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Mid-Year Is a Good Time for a Financial Checkup

Ballast Advisors - Retirement 401K Planning

The first half of 2021 is behind us. As life emerges from the pandemic to a “new normal,” a mid-year financial checkup may be more important than ever this year. Here are some ways to make sure that your financial situation is continuing on the right path.

Reassess your financial goals

At the beginning of the year, you may have set financial goals geared toward improving your financial situation. Perhaps you wanted to save more, spend less, or reduce your debt. How much progress have you made? If your income, expenses, and life circumstances have changed, you may need to rethink your priorities. Review your financial statements and account balances to determine whether you need to make any changes to keep your financial plan on track.

Take a look at your taxes

Completing a mid-year estimate of your tax liability may reveal new tax planning opportunities. You can use last year’s tax return as a basis, then factor in any anticipated adjustments to your income and deductions for this year. Check your withholding, especially if you owed taxes or received a large refund. Doing that now, rather than waiting until the end of the year, may help you avoid owing a big tax bill next year or overpaying taxes and giving Uncle Sam an interest-free loan. You can check your withholding by using the IRS Tax Withholding Estimator at irs.gov. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.

Check your retirement savings

If you’re still working, look for ways to increase retirement plan contributions. For example, if you receive a pay increase this year, you could contribute a higher percentage of your salary to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457(b) plan. For 2021, the contribution limit is $19,500, or $26,000 if you’re age 50 or older. If you are close to retirement or already retired, take another look at your retirement income needs and whether your current investment and distribution strategy will provide the income you will need.

Evaluate your insurance coverage

What are the deductibles and coverage limits of your homeowners/renters insurance policies? How much disability or life insurance coverage do you have? Your insurance needs can change over time. As a result, you’ll want to make sure your coverage has kept pace with your income and family/personal circumstances. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

Ballast Advisors - Mid-year Financial Check Up Infographic

Ask questions

Finally, you should also ask yourself the following questions as part of your mid-year financial checkup:

• Do you have enough money in your emergency fund to cover unexpected expenses?

• Do you have money left in your flexible spending account?

• Are your beneficiary designations up-to-date?

• Have you checked your credit score recently?

• Do you need to create or update your will?

• When you review your portfolio, is your asset allocation still in line with your financial goals, time horizon, and tolerance for risk? Are any changes warranted?

Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021

 

IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.

INFOGRAPHIC: 5 Facts about Retirement Savings

In general, workers seem to begin preparing for retirement almost as soon as they get their first job. However, according to the 2021 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), retirement preparations do vary a bit by age group. Let’s look at Ages 45-54 with our infographic “5 Facts About Planning for Retirement”

5 Facts about retirement ages 45-54 - Ballast ADvisors - Inforgraphic

Rollovers

Nest with eggs labeled with the financial planning terms house, pension, 401K, IRA

When evaluating whether to initiate a rollover always be sure to

(1) ask about possible surrender charges that may be imposed by your employer plan, or new surrender charges that your IRA may impose,

(2) compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any), and

(3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.

*SEP and SIMPLE IRAs are not included in or subject to this limit and are fully protected under federal law if you declare bankruptcy

 

 

 

 

 

 

 

 

 

 

 

Use this rollover guide to help you decide where you can move your retirement dollars. A financial professional can also help you navigate the rollover waters. Keep in mind that employer plans are not legally required to accept rollovers. Review your plan document.

Some distributions can’t be rolled over, including:

• Required minimum distributions (to be taken after you reach age 70½ or, in some cases, after you retire)

• Certain annuity or installment payments

• Hardship withdrawals

• Corrective distributions of excess contributions and deferrals

 A rollover is the movement of funds from one retirement savings vehicle to another. You may want to make a rollover for any number of reasons — your employment situation has changed, you want to switch investments, or you’ve received death benefits from your spouse’s retirement plan.

There are two possible ways that retirement funds can be rolled over — the indirect (60-day) rollover and the direct rollover (or trustee-to-trustee transfer).

The indirect, or 60-day, rollover

With this method, you actually receive a distribution from your retirement plan and then, to complete the transaction, you deposit the funds into the new retirement plan account or IRA. You can make a rollover at any age, but there are specific rules that must be followed. Most importantly, you must generally complete the rollover within 60 days of the date the funds are paid from the distributing plan.

If properly completed, rollovers aren’t subject to income tax. But if you fail to complete the rollover or miss the 60-day deadline, all or part of your distribution may be taxed, and subject to a 10% early distribution penalty (unless you’re age 59½ or another exception applies).

Further, if you receive a distribution from an employer retirement plan, your employer must withhold 20% of the payment for taxes. This means that if you want to roll over the entire distribution amount (and avoid taxes and possible penalties on the amount withheld), you’ll need to come up with that extra 20% from other funds. You’ll be able to recover the withheld amount when you file your tax return.

The direct rollover, or trustee-to-trustee transfer

The second type of rollover transaction occurs directly between the trustee or custodian of your old retirement plan, and the trustee or custodian of your new plan or IRA. You never actually receive the funds or have control of them, so a trustee-to-trustee transfer is not treated as a distribution. Direct rollovers avoid both the danger of missing the 60-day deadline and the 20% withholding problem.

If you stand to receive a distribution from your employer’s plan that’s eligible for rollover, your employer must give you the option of making a direct rollover to another employer plan or IRA.

A trustee-to-trustee transfer is generally the most efficient way to move retirement funds. Taking a distribution yourself and rolling it over may make sense only if you need to use the funds temporarily, and are certain you can roll over the full amount within 60 days.

Should you consider a rollover?

In general, if your vested balance is more than $5,000, you can keep your money in an employer’s plan at least until you reach the plan’s normal retirement age (typically age 65). But if you terminate employment before then, should you consider a rollover to either an IRA or a new employer’s plan? There are pros and cons to each move.

IRA: In contrast to an employer plan, where investment options are typically limited to those selected by the employer, the universe of IRA investments is almost unlimited. Similarly, the distribution options in an IRA (especially for your beneficiary following your death) may be more flexible than the options available in your employer’s plan.

New employer’s plan: On the other hand, employer-sponsored plans may offer better creditor protection. In general, federal law protects IRA assets up to $1,283,025 (scheduled to increase on April 1, 2019) — plus any amount rolled over from a qualified employer plan or 403(b) plan — if bankruptcy is declared.* (The laws in your state may provide additional protection.) In contrast, assets in a qualified employer plan or 403(b) plan generally receive unlimited protection from creditors under federal law, regardless of whether bankruptcy is declared.

 

Use this rollover guide to help you decide where you can move your retirement dollars.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019

1 Required distributions and nonspousal death benefits can’t be rolled over.

2 In general, you can make only one tax-free, 60-day, rollover from one IRA to another IRA in any 12-month period no matter how many IRAs (traditional, Roth, SEP, and SIMPLE) you own. This does not apply to direct (trustee-to-trustee) transfers, or Roth IRA conversions.
3 Taxable conversion
4 Nontaxable conversion
5 Only after employee has participated in SIMPLE IRA plan for two years.
6 Required distributions, certain periodic payments, hardship distributions, corrective distributions, and certain other payments cannot be rolled over; nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover.
7 May result in loss of qualified plan lump-sum averaging and capital gain treatment.
8 Direct (trustee-to-trustee) rollover only; receiving plan must separately account for the after-tax contributions and earnings.
9 457(b) plan must separately account for rollover — 10% penalty on payout may apply.
10 Nontaxable dollars may be transferred only in a direct (trustee-to-trustee) rollover.
11 Taxable dollars included in income in the year rolled over. 12 401(k), 403(b), and 457(b) plans can also allow participants to directly transfer non-Roth funds to a Roth account if certain requirements are met (taxable conversion).

 

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.


If you’re interested in receiving additional financial advice, contact Ballast Advisors for a complimentary consultation at a location near you:

Ballast Advisors – Woodbury

683 Bielenberg Dr., Suite 208
Woodbury, MN  55125-1705
Tel: 651.478.4644

Ballast Advisors – Arden Hills

3820 Cleveland Ave. N, Ste. 500
Arden Hills, MN  55112-3298
Tel: 651.200.3100

 Ballast Advisors – Punta Gorda 

223 Taylor St., Suite 1214
Punta Gorda, FL  33950-3901
Tel: 941.621.4015