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June 14, 2024

What Can a Financial Advisor Do for You?

April 5, 2024

How can you get closer to achieving your financial goals? Depending on your income, assets, investments, and personal knowledge of finance, you may feel you can do a great job managing your money on your own. But according to a recent report from Boston research firm Cerulli Associates, the number of Americans willing to pay for financial advice has increased from 38 percent in 2009 to 63 percent in 2022. Why are more clients seeking help, how can a financial advisor make a difference, and is the advice worth the cost? Let’s explore answers to these questions.

There are many reasons why you might need a financial advisor:

Complex investment options. As the financial landscape changes, there are many more choices to make regarding investments, along with new regulations that may be difficult to navigate without professional guidance.

Aging baby boomers. A large percentage of the population is nearing retirement and seeking help to figure out how to maximize their savings to live comfortably after ending their careers. Longer life expectancies have also made retirement planning and guidance more important across age groups.

Economic factors. In times of market volatility, financial guidance becomes especially important. Inflation was a big concern for many people in 2022. Financial advisors can help answer questions like “will rising inflation affect my goal of retiring in the next 10 years, or do I need to adjust my portfolio to better keep up?”

The Benefits
There are many ways a financial advisor can offer value and assistance you may not be able to achieve on your own.

Saving time, reducing stress, and avoiding mistakes. Sure, you can do all the research, but having professional advice you trust and a knowledgeable person to ask when you’re unsure takes much less time and reduces the anxiety of trying to get it right on your own. In addition, working with an advisor can help you avoid making critical financial mistakes (e.g., taking on an inappropriate level of risk within your portfolio for your investment goal), which can be costly and detrimental to your financial plans.

Professional advice. Even if you devote time to doing your own financial research, an advisor likely has a more comprehensive financial education and more investing experience than you have. The experience an advisor brings can inform your strategies and get you closer to achieving your financial goals.

Staying on track. Regular check-ins with your advisor can help keep you on course toward your financial goals, keep track of your progress, and adjust your saving and investing strategies when necessary.

Comprehensive planning. Although you may have the resources to study new investment options or specific savings tools such as IRAs or 529 plans, it would be time-consuming to master the wide-ranging planning strategy that a financial advisor could help you create. In addition to asset accumulation, an advisor can provide insight into budgeting, saving, retirement planning, estate planning, tax planning, debt management, risk management, and business planning.

Possible access to connections. Advisors may collaborate with a network of attorneys, CPAs, insurance agents, and other professionals who can work together to help you achieve your goals.

How to Evaluate and Choose an Advisor
The best way to begin your search for a financial advisor is to ask family and friends for recommendations. If someone you know and trust vouches for the advisor, of course, there’s a better chance of finding a good match versus choosing one at random. So, what should you look for when choosing an advisor to help guide your financial decision-making?

Firm affiliation, experience, and certification. Just as you would evaluate the résumé of a potential hire, you should evaluate the education and background of a potential financial advisor. If your advisor has designations, research them and find out what the requirements were for obtaining them. Some designation requirements are more rigorous than others. You may want to look for continuing education, any examination requirements and adherence to a code of ethics.

Fee structure. Some financial professionals collect commissions based on the investments they pick or the products they sell you. Others charge a flat fee or a percentage fee based on assets under management regardless of their recommendations or your investments. Be sure to ask about your financial advisor’s fee structure and how they get paid.

Trust and personal attention. Your advisor should give you as much information as you need to make the best financial decisions for you and your family. So, it’s important to feel your advisor is listening to you, considering your circumstances and needs, and making recommendations you trust.

The Value
Whether working with a financial advisor is worth the cost depends on several factors. You may consider whether the potential investment growth you expect will be more than the advisor fee, but that’s not the only consideration. As the saying goes, time is money. So, the time you may save if you don’t have to educate yourself about various aspects of financial planning and investing should also factor into the benefit. You can also consider the benefits of working with a financial planning professional over time for things such as retirement planning, saving for education, and tax planning. Finally, the sense of financial security a trusted advisor can provide is priceless to some.

If you, a friend, or family member is considering working with a financial advisor, we’d love to hear from you. As always, we aim to provide support and help you reach your financial goals.

Ways to Reduce Your Tax Liability

Want to pay less taxes? If given a way to legally reduce tax liability, most Americans would welcome that opportunity with open arms. But methods for doing so aren’t always obvious—and may be tricky in certain circumstances. Two such situations include working in the gig economy and navigating required minimum distributions (RMDs) from retirement accounts. Let’s explore strategic tax planning options for both cases.

Tax Planning for Gig Workers
The gig economy refers to the rise in freelance work through apps such as Uber, TaskRabbit, DoorDash, and Etsy. As a gig worker, you have the flexibility to work on your own time and be your own boss, but you’re responsible for managing your income, expenses, and tax obligations. This could prove difficult and time-consuming, especially if you aren’t well-versed in tax law. There are ways, however, for freelancers to reduce their tax burden and comply with IRS rules and regulations.

Track business expenses and deductions. As a gig worker, you can deduct business expenses from your taxable income. These might include home office expenses, equipment, supplies, and travel expenses. Keeping track of your expenses throughout the year can help maximize deductions and lower taxable income.
Learn about tax deductions for freelancers. Gig economy jobs are viewed as independent contract roles by the IRS and are therefore eligible for various tax deductions aside from business expenses. These include deductions for health insurance, retirement contributions, and even a portion of self-employment taxes. Understanding these deductions will help reduce overall tax liabilities; your financial advisor can help clarify which expenses qualify.
Contribute to retirement accounts. When performing freelance work, you don’t have an employer-sponsored retirement plan but can still contribute to a traditional IRA or Roth IRA to save for the future. Contributions to traditional IRAs are tax deductible, whereas contributions to Roth IRAs are not tax deductible but grow tax free. Contributing to a retirement account may reduce your taxable income and provide long-term savings.
Consider estimated quarterly tax payments. Gig workers, who often receive income without taxes withheld, are responsible for paying estimated taxes throughout the year. You can use tax software or an accountant to calculate your estimated taxes and ensure that you are paying the right amount. Making quarterly estimated tax payments can help avoid penalties and ensure that taxes are paid throughout the year rather than in one lump sum during tax season.

Using RMDs for Tax Planning in Retirement
As baby boomers retire and life expectancy increases, tax planning for retirement is becoming increasingly important for American workers. One way to maximize tax savings in retirement is through RMDs. You’re required to take RMDs from certain retirement accounts the year you turn 73. Withdrawing them, however, could result in a large tax bill because these are considered taxable income. Here’s how to cut down on what you’ll owe.

Withdraw more early on. You can start withdrawing money from retirement accounts without a tax penalty at age 59½. If you expect to be in a lower tax bracket when you retire, it could help to take larger distributions at the beginning of your retirement to reduce your account balance and lower your RMDs later (reducing the taxes you owe on them).
Make charitable donations. Another way to reduce your tax liabilities is by donating your RMD to a qualified charity. This strategy, known as a qualified charitable distribution (QCD), satisfies RMD requirements and can reduce your taxable income while supporting a cause you care about. Just note the following requirements:
- You must be 70½ or older.
- You are limited to $105,000 in 2024.
- The QCD must be made directly from the trustee of the IRA to the charity.
- You won’t be able to claim a QCD as a charitable deduction on your taxes.
Consider a Roth IRA conversion. Although you will be taxed on retirement funds you convert to a Roth IRA at the time of conversion, future withdrawals from a Roth IRA are tax free. The onetime tax payment might be worth paying so you can avoid RMDs altogether and withdraw the money later without paying taxes on it. Strategic Roth conversions can help manage tax brackets in retirement, but they aren’t the right move for everyone, so discuss this possibility with your financial advisor and a tax professional before proceeding.
Coordinate with social security. If you’re able to withdraw funds from your tax-deferred retirement accounts before you claim social security benefits, you may minimize tax liabilities. Also, if taking distributions from your retirement funds allows you to delay collecting social security beyond your full retirement age, your benefit will increase.

Reducing your tax bill sounds great, but it requires careful planning and understanding of tax laws. Whether you’re a gig worker hoping to take advantage of deductions, a retiree trying to use RMDs to your advantage, or you’re looking at another possible way to legally reduce what you owe the IRS, please reach out to us. We’d love to help with your strategic tax planning. As always, we aim to help you make the most informed decision to optimize your financial well-being.

This material has been provided for general informational purposes only and does not constitute tax, legal, or investment advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a qualified professional regarding your situation. Commonwealth Financial Network does not provide tax or legal advice.

Financial Tips for Female Breadwinners

An increasing number of women are becoming primary breadwinners in their households, so one might assume women are also taking on most of the financial decisions. On the contrary, most women in heterosexual relationships who are earning more of the household income aren’t making the major money-related decisions for the family¹. So, why doesn’t earning power naturally lead to financial decision-making power?

Traditional gender roles. Women may feel less comfortable managing the family finances, and men may feel that responsibility comes more naturally to them simply because of stereotypical gender roles.
Work-life balance. Time constraints may also deter women from taking control of family finances. Between childcare, elder care, housework, and career demands, time to devote to money matters may be scarce. Having your spouse take finances off your full plate can seem helpful, but it may be detrimental in the long run.
Lack of financial education. Some women may face challenges related to financial literacy. A lack of knowledge about investment, savings, and retirement planning can make it difficult and less appealing to become involved in financial decision-making.

While these reasons might all play into women’s lack of involvement in family finances, it’s critical for women to be in the know about where their money is going. Why? Women are often paid less than their male counterparts, which makes it more challenging for them to save for the future and achieve financial stability. Women are also more likely to take career breaks or work part-time to care for children or elderly parents, which comes with its own financial responsibilities. This can result in lower income and less retirement savings. Finally, women tend to outlive men, which means they need to save more for retirement and plan for a longer lifespan. For all these reasons, female breadwinners should budget strategically, prioritize their retirement planning, and plan for unexpected expenses and emergencies, such as medical bills or home repairs. To manage your finances more effectively and help you achieve your long-term goals, follow these tips for female breadwinners.

Tips to Take Charge
Communicate openly. Establishing open communication with your partner about financial goals, responsibilities, and expectations is key. This might also include redistributing household responsibilities—either to your partner or to an outside person or service—to allow more time for you to help manage your family’s money. Consider planning a date night to discuss your finances to help diminish any relationship tension around the subject.

Compile important information. As part of your communication with your partner about finances, it will be helpful to gather all your account numbers, names of financial institutions, location of assets, passwords, and important contacts such as attorneys and CPAs in one place. You should have hard and digital copies, and your trusted family members should know where they’re located. In the event one of you passes unexpectedly, having this will make a difficult situation slightly less complicated to navigate. Ask your financial advisor if they have a template for this type of document that requires you to just fill in the blanks.

Create a budget. This will help you track your income and expenses, identify areas where you can cut back, and plan for the future. Start by listing all your monthly income and expenses, including bills, groceries, and other necessities. Having a clear sense of where your money is going will help you identify areas for improvement and is the first step toward becoming more involved in managing your family’s finances.

Save for retirement. Women need to save a larger percentage of their income for retirement than men just to end up at the same level of wealth. This is because women often take time out of the workforce, make less money than men, and live longer on average. So, retirement planning is crucial, especially if you’re the primary breadwinner. Make sure you’re contributing enough to your retirement accounts, such as 401(k)s or IRAs, and consider working with a financial advisor to determine the best investments for your goals.

Start an emergency fund. There’s always a chance you may face unexpected expenses, such as medical bills or home repairs. Having a financial safety net can alleviate stress, avoid a financial challenge, and provide a sense of security.

Purchase insurance. Ensure that you and your family have adequate coverage, including health, life, and disability insurance. These protect against unexpected events that could jeopardize your family’s financial stability.

Get your estate documents in order. In addition to a fund for emergencies and setting up insurance coverage, you’ll want to plan for your family’s future in case something happens to you. It’s advisable to consult with a qualified attorney about your specific situation and unique goals. Core estate planning documents generally include:

Durable power of attorney (POA) for financial matters
Health care POA (and/or a living will)
Will
Trust agreement (depending on your specific situation)

You’ll also want to update your beneficiary designations. Outdated beneficiary designations can derail an estate plan. Review your designations periodically to ensure that the correct people are named and are still appropriate.

Learn about personal finance. If you feel a lack of confidence in making financial decisions, attend workshops, read books, or consult with financial advisors to enhance your understanding of investments, retirement planning, and other financial instruments. Better understanding will lead to a greater sense of comfort in managing your money.

Consult a financial advisor. A professional can help you in various ways, such as informing you about tax breaks or credits you might not have known about, choosing investments based on your risk comfort level, and setting up the most beneficial retirement plan for your needs.

As more women take on the role of breadwinners in their families, they face unique financial challenges. With careful planning and management and communication with your partner, you can achieve financial stability and help ensure a secure future for yourself and your loved ones.

¹ UBS Own Your Worth Report 2023: Women primary breadwinners face challenges in embracing their financial power | UBS Global

8 Things to Consider Before Buying Your Aging Parents Home

The “great wealth transfer” is set to take place over the next two decades, when baby boomers (the wealthiest generation in American history) will pass $30 trillion down to younger generations. One common asset many aging parents will look to transfer or sell is their home, especially if they feel compelled to downsize or need to move due to declining health. If you’re planning to purchase, transfer, or inherit your parent’s home, there are many factors to consider. Here are eight things to think about to make the process smoother and less taxing—both emotionally and financially.

Personal Considerations

Your parent’s wishes.

Regardless of how many years your parents have spent in their current home, it’s made up of so much more than floors, walls, and windows. Any family home comes filled with memories and emotional attachments, so your first consideration should be your parent’s wishes and feelings about passing down their property. Communicating openly about their preferences and needs will help them feel supported in their decision, set the stage for a smoother transition, and help align your family members’ expectations.

Family relationships.

If there are other siblings or heirs involved, it’s helpful to address their concerns and interests, too. Open communication, transparency, and potentially seeking the assistance of a mediator can help alleviate any conflicts or resolve differing opinions about the future of your family’s home.

Future plans.

Although sentimental value is a strong reason for many to want to buy or transfer a parent’s home, it’s crucial to consider the long-term implications. First, do your parents have funds to pay for their care needs, especially if they will be moving to a nursing home or assisted living facility? Do they have enough income for rent if they’re downsizing? Also, do you have the funds to maintain the home? If it’s a multifamily home or has rental units, are you prepared to be a landlord? Consider future scenarios before you finalize the decision. You may want to consult a financial advisor for guidance.

Financial Considerations

Tax implications.

One of the biggest concerns when transferring or purchasing a home is the potential tax liability. Depending on the value of the property and the circumstances of the transfer, there may be gift tax, estate tax, or capital gains tax implications to consider. It’s important to consult with a tax professional to understand the specific tax implications of any transaction, explore strategies for minimizing tax liabilities, and ensure compliance with current tax laws.

Impact on benefits.

Transferring or selling a home can also affect eligibility for certain government benefits, like VA pensions or Medicaid. This is because these programs have strict asset and income limits, and transferring or selling a home can affect those limits and, therefore, impact qualification for those benefits. Consult with an attorney or financial advisor who specializes in elder law to understand the potential impact and explore options for protecting these benefits.

Avoiding probate.

Probate is the legal process of distributing a person’s assets after they pass away, and it can be time-consuming and expensive. One option for avoiding probate is transferring the home into a living trust. This way, you can ensure a smoother, simpler transfer of ownership after your parents pass on, minimizing the burden on their heirs. There are several types of trusts, each with its benefits and drawbacks. It’s important to consult with an estate planning attorney to determine which type of trust is best for your specific situation.

Cost considerations.

In addition to the tax considerations, it’s important to budget for mortgage rates, closing costs, transfer fees, appraisal fees, and the expense of ongoing maintenance.

Elder care.

Many families are afraid they need to sell their parent’s home to cover the costs of long-term care, but this may not be true. There are alternatives to selling, such as accessing home equity through a reverse mortgage or purchasing insurance for long-term care expenses. Careful financial planning, possibly with a professional, can help preserve the family home while addressing the financial demands of care.

Transferring or purchasing your aging parent’s home can be a complex process, with many legal and financial considerations to keep in mind. By working with qualified professionals, such as attorneys, financial advisors, and tax professionals, you can ensure that the process is done correctly and in the best interests of all parties involved.