Alec Giesting, Author at Prime Capital Financial Denver

Defining Excellence in the 401(k) Industry: A Critical Analysis

By Alec GiestingRetirement Planning

Authored by Matt Waters

The 401(k) ecosystem is a confluence of financial engineering, regulatory oversight, and behavioral economics. Yet, despite its foundational role in American retirement planning, the industry is often plagued by opacity, inefficiencies, and suboptimal fiduciary practices. When executed proficiently, however, a 401(k) plan can serve as an instrumental vehicle for capital accumulation, long-term financial security, and strategic workforce retention.

To delineate what constitutes best-in-class practice in the 401(k) sector, we must evaluate five essential dimensions of plan administration, each underpinned by empirical research and fiduciary prudence.

1. Fee Transparency and Economic Efficiency

The principle of cost disclosure is a fundamental tenet of fiduciary responsibility, yet many plans continue to suffer from obscure pricing structures. A well-structured plan should exhibit the following characteristics:

Full and unambiguous disclosure of all associated costs, including recordkeeping, investment management, and advisory fees, ensuring sponsors and participants are clear on the economic implications.
Systematic benchmarking against industry standards to validate cost-effectiveness and avoid unwarranted erosion of participant assets.
A cost-value alignment strategy predicated on empirical justification rather than marketing hyperbole.

If a plan sponsor cannot articulate the total expense ratio of their 401(k) program within a concise, data-driven framework, there is a fundamental governance deficiency.

2. Optimized Investment Architecture

Asset selection within a 401(k) plan should be governed by modern portfolio theory, cost minimization strategies, and participant behavior analytics. An elite investment lineup embodies:

A judiciously curated selection of low-cost, high-quality funds, with a preference for passive index funds where alpha generation has historically been inconsistent.
Thoughtfully designed Qualified Default Investment Alternatives (QDIAs), including target-date funds or managed accounts, optimized for participant lifecycle needs.
A rigorous investment policy statement (IPS) that mandates periodic review and adjustment of fund offerings in accordance with fiduciary best practices and market conditions.

Superior plan design does not rely on an indiscriminate proliferation of investment options but rather on a disciplined, research-backed methodology that can enhance participant outcomes.

3. Fiduciary Governance and Regulatory Adherence

The fiduciary obligations of plan sponsors are not merely regulatory formalities but foundational principles ensuring participant-centric decision-making. An exemplary governance framework includes:

A documented, systematic process for evaluating investment performance, plan expenses, and administrative efficacy.
Engagement with fiduciary specialists who possess a deep understanding of ERISA compliance, risk mitigation, and plan optimization.
Ongoing fiduciary education initiatives for committee members, ensuring that oversight responsibilities are executed with the requisite experience and diligence.

The fiduciary standard is not aspirational; it is a legally and ethically mandated directive that, when rigorously applied, protects participants from conflicts of interest and subpar plan management.

4. Strategic Plan Design for Enhanced Retirement Readiness

Effective 401(k) structures are engineered to facilitate optimal participant behavior, leveraging automaticity and incentives to drive superior savings rates. The most effective plans implement:

Automatic Enrollment: With a default deferral rate of at least 6%, recognizing that traditional 3% defaults are insufficient to achieve long-term financial stability.
Automatic Escalation: Ensuring contribution rates increase incrementally, capitalizing on behavioral inertia to enhance long-term savings.
Employer Contributions: Structuring match formulas to maximize both employee engagement and tax-efficient compensation strategies.
Loan Restrictions: Employing a disciplined approach to loan availability, mitigating asset leakage that undermines retirement security.

A well-architected plan does not merely offer participation but structurally incentivizes optimal engagement and savings behavior.

5. Behaviorally-Informed Participant Education and Engagement

The efficacy of a retirement plan is contingent upon participant understanding and informed decision-making. Best practices in education and engagement include:

Personalized Financial Literacy Programs: Tailored to diverse demographic segments, incorporating both digital and human advisory elements.
Data-Driven Behavioral Nudges: Leveraging predictive analytics to provide individualized savings recommendations and risk-adjusted asset allocations.
Technology-Enhanced Decision Support: Implementing AI-driven modeling tools that facilitate scenario analysis and long-term financial forecasting.

Merely providing information is insufficient; effective plan sponsors cultivate an ecosystem wherein optimal decision-making is the path of least resistance.

Final Thought: A Mandate for Excellence

A 401(k) plan that adheres to these principles is not merely compliant but exemplary, providing a path to help with better financial outcomes for participants while reinforcing the employer’s strategic objectives. Excellence in plan administration is not accidental—it is the result of deliberate, data-informed decision-making, fiduciary diligence, and an unwavering commitment to participant success. If a plan fails to meet these rigorous standards, the necessity for structural recalibration is both evident and imperative.

Curious how your company’s retirement plan stacks up to your peers? Our team will benchmark your plan at no cost. Let’s talk!

2025-05-12

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Risk-Tolerance-and-Investing---Denver-Financial-Advisors

Risk Tolerance and Investing: A Graduate-Level Exploration of Risk Theories

By Alec GiestingRetirement Planning

Authored by Matt Waters

Understanding risk tolerance in the context of investing is essential for crafting a well-rounded strategy that aligns with an investor’s objectives, financial situation, and psychological preferences. While the concept of risk is often discussed with prospects and clients at a general level, a deeper exploration into the theories and models that underpin risk management can help crystalize the importance of understanding risk as part of a holistic financial plan.

In this blog post, we will explore key risk theories, each of which has distinct implications for how investors perceive and respond to risk. We will analyze these theories and contextualize them as part of individual risk tolerance, drawing upon well-established academic frameworks such as Expected Utility Theory, Prospect Theory, Modern Portfolio Theory (MPT), and Behavioral Finance. Stick with us! We promise not to get too academic on you. We will use non-investment-related analogies to help illustrate the core principles of each risk theory.

1. Expected Utility Theory (EUT): The Classical Framework for Rational Decision-Making

Expected Utility Theory is a cornerstone of classical economics, emphasizing how individuals make decisions under uncertainty. The theory posits that individuals will choose between risky prospects based on the expected utility they derive from each outcome, rather than merely evaluating outcomes based on expected monetary value. This decision-making process assumes rationality and that individuals’ preferences are consistent and transferable.

In the context of investing, EUT suggests that investors will allocate their resources to maximize their expected utility, which is a function of both the monetary outcome and the individual’s subjective utility curve. The utility curve captures risk aversion, with more risk-averse individuals exhibiting concave utility functions—meaning the marginal utility of wealth decreases as wealth increases.

For example, consider an investor facing two options: a guaranteed $1,000 (no risk) or a 50% chance of winning $2,000 and a 50% chance of winning $0. An investor with a concave utility function (i.e., risk-averse) will likely prefer the guaranteed $1,000, even though the expected monetary value of the two options is the same ($1,000). This reflects the individual’s preference for reducing risk, a central aspect of risk tolerance.

Non-Investment Analogy: The Job Offer Dilemma

Imagine you receive two job offers. One guarantees a steady salary of $80,000 per year, and the other promises a 50% chance of earning $120,000 and a 50% chance of earning $40,000. Expected Utility Theory suggests that a rational decision-maker would weigh the potential outcomes of both jobs and choose the option that maximizes their expected utility.

However, a more risk-averse individual (who values the certainty of the $80,000 salary) would likely opt for the guaranteed offer, even though the expected monetary value of the risky job is the same ($80,000). This decision reflects a preference for stability and predictability, akin to an investor’s risk aversion in their portfolio choices.

2. Prospect Theory: The Asymmetry of Risk Perception

Developed by Daniel Kahneman and Amos Tversky in 1979, Prospect Theory challenges the assumptions of Expected Utility Theory by introducing the idea that individuals do not perceive gains and losses symmetrically. Specifically, Prospect Theory argues that people are loss-averse, meaning they experience the pain of losses more intensely than the pleasure of equivalent gains. This asymmetry in how individuals perceive risk has profound implications for their investment decisions.

In the framework of Prospect Theory, investors are more likely to take risks to avoid losses than to achieve gains of the same magnitude. For instance, an investor who has experienced a 10% loss in their portfolio may be more inclined to engage in risky behavior to recover that loss, even if it is not in their long-term best interest. This phenomenon is often referred to as the disposition effect, where investors are biased towards holding on to losing investments in the hope that they will rebound, while they are more likely to sell winning investments prematurely.

The psychological bias introduced by Prospect Theory suggests that investors’ risk tolerance is not constant, but rather dynamic and influenced by the framing of potential outcomes. The theory has important implications for portfolio management, suggesting that understanding an investor’s emotional responses to gains and losses is just as crucial as their financial goals.

Non-Investment Analogy: The Lost Wallet

Imagine you lose $50 from your wallet while walking down the street. The pain you feel from the loss is significant, and you may spend the next hour retracing your steps or asking strangers if they found it. Now, imagine you find $50 on the sidewalk the next week. While the $50 is the same, the happiness or satisfaction you feel from finding it is much less than the distress you experienced from losing it.

Prospect Theory suggests that the emotional impact of loss is much stronger than that of a gain of the same magnitude. This asymmetry influences not only personal decisions but also investment behavior, where people are more motivated to take on risk to avoid realizing a loss than to achieve a gain.

3. Modern Portfolio Theory (MPT): Diversification as a Risk-Reduction Tool

Proposed by Harry Markowitz in 1952, Modern Portfolio Theory revolutionized the way investors approach risk. MPT focuses on the concept of portfolio diversification to optimize risk-return trade-offs. According to MPT, the risk of a portfolio is not simply the sum of the risks of the individual assets within it, but rather the total risk is a function of the correlation between the returns of those assets. By diversifying across uncorrelated assets, investors can reduce the overall risk of their portfolio, potentially achieving a higher return for a given level of risk.

The key insight from MPT is the efficient frontier, which represents the set of optimal portfolios that provide the highest expected return for a given level of risk. Risk tolerance is crucial here: investors must determine their risk preferences to identify which portfolio on the efficient frontier aligns with their risk-return objectives. If an investor is risk-averse, they will select a portfolio closer to the lower-risk, lower-return part of the efficient frontier, whereas a more risk-tolerant investor might select a portfolio with higher risk and higher expected return.

However, MPT has its limitations, particularly when it comes to assumptions about normality in asset returns and investor rationality. These limitations have led to the development of more sophisticated theories, particularly in the realm of behavioral finance, which recognize the real-world complexities of human decision-making.

Non-Investment Analogy: Choosing Your Friends for a Road Trip

Imagine you’re planning a road trip, but you have to choose the people you’ll travel with. If you select a group of friends who all have the same interests—e.g., everyone loves hiking, music festivals, and extreme sports—you’re putting yourself at risk of being stuck in situations where you might all want to do the same activity at once, resulting in frustration and tension.

On the other hand, if you diversify your group by choosing people with different hobbies, tastes, and preferences, the trip can be more balanced and enjoyable for everyone. If one person prefers a quiet museum visit while another enjoys adventure sports, the different interests may balance out the overall experience, reducing the chance of conflict or boredom. Similarly, in investing, diversification across assets (stocks, bonds, real estate, etc.) reduces overall risk by mitigating the volatility associated with any single investment.

4. Behavioral Finance: The Impact of Cognitive Biases and Emotions on Risk-Taking

Behavioral finance integrates insights from psychology into finance, recognizing that individuals often act irrationally and are influenced by cognitive biases, emotions, and social factors in their financial decisions. In the context of risk tolerance, behavioral finance challenges the notion of a fully rational investor as presented in EUT and MPT.

Key concepts in behavioral finance include overconfidence, anchoring, and mental accounting, which can distort an investor’s perception of risk. For example, an overconfident investor might underestimate the risk of a particular asset class, leading to overly aggressive portfolio choices. Conversely, an investor with an availability bias might overweight recent market events, influencing their perception of the likelihood of future outcomes based on recent experiences rather than on historical or statistical data.

Additionally, mental accounting can lead investors to treat different pools of money as being psychologically distinct, even if they are part of the same overall wealth. For instance, an investor may be more willing to take risk with a bonus or inheritance (seen as “found money”) than with their regular income, despite the fact that all money is fungible from a rational perspective.

Non-Investment Analogy: The Overconfident Cook

Imagine you’re invited to a dinner party where you’re tasked with preparing a dish. You’ve cooked a few successful meals in the past, and you’re feeling confident. This time, you decide to make a challenging, complex dish that requires precise timing and skill. Despite your limited experience, you push ahead, thinking it’ll be fine—after all, you’ve made a few simple dishes before.

However, due to your overconfidence, you neglect key details like ingredient proportions and cooking times. The dish turns out poorly, not because it was fundamentally hard, but because you overestimated your abilities. In investing, overconfidence biases can lead investors to take unnecessary risks or overestimate their ability to predict market movements, which can result in suboptimal investment outcomes.

Risk Tolerance is Complicated

Risk tolerance is a complex, multifaceted concept that is shaped by a variety of factors, including individual psychology, market behavior, and economic theory. Whether through the lens of Expected Utility Theory’s rational framework, Prospect Theory’s insights into loss aversion, or the diversification principles of Modern Portfolio Theory, investors’ decisions around risk are influenced by a combination of mathematical models and psychological factors.

As investors, understanding these theories—and how they relate to your own emotional response to risk—can help inform a personalized investment strategy. Whether you are navigating the uncertain waters of a volatile market or making long-term decisions based on risk-return trade-offs, it is essential to recognize that your risk tolerance is not static; it evolves as your financial circumstances, goals, and psychological disposition change over time.

If you need help or want to chat with a financial advisor in our Denver office, we would love to talk to you about your specific situation.

2025-04-28

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Guide to Advanced Retirement & Estate Planning for Affluent Families

What Are Some Advanced Considerations of Fiduciary Roles in 401(k) Plan Governance?

By Alec GiestingRetirement Planning

Authored by Matt Waters

Fiduciary obligations within 401(k) plans are the bedrock of responsible retirement plan management, yet they continue to perplex plan sponsors and financial advisors alike. Governed by the labyrinthine dictates of the Employee Retirement Income Security Act (ERISA), fiduciary responsibilities require an almost obsessive level of diligence, legal acumen, and, let’s be honest, a tolerance for bureaucratic headaches. This discourse demystifies the fiduciary roles of plan sponsors and financial advisors, offering a pragmatic framework to minimize liability while maximizing participant outcomes—because nothing says “employee appreciation” quite like a well-managed retirement plan.

Defining Fiduciary Status in a 401(k) Plan

Under ERISA, a fiduciary is any individual or entity with discretionary authority over plan administration or assets, those providing investment advice for a fee, or anyone possessing decision-making power over plan governance. In simpler terms: if you’re touching the plan’s money or making decisions about it, congratulations, you now have fiduciary responsibilities—and an increased likelihood of regulatory scrutiny. The core fiduciary tenets—duty of loyalty, prudence, diversification, and adherence to plan documents—demand meticulous oversight to ensure that every action benefits plan participants, not just the firm’s bottom line.

Plan Sponsors as Fiduciaries: Key Responsibilities

The plan sponsor (read: the employer) serves as the primary fiduciary, responsible for ensuring the plan runs in accordance with ERISA mandates. While this may sound like an honorary title, it comes with a staggering level of responsibility, which includes:

Selection and Continuous Evaluation of Service Providers – Plan sponsors must exercise painstaking due diligence in hiring investment managers, recordkeepers, and third-party administrators (TPAs). And no, picking your brother-in-law’s investment firm without documented vetting doesn’t count as due diligence.
Investment Architecture and Due Diligence – Fiduciary oversight entails constructing a diversified investment menu and subjecting all offerings to regular performance analysis, fee benchmarking, and suitability assessments. Because nothing screams “fiduciary breach” like a plan full of high-fee, underperforming funds.
Fee Reasonableness and Transparency – ERISA mandates that plan sponsors ensure fees are reasonable. Translation: You can’t just sign off on absurdly high fees because they’re hidden behind fancy marketing jargon. Regular benchmarking is essential to avoid becoming the next cautionary tale in an excessive fee lawsuit.
Regulatory Compliance and Operational Integrity – Plan sponsors are tasked with executing nondiscrimination testing, ensuring timely remittance of employee contributions (yes, on time actually means on time), and maintaining full adherence to plan documents and ERISA regulations. Failing at any of these could result in hefty penalties and some uncomfortable conversations with the Department of Labor.
Undivided Loyalty to Participants – Above all, fiduciaries must act in the best interest of plan participants. This means avoiding conflicts of interest, resisting the urge to pick funds that offer corporate kickbacks, and generally acting like the responsible grown-up in the room.

Financial Advisors as Fiduciaries: Delineation of Roles

Financial advisors working with 401(k) plans can assume different levels of fiduciary responsibility depending on their engagement. Their role typically falls within one of two categories:

1. ERISA 3(21) Fiduciary Advisor: Co-Fiduciary Role

A 3(21) fiduciary provides investment recommendations while the plan sponsor retains final decision-making authority. Think of them as the knowledgeable consultant who advises but doesn’t pull the trigger. Key responsibilities include:

Recommending fund selections and conducting ongoing performance reviews.
Benchmarking fees and services to industry standards (read: making sure plan participants aren’t being fleeced).
Educating participants on investment options (because let’s be real, most employees need all the help they can get).
Providing guidance on plan design and governance.

However, because the plan sponsor retains discretion, the ultimate fiduciary liability remains squarely on their shoulders.

2. ERISA 3(38) Investment Manager: Discretionary Fiduciary

A 3(38) fiduciary, on the other hand, takes full discretion over investment selection, monitoring, and reallocation. In this scenario, plan sponsors can breathe slightly easier, as the 3(38) advisor assumes liability for investment decisions. Of course, this doesn’t mean the plan sponsor gets a free pass—they still must conduct due diligence in selecting and overseeing the 3(38) advisor.

Strategic Risk Mitigation for Fiduciaries

Since no one enjoys an ERISA lawsuit, plan sponsors and financial advisors should consider the following fiduciary risk mitigation strategies:

Document everything. If it’s not documented, it didn’t happen. Keep meticulous records of all fiduciary decisions and due diligence processes.
Benchmark fees and services. If you don’t, a plaintiff’s attorney will happily do it for you.
Implement an Investment Policy Statement (IPS). This provides a structured framework for investment selection and oversight—because “we thought it seemed like a good idea” won’t hold up in court.
Stay educated. Fiduciary laws and best practices evolve, and ignorance is never a valid defense. Regular training is a must.

Optimizing Outcomes Through Fiduciary Synergy

A well-run 401(k) plan isn’t just a legal necessity—it’s an asset that can attract and retain top talent. Effective collaboration between plan sponsors and financial advisors ensures the plan is both compliant and beneficial for participants. While financial advisors help sponsors navigate the complexities of fiduciary duties, sponsors ensure that employees have access to a robust retirement vehicle that doesn’t just enrich service providers.

By rigorously executing their fiduciary duties, both parties not only meet their legal obligations but also foster a retirement plan that genuinely benefits employees—because, at the end of the day, isn’t that the point?

For plan sponsors looking to fortify their fiduciary framework or financial advisors aiming to refine their 401(k) practice, a strategic, compliance-driven approach is not just recommended—it’s non-negotiable.

If you need help or want to chat with a financial advisor in our Denver office, we would love to talk to you about your specific situation.

2025-04-14

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It’s Financial Literacy Month. How Much Do You Know About Retirement Accounts?

By Alec GiestingFinancial Planning

April is often known for spring cleaning, Easter, and Passover, but it’s also Financial Literacy Month. At its core, financial literacy refers to understanding and effectively being able to use various financial tools and strategies. So, in honor of the month, we’re offering a basic financial primer, with some quick definitions and simple breakdowns of common retirement accounts.

Background: The Decline of Pensions

During the rise of the industrial age, as workers migrated and began working for factories and other enterprises, they shifted away from farming and self-sufficiency and began relying on pensions to fund their retirement. Because these pension plans were managed by their employers who tended to take care of and provide for their loyal employees, workers were little involved in strategies or decision-making when it came to planning for their own retirements.

But times have changed. The first implementation of the 401(k) plan was in 1978, and since then, has gradually supplanted the pension for most American workers. According to a congressional report, between 1975 and 2019, the number of people actively participating in private-sector pension plans dwindled from 27 million to fewer than 13 million, although public employees sometimes still have them.

Today, most workers are responsible for funding their own retirement, which makes understanding and participating in retirement accounts vital.

401(k) Plans

A 401(k) is an employer-sponsored retirement savings plan. With the traditional 401(k), employees can contribute pre-tax income into their own account, selecting among the plan’s list of options which funds they want their money invested in. Many employers will even match employee contributions up to a certain percentage.

(NOTE: In the public sector, there are 403(b)s, 457s, the TSPs (Thrift Savings Plan), and many other retirement plans which work similarly to the 401(k), but may have slightly different rules.)

With a traditional pre-tax 401(k), the employee’s contributions can reduce their taxable income for the year, since the money is deducted from their paycheck. Once an employee reaches age 59-1/2, per the IRS they can start taking withdrawals without incurring penalties, depending on their employer’s 401(k) plan rules. In retirement, they must begin taking withdrawals every year beginning at age 73, and pay taxes on the money withdrawn. (These are called required minimum distributions, or RMDs.)

Some employers also offer a Roth 401(k) option, which uses after-tax dollars. Although you must pay income taxes on the money you put into a Roth 401(k), including any employer Roth account matching amounts, a Roth option offers tax-free withdrawals in retirement as long as the account has been in place for five years or longer, no RMDs, and no taxes to your beneficiaries or heirs.

While the 401(k) can be a great way to save, it’s important to be mindful of how much you’re contributing, how your funds are invested, and what the tax ramifications of your decisions are.

Social Security

Social Security is a part of many Americans’ retirement planning. It was created as a national old-age pension system funded by employer and employee contributions, although later it was expanded to cover minor children, widows, and people with disabilities.

Established in 1935, Social Security payments started for workers when they reached age 65—but keep in mind at that time, the average longevity for Americans was age 60 for men and age 64 for women. With people living much longer, sometimes spending as long as 20 or 30 years in retirement, today Social Security must be supplemented with your own personal savings and other retirement accounts.

IRAs

Individual Retirement Accounts (IRAs) were created in the 1980s as a way for those without pensions or workplace retirement plans to save money for themselves for retirement in a tax-advantaged manner. While the tax treatment and contribution limits vary, the goal is to provide you with the means to build a retirement nest egg that can grow over time.

Types of IRAs:

Traditional IRA: Allows for tax deductible contributions for some people, depending on their income level and whether they have a plan through their workplace. Any growth in a traditional IRA is tax-deferred, and you’ll pay taxes when you withdraw the money in retirement. Contributions are subject to annual limits, and penalties apply if funds are withdrawn before age 59 ½, with some exceptions. RMDs must be taken annually beginning at age 73 and ordinary income taxes are due on withdrawals.
Roth IRA: Contributions to a Roth IRA are made with after tax income, meaning you don’t receive a tax deduction when you contribute. However, withdrawals in retirement are tax free if certain conditions are met. This account may be ideal for individuals who expect to be in a higher tax bracket in retirement. Roth IRAs are also tax free to those who inherit them if all IRS rules are followed.
SEP IRA (Simplified Employee Pension) and SIMPLE IRA (Savings Incentive Match PLan for Employees): For self-employed individuals and small business owners, a SEP IRA or SIMPLE IRA plan can allow for higher contribution limits for both themselves and/or their employees. And since the SECURE 2.0 Act, they can be set up as either traditional or Roth IRAs.

Annuities

Annuities are financial products designed to convert your savings into a monthly income stream, particularly during retirement. When you purchase an annuity, you exchange a sum of money for guaranteed monthly payments over a set period, or for the rest of your life, much like a pension. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)

Annuities can be purchased using pre-tax or after-tax dollars, and they can be purchased with deferred payments over time, or with a lump sum—for example, many people roll over funds from a 401(k) into an annuity. While annuities can provide retirement income, they are not suitable for everyone.

Types of Annuities:

Fixed Annuity: A contract offering a fixed interest rate for a set period of time.
Fixed Indexed Annuity (FIA): A contract offering guarantees and policy crediting benchmarked to a stock market index, providing potential for growth along with the protection of principal from market downturns. Not actual market investments, instead, with FIAs there is the chance for crediting based on contract terms and index performance. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)
Variable Annuity: A contract where the value and income payments fluctuate based on the performance of investments chosen within the annuity. The choice of investment subaccounts, like mutual funds, can increase or lose value based on market performance.
Registered Index-Linked Annuity (RILA): Like a variable annuity, except there is often a certain level of contractual protection from market downturns.

Life Insurance

Life insurance can provide financial protection for your loved ones by offering a death benefit paid to a beneficiary upon your passing. Policies vary widely, but they generally aim to replace lost income, cover debts, or fund future expenses. Some policies, like permanent life insurance, can also build cash value over time, which can be borrowed for various needs, including retirement income.

It’s important to work with your financial advisor to find the right policy for your needs, and remember, medical underwriting may be required.

Types of Life Insurance

Term Insurance: Provides a death benefit if the insured passes away within a specified term (e.g., 1, 2, 10, 15, or 30 years). Premiums are typically level for a certain period but may increase with age. Once the term expires, the policy ends.
Whole Life: A permanent policy with fixed premiums and guaranteed cash value accumulation.
Universal Life: Offers flexibility in premium payments, death benefit amounts, and the policy’s cash value. It allows policyholders to adjust the death benefit and premiums based on changing needs, and in some cases, premiums can be paid using the cash value. Indexed Universal Life (IUL) policies are benchmarked to a market index like the S&P 500 (but not actually invested in the market) and policies may be credited based on performance, while offering protection from market downturns.
Variable Life: Comes in two forms—variable and variable universal life. Both variable life insurance (VL) and variable universal life (VUL) insurance are permanent coverage that allocate cash value to market investment subaccounts which can lose value, but with variable life, there is a fixed death benefit, while with VUL, there is a flexible death benefit and adjustable premium payment amounts.

Whether you’re just starting to think about retirement or are near retirement age, it’s never too late to learn more, or take action to create your own personal retirement plan. If you’re unsure about your retirement options or would like assistance planning for your financial future, please reach out to us!

Sources:

2025-04-14

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Guide to Advanced Retirement & Estate Planning for Affluent Families

By Alec GiestingEstate Planning, Financial Planning

Authored by Matt Waters

Imagine entering retirement not with concern, but with confidence—knowing that your wealth is working as hard for future generations as it did for you. For high net worth families, retirement planning is far more than replacing income; it’s about preserving a legacy. Strategic retirement and estate planning requires advanced tax mitigation, sophisticated asset protection, and thoughtful generational wealth transfer.

As affluent individuals near retirement, they face complex challenges such as managing Required Minimum Distributions (RMDs), minimizing estate tax exposure, and ensuring the seamless transition of wealth. With shifting tax laws, market volatility, and evolving family dynamics, high-net-worth retirement planning demands a proactive, comprehensive approach to secure long-term financial stability and legacy preservation.

Strategic Approaches:

Tax-Optimized Withdrawal Sequencing: A carefully orchestrated approach to drawing from tax-deferred, tax-exempt, and taxable accounts mitigates unnecessary taxation while extending portfolio longevity. This entails tactical Roth conversions, strategic liquidation of high-basis assets, and optimizing Social Security deferral benefits.
RMD Precision Planning: Neglecting RMD requirements can result in punitive tax consequences. Strategic foresight can provide adherence to regulatory mandates while integrating tax-efficient withdrawal methodologies. Cutting-edge financial planning models track and forecast future RMD obligations, empowering families to align distributions with their broader wealth preservation strategy.
Sophisticated Estate Structuring: High-net-worth families leverage irrevocable trusts, philanthropic giving frameworks, and dynasty trust vehicles to help shield assets from excessive taxation while maintaining governance over generational wealth succession. Thoughtful estate planning mitigates probate inefficiencies and potential intra-family conflicts.
Advanced Scenario Simulations: By modeling diverse economic landscapes—including tax law amendments, inflationary pressures, and portfolio volatility—families can evaluate the resilience of their wealth strategy. Rigorous stress testing can provide robust preparedness for dynamic financial environments.

Show me how advanced estate planning works:

John and Susan, a couple nearing retirement, hold a $15 million portfolio with significant assets in tax-deferred accounts. With the help of their financial advisor, they develop a tax-optimized withdrawal strategy that includes Roth conversions and targeted RMD distributions to minimize their taxable income. By leveraging charitable giving strategies, they also reduce estate taxes, which can provide their children inherit a more substantial legacy. Specifically, they:

Convert annually from their traditional IRA to a Roth IRA, staying within an optimal tax bracket, saving future tax liabilities over ten years.
Use Qualified Charitable Distributions (QCDs) to donate directly from their IRA, reducing their taxable RMDs, effectively lowering their annual tax bill.
Establish a Charitable Remainder Trust (CRT) to defer capital gains tax while generating retirement income, securing additional tax-free income over their lifetime.
Implement an irrevocable life insurance trust (ILIT) to provide tax-free wealth transfer, mitigating estate tax liabilities.

If you need help or want to chat with a financial advisor in our Denver office, we would love to talk to you about your specific situation.

2025-04-03

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Wealth and Financial Planning Denver Colorado

Mastering Wealth with Financial Planning

By Alec GiestingFinancial Planning

Authored by Matt Waters

As you approach retirement, managing wealth effectively becomes more complex. From tax-efficient income strategies to estate preservation, financial planning is the cornerstone solution for any high-net-worth individuals nearing retirement. Whether you’re structuring generational wealth transfers, maximizing returns, or preparing for healthcare expenses, financial planning offers the tools needed to help you with your financial future.

With evolving market conditions, tax regulations, and increasing longevity, having a robust financial plan is more essential than ever. Financial planning helps pre-retirees and retirees navigate these complexities while mitigating those market-induced roller coaster stomach drops.

Why Financial Planning?

At the Prime Capital Financial Denver office, we use an integrated platform for financial planning called eMoney. If you’re not familiar, eMoney consolidates all aspects of an investor’s financial situation into one intelligent dashboard. It enables real-time financial tracking, predictive modeling, and secure document storage, making it easier to manage assets, reduce tax liabilities, and plan for the future with confidence. By offering a holistic view of your financial health, eMoney helps users visualize long-term projections, stress-test various scenarios, and create data-driven strategies that align with their retirement and estate goals.

Unlike traditional financial tools that only offer basic budgeting and investment tracking, eMoney provides sophisticated, high-level insights into your wealth, giving you better insights for your financial planning. The ability to integrate multiple accounts, analyze tax-efficient withdrawal strategies, and monitor market shifts helps you remain proactive rather than reactive in your financial decisions.

Key Features of eMoney

📈 Denver Retirement & Estate Planning

Model tax-efficient withdrawals, Required Minimum Distributions (RMDs), and long-term income strategies to create a sustainable lifestyle while preserving wealth for heirs.
Generate and compare multiple retirement scenarios to assess the impact of different investment strategies, Social Security timing, and pension options.
Adjust and test estate planning structures, helping heirs receive the maximum benefit while minimizing estate taxes.

💰 Wealth Aggregation

Consolidate investment portfolios, trusts, real estate, business assets, and alternative investments into one secure, easily accessible dashboard.
Track performance across multiple asset classes and keep your portfolio balanced according to your risk tolerance.
Integrate with third-party financial institutions to keep all your data updated in real-time.

🏦 Tax & Cash Flow Optimization

Utilize real-time tax modeling to maximize after-tax returns and strategically plan distributions to minimize liabilities.
Forecast the tax impact of Roth conversions, charitable donations, and capital gains strategies.
Identify efficient ways to withdraw from tax-deferred, tax-free, and taxable accounts to reduce overall tax burdens.

🔒 Secure Digital Vault

Store and organize wills, trusts, power of attorney documents, insurance policies, and financial statements in a secure, encrypted environment for seamless estate execution.
Give your beneficiaries and trustees access to critical documents when needed.
Keep digital copies of important legal agreements, tax returns, and insurance policies in a centralized location.

🤝 Advisor Collaboration

Enable seamless communication with our team financial advisors in Denver, estate planners in Denver, and tax professionals in Denver to optimize and execute your wealth strategy efficiently.
Share reports and projections securely with trusted professionals to keep everyone aligned with your financial objectives.
Receive professional guidance on investment strategies, tax laws, and changing estate regulations in real-time.

📊 Scenario Planning & Risk Assessment

Run what-if analyses to assess the impact of market downturns, healthcare costs, and inflation, helping your portfolio remain resilient in any economic climate.
Stress-test your retirement plan against unexpected medical expenses, economic downturns, and longevity risks.
Evaluate how various market conditions and interest rate changes will affect your portfolio over time.

Who Benefits from a Tool Like eMoney?

👨‍👩‍👧‍👦 Affluent Individuals & Families in Denver

Gain clarity and control over generational wealth transfer and inheritance tax planning.
Help your heirs prepare with structured inheritance plans and clear distribution strategies.
Protect family wealth through multi-generational estate planning techniques.

👔 Denver Executives & Business Owners

Integrate business and personal finances, strategize liquidity events, and help maximize tax efficiency.
Plan for business succession, mergers, or liquidation strategies with a tax-efficient approach.
Optimize retirement plans including 401(k), SEP IRA, and non-qualified deferred compensation plans.

🏖️ Pre-Retirees & Retirees

Optimize retirement income distribution strategies, manage healthcare costs, and encourage financial independence.
Determine the best time to claim Social Security benefits to help maximize lifetime payouts.
Forecast long-term healthcare expenses, including Medicare and long-term care insurance needs.

Final Thoughts

For high-net-worth individuals near or in Denver nearing retirement, eMoney is a powerful financial planning tool that is integral to planning for your long-term financial goals. Whether facilitating a tax-efficient wealth transfer, optimizing investment performance, or preparing for unforeseen expenses, financial planning provides the clarity and confidence needed for a more stable financial future.

While we can’t ever make any guarantees, one thing is for certain – the markets will go up and they will go down. The key to creating more stability is proactive planning. By working with a Prime Capital Financial advisor located in our Denver office to leverage eMoney’s advanced tools, you can make informed, data-driven decisions that help protect and grow your wealth. Whether you’re planning for retirement, managing a complex investment portfolio, or securing your legacy, financial planning empowers you to take full control of your financial future.

Prepare for a legacy that lasts. Chat with a local Denver advisor today.

2025-03-19

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Do You Know the Connection Between Income and Medicare Costs?

By Alec GiestingFinancial Planning

As you near retirement you’re probably focused on making sure you have enough income to enjoy the years ahead. While enjoying what you’ve worked hard to build should be a priority, you should also keep in mind that withdrawing the money you’ve saved in traditional 401(k)s and IRAs can impact your Medicare costs throughout your retirement. Read on to see what having a high income could cost you in Medicare premiums and what strategies could potentially help you keep more money in your pocket and less going to Medicare premiums which are deducted from your Social Security check.

Understanding Medicare

First make sure you understand Medicare, how it’s broken up, and what plan you will likely choose. Medicare is sectioned into different parts, each serving a unique role in delivering health care coverage. These parts include Part A, Part B, Part D, and additional coverage options like Medicare Advantage (Part C) and Medigap.

Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and limited home health care. This is normally free for most people who have qualified for Medicare coverage.
Part B (Medical Insurance): Covers doctor visits, outpatient care, home health care, and preventive services like screenings and wellness visits, along with durable medical equipment (e.g., wheelchairs). Part B coverage is the premium that will be deducted from your Social Security check if you don’t choose Medigap or Part C.
Part D (Prescription Drug Coverage): Helps cover the cost of prescription medications, including certain vaccines. You can get Part D as a standalone plan along with Part B or as part of a Medicare Advantage Plan.
Medicare Supplemental Insurance (Medigap): Extra coverage from private insurers to help pay for out-of-pocket costs in Original Medicare, such as copayments and coinsurance. Plans are standardized by letter (e.g., Plan G, Plan K).
Part C (Medicare Advantage Plans): Private, Medicare-approved plans that may bundle Part A, Part B, and often Part D (prescription drug) coverages. Usually limited to providers within the plan’s network. May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

Comparing Your Choice of Original Medicare with Medicare Advantage

Original Medicare

Includes Part A and Part B.
Option to add Part D for prescription coverage.
Flexibility to see any Medicare-accepting provider in the U.S.
You can also add Medigap for extra coverage on costs not covered by Original Medicare.

Medicare Advantage (Part C)

Private, Medicare-approved plans that bundle Part A, Part B, and often Part D (prescription drug) coverages.
Usually limited to providers within the plan’s network.
May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

Understanding Modified Adjusted Gross Income (MAGI)

There is one thing that will have a huge impact on your Medicare costs— your modified adjusted gross income (MAGI). Your MAGI is your adjusted gross income (AGI) minus allowable tax deductions and credits. Once you retire, you may be surprised to find that a combination of income from pensions, investment earnings, traditional (non-Roth) IRA withdrawals, and traditional 401(k) withdrawals may land you with a higher MAGI than you realized. While you may no longer be earning a traditional income from working a job, your MAGI will still reflect all of your taxable income.

RMD Impacts

A required minimum distribution (RMD) is the amount you are required to withdraw annually from specific retirement accounts, such as traditional (non-Roth) 401(k)s and traditional Individual Retirement Accounts (IRAs). Starting at age 73, you must take your first RMD by April 1 of the following year, and each subsequent RMD must be taken by December 31 each year after. These mandatory withdrawals are added to your taxable income, minus any allowable deductions or credits.

Higher Medicare Premiums for High Earners

How does retirement income connect to Medicare premium costs? If you have a high income, you will be subject to an income-related monthly adjustment amount (IRMAA) that must be paid in addition to Medicare Part B and Part D premiums, and it’s calculated every year. If the SSA determines you must pay an IRMAA, you’ll receive a notice with the new premium amount and the reason for it.

For 2025, the standard monthly premium is $185 per person per month. In 2025, single filers with 2023 MAGI of more than $106,000 and married couples filing jointly with 2023 MAGI of over $212,000 will pay more. (See Two-Year Lookback below for why we used 2023 MAGI.)

The Part B IRMAA surcharge amounts per person per month for 2025 range from $74.00 to $443.90, while Part D surcharges range from $13.70 to $85.50 depending on income!

Other Impacts

Other income sources can also contribute to an increased MAGI. Capital gains, home sale profits, and even Treasury bill yields contribute to a retiree’s MAGI.

Two-Year Lookback

Now that you know what contributes to your MAGI, know that when you go to enroll in Medicare, your MAGI from your tax return two years prior will determine your premiums. This “two-year lookback” rule can catch retirees off-guard if they receive large distributions or gains, increasing their premiums unexpectedly. This is why it’s a good idea to start preparing for premium costs as soon as possible, and be strategic about it. The last thing you want is to be settling into retirement and then be hit with a high premium if you can avoid it. Be aware that the two-year lookback is ongoing throughout your retirement, and your premiums may go up in any given year if your income goes up two years prior.

Potential Strategies

By now you know that your Medicare premiums are directly influenced by your modified adjusted gross income (MAGI)—the higher your MAGI, the higher your premiums may be. To help manage this, it helps to work with a retirement planner years before filing for Medicare at age 65, and years before you plan to retire so that a specific retirement income plan can be created for you.

Your advisor will work with you to map out your retirement with a strategy that includes which accounts to draw from and/or which taxable accounts you might want to convert to Roth accounts to potentially save money for the long-term. It all works together!

Planning for Medicare can seem like an overwhelming process. From knowing which retirement accounts to leverage to help keep your MAGI as low as possible, to accounting for that two-year lookback, it can be a lot. That’s why the best place to start in your plan is talking to someone knowledgeable about retirement planning.

If you need help getting started in your Medicare planning, we’re here to help!

Sources:

2025-03-11

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What’s Your Relationship with Your Finances?

By Alec GiestingFinancial Planning

An often-overlooked relationship is the one we have with our finances. As we celebrate the month of love, reflect on whether the relationship you have with your finances supports your long-term goals, or if a shift in that relationship is needed.

When you think about your finances, what’s the first feeling that comes to mind? Is it confidence? Indifference? Or perhaps anxiety? Like any relationship, your relationship with money requires consistent effort and care if you want it to be a fulfilling one. It’s also a malleable relationship, meaning that even if you feel overwhelmed by financial stress or detached from your goals right now, you can always change it to one that makes you feel confident about your financial future.

First, understand your relationship with money was probably determined early on in life, maybe before you even understood the concept of money. This could be when you were a child seeing your parents or caregivers anxiously struggling to make ends meet, or seeing them spend money without considering long-term goals, etc. With that in mind, here’s how three different childhood “attachment” styles used in psychology may manifest in present-day financial behaviors:

Anxious

Anxious attachment is characterized by a fear of abandonment and rejection. These individuals probably had inconsistent caregivers who were sometimes there and sometimes not. This made it hard for them to trust when things were good that the other shoe wouldn’t soon drop. When applied to finances, this could manifest as someone feeling overwhelmed, constantly worried that anything and everything could derail the progress they’ve made. These individuals often lack confidence in their ability to achieve their financial goals, even when all evidence suggests otherwise. Consumed by worry, they may find themselves paralyzed, unable to make the decisions necessary to reach their goals.

Avoidant

An avoidant attachment style involves a fear of closeness and difficulty trusting others as trusting others involved consistent disappointment in their earlier life. If someone has an avoidant style when it comes to their relationship with money, they may detach themselves from financial planning and long-term goals. If they avoid making goals, then there’s no fear of failure, but there will also never be any progress. These individuals might procrastinate, downplay the importance of financial milestones, or dismiss the need for accountability, all as a means of maintaining control while avoiding the potential disappointment that comes with falling short of their goals.

Secure

Finally, a secure attachment style enables an individual to feel safety, stability, and trust in close relationships. These are the people who had caregivers who offered affection when needed, encouraged independence, and were consistent. In the context of finances, someone with this attachment style approaches their goals with confidence. They trust their ability to make decisions that support their goals. They’re able to be present, engaged, and adaptable as circumstances change without feeling overwhelmed. Rather than fixating on the possibility of failure, they focus on success and the steps needed to achieve it.

Cultivating a Secure Attachment Style

To cultivate a more secure attachment with your finances, think about what the behaviors of someone with a secure attachment might be. Some things you may want to consider:

General Financial Wellness: This includes having a monthly budget, an emergency fund, and a robust savings account. Don’t let this first part overwhelm you, break it down into smaller, manageable steps and turn each one into its own goal!
Maintain Financial Awareness: It’s so easy to check out financially. Push back the resistance that makes you want to check out, and keep track of bill increases, unnecessary purchases, and anything else that can burn a hole through your wallet.
Set Goals: Know what you want to accomplish. If you neglect to define your goals you will never achieve them.
Protect Yourself and Your Family: While preparing for the unexpected can be difficult, having a plan in place can help you face these challenges without feeling overwhelmed or shut down. For this, you may want to consider a life insurance policy that works for you and your family. And having a will and/or estate plan can also help give you peace of mind about your loved ones.
Know Your Triggers: If your attachment style leans anxious or avoidant, understand what triggers that attachment style. For example, if receiving a bill is the trigger, how can you address that? Maybe you can enroll in automatic payments, or maybe set aside time every so many days to go over your bills, or maybe something entirely different altogether.
Seek Help: Changing your attachment style is no small task, but you don’t have to do it alone! Partnering with an experienced financial advisor can make the process more manageable and less overwhelming.

If you’re looking for support in navigating your financial attachment style or want guidance to help you maintain a more secure mindset, we’re here to help!

2025-02-21

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Setting Financial Goals for the New Year

By Alec GiestingFinancial Planning

It’s that time of year again—the time when many people set ambitious goals but struggle to follow through on achieving them.

As you reflect on your financial health, it’s important to remember that everyone is in a different place financially. Tailoring your resolutions to fit your unique situation can make a significant difference. Here are five steps that can help you set and achieve your financial goals, along with suggestions and strategies for short-term, mid-term, and long-term goals to help keep you on track.

Step 1: Reflect on Your Current Financial Situation

Begin with a thorough examination of your existing financial landscape. Review your income, expenses, assets, and liabilities. This analysis will provide a comprehensive understanding of your economic standing and help you craft a personalized plan for your financial future.

Step 2: Establish Clear Objectives

Articulate your financial objectives clearly. Whether your aim is to build an emergency fund, plan for a dream vacation, buy a home, or prepare for retirement, identifying your goals sets the foundation for your financial journey. Consider the time frame associated with each objective, from short-term to long-term commitments. (See below for more.)

Step 3: Make Your Goals SMART

Adhering to the SMART criteria helps to ensure your goals are clear and achievable:

Specific: Clearly define what you want to accomplish. For example, “Save $10,000 for a car down payment.”
Measurable: Set specific amounts and deadlines, like “Save $500 per month for 20 months to reach $10,000 by a specific date.”
Achievable: Make sure your goals are realistic within your current financial situation.
Relevant: Align your financial goals with your overall life objectives.
Time-Bound: Set a deadline for each goal to create a sense of urgency.

Step 4: Seek Professional Advice

Consider consulting a financial advisor, especially for complex goals like retirement planning or investment strategies. Advisors can provide tailored guidance and valuable insights to help you make informed decisions. Don’t hesitate to ask for help; their knowledge can greatly enhance your financial well-being.

Step 5: Stay Disciplined and Motivated

To achieve your goals, discipline is crucial. Regularly check your progress and celebrate milestones. Keep your ultimate dreams at the forefront of your mind. This personal financial journey requires consistency and enthusiasm.

Short-Term Financial Goal Ideas

Create and Stick to a Budget

Establishing a budget is a foundational step in financial planning. Track your income and expenses to understand your financial habits and use budgeting tools to categorize your spending. Identify areas to cut back and allocate funds toward savings or debt repayment.

Build an Emergency Fund

An emergency fund is important for financial stability. Start small with a goal of $500 to $1,000, and gradually expand it to cover three to six months of living expenses, or more depending on your situation. Consider automated savings transfers to this dedicated account, helping you prepare for unexpected financial shocks.

Mid-term Financial Goal Ideas

Save for Major Life Events

Consider significant life events like buying a home or funding a child’s education. Start by estimating the total amount needed and set a timeline for achieving it, breaking it down into monthly savings targets.

Pay Off Student Loans

If you have student loans, strategize to pay them off effectively. Explore refinancing options to help secure a lower interest rate while considering the potential loss of federal loan benefits.

Long-Term Financial Goal Ideas

Save for Retirement

Experts recommend that you work toward a comfortable retirement by saving 10-15% of your income in tax-advantaged retirement accounts, or more if possible. As you get closer to retirement, you should work with an advisor to create a customized retirement income plan based on your personal retirement lifestyle goals. Estimate your desired annual expenses to help gauge how much you will need.

Plan for Major Life Transitions

Consider potential long-term goals, such as caring for aging parents or planning for long-term care. Early planning and dedicated savings can help alleviate future financial pressure.

The Importance of Ongoing Financial Planning

Remember, achieving financial goals is not always a linear process. Life can throw unexpected challenges your way. It’s beneficial to remain flexible and adjust your goals as needed. Embrace the new year as an opportunity to shape your financial future, and take proactive steps toward achieving your dreams.

Call us and let’s talk about your goals for 2025!

Sources:

2024-12-10

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10 Considerations for Year-End Tax Planning

By Alec GiestingEstate Planning, Financial Planning

As we head into the holiday season, another season looms in the distance: tax season.

Don’t wait until March to see how 2024 shook out for you tax-wise. Before the year draws to a close, it’s an ideal time to evaluate financial strategies and take advantage of year-end tax planning opportunities. Now is the time to proactively review, consult with professionals, and implement strategies that can potentially benefit you now and in the years ahead.

RMDs (Required Minimum Distributions) Due In Retirement

Required minimum distributions (RMDs) must be withdrawn from traditional retirement accounts like 401(k)s and IRAs by December 31 each year beginning at age 73. There is no grace period to April 15 tax day; RMDs must be taken by December 31.

Calculate RMDs (Required Minimum Distributions) Before Retirement

Even if you are not 73 or older, remember, all the money you have socked away in traditional 401(k)s, IRAs, and similar qualified retirement accounts will require annual withdrawals, and ordinary income taxes will be due on the amounts withdrawn. According to the Social Security Administration, around 40% of Americans must pay federal income taxes on their Social Security benefits—up to 85%—because they have substantial income, like the income created by required minimum distributions.

Strategic Timing for Roth Conversions

Converting traditional IRAs or other tax-deferred accounts to Roth IRAs can be a strategic move, particularly if you anticipate being in a higher tax bracket in the future. Roth accounts contain already-taxed money, so they offer tax-free growth and withdrawals, meaning you can access your money in retirement without owing any federal taxes provided the account has been in place five years and all other IRS rules are followed. They are also tax-free to your heirs.

While there are no limits on the amounts you can convert, it’s essential to remember that the converted amount will be added to your gross income for the year, potentially affecting your overall tax situation. And since Roth conversions cannot be undone, it’s important to seek professional tax advice.

RMDs (Required Minimum Distributions) Due On Inherited Accounts

This July, the IRS finally issued clarifications about the SECURE Act 1.0 changes on the rules for non-spousal inherited traditional accounts, stating that enforcement will begin in 2025 on accounts inherited after 2019. If you inherited a traditional IRA or 401(k) or similar account, check with your CPA or tax professional now because RMDs will be due or you may owe penalties.

Maximize Retirement Account Contributions

If you are still working, contributing the maximum allowable amounts to tax-deferred retirement accounts like traditional 401(k)s and IRAs can offer a significant opportunity to grow your retirement savings while reducing your taxable income for the tax year. The contribution limit for 401(k) plans for 2024 is $23,000 for individuals under 50, with an additional catch-up contribution of $7,500 for those 50 and older, bringing the total to $30,500. For IRAs, the limit is $7,000, or $8,000 with the catch-up provision for those 50 and older.

Implement Tax Loss Harvesting

If you’re seeking to reduce your taxable capital gains in 2024, tax loss harvesting may be a strategy worth considering. This involves selling underperforming investments, such as stocks and mutual funds, to help realize losses that can offset any taxable gains you may have accrued throughout the year.

Charitable Contributions

A charitable donation is a gift of cash or property given to a nonprofit organization to support its mission, and the donor must receive nothing in return for it to be tax-deductible. Taxpayers can deduct charitable contributions on their tax returns if they itemize using Schedule A of Form 1040, and contributions may be deductible to up to 60% of adjustable gross income for 2024.

Defer Income

Another way to help reduce your tax burden is by deferring, or shifting, income to the next year. If you’re employed, you won’t be able to defer your wages; however, you could delay a year-end bonus to the following year, so long as it’s a standard practice at your company.

Be Mindful of the Alternative Minimum Tax (AMT)

The alternative minimum tax (AMT) is designed to ensure that high-income individuals pay a minimum level of tax, regardless of how many deductions or credits they claim under the regular tax rules. The AMT is calculated by adding back certain deductions, such as state and local taxes, that are allowed under the regular system but not under AMT rules. In 2024, the AMT tax exemption for individuals is $85,700, and for married couples it’s $133,300.

Utilize Flexible Spending Accounts (FSAs) and Other Tax-Advantaged Accounts

For 2024, flexible spending accounts (FSAs) offered an increased contribution limit of $3,200, up from $3,050 in 2023, allowing employees to use pre-tax dollars for eligible medical expenses. Contributions to FSAs reduce taxable income, as funds are deducted before federal, Social Security, and Medicare taxes are applied. However, it’s essential to use all FSA funds before year-end to avoid forfeiture under the “use it or lose it” rule. Some employers offer a grace period, extending the deadline to use 2024 funds until March 15, 2025. Exploring other tax-advantaged accounts for 2025, such as dependent care FSAs, might further reduce future taxable income while maximizing the benefit of pre-tax dollars for qualifying expenses.

Don’t let time pass you by, start planning for this upcoming tax season today! If you’re not sure how these tips could be plugged into your overall financial plan, let’s meet together with your tax professional. We’re here to help you end the year strong financially. Give us a call today at (316) 655-9136!

This article is provided for general information only and is believed to be accurate. This article is not to be used as tax advice. In all cases, we advise that you consult with your tax professional, financial advisor and/or legal team before making any changes specific to your personal financial and tax plan.

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2024-11-12

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