is often not customized for individual financial needs. This means you might run into some trouble in organizing your retirement portfolios, savings accounts, and other funds if you rely on cookie cutter financial advice or financial calculators. In evaluating possible steps for managing your finances and looking forward to your ideal financial future, working with a professional can offer a level of customized support and guidance. Not only is each Financial Advisor unique, the firms for which they work also have many differences. CTA Image - Retirement Planning

Should You Choose an Advisor with a Well-Known Institution?

It may seem obvious, but a general goal in meeting with a financial advisor is to gain insight and counsel on ideal ways to grow and protect your financial resources. What’s often left out is that not all financial advisors are created equal. Trusting advisors from a larger institution might seem ideal - after all, these financial advisors are backed by a name you already know and trust. Perhaps you even bank with or have purchased other financial products from a big name institution and are satisfied with this aspect of your financial management. Some of these firms utilize the same largely proprietary products. However, independent advisors have greater freedom and wider access to different products and services. For example, they can utilize a fee structure that better suits the clients’ needs, and provide personalized service.

Or Should You Work with a Local Firm?

That’s where a local advisor comes in. Groups such as Puckett & Sturgill Financial Group, headquartered in Westminster, Maryland, are part of the local business community. Our clients and other businesses are neighbors, and in putting our clients first, we support their communities and develop sustainable, shared growth. This means our personal touch and local engagement prioritizes the needs of our clients. Our advisors are independent of the corporately branded product package you might find at a larger financial institution and can offer financial advice custom tailored for you because it’s the advice that they feel is most ideal for your situation. Yet our advisors also offer the stability, resources, and regulatory assurance through our relationship with the largest independent broker-dealer firm in the United States, LPL Financial (as reported by Financial Planning magazine, June 1996-2018, based on total revenue)l. As of December 2018, LPL has a network of over 16,000 financial advisors, including local advisors such as Puckett & Sturgill Financial Group. So even though our group functions as a local independent firm, we boast the power of scale that working with a larger broker brings. This arrangement allows us to give our clients the best of both worlds. As a community business with large-scale institutional backing, we’re designed for long-term, client-focused relationships. Grounded in the community, small enough to offer flexible strategies, and connected to a large pool or resources and tools, our local advisors can support you in organizing your personal finances while considering the ever-changing influences of the financial market.

To learn how the working with a local advisor can make the difference in your financial journey, contact us for a discovery meeting!

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Can I Do A Qualified Charitable Distribution from My IRA?

If you’re looking for ways to use your IRA funds, you may consider a Qualified Charitable Distribution (QCD) as a way to meet your required minimum distribution (RMD). Outside of the good feeling that comes from contributing to a worthy cause, one of the main benefits of a QCD is that it allows you to exclude the amount donated from your taxable income. Additionally, this amount doesn’t require itemization, which can bring a bit of relief to your overall numbers come tax time. Of course, not all IRAs and investors qualify for QCD contributions. Read on to learn whether your situation is ideal for a QMD.

Qualifying IRAs

In order to make a charitable distribution with your IRA funds, your IRA needs to fall into one of the following categories:
  • Traditional IRA
  • Inherited IRA, including inherited Roth IRA
  • SEP IRA
  • SIMPLE IRA
Additionally, you need to be above the age 70.5 at the time that you plan to make a charitable distribution and, in the case of SEP or SIMPLE IRAs, must be no longer receiving employer contributions in order to qualify.

Giving Limits

While giving away your funds in the form of QCDs is a strategic way to meet your RMD, enjoy accompanying tax benefits, and benefit from giving to charity you cannot exceed a certain giving threshold. For couples, the QCD cannot exceed $200,000; for singles, the QCD must remain under $100,000.

Qualifying Charities

Charitable distributions are intended to be just that: charitable. In order to verify the eligibility of a recipient organization, your QCD recipient must not be a private foundation or donor-advised fund. In general, most 501(c)(3) organizations qualify to receive QCDs. If you have a question about a particular charity, consult a financial professional to learn whether it qualifies for your donation.

Working Through the QCD Process

Once you’ve got an approved charity and know that your IRA funds are eligible for distribution, you’ll begin the QCD process to release the funds to the charity of your choice. Here’s how the process works:

Step One: Coordinate with Your RMD

You will want to distribute funds to a charity through QCD during the same year as your RMD. Ensure that you establish the proper timing for this distribution to coincide with your RMD in order to avoid penalties for missing your applicable deadlines or withdrawal requirements.

Step Two: Communicate with Your IRA Custodian

Your IRA custodian can help you to put your QCD plan into action, but there is some information that you need to communicate to get the process started. You need to submit your request in writing and need to specify the dollar amount you’d like set aside for QCD. Additionally, you should request this check be made payable to your charity of choice but mailed to you.

Step Three: Send the Funds to Your Chosen Charity

Once you receive the check, you can then forward it to the charity you’ve chosen. When you send the check, be sure to request a receipt so that you can update your tax records accordingly.

Step Four: Keep Your Tax Info Straight

When you file taxes for the year of your QCD, you will need to report the donation on your 1040 form. You can enter the donation amount on line 15a and put $0 for line 15b. Take care to note QCD.

Planning for Retirement

Whether you’re setting up an IRA or want to learn more about your options for taking your RMD, a financial advisor can offer personalized support for working through your retirement strategy. Contact Certified Financial Planner Jacob Sturgill to learn about how retirement planning can help you make the most of your future. [contact-form-7 id="3520" title="Schedule a Free Consultation w Jacob Sturgill"]
Important Disclosures: This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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Should You Convert to a Roth IRA

Should You Convert to a Roth IRA

Individual retirement accounts (IRAs) come in two flavors: traditional and Roth. With a traditional, contributions are potentially tax deductible and taxes on contributions and earnings are paid when funds are withdrawn in retirement. With a Roth, contributions are made after tax, but withdrawals in retirement are generally tax free.

But even if you have been contributing to a traditional IRA, you are allowed to convert it to a Roth IRA, which may or may not work to your benefit. Before considering a Roth IRA conversion, however, it is important to understand that each type of IRA has its own rules summarized in the table below.

Traditional Versus Roth: Understand the Differences

Maximum Annual Contribution

Traditional IRA

$6,000 for single taxpayers and $12,000 for couples filing jointly for 2019. An additional $1,000 “catch up” contribution is permitted for each investor aged 50 and older who has already made the maximum annual contribution.

Roth IRA

Same as traditional IRA.

Income Thresholds for Annual Contributions

Traditional IRA

None, as long as the account holder has taxable compensation and is younger than age 70½ by the end of the year.

Roth IRA

Single taxpayers with modified adjusted gross income (MAGI) of $137,000 or more and married couples filing jointly with MAGI of $203,000 or more are not eligible to contribute in 2019. Income thresholds are indexed annually.

Deductibility of Contribution

Traditional IRA

Yes, if account holder meets IRS requirements (income restrictions apply if account holder or spouse is covered by a retirement plan at work).

Roth IRA

Contributions are not deductible.

Contributions After Age 70½

Traditional IRA

Not allowed.

Roth IRA

Permitted if owner has earned income.

Required Minimum Distributions (RMDs) After Age 70½

Traditional IRA

RMDs are required.

Roth IRA

Not required during original account holder’s lifetime.

Taxes on Distributions

Traditional IRA

Distributions are taxed as ordinary income. Withdrawals before age 59½ may also be subject to a 10% penalty.1

Roth IRA

Qualified distributions are tax free. Withdrawals from accounts held less than five years or before age 59½ may be subject to taxes and a 10% penalty.

Tax Implications

The good news is that converting a traditional IRA to a Roth IRA will not trigger the 10% penalty that early withdrawals from an IRA usually do. But converting will trigger income taxes on investment earnings and contributions that qualified for a tax deduction. If your traditional IRA contributions did not qualify for a tax deduction because your income was not within the parameters established by the IRS, investment earnings will be taxed but the amount of your contributions will not.

When a Conversion May Be Beneficial

Conversion may be advantageous if you are in one of the following situations:

  • You do not plan to access your IRA assets for a long time, and your account will have time to potentially grow and compound before you begin withdrawals.
  • You are not likely to need the Roth IRA assets for living expenses during retirement. Because you wouldn’t have to take RMDs from your Roth IRA, you could leave these assets intact and potentially bequeath a larger sum to heirs.

When a Conversion May Not Be Beneficial

A Roth IRA conversion may not be in your best interest if the following circumstances apply:

  • You anticipate being in a lower tax bracket during retirement. Sticking with a traditional IRA could be the best option because your RMDs would be taxed at a correspondingly lower rate.
  • You plan to retire in the near future. Should you convert, your Roth IRA may not achieve adequate short-term growth prior to withdrawals to compensate for the tax payment.
  • You plan to access the IRA for living expenses, and a bequest to heirs is not an issue.

Converting assets within a traditional IRA to a Roth IRA presents potential benefits, but only if the time horizon, tax issues and estate planning parameters work to your advantage. Review all angles to make sure you make the right choice.


Footnotes and Disclaimers

1IRA account holders (both traditional and Roth) may make penalty-free withdrawals before age 59½ only if they meet specific criteria established by the IRS such as disability, first-time home purchase and others. Consult www.irs.gov for additional information.

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2019 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. This article was prepared by DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

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