Consolidating Adviser Relationships

I found a study in the most recent edition of planadviser magazine which suggests that families will start consolidating their investment accounts with one adviser in the next few years. The primary explanations they give are: 1- to improve retirement income planning (converting assets into a stream of income) and 2 – asset decumulation (giving your money away). The study divides up the population between three segments and explains why each has a unique set of retirement planning requirements.*

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Roth 403b vs. Traditional 403b – Which is Better?

“Roth” is a provision which allows distributions from qualified plans to be withdrawn free of income tax forever. What you sacrifice with a Roth plan is the ability to take a tax deduction in the amount of your contribution. However, you gain the comfort of knowing that money won’t be subject to tax ever again. Take the following example: you’re a teacher who earns $100,000 per year. With a traditional 403b, a salary deferral of $15,000 would result in taxable income of $85,000. The $15,000 contribution would grow on a tax-deferred basis. At age 59 ½, you’d be able to withdraw money from the plan without penalty. When you eventually decide to retire and take distributions from your account, they would be taxed at your income bracket for that year. The big question is whether marginal tax brackets will be higher or lower when you retire than they are today. The answer to that is obviously a pure guess. However, for the purposes of financial planning, we generally assume our personal tax brackets will be lower during retirement because, well, you’re retired!

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College Funding – Opening a 529 Savings Plan

Although several savings vehicles exist to fund a college education, 529 plans may be one of the best. 529 plans combine the advantages of other college savings vehicles but avoid some of the common drawbacks. The primary advantage is that earnings within the account are tax-exempt when used for qualified higher education expenses. This may be even more beneficial than a traditional IRA or 401k where the money is tax-deferred, but is still taxed as income when distributions are taken. The essence is- if you are going to pay for higher education expenses at some point, you might want to consider a 529 plan as a funding option.

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