Why Did I Start My Business?

I started Financial Journey LLC at the beginning of 2021. There were several reasons why I started my own business (during a pandemic!):

Health Event

In June of 2020 we had a major health event in my immediate family that could have ended much worse than it did. When you have a scare like that, you start thinking about everything that you take for granted and what it is that matters most to you. For me, experiencing that there might not be a tomorrow with a loved one really emphasized that time with family is something that I value most. Even though we were at the beginning of the pandemic and not having to go into the office every day, it made going into the office that much worse. If you’ve ever been to the DC area, then you know how bad traffic is. During preCovid times, I would leave my house in the dark and come home in the dark because traffic would at least double the amount of time it takes to drive the route. Then on the weekends, I was simply preparing for the next week and doing chores I couldn’t get done during the week. It just was not enjoyable and did not seem logical to spend all that time commuting because I barely saw my family during the week.

Location Freedom

With the pandemic came a lot of Zoom interactions. Remote work was on the rise before the pandemic, but Covid really skyrocketed remote work and Zoom interactions. Having the ability to do everything that you need from a laptop really gives you the freedom to be anywhere. Because of Covid, many offices gave up their office space and let their employees work remotely. When I started my business, I knew I wanted it to be completely virtual. I even thought about getting an RV and traveling around the country for a year with a laptop for work. Being completely virtual allows me to spend more time with my family because all I need is a laptop.

Access

Another thing I had tapped into while gaining experience at other firms is that most of our clients were retirees or came to us to see if they could retire. What about the younger generations that haven’t built up their nest eggs yet? Most firms require you to move your pot of assets to them so they could charge a fee based on your investment assets, which is why younger people miss out on advice until later in life. I joined XY Planning Network who understands that the younger generations are underserved and have been pioneers in the movement for Fee Only advice and offering different types of access to financial planningwhich encompasses so much more than investment management. Luckily, I have been able to provide different ways to work with menot only giving access to a Financial Planner without having a large pot of money, but also providing lowcost options so that financial planning is available to more people than just the wealthy.

Education

I really love all the different areas of financial planning and putting all the pieces together. I don’t like surprises when it comes to money and taxes and if you know how all the different pieces work, then there is little room for surprises when it comes to your money. Obviously, there’s no way to plan for life’s surprises, but if you understand how all these different pieces work (or work with someone who does), you can navigate things much better. You don’t know what you don’t know, and some decisions can have a huge impact on your finances. It is nice to have a thinking partner when you are faced with some of these decisions.

These are the main reasons that I started my own business. I love helping people get organized with their financial lives and educating them on how to best use their resources. Being able to do this from anywhere, having the ability to help more people than traditional financial institutions, and meeting people where they are is rewarding for me.

If you are looking for a trusted partner to help you navigate financial decisions, we are here to help. Schedule a meeting with us today to see how we can help you with your own financial journey.

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

What Insurance Do My Accounts Have?

Currently there are two main forms of insurance for your accounts: FDIC and SIPC. FDIC is for your bank accounts and SIPC is for your investment accounts.

 

FDIC

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the US government that provides deposit insurance to protect depositors in case of bank failures. FDIC insurance covers deposits at member banks, including checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs), up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts in different ownership categories, each account could be insured up to $250,000.

What are multiple ownership categories? They are account types such as the following:

  • Single accounts
  • Joint accounts
  • Certain Retirement accounts
  • Revocable Trust accounts
  • Irrevocable Trust accounts
  • Employee Benefit Plan accounts
  • Corporation/Partnership/Unincorporated Association accounts
  • Government accounts

The FDIC has a detailed brochure explaining the different ownership categories and how the $250,000 limit for each category applies.

FDIC insurance is available to depositors at participating banks and savings associations, and it is backed by the full faith and credit of the US government. The insurance is automatic and does not require any action on the part of the depositor other than making sure the bank is a member of FDIC.

If a bank fails, the FDIC will typically step in to manage the bank’s assets and liabilities and pay out insured deposits to depositors as quickly as possible. According to the FDIC, in most cases, insured deposits are available to customers within a few business days after a bank failure. However, the actual timeline can vary depending on the complexity of the situation and the size of the failed bank. In rare cases, it may take longer for depositors to receive their insurance payments.

SIPC

SIPC stands for the Securities Investor Protection Corporation. It is a nonprofit organization created by Congress in 1970 to protect investors in the United States in case of a brokerage firm failure or fraud.

SIPC insurance provides protection for customers of member brokerdealers, up to $500,000 for securities and cash (including up to $250,000 in cash) held by the brokerage firm.

SIPC insurance does not protect against market losses or bad investment advice, and it is not the same as the Federal Deposit Insurance Corporation (FDIC) insurance that protects bank deposits. Rather, SIPC insurance is intended to provide an additional layer of protection for investors in case of a brokerage firm’s insolvency.

Again, the brokerage firm where you have your account must be a member of SIPC for this added protection.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Are You Surprised With Your Tax Return?

While it is common for people to be surprised with their tax return results, ideally, you should not be surprised with your tax return results. There are several things you can do to help minimize surprises and ensure that you have a good understanding of your tax liability:

Tax Planning

  1. Keep Track of Your Income and Expenses: Throughout the year, keep track of your income and expenses, including any deductions or credits that you may be eligible for. This will help you estimate your tax liability and ensure that you are taking advantage of all available tax breaks.
    2. Review Your Withholdings: Review your W4 form and make sure that you are withholding the appropriate amount of taxes from your paycheck. If you have had any significant changes in your income or family status, it may be wise to adjust your withholding allowances accordingly.

    3. Know where you land in the tax brackets. How much income do you make? Use that number and subtract the standard deduction for your filing status to get an estimate of your taxable income. Then google tax brackets for that year. Observe where you land and see if it makes sense.

    4. Do you have other income, such as investment income, retirement account distributions, selfemployment income, rental income? Do you know how that income is taxed?

    5. Stay Informed of Tax Law Changes: Keep up to date with any changes to tax laws or regulations that may impact your tax liability. This will help you make informed decisions when it comes to tax planning.

    6. Work with a Tax Professional: If you have a complex tax situation, it may be beneficial to work with a tax professional who can help you understand your tax liability and ensure that you are taking advantage of all available tax breaks.

By taking these steps, you can help minimize surprises and have a better understanding of your tax liability when it comes time to file your tax return.

Personal Income Tax Course

We are developing a selfstudy course that teaches you the basics of a personal income tax return so there are no surprises. If you want to be notified when it is available, please enter your email address here.

 

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Tax Planning at Different Stages

It’s February and now you are receiving all of your tax forms because it’s tax time again. Completing your tax return each year is essentially a trueup to make sure you paid your share of income taxes. Because you are accounting for the previous calendar year, there are not too many things you can do to change your tax situation when it’s time to prepare your taxes. That is why it is important to understand your tax return once it is complete so that if there are any slight changes that you can make, you can do so during the tax year when it counts.

Ultimately, you have to know a little bit about taxes in order to notice where these changes may occur (or know enough to ask for help!)

What are we working with? Age, stage of life, current income, current assets, location of assets, tax thresholds in many different areas and tax law updates, just to name a few.

Working/Accumulation Phase of Life

While you are earning money and building your wealth, you want to be mindful of several things. Understanding the mechanics of the different things going on in your tax return can give you planning ideas for what you invest in, the different account registrations that you may or may not be able to utilize and look at the big picture to decide what could be more beneficial in the future. For example, you could be paying huge capital gains taxes in your individual accounts with mutual funds that are out of your control. A couple of things to look at would be reviewing what the estimated capital gains are and potentially moving out of that position (also reviewing that tax consequence) and into an ETF where taxes can be more controlled. Another planning item is making sure you are investing in different account types with different taxation. For example, if you only invest in your traditional IRA and traditional 401k, when you take the money out later on, it will all be 100% taxable versus maybe investing some in a ROTH IRA or ROTH 401k. Again, depending on your situation, this could be beneficial or not.

Retirement/Decumulation Phase of Life

Even if you are in the retirement/decumulation stage of life there are many things that are going on with your income. For example, your Medicare premiums are based on your AGI from 2 years ago. This means that you can jump Medicare premium surcharges every year even if you are $1 over the limit. If you are budding up close to one of these brackets, then you may be able to sacrifice a slightly lower distribution from an IRA in order to save yourself hundreds of dollars in Medicare premiums.

The Bottom Line

Every situation is different and should be looked at from different angles. If you do not understand your taxes, ask someone who does. Also, make sure you look at your tax return once it’s done and see if there is anything to do DURING the year that can help your situation.

Secure Act 2.0

Here are some of the highlights of Secure Act 2.0 as it relates to personal finances:

  • Required Minimum Distribution (RMD) Starting Age Is Getting Pushed Back Again
    • In 2020, the Secure Act changed the starting age for RMD’s to age 72. Secure Act
      2.0’s new starting age will be 75but there’s a phase in. Here’s what it looks like:

  • RMD’s No Longer Required From Roth Employer Plans
    • Previously there were no RMD’s for Roth IRA’s, but you still had to take RMD’s
      from Roth 401k’s, Roth 403b’s, Roth 457’s, etc.
  • New Roth SIMPLE and SEP IRA’s
    • Prior to Secure 2.0, Roth options were not available in SIMPLE and SEP IRA’s.
  • Employers Can Now Make Roth Contributions
    • Prior to Secure 2.0, Employer matches and other contributions to employer
      plans were always traditional (tax deferred) contributions regardless of the
      employee’s contribution.
  • Roth Catch Up Contributions For Wages Over $145K
    • For W2 Employees, if you earn more than $145K the previous year and you are
      making catch up contributions, they will automatically be Roth contributions.
  • Potential Ability to Transfer 529 Funds to Roth IRA’s
    • There is a $35K lifetime limit for these transfers and several other stipulations
      that must be met in order to allow this transfer to happen (529 must exist for 15
      years, etc.)
    • These transfers can start in 2024, but make sure you look up the rules to see if
      you would be allowed.
  • IRA Catch Up Contributions Will Be Indexed For Inflation Each Year
    • Starting in 2024, the catchup contributions for those over age 50 will be indexed
      for inflation in $100 increments
  • Employer Plan Catch Up Contributions Will Increase For Ages 6063
    • Starting in 2025, those who participate in Employer Retirement Plans and who
      are ages 6063 will be able to contribute more than just the catch up
      contribution.
  • Maximum Annual Qualified Charitable Distributions (QCDs) Will Be Indexed For
    Inflation
    • The annual amount for a QCD has been $100K for 15 years. Starting in 2024,
      QCD maximums will be indexed for inflation.
  • RMD Penalties Reduced
    • Beginning in 2023, the penalty for not taking your RMD for the year is reduced to 25% (from 50%) AND there is a correction window so that you can correct your mistake and reduce the penalty even further to 10%.

 

There are lots of other things in this Secure 2.0 Bill, but the above are the highlights that I feel are the most likely ones that apply to more people.

 

RMD’s (Required Minimum Distributions)

We are approaching the end of the year, and this is when you start hearing people mention RMD’s because they need to be satisfied by the end of the tax year—December 31st.

What are they?

RMD’s are distributions that you must take from a retirement account. Essentially, the government has given you (or the account owner) a tax break for saving this money in a retirement plan and RMD’s help with getting the money back in circulation and tax revenue for the government.

Who has to take them?

This is where it gets complicated. We can break this into two groups of people: age based for your own retirement account and inherited retirement accounts.

  • Age based for your own retirement accounts
    • You must start withdrawing money annually from your retirement accounts (except ROTH IRA’s) the year you reach age 72 (this was age 70 ½ if you reached 70 ½ before 1/1/2020).
    • How much do you have to take? This is based on your age, and you follow the Uniform Life Table from the IRS—there are a few exceptions that may require another table. You can check which table to use on the IRS site. Essentially, if you are required to take a distribution in year 2024, you see what age you will be in 2024 and divide your account value on January 1, 2024 (or December 31, 2023, because they are the same number) by the factor for your 2024 age in the table. You do this each year based on your age until you empty the account, or you are no longer with us.
  • Inherited retirement accounts
    • This is where it gets really tricky. There are a couple of moving parts. The first is figuring out if you are an eligible designated beneficiary. For the most part, this includes surviving spouses, disabled individuals, minor children or an individual who is not more than 10 years younger than the deceased owner.
      • These eligible designated beneficiaries can take distributions over their own life expectancy, except for minor children. Minor children must distribute the account completely within 10 years of reaching age 18.
      • If you are not an eligible designated beneficiary, then you must distribute the account within 10 years from the date of death of the original account owner. You also may be required to take annual distributions during those 10 years as well.

What happens if you do not take them on time?

There is a penalty for not taking your RMD and it is a big one—FIFTY (50)percent! You still need to take the RMD, pay taxes (federal and possibly state) on the amount AND pay a 50% penalty. All of this adds up and eats away at your distribution, so you really want to avoid these penalties.

Bottom Line

The bottom line is that you just need to know that these rules exist. There are people (like Financial Journey!) that can help you with the details of figuring this out—and it will most likely cost you less to hire some help than to pay one penalty of missing your RMD.

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Emergency Fund and Interest Rates

Are your interest rates increasing?

Have you looked at the interest rate for your emergency fund and savings accounts lately? These rates can change on a monthly basis. With interest rates increasing recently, it is important to check your own accounts to make sure your interest rate is increasing as well. When interest rates were lower, there was not much discrepancy in interest rates across different banks. Now that they are rising, I am seeing that a lot of the brick and mortar banks have not increased their savings interest rates to keep up with the online banks. In some cases, I have seen where the brick and mortar banks are offering new accounts with better rates without rewarding their existing customers—in other words, existing customers have to open the new account type and transfer their money.

What should you do?

What should you do? Wherever you have your emergency fund and/or savings accounts, look at the current rate you have for your specific account. Then find a site, such as Bankrate, where you can compare different banks and rates easily. See if your current rate is competitive and if it is not, you should consider opening a new account with competitive rates. Make sure there is FDIC Insurance and no fees.

Beware of withdrawal limits

Another thing to remember when moving your money around is that some institutions have limits on withdrawals from the account. If you have a limit imposed by the bank on how many withdrawals you are allowed, pay attention to that so that you don’t exceed that limit and have your account turned into a checking account. With so many free accounts available, you can have multiple accounts if necessary.

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Florida, Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

How I Choose a Health Plan

It’s that time of year again when employees must renew their employee benefits and health insurance is always top of mind. Your company may or may not have made any changes, but it is important to note that there are certain things that must be elected each year and are not automatic, such as Flex Spending Account (FSA) elections. FSA elections do not carry over each year and the limits usually increase slightly.

Compare plans

On to health insurance and how I look at plans for comparison. I have compared numerous plans over the years and the first thing I start with is the worst-case scenario which is comparing how much the insurance company pays vs. how much you must come out of pocket. Insurance companies and their actuaries are smart and usually when looking at the different levels of coverage offered, typically the worst-case scenarios are the same. So, if something catastrophic happens, you most likely will be coming out of pocket with same amount of dollars (premiums plus deductibles and coinsurance).

 

Transfer of risk

This makes sense because insurance is actually the transfer of risk, and we just must decide how much risk are we willing to transfer to the insurance company. If we want to transfer more of the risk, then we choose a plan with higher premiums. If we are willing to take some of that risk ourselves, then we take on a little less insurance. The goal with insurance is to NOT use it.

Now that we understand the concept of transferring the risk, look at your current situation and family set up. What is the likelihood of you using your insurance? A young, single person who doesn’t take any medications and rarely goes to the doctor probably does not want to choose the most expensive health plan. They may want to choose one with lower premiums and higher deductibles because they are not likely to use the insurance. Instead, they may want to leverage a high deductible plan with an HSA (Health Savings Account).

If you have a large family with kids playing sports or a known surgery coming up, then you may opt for the plan with the higher premiums and lower deductibles because you are likely going to utilize your insurance a lot more. You may also have access to a Flex Spending Account (FSA) where you can have some money set aside each paycheck to help with additional medical expenses throughout the year.

Evaluate your own family situation

In summary, when choosing a health plan, you should start with evaluating your own family situation, then decide how likely it is you will be utilizing your insurance. Once you understand this, then you can look at the premiums, copays and deductibles to see what makes the most sense for your family situation. Then you may be able to supplement these choices with other employee benefits that may be offered, such as HSA’s and FSA’s. If you need help reviewing your employee benefits, this is something we do here at Financial Journey. Set up a free introductory call to see how we can help!

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Florida, Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.

Investment Risk

The reason we make investments is to grow our hard-earned money. With investing, there comes risk. There are different types of risk associated with different types of investments. Generally, the more risk you take on, the higher your return should be. This volatility is the price you pay for the return you expect.

Past performance is no indication of future results, but the stock market has trended upward over time. Let’s keep the discussion simple and just discuss stocks and bonds. Generally speaking, stocks are riskier than bonds. If you look at the long-term performance of stocks and bonds, you can see that you have a much higher return with stocks. Over time, this is true. According to Morningstar’s Ibbotson SBBI chart, if you invested $1 in January of 1926, you would have the following returns for each asset class at the end of December 2021:

  • $14,086 Large Cap Stocks—10.5% compound annual return
  • $53,034 Small Cap Stocks –12.1% compound annual return
  • $177 US Long Term Government Bonds—5.5% compound annual return
  • $22 US Treasury Bills—3.3% compound annual return
  • $16 Inflation—2.9% compound annual rate

Looking at the huge difference in the above returns, you may ask why in the world would anyone invest in bonds at all? Keep in mind that these numbers reflect 96 years of data and most of us will not have that length of time to invest. So, the answer to the question has to do with volatility. Most people cannot handle seeing the volatility when it comes to their own assets because most investors intend to use their assets for some purpose—like retirement.

In summary, the more risk you take, the higher your return should be. However, you must be able to stomach the volatility AND know when the end game is for this asset so that you can start taking risk off the table beforehand (planning). So, as you are looking at the values of your accounts, keep in mind what your intentions are for these assets.

If you are looking for a trusted partner to help you navigate financial decisions, we are here to help. Schedule a meeting with us today to see how we can help you with your own financial journey.

Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.