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Location and Coordination of your money

Location and Coordination of your money

My team has helped countless clients retire.  We have also helped countless people strategically plan.  The most common issue or concern for many of these clients was, have they saved enough or are the saving enough.  The second concern was how to efficiently turn their nest egg into income or cash flow.  What most of them did not really consider was the ramifications of where they have been saving their money and how to pull the money out.

The goal of this post is to get you to think about your money with the end in mind.  A question I like to ask is would you build a house without a blueprint?  Most people would answer that with a big, no!  We want to make sure that the house comes out the way we envision it.  So why is it that a lot of us do not plan financially with a blueprint in mind?

Below are two areas to consider when you are saving money for now and into the future.

Location

The type of an account that you save your money in has huge ramifications when it comes to building assets and distributing those assets.  Checking or savings accounts, brokerage accounts and retirement accounts are the three types of accounts that people generally put money into.  Each of those accounts can be taxed differently.   Checking or savings accounts and brokerage accounts are taxed today.  This can include short term capitol gains and long term capitol gains.   There are two different styles of retirement accounts.  The first is the traditional 401k or IRA accounts.  These are accounts that you defer paying the taxes on that money today and you pay the taxes when you take the money out.  The second retirement account is a roth 401k or roth IRA.  This account allows you to pay the taxes today and you get tax free growth and tax free distribution.

The issue that I see is a lot of people are truly funding 1 of these style accounts.  It is the traditional 401k or IRA.  This style of an account isn’t a bad account.  It can be bad if all of your money is there.   For example, if you have deferred taxes for 20-30 years, you still owe the taxes when you begin distribution.   What are the tax brackets going to be in the future?  Unfortunately, no one knows this answer.  If the tax brackets go up or certain deductions that you have access to now go away, then you will pay more in taxes later on.

Conversely, if you decide to put all your money into a roth style of an account, then you would pay the taxes today.  If you are in a lower tax bracket in the future or somehow manage to have zero in taxes in the future, this is also not good.

Lastly, let’s talk about the brokerage accounts.  These accounts are taxed today but at short term or long term capitol gains.  It is also a much more liquid account.  Mean you have more access to your money.

Solution

So what’s the solution here.   Financial Balance!  Have money in several style of accounts.  This provides flexibility.  You will have more liquidity so that you don’t have to borrow or cash out retirement accounts when an opportunity arises or something you didn’t expect occurs.  Also, understand and consider how your money will be taxed now and into the future.   Taxes are one of the biggest liabilities that we all have. Chances are, it’s not going away!  The less you plan now, the more you may have to pay later.

Coordination

When you get to retirement, what’s the most efficient way to pull money so that you can continue living the life you are used to?  Or if you are not close to retirement, where is all your money sitting and how do you coordinate where to pull money from to buy a house, send kids to college, start a company and the 100 other things they will happen over the course of your pre-retirement life?

Have you even thought about this?  Most clients that we speak to haven’t thought about this.  They tell us that they put as much money as they can into their work retirement plan and maybe some into a roth account.  They have not thought about why they chose to max out their retirement account versus putting money into other accounts.    

Solution

The solution here is to think with the end in mind.  Talk to your spouse. Talk to a person you trust that is knowledgeable around how money works so that you can have some sort of strategy with your money.  Build the blueprint for your finances now just like you would build a blueprint for the house you would build.

I hope there are some takeaways from this post.  Feel free to message me with any questions or maybe something I have missed.

Ryan Burklo is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 3585 Maple St #140, Ventura, CA 909-399-1100. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Quantified Financial Partners is not an affiliate or subsidiary of PAS or Guardian. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 2019-79293 Exp 05/21