Are income taxes dragging you and your portfolio down, and at the same time reducing your real overall return?
Do you know how much you are paying in fees and investment expenses?
As an investor, what exactly are you supposed to do to reduce and manage expenses and income taxes? They are unavoidable, and will always be part of your net worth building journey.
However, there is definitely good news – both of these necessary evils of investing are controllable, they are minimizable, and there are strategies to help you reduce them.
In this video Joseph Eschleman, President of Towerpoint Wealth, a boutique Sacramento Wealth Management firm, explains nine specific ways to keep expenses and income taxes in check, including:
Five strategies to minimize the impact of income taxes on your portfolio
Four strategies to keep more of your money working for you
Is the United States economy on the verge of slipping into a recession? Or is the exact opposite happening – is the economy continuing to recover, and is more robust than it is getting credit for?
Are we looking towards an economy in recession, or are we more recession proof than many economists believe?
While our economy is by no means recession proof, it should come as no surprise to our clients and to TPW friends and colleagues that we take this volatility with a grain of salt, as we pay attention, but rarely react, to these short-term movements. Is a recession coming? Perhaps, but there is anything but consensus on what happens next.
What we do know is this:
1. While the economy is by no means recession proof, economic expansions tend to be much more robust than recessions.
2. Even if we are facing an economy in recession, that over the past 73 years, bull markets have lasted longer (50 months, on average) than bear markets (13 months, on average), and have more than made up for periodic market declines.
This all begs the question: If we are facing an economy in recession, what can YOU do to recession-proof your portfolio?
Watch this educational video for FIVE specific strategies to help you recession proof your portfolio, even if we are facing an economy in recession!
Compensation packages for directors, VPs, software engineers, or other employees of technology based firms almost always contain restricted stock units, or RSUs. If you own RSUs, you may be asking one or more of the most common questions about RSUs:
Maximize stock compensation | RSUs in your compensation package can become a substantial part of your overall net worth.
Maximize stock compensation and RSU selling strategy
RSUs, also commonly known as restricted stock units, are a form of stock compensation, whereby an employee receives the right to own shares of stock in the company they work for, subject to certain restrictions. Initially, these units do not represent actual ownership, however, once the restrictions are lifted and your RSUs vest, the units convert into actual company stock, and you, the employee, then own the shares outright.
The “restricted” in RSUs is generally based on a vesting schedule. Most vesting schedules will fall into one of two categories: Time based or performance based.
When most people think of stock compensation they typically think of vested stock OPTIONS, or the right to buy a company’s stock at some future date, but at a price established TODAY.
RSUs and stock options have some notable differences. (More about stock options vs RSUs in our white paper, link below.)
How are restricted stock units taxed?
RSUs are taxed when the restriction lifts, at which time shares vest and become part of an employee’s taxable income, taxed at the fair market value of the total amount of shares that vested. The taxation of restricted stock units is identical to normal wage income, included on an employee’s W-2.
The shares of vested company stock are subject to federal, state, and local income taxes, as well as Social Security and Medicare taxes.
When an employee sells their vested stock, they will pay capital gains tax on any appreciation over the market price of the shares on the date of vesting. If the shares are held longer than one year after vesting before being sold, the sales proceeds will be taxed at the more favorable long-term capital-gains rates.
RSU selling strategy to mitigate the tax burden
While you must pay ordinary income taxes when your RSUs vest, and also must pay capital gains taxes upon selling appreciated RSUs, you can mitigate the tax burden. Targeted charitable giving, utilizing capital losses to offset capital gains, and outright gifting of vested shares are three ways.
When can RSUs have a negative effect on your net worth? Does your RSU selling strategy grow net worth?
While restricted stock units complement a traditional compensation package, and can contribute to your net worth, there are risks involved in managing RSUs.
The primary risk is that you have too much of your net worth concentrated in one individual stock, and one individual company.
Bitcoin is by no means new –if you can believe it, it has been more than 13 years since the digital currency officially launched! As of June 2021, more than 220 million people owned digital assets. The blockchain technology that supports it continues to prove its value. Last year, Bitcoin settled over $13.1 trillion in transactions, up 470% from 2020, a figure that represents over half of the US’s GDP for the year, and more than what Visa, one of the largest payment processors in the world, settled last year. This bodes well for the cryptocurrency future!
Throughout history, civilizations have used cattle, squirrels, jewels, wine, and seashells as money. And before sovereign currencies took hold, gold was the medium of trade for many nations (and to this day still is a very good store of value). Compared to gold, Bitcoin is a baby, and many other cryptocurrencies are still in their infancies. However, each day crypto remains accepted, active, secure, and continues to grow in popularity and usage, it will become more and more mainstream. To be clear, bank notes and credit cards were not made for today’s digital age – but crypto was!
Global finance is moving away from being centralized (money being held by banks, which have the goal of earning profits) to being decentralized, where blockchain technology eliminates the need to use profit-seeking intermediaries and third-parties to lend, spend, trade, and borrow. As a group, both Millennials and Gen Xers have a much higher level of interest in decentralized finance and a lower level of trust in traditional institutions. Now, 83% percent of millennial millionaires own digital assets. Over $68 trillion is set to be transferred from Baby Boomers to Millennials and Gen Xers over the next 25 years.
We believe that the adoption of cryptocurrency will be much like the adoption of other successful technology: It usually starts off slow and measured then quickly accelerates! Consider the internet: In 10 years, the internet growth went from a handful of users to practically the entire world. In 2021, consumers spent more than $871 billion online, a 44% increase from 2019. A digital future likely means a cryptocurrency future.
In the past two years, the US created 29% percent of its current money supply. Governments and central banks around the globe create money when they need it. The result? Monetary, price, and asset inflation. But Bitcoin has programmed scarcity–one of the benefits of bitcoin is that its supply cannot be manipulated or devalued by fiscal or monetary policy.
Questions about how to integrate crypto into your longer-term investment portfolio? We welcome opening an objective dialogue with you about the advantages, disadvantages, risks, and considerations involved. Contact Towerpoint Wealth
For virtually all investors, 2022 has been a challenging and frustrating year. Persistently high inflation has resulted in an environment of quickly rising interest rates, leading to a “double-whammy” of twin selloffs across both stocks and bonds. After increasing more than 31% in 2019, 18% in 2020, and 28% last year, the S&P 500, an often-cited proxy for the stock market, has declined more than 20% year-to-date in 2022 (as of 9.23.2022). And to make matters worse, the bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, has suffered through declines not experienced in more than 50 years. Put differently, investing in conventional stock and bond asset classes has not worked very well so far in 2022.
Not surprisingly, these declines have led to an increase in demand for “supplemental” investment opportunities outside of these traditional areas, and have led more and more people to inquire about alternative investments.
Put simply, an alternative investment is any financial asset that does not classify as a traditional stock, bond, or cash. While they can vary widely in their accessibility and structure, alternatives can provide an opportunity to 1.) boost returns, 2.) generate income, 3.) provide potential tax benefits, and 4.) reduce risk in a portfolio. Institutions like pension funds and endowments have been utilizing them for years, and today, more and more individual investors are questioning why they have no alternative investments, and whether they should change their plan to include them. Watch this video to learn answers to the following questions:
What are alternative investments?
Is it important to have exposure to “alts” in your current portfolio?
Is it bad if you do not own any alternatives?
I heard alternative investments can be expensive – is that true? Does it matter?
What are the risks and benefits of adding alts to your investment strategy?
If you would like to learn more, click the thumbnail below to watch our recently-produced webinar about alternative investments.
Are you looking for a high quality financial advisor? There are literally thousands of people who hold themselves out as financial advisors just in California alone. How can you possibly figure out who is right for you? What questions to ask when hiring a financial advisor?
Don’t be overwhelmed in your search hiring a financial advisor or wealth manager? Just start with six important questions to make sure they are the best fit for you, your life, and your financial situation.
Hiring a financial advisor shouldn’t totally stress you out. But you know the benefits of hiring a financial advisor, and your financial future is serious business. They need to have your best interests front and center. This is the definition of fiduciary.
How do you know you are talking with a high quality financial advisor?
Trust
Do you trust them with not only the personal details of your financial accounts but also with the personal details of your life? A high quality financial advisor engenders trust.
Experience
Do they have a history of successful performance and a network of happy clientele who are willing to step forward and vouch for their professionalism and knowledge? A high quality financial advisor has experience.
Fiduciary Standard of Care
Are they legally bound to serve in your best interests? The definition of fiduciary is that they aren’t beholden to the company that employs them or to a service provider (such as an insurance company) in order to earn an income. A high quality financial advisor acts as a fiduciary.
Finding out whether a financial advisor has these basic three requirements—trust, experience, a responsibility of fiduciary care—are the reasons for asking a potential financial advisor the six questions. Questions 1 and 2 speak to their experience and trustworthiness. Questions 3 and 4 speak to whether they will 100% of the time be acting in your best interests rather than their own—that they meet the definition of fiduciary. Questions 5 and 6 assure that the services they provide match your needs and your philosophies.
Here are the six questions to ask when hiring a financial advisor
1. What is your education and experience? 2. Do you have any compliance or regulatory infractions? 3. Are you required by law to operate within a fiduciary or suitability standard of care? 4. How exactly are you compensated? 5. Do you provide comprehensive financial plans? 6. What is your financial planning and investment philosophy?
If the advisor you’re interviewing doesn’t answer these six questions in an articulate way, you may want to continue your search.
What does a financial manager do? Helps you better manage and coordinate your financial affairs, obviously. Breaking this down, the point of finding a fiduciary financial advisor with experience, and who you trust will be a good partner for you increases your odds of successfully growing and protecting your net worth and assets over time, especially these days with how unsettled the markets, economy, and politics all continue to be.
If you’re looking for a new financial advisor—even if you’re currently working with one—asking them these six questions to ask when hiring a financial advisor, and doing your due diligence to assure they’re answering truthfully, will help you ensure you’ve got the right financial advisory partner on board.
Six questions to ask when hiring a financial advisor
Are you considering hiring a financial advisor? Do you think that our Sacramento wealth management firm might be a good fit? Please, use this link to set up a no-obligation consultation.
What is the definition of fiduciary financial advisor, and why should you care? Here are 3 common considerations when deciding whether to partner with a fiduciary.
Duty of fiduciary financial advisor
Do you know that the only requirement a person needs to meet to be called a “financial advisor” is that they dispense financial advice? It’s true.
While it is also true that most financial advisors at major Wall Street firms—also called “wire-houses”— WANT what is best for you, it is important to understand that that they are employees first, and their FIRST professional obligation is to their employer, and NOT to you.
They are only required to do what is suitable for you, and they are bound by what is known as the “suitability standard of care.” They specifically are NOT legally required to act in your best interests 100% of the time. Put differently, they do not have the duty of fiduciary standard of client care.
In this video, Joseph Eschleman, the President of Towerpoint Wealth, an independent boutique wealth management firm, presents three important facts about how engaging a financial advisor specifically with a legal fiduciary responsibility should tilt the odds of success in your favor.
What is a fiduciary financial advisor – Definition of fiduciary
A fiduciary financial advisor is legally responsible to put their clients’ personal and financial interests before their own, and always act in their clients’ best interests, 100% of the time. Three things to consider when choosing between a wirehouse or independent fiduciary financial advisor:
The suitability standard, or simply doing what is suitable for a client, is much different than the fiduciary standard, or being legally bound to always act in a client’s best interests.
Investment brokers who work for broker-dealers (such as Merrill Lynch and Wells Fargo), and investment advisors who work for fully independent registered investment advisory (RIA) firms like Towerpoint Wealth, both offer financial, wealth, and investment planning, counsel, and advice.
However, they are not governed by the same professional standard.
Fiduciary advisors work directly for clients, and must place clients’ interests before their own, according to the Investment Advisers Act of 1940. They have the duty of fiduciary care. Investment brokers work for, and first serve, their broker-dealers, and must only ensure that their recommendations are suitable for their clients – this is known as the suitability standard. A financial advisor with fiduciary responsibility provides fee transparency, client-centered advice 100% of the time, deals with no competing interests, and is able to draw from a much larger pool of higher quality investments.
2. Breach of Duty—Legal Recourse
A breach of fiduciary duty occurs when it is proven that a financial advisor failed to act responsibly or in the complete best interests of a client. Usually, the actions are alleged to have benefitted the advisor’s interests, or the interests of a third party, instead of a client’s interests.
You do not have this legal recourse unless you are working with a fiduciary financial advisor.
3. Wall St. Investment Corp. vs Registered Independent Advisory Firm
If you have a relationship with an advisor who works for a major Wall Street firm, you do not have a fiduciary financial advisor. At Towerpoint Wealth, we should know – we worked for a major Wall Street firm for 18 years! It is impossible for anyone to act in a client’s best interests 100% of the time when operating within the constraints of the employee-employer relationship.
Now that you know the definition of fiduciary, it is important to understand that no designation, rule, or regulation will completely stop individuals who have intent to defraud other people. Despite this sad fact, engaging a financial advisor who has a legal fiduciary responsibility to you, like all of us here at Towerpoint Wealth, tilts the odds greatly in your favor.
This post focuses on the benefits of an estate plan to avoid probate and assure your assets are distributed according to your wishes and in a timely fashion.
What do you want for your loved ones when you are gone? A protracted, expensive public legal process (known as probate) or an efficient disposition of the assets in your estate?
Most individuals want control over what happens to their assets when they pass away. And most people want the disposition of assets to be as easy, streamlined and tax efficient as possible for the people we leave behind.
These things can be designed and planned for with two documents: A Last Will and a Living Trust. These are just two pieces of an estate plan.
A Last Will states who will be the executive of your estate, who will be the guardians of your minor children, who will receive your assets, and how and when they will receive them.
But having a will doesn’t help your heirs avoid probate, which is a time consuming, expensive, and public process. Developing an estate plan also involves creating a Living Trust. A Living Trust provides lifetime and after death property management, more flexibility in how your assets will be distributed, avoids probate, and most importantly, provides for immediate asset distribution. The benefits of an estate plan are clear.
However, it’s important to note that it’s not good enough to just have a Living Trust document. You must also fund the trust. This is done by retitling your assets in the name of the trust, and transferring them into the trust. If your assets have not been retitled and transferred into your trust, or you die without funding it, the trust will be of little benefit, as your estate will be subject to probate, and there will be significant estate tax consequences.
If you’re still asking, “What is an estate plan?” Or if the thought of developing an estate plan sounds tedious and overwhelming, you’ll want to reach out to a trusted person for more information, guidance, and support. While most don’t focus on estate planning, financial advisors can help you get your documents in order and often are an excellent resource to help you find an estate attorney.
Who should you name as the 401k beneficiaries of your pre-tax retirement accounts, and why?
You are working on your estate plan, and trying to figure out who you should name as the beneficiary of your 401k account and IRAs. Simple – the kids, right? Not so fast. Who should be your 401k beneficiaries? Who should you name to inherit your IRAs? If you want to minimize taxes, who you name as your beneficiaries matters. This post, and the accompanying video, will help you understand non-spouse beneficiary distribution rules for inherited pre-tax IRAs and “regular” pre-tax 401ks.
Understanding the rules from an income tax standpoint might help you decide who to name as your beneficiary. Who inherits the assets you hold in your various retirement accounts could have a big impact on the amount of money that is ultimately received by your heirs vs given to Uncle Sam.
The beneficiary distribution rules for inherited pretax 401k accounts and IRAs when your spouse is not named as beneficiary are important for income tax and estate planning purposes.
The longer a beneficiary is able to wait before taking distributions from an inherited pretax account the longer the assets can grow without being taxed. Waiting longer to take a distribution allows the beneficiary to be more tactical about when to take distributions.
Restricted Stock Units | If you’re wondering how restricted stock units work, what is stock compensation, what are RSUs or what the taxation of restricted stock units looks like, we’re here to give you answers to your questions.
Restricted Stock Units, RSUs, are one type of stock compensation that companies can offer to their employees. This stock compensation allows your company to grant you shares, or RSUs. RSU compensation is different than the other common program many publicly traded companies offer to their employees, called an Employee Stock Purchase Plan (ESPP). ESPPs afford you an opportunity to buy shares of the company you work for at a discounted price.
Restricted Stock Units are a way for an employer to compensate employees by granting them actual shares of company stock. The grant is “restricted” because it is subject to a vesting schedule. Therefore, the employee typically only receives the shares after the vesting date. Once the shares are delivered, the grant is considered compensation income and your taxable income is the market value of the shares. When you later sell the shares, you will also recognize income on any appreciation over and above the market price of the shares back on the vesting date. Your holding period will determine whether the gain is subject to short-term ordinary income rates, or lower long-term capital gains rates.
How restricted stock units work?
Vesting schedules are often time-based, requiring you to work at the company for a certain period before your RSUs begin to vest. A common schedule is a “graded” vesting schedule, which means the vesting of the grant occurs in several portions. Vesting schedules can also have “cliff” vesting, which means 100% of the RSU grant vests after you have completed a specific stated service period of say three or four years. And finally, the vesting schedule can also be performance-based, meaning tied to company-specific or stock-market targets.
Taxation of restricted stock units
With RSUs, you are only taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the market value of the shares upon vesting. For the taxation of restricted stock units, the grant is considered compensation income, and is subject to mandatory federal, state, and local income and employment tax withholding. The most common practice of paying these taxes is by surrendering the necessary amount of newly delivered shares back to the company. This holds or “tenders” shares to cover your tax obligation. When you later sell the shares, you will also recognize income on any appreciation over and above the market price of the shares back on the vesting date. Your holding period will obviously determine whether the gain is subject to short-term ordinary income rates, or lower long-term capital gains rates. You’ve got to have a plan if you’re working on minimizing taxes.
RSUS vs ESPPs
While RSU’s may not be as complicated as ESPP plans, the tax planning for them is just as important. Understanding how restricted stock units work and the taxation of restricted stock units—including when your shares will vest—gives you the opportunity to plan in advance to ensure you can limit your overall tax liability.
