Originally Published on Kiplinger on March 4, 2024. Employee stock ownership plans (ESOPs) empower employees by providing them with a company-funded account for retirement. While businesses steered by their employees often exhibit remarkable management, they, like any other enterprises, may occasionally face challenging periods or even extreme situations like bankruptcy. Kodak, Piggly Wiggly and most recently in 2023, Silicon Valley Bank, are examples that underline the importance of resilience and adaptability. Indeed, while ESOPs present an avenue for financial growth, employees often depend on the same company for both income and retirement savings. Recognizing this, it is important to save in other investment vehicles alongside your ESOP to ensure a secure future. This article aims to guide you through a variety of account options that will bolster your retirement planning, ensuring you remain well prepared and resilient, even in the rare instance where your company-sponsored ESOP faces financial turbulence. Save in multiple accounts to enhance retirement planning When it comes to saving for retirement, diversification is key. Your ESOP is not meant to be your only retirement savings vehicle. Having a large portion of money in an ESOP alone is restrictive and lacks diversification. By relying on just this type of plan, you may be putting too much weight on one component of your retirement plan. It’s best to have additional retirement plans in place, like a 401(k) or IRA. 401(k) plan. A 401(k) plan is a retirement savings plan sponsored by an employer that allows employees to contribute a portion of their income to an investment account to grow their retirement savings. Some companies provide an incentive to save with an employer matching contribution. 401(k) plans may offer pre-tax or after-tax Roth contributions for employees. Individual retirement account (IRA). An IRA is a type of retirement savings account that allows individuals to contribute pre-tax or after-tax Roth dollars to an investment account. Roth IRAs have significant tax benefits if certain rules are followed. Taxable brokerage account. A taxable brokerage account is an investment account that allows individuals to buy and sell securities, such as stocks, bonds, ETFs and mutual funds, with after-tax dollars. Careful investment selection and management can decrease taxes on brokerage accounts used for retirement savings. The investment accounts you and your employer contribute to during your working years should grow into a nice nest egg that you can draw from during retirement. The value of that nest egg will be dependent on your annual contributions, the mix of investments and corresponding growth in each account, plus the number of years you tuck money away. Your nest egg makeup and risk to retirement income Portfolio withdrawals are the monies taken out of your investment portfolio to generate income to meet spending needs. The value of these assets fluctuates and may not provide a predictable income stream as the assets are dependent on the performance of the underlying investments in the portfolio. With those cautions in mind, it’s still useful to estimate the income from your retirement accounts. For every million dollars you have saved at retirement, that should create about $40,000 in retirement income, according to the commonly used 4% spending rule. Your actual income will vary, but this is a rough estimate or starting point. Evaluating the value of your ESOP relative to other retirement savings amounts and portfolio holdings will show you where the benefits and risks live. Below is an example. The income projections are rule-of-thumb estimates and not guaranteed. Your income could be higher or lower depending on your retirement investment portfolio returns and whether you use a periodic withdrawal strategy or purchase an annuity. $200,000 in an ESOP could generate $8,000 in income $800,000 in a 401(k) could generate $32,000 in income In this $1 million nest egg forecast, the ESOP represents 20% of $40,000 of retirement income. In the event of a catastrophic ESOP failure, retirement income would be lowered to $32,000. Here’s another example: $3 million in an ESOP could generate $120,000 in income $1 million in a 401(k) could generate $40,000 income In this $4 million nest egg forecast, the ESOP represents 75% of $160,000 of retirement income. In the event of total ESOP failure, retirement income would be lowered to $40,000. It’s important to note that retirees can’t withdraw directly from the ESOP. The company or plan buys shares back, and ESOP participants can reinvest the proceeds into their IRA or 401(k) account. This process is called diversification and is covered in the series article How Does an Employee Stock Ownership Plan, or ESOP, Work? Secure sources of retirement income In addition to the retirement accounts discussed above, most folks will have secure income from Social Security. Secure income refers to reliable and predictable streams of income that are unlikely to be disrupted, providing financial stability and peace of mind. In addition to Social Security benefits, your family may have additional secure income sources, such as: Pension. A pension is a retirement plan in which an employer or the government makes contributions to a fund on behalf of an employee. The contributions for all participants are invested and later paid out to each individual employee as income during their retirement years. Pensions usually have a formula to determine the income benefit during retirement. Annuity. An annuity is a financial product in which an individual makes a lump-sum payment or series of payments to an insurance company in exchange for regular payments over a set period, often used for retirement income. What to do now For many ESOP retirees, Social Security provides a stable foundation of income. Depending solely on Social Security and your ESOP may not produce enough income to meet your retirement budget. Allocating 15% of your earnings toward a 401(k) today can be a prudent step toward securing your retirement income. If your budget permits, contribute to an IRA account as well. By distributing funds across various account types, you are reducing the risks linked to concentrated stock ownership and creating a safety net in case of future uncertainties, such as cuts to Social Security benefits or a downturn in your ESOP account value. Diversifying your retirement savings by building up a well-funded 401(k), annuity or IRA accounts can increase your chance of having a comfortable retirement. Additionally, having substantial balances in your savings account and 401(k) can serve as a contingency plan in case of job loss or unexpected company challenges. Consider taking the following four actions: Allocate 15% of your earnings toward your 401(k) account. Forecast the value of your ESOP and 401(k) account at retirement. Identify the sources of secure income you will have at retirement. Diversify your ESOP if it’s a significant portion of your retirement nest egg. As you move toward your golden years, it is worth contemplating how different income sources contribute to your income in retirement. Consider what portion of your retirement income will come from the ESOP and whether your sources of income are sufficiently diversified. This is especially important if your ESOP is a significant proportion of your net worth. Final thought. Are you comfortable with your progress toward retirement? Are you confident you’ll know how to handle your ESOP diversification and distribution when the time comes? Do you need help forecasting how your ESOP and 401(k) can generate retirement income? A wealth manager from the Peak Wealth Planning team can assist. Other articles in series: Part 1: Five Key Advantages to Working at an Employee-Owned Company Part 2: How Does an Employee Stock Ownership Plan, or ESOP, Work? Part 3: Five Things Employee Owners Need to Know About Their ESOP Part 4: Should my ESOP be my Only Retirement Account? Part 5: Coming soon Part 6: Coming soon - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Content originally published on the EsOp Podcast on January 23, 2024. In The EsOp Podcast Episode 265, Part 3 of 3: "ESOP Company-Provided Personal Financial Wellness Planning," Bret Keisling is joined by Peter Newman, the founder of Peak Wealth Planning, a boutique financial advisory firm specializing in high-net-worth individuals with a strong emphasis on employee ownership. In this episode, we delve into a critical aspect of ESOP (Employee Stock Ownership Plan) companies' success – the provision of personal financial wellness training to employee owners. Part 3: Fostering Financial Wellness in ESOP Companies In this final installment of our three-part series, Peter Newman shares valuable insights on why ESOP companies should prioritize personal financial wellness training for their employee owners. While ESOPs are known to provide greater retirement wealth compared to non-EO (non-employee ownership) companies, it's crucial to acknowledge that many employee owners still face retirement uncertainties and insecurities. Peter explains how just as ESOPs often emphasize open book management, integrating personal financial wellness planning into the company culture can lead to numerous benefits. These benefits include higher job security, increased job satisfaction, and improved retention rates among workers. The key to success lies in tailoring financial education to the unique needs and career stages of individual employees. Three Tiers of Education for Employee Owners Peak Wealth Planning collaborates with companies to offer three tiers of education, each customized to meet employee owners where they are in their career cycle: Foundational Financial Education: For employees early in their career or ESOP participation, this tier focuses on building a strong financial foundation, including budgeting, saving, and debt management. Mid-Career Financial Guidance: As employees progress in their careers, they receive targeted guidance on wealth accumulation, asset allocation, and retirement planning to help them achieve their financial goals. Pre-Retirement and Retirement Planning: For those approaching retirement, this tier offers specialized guidance to ensure a smooth transition from the workforce to retirement, optimizing their ESOP benefits and financial security. To hear the full interview with Peter Newman and gain further insights into the value of a Financial Wellness program for EO companies, please check out The EsOp Podcast Episode 265 on SoundCloud. Final thought. Incorporating personal financial wellness training into the fabric of ESOP companies is a powerful strategy that empowers employee owners and enhances the success of the ESOP model. As we conclude this enlightening conversation with Peter Newman, we encourage ESOP companies to explore the possibilities of financial education tailored to their employees' unique needs. By investing in the financial well-being of their employee owners, ESOP companies can create a more secure and prosperous future for all. Thank you for joining us on this journey to empower employee owners and strengthen the foundation of ESOP companies. For access to the full podcast episode and additional resources, visit The EsOp Podcast's website. Access the Full Series: Episode 263: Successful Retirement Planning Episode 264: A Deep Dive into ESOP Diversification and Distributions Episode 265: ESOP Company-Provided Personal Financial Wellness Planning - - - - - - - - - - - - - - - About the Author Bret Keisling has been involved in ESOPs and employee ownership since 2008. From 2009 to 2012, he served as the CEO of a 100% ESOP company. In 2012, he co-founded Capital Trustees, a boutique ESOP fiduciary firm, where he held the position of managing director. Since 2017, Bret has been the host of The ESOP Podcast, a twice-weekly show internationally recognized for its passionate coverage of employee ownership. Additionally, he produces The Owner to Owner Podcast for the EO Podcast Network. In 2019, Bret Keisling sold his interest in the trustee firm and established The Keisop Group. The Keisop Group provides consulting and various services to a wide range of employee-owned companies and those considering a transition to employee ownership. You can contact him at bret@keisop.com for inquiries.

Content originally published on the EsOp Podcast on January 16, 2024. In The EsOp Podcast Episode 264, Part 2 of 3, we embark on our most in-depth exploration yet into the world of Diversification and Distributions. I'm Bret Keisling, and I'm thrilled to once again be joined by Peter Newman, the founder of Peak Wealth Planning. Together, we unravel the intricacies of ESOP (Employee Stock Ownership Plan) diversification and distributions, shedding light on critical considerations that can shape the financial journey of employee owners. Part 2: Navigating ESOP Diversification and Distribution ESOP plans offer participants the opportunity to diversify their holdings by selling some of their shares back to the company at various points before retirement. In this episode, Peter Newman provides a comprehensive overview of the factors that play a role in the decision to diversify or not. These factors encompass tax implications, the holistic management of one's portfolio, and the broader financial context. Peter's expertise guides us through the complex landscape of diversification, offering valuable insights that empower employee owners to make informed choices. The decision to diversify isn't one-size-fits-all; it requires careful consideration of individual financial goals and circumstances. Planning for Post-Employment Life As employee owners prepare to use their ESOP distributions for a successful retirement, Peter shares essential considerations for post-employment life. It's not just about accumulating wealth but also about strategically utilizing those assets to create a fulfilling retirement lifestyle. To hear the full interview with Peter Newman and gain further insights into successful retirement planning, please check out The EsOp Podcast Episode 264 on SoundCloud. Final thought. Part 2 of our deep dive into ESOP diversification and distributions equips employee owners with the knowledge and insights needed to navigate this critical aspect of their ESOP journey. Peter Newman's expertise illuminates the path forward, ensuring that individuals make well-informed decisions that align with their unique financial goals and aspirations. For access to the full podcast episode and additional resources, visit The EsOp Podcast's website. Stay tuned for the final installment of this enlightening series as we delve deeper into the world of ESOPs and financial wellness. Thank you for joining us on this educational journey! - - - - - - - - - - - - - - - About the Author Bret Keisling has been involved in ESOPs and employee ownership since 2008. From 2009 to 2012, he served as the CEO of a 100% ESOP company. In 2012, he co-founded Capital Trustees, a boutique ESOP fiduciary firm, where he held the position of managing director. Since 2017, Bret has been the host of The ESOP Podcast, a twice-weekly show internationally recognized for its passionate coverage of employee ownership. Additionally, he produces The Owner to Owner Podcast for the EO Podcast Network. In 2019, Bret Keisling sold his interest in the trustee firm and established The Keisop Group. The Keisop Group provides consulting and various services to a wide range of employee-owned companies and those considering a transition to employee ownership. You can contact him at bret@keisop.com for inquiries.

Content originally published on the EsOp Podcast on January 9, 2024. In The EsOp Podcast Episode 263, Part 1 of 3: "Successful Retirement Planning," Bret Keisling is joined by Peter Newman, the founder of Peak Wealth Planning, a boutique financial advisory firm specializing in high-net-worth individuals with a strong emphasis on employee ownership. Together, they explore the key considerations that go into planning for a successful retirement. Part 1 covers the shifting perspectives for a secure retirement. In this opening episode, Peter Newman delves into the essential factors that individuals should take into account as they embark on their retirement journey. One striking point he makes is that many employee owners may retire with a nest egg that generates more income than their previous salary. It's a remarkable feat, but it also calls for a shift in mindset. Peter emphasizes the importance of transitioning from a focus on merely saving for retirement to designing and funding a retirement lifestyle. He underscores how the financial decisions made and implemented during one's career can have a profound impact on the quality of life in retirement. Part 1 provides a valuable introduction to the broader discussion of retirement planning, setting the stage for deeper exploration in subsequent episodes. To hear the full interview with Peter Newman and gain further insights into successful retirement planning, please check out The EsOp Podcast Episode 263 on SoundCloud. Final thought. Planning for retirement is a complex and multi-faceted journey, and Peter Newman's expertise, as shared on The EsOp Podcast, offers invaluable guidance. As we look forward to Parts 2 and 3 of this enlightening conversation, remember that achieving a successful retirement requires more than just amassing wealth; it involves crafting a tailored strategy that aligns with your unique goals and aspirations. For access to the full podcast episode and additional resources, visit The EsOp Podcast's website. Stay tuned for more insights on retirement planning in the upcoming episodes! - - - - - - - - - - - - - - - About the Author Bret Keisling has been involved in ESOPs and employee ownership since 2008. From 2009 to 2012, he served as the CEO of a 100% ESOP company. In 2012, he co-founded Capital Trustees, a boutique ESOP fiduciary firm, where he held the position of managing director. Since 2017, Bret has been the host of The ESOP Podcast, a twice-weekly show internationally recognized for its passionate coverage of employee ownership. Additionally, he produces The Owner to Owner Podcast for the EO Podcast Network. In 2019, Bret Keisling sold his interest in the trustee firm and established The Keisop Group. The Keisop Group provides consulting and various services to a wide range of employee-owned companies and those considering a transition to employee ownership. You can contact him at bret@keisop.com for inquiries.

Managing your finances in a tax-efficient manner requires both foresight and planning. With the IRS's recent announcement of new income tax brackets, standard deduction amounts, and retirement contribution limits for the 2024 tax year, the start of the year is an ideal time to strategize. Even though these tax changes won't be due immediately, early planning is beneficial and can provide significant advantages. Significant updates have been made to over 60 provisions. To help you navigate these changes, here are some of the most critical updates to tax brackets and retirement contribution limits. Tax Bracket Inflation Adjustment Overall, tax brackets have been adjusted upwards by 5.4% for 2024. The primary purpose of this adjustment is to account for inflation, which is based on the Consumer Price Index. The government’s goal is to keep income taxes in sync with consumer buying power. Standard Deduction For the 2024 tax year, the standard deduction has risen to $29,200 for married couples filing jointly, marking an increase of $1,500 from the previous year. Single filers will see their standard deduction increase by $750, bringing it to $14,600. Individual Retirement Accounts (IRAs) In 2024, the contribution limits for Individual Retirement Accounts (IRAs) have increased by $500, raising the maximum contribution to $7,000. For individuals over the age of 50, the catch-up contribution limit remains unchanged at $1,000. This means those over 50 can contribute up to a total of $8,000. Roth IRAs For Roth IRA contributions in 2024, the income phase-out range has been adjusted. For single filers and heads of household, the range is now $146,000 to $161,000, reflecting an $8,000 increase. Married couples filing jointly will have a phase-out range from $230,000 to $240,000, up by $12,000. However, for married individuals filing separately, the phase-out range remains unchanged at $0 to $10,000. Workplace Retirement Accounts Participants in workplace retirement accounts such as 401(k), 403(b), and 457 plans will experience a contribution limit increase of $500 in 2024. This adjustment raises the maximum contribution amount to $23,000. Additionally, for individuals aged 50 and older, the catch-up contribution limit continues to be $7,500, allowing them a total contribution potential of $30,500. Gift Tax For 2024, the annual gift tax exclusion has been raised to $18,000, up by $1,000 from the previous year. It's important to keep in mind that this exclusion is per recipient, so if you want to give gifts to multiple individuals, you can do so up to the $18,000 limit for each person without having to pay any gift tax on those transactions. Please note that these updates are provided for informational purposes only. Before making any decisions based on the new 2024 tax levels, we strongly recommend consulting with a tax professional. Do you need help tax planning in 2024? Are you comfortable with your progress towards retirement? Do you have a tax strategy in place? If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Originally published on Kiplinger.com on November 7, 2023. For participants, an ESOP, or Employee Stock Ownership Plan, can be an important component of their retirement income. Now that you’ve read about the benefits of company paid contributions, learned the advantages of working for an employee-owned company, and know how ESOPs work, dive into five essential questions employees should learn about their retirement benefits. 1. How much does the company contribute to my ESOP annually? Some employee-owned companies attempt to maintain contributions as a steady percentage of an employee’s salary. For example, one company might opt for 5% of a salary of $80,000, which would equal a $4,000 ESOP contribution for the year. For other companies, contributions vary each year depending on profitability. This makes it harder to forecast your future balances and may indicate a need to save more in other retirement accounts. 2. How do I know my ESOP value? While employed, a worker doesn’t directly own shares of the company. The shares are kept in a retirement account for the employee’s benefit and disbursed once a vested employee is terminated, retired, disabled or otherwise leaves the company. Employees receive a statement each year showing the number of shares and value. For example, an employee’s statement might show they have 2,100 shares with a per-share value of $85, resulting in an ESOP account balance of $178,500. 3. How has the share price changed across the past 10 years? If the share price has been increasing, chances are the company is doing well financially and your wealth may continue to grow from increases in share value. Knowing the average percentage change in share price can be used to forecast the value of your ESOP account for retirement. If you are over age 55 with a company whose shares have increased dramatically, you may want to consider diversifying a portion of your ESOP when eligible to take some risk off the table. Even companies doing well can fall on hard times. Some current and formerly employee-owned companies that have experienced significant share price increases, and created many millionaires, include Clif Bar, Amsted Industries, Inc., Murray Company Mechanical Contractors, New Belgium Brewing, and Springfield Remanufacturing Corp. to name a few. Keep in mind, most employee owners work a couple of decades to experience this type of wealth and there is no guarantee you will become a millionaire through employee ownership. So, be sure to contribute to your 401(k) and other retirement accounts. 4. When will I be paid for my ESOP? Employee owners with 10 or more years of service are eligible to get paid for their stock at age 55 (up to 25%) and age 60 (up to 50%) with the remainder in substantially equal payments over a five-year period at normal retirement age (usually 65). The timing above is common, but keep in mind that your company’s plan may have different rules. Employees receive a letter explaining how much they can withdraw and a form to indicate whether to receive a check or roll over their ESOP funds to an IRA or their 401(k). Employees should work with their financial adviser or CPA to understand the tax consequences of receiving a check vs. rolling over the funds to another tax-deferred account. And, keep in mind there could be a gap of weeks to months between requesting a payment and receiving the funds. Check with your ESOP representative on the timing. 5. What is the company match for the 401(k) plan? The majority (94%) of employee-owned companies also offer 401(k) plans. However, some will match an employee’s contribution, while others will not. When offered, this match is usually up to a percentage of salary. As an example, if an employee making $80,000 a year contributes 10%, or $8,000, to their 401(k), the company might match that amount up to 5%, or $4,000, for a total 401(k) contribution of $12,000. If your company does not offer a match, you should consider contributing at least 15% of your salary to the 401(k) each year. Stay informed about your ESOP Be an active employee-owner by staying up to date on your ESOP's performance. You can do this by reviewing your statements and participating in company meetings. Also, keep an eye on the stock price and monitor any changes in the company's financial situation so you can make informed decisions regarding your diversification options. Be sure to consider your 401(k) and ESOP account balances when forecasting your retirement income. Final thought. Are you comfortable with your progress toward retirement? Are you confident you’ll know how to handle your ESOP diversification and distribution when the time comes? Do you need help forecasting how your ESOP and 401(k) can generate retirement income? A wealth manager from the Peak Wealth Planning team can assist. About this series You won’t want to miss the next article in our series, Should My ESOP be My Only Retirement Account. This will cover how to use your ESOP, 401k, IRA, and taxable brokerage account together with social security to create a secure retirement income plan. This will be published in March 2024. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Originally published on Kiplinger.com on October 11, 2023. Employee Stock Ownership Plans (ESOPs) offer a unique opportunity for employees to participate in the growth and success of the companies they work for. These plans provide employees with a means of accumulating wealth and building a retirement nest egg. What is an ESOP? The ESOP is a tax-deferred retirement plan. Through your participation in the ESOP retirement plan, you have an ownership interest in shares of company stock that are credited to your ESOP account balance. These shares are provided each year at no cost to you. The account will grow if your company achieves good financial results. You will be taxed when you cash out the funds in your ESOP account. As an employee owner, you are part of a team whose actions and decisions impact the company’s financial results and your retirement account balance. The culture of employee ownership is not only about increasing the value of the company, but relating to peers, customers, suppliers and other companies in your industry, as well as the community in which you work. The information provided below may be different from your company’s ESOP, be sure to check with your representative. Company Contributions Your ESOP retirement account is company-funded, not employee-contributed like a 401(k). Every year, the company’s board of directors decides whether and how much to contribute to the plan. Some ESOP companies aim for a steady benefit rate of 5% (or more) of eligible employee salary, while others vary year to year and may be less predictable. As an example, if your annual salary is $100,000 and the benefit level this year is 5%, your ESOP account balance would be credited with company stock shares worth $5,000. Stock Value and Your Retirement Account For ESOPs that are not publicly traded, the value of ESOP stock is usually determined once a year after the end of the company’s fiscal year. The ESOP trustee retains an independent valuation agent to determine the stock value. The valuation agent[1] reviews the company financial statements and business forecast of the company. If your company is affected by poor economic conditions or reduced customer demand, the value of company stock and your ESOP retirement account balance could fall. If customer demand increases and the company continues to be profitable, the value of company stock and your retirement account could rise. Stock Value Statements and Distribution Windows Once the stock value is determined, allocations of shares to your ESOP retirement account are completed. Most ESOP companies allocate shares and apply your vesting credits once a year. After your new balance is determined, you will receive an annual ESOP account statement. Your statement will show the beginning and ending balance of shares, new contributions allocated to your account, the new share price and the vested percentage of your account. As an example, let’s consider a 100% vested (more on vesting below) eligible participant with compensation of $102,000 and a 5% benefit level. At the beginning of the year, the employee’s account has 1,500 shares at $195 per share value, equaling $292,500 in ESOP value. Twenty-five new shares are credited to the employee’s ESOP account for the year, representing $5,125, or 5%, of the $102,000 annual salary. As of the end of the year, the employee has 1,525 shares times $205 per share equaling a new ESOP value of $312,625. If you are eligible to make a retirement distribution election or diversification request, you will be notified shortly after you receive your statement. How Vesting Works Vesting refers to the percentage of your account you are entitled to when you leave the company or begin taking distributions from your ESOP account. By law, vesting follows one of two schedules. Cliff vesting. No vesting in the first years of employment, followed by 100% vesting after not more than three years of service (usually 1,000 hours or more of work in a plan year). Graded vesting. Twenty percent vesting after the second year of service, with 20% more each year until 100% vesting occurs after the sixth year of service. Some companies have more generous vesting schedules than the ones outlined above. If you reach normal retirement age (65), die or become permanently disabled, or your plan is terminated, you become 100% vested immediately. The unvested value of your account balance is forfeited if you leave the company before you are 100% vested. Consult your ESOP representative to confirm your vesting schedule. Diversification Diversification reduces concentration risk in a single company stock. ESOP participants are provided with an option beginning at age 55 with 10 years of plan participation to diversify 25% of cumulative vested company shares. Upon attaining age 60, participants may elect to diversify up to 50% of cumulative vested shares. Diversification is the process of selling shares in your ESOP account and reinvesting the proceeds, also known as a rollover, in another tax-deferred 401(k) or IRA investment account. The 401(k) or IRA may offer a choice of stock, bond, ETF and mutual fund investments. An alternative to a rollover is to cash the check. Spending the cash reduces your retirement savings and subjects the payment to income taxes and IRS penalties if they apply. Diversification is the process of selling shares in your ESOP account and reinvesting the proceeds in another tax deferred 401k or IRA investment account. Distributions When You Leave the Company If you retire or terminate employment, you may be eligible to take distributions from your ESOP account vested balance. If the balance is $5,000 or less, it will often be paid in a lump sum. If your account balance is more than $5,000, it may be paid in a series of five substantially equal annual installments instead of a lump sum. If you depart prior to retirement age, you may need to wait to make a distribution election until the fifth anniversary of your termination date. Specific amounts and rules may vary by company. Yours may have a more generous payment schedule and may not have a waiting period. Some companies allow employees to participate in share price gains or losses while being paid installments, others freeze your share price when you terminate employment or retire. Be sure to check with your ESOP representative or review your plan document. If you die or become permanently disabled, you may be eligible for an accelerated distribution schedule. Retirement distributions can be requested when you retire (typically age 65). Some companies allow retirement as early as age 55 with 30 years of service. Retirement installments are generally paid in a series of five substantially equal installments. You must begin taking from your ESOP account balance by the time you reach age 73. Your company’s retirement schedule may vary from the one above. Form of Payment and Taxes As part of your distribution request, you can designate the form of payment. If you make a direct rollover to another retirement plan (a 401(k) or IRA), you continue to invest for retirement savings and defer paying taxes. If you do not elect a rollover and receive the payment by check, you have 60 days to deposit the money into another qualified retirement account to defer paying taxes. If instead of rolling the money to another retirement plan, you elect a direct payment, then you will be responsible for paying income taxes and an wearly-withdrawal penalty (if any applies under age 59½). Take Action The benefits and responsibility of being an employee-owner translate to taking responsibility for your own financial well-being. Below are steps you can take: Keep track of your ESOP and other retirement account balances. Check your financial plan to ensure you are on pace to meet your retirement goals. Consider the pros and cons of diversifying your company stock when eligible. Understand the tax implications of your choices. Forecast your retirement expenses and income. Our next article in this series will cover important facts employee owners should be aware of, including; how much your company contributes to your ESOP account and 401(k), how your company stock is performing, and when you are eligible to spend your ESOP cash. Final Thought Are you comfortable with your progress toward retirement? Are you confident you’ll know how to handle your ESOP diversification and distribution when the time comes? Do you need help forecasting how your ESOP and 401(k) can generate retirement income? A wealth manager from the Peak Wealth Planning team can assist. About this Series This is part two of a six-part series in which Peter Newman, CFA, of Peak Wealth Planning, explains the benefits of employee ownership for the U.S. workforce. There are more than 6,500 Employee Stock Ownership Plans, or ESOPs, in the U.S. covering almost 14 million employees. Part one is Five Key Advantages to Working at an Employee-Owned Company Part three, Five Things Employee-Owners Need to Know About Their ESOP, will arrive in November. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Originally published on Kiplinger.com on Sept 19, 2023. 2021 was the year of the ”Great Resignation”, a phenomenon where a significant number of employees voluntarily left their jobs in search of better work conditions and increased job satisfaction. If you are dissatisfied with your job and want to explore other opportunities, consider looking into an employee-owned company. Companies offering employee ownership grant their workforce a direct interest in the organization through an Employee Stock Ownership Plan (ESOP). Approximately 6,500 ESOPs exist in the U.S., contributing to five key advantages. 1. Employee-owned companies with ESOP plans boost employee engagement through wealth distribution. Employee engagement is crucial for a company because it fosters productivity, innovation, and retention, ultimately driving better business performance and growth. ESOPs make their employees partial owners of the company. They share the rewards and risks that come with that ownership. If the company stock increases, so does the net worth of every employee. As a result, employee owners are more invested in helping the business succeed and more likely to tackle problems they see within the organization. 2. Employee-owned companies with ESOP plans offer higher job satisfaction. Job satisfaction is important for a company as it boosts employee morale, enhances productivity, and reduces turnover, leading to a more efficient and stable workforce. Employee-owned companies tend to offer higher job satisfaction because employees feel a stronger sense of motivation when they have a voice in shaping company success. According to recent research by the National Center for Employee Ownership, employee-owners are more likely to have higher wages, receive larger retirement benefits and are less likely to lose their job during a downturn than their peers at non-ESOP companies. 3. Employee-owned companies with ESOP plans have greater job security. Job security is important because it fosters a sense of stability, confidence and enables employees to focus on their work, leading to increased productivity, well-being and overall satisfaction in personal and professional lives. Employee-owned companies are more likely to prioritize long-term stability over short-term profits. This can result in greater job security for employees, as these companies are less likely to engage in mass layoffs or drastic cost-cutting measures that negatively impact employees. There is evidence that companies owned by employees grow faster due to the alignment of interests in wealth building for ESOP participants with employer goals. The company’s growth increases its overall enterprise value as well as the shares of stock in each participant’s retirement account. 4. ESOPs keep jobs local. Keeping jobs in the local community stimulates the economy, fosters community development and reduces unemployment. Many selling owners treat their employees like a family. Through employee ownership, ESOPs invest in their communities and reduce the likelihood of outsourcing or relocation. This can bring long-term stability and strengthen the local community. ESOPs allow private company owners to sell all, or a portion, of their company to the employees. This creates a market for the company’s stock without having to look months or years to find the right buyer. ESOPs enable owners to retain and reward employees who helped make the company a success. These owners and employees often live and work in the communities where the company operates. Selling to employees offers the possibility of keeping jobs local instead of selling to a private equity buyer that may move the operations to another city for economies of scale. By selling to employees, a retiring owner can ensure that their customers and employees will continue to benefit one another. 5. ESOPs build personal wealth. The objective for job seekers is to secure a role that aligns with their abilities and meets their desired financial compensation, ensuring a fulfilling and satisfactory employment experience. Besides offering competitive salaries and comprehensive benefits, ESOP companies provide employees with unique wealth-building opportunities in the Employee Stock Ownership Plan (ESOP). An ESOP is a company funded retirement plan, which typically requires no out-of-pocket contributions from employees. These plans have been cited as a major contributor to narrowing the wealth inequality gap. For many people, funding a contribution to a 401(k) each paycheck is a struggle. For employees like these, an ESOP might be the only retirement plan in which they can afford to participate. In fact, among a surveyed group of low- to moderate-income employee owners, those in the age bracket of 60 to 64 had 10 times greater wealth than the average American in the same age group. The average value held by employee owners in company ESOPs is over $129,000. Planning your next career move. If you are intrigued by the prospect of working for an employee- owned company, consider the following resources to get you started on your next career move. Learn More About the Top 100 ESOP Companies Search ESOP Companies In Your State Find Jobs with Employee-Owned Companies If you do consider an employee-owned company for your next position, remember to look at the total benefit package. This includes salary, bonus, healthcare, dental and vision benefits, 401(k), ESOP and other benefits, such as time off, education reimbursement and gym or wellness benefits. While the ESOP can be a wonderful benefit, it should not be your sole criteria. If you already have the good fortune of working for an employee-owned company, future articles in this series will cover retirement planning and details ESOP participants should know about their benefits. Our next article will cover the mechanics of how an ESOP benefits its employees, including: vesting, stock valuation, getting paid with distributions, and tax treatment. Final Thought Are you comfortable with your progress toward retirement? Are you confident you’ll know how to handle your ESOP diversification and distribution when the time comes? Do you need help forecasting how your ESOP and 401(k) can generate retirement income? A wealth manager from the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Have you ever taken a close look at paper money? Each U.S. bill has the words "Federal Reserve Note" imprinted across the top. But many individuals may not know why the bill is issued by the Federal Reserve and what role the Federal Reserve plays in the economy. Here's an inside look. The Federal Reserve, often referred to as "the Fed," is the country's central bank. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Prior to its creation, the U.S. economy was plagued by frequent episodes of panic, bank failures, and limited credit. The Fed has four main roles in the U.S. economy. Federal Reserve's 1st Goal: Economy Watch In addition to its other duties, the Fed has been given three mandates with the economy: maintaining maximum employment, maintaining stable price levels, and maintaining moderate, long-term interest rates. It's important to remember that the Fed cannot directly control employment, inflation, or long-term interest rates. Rather, it uses a number of tools at its disposal to influence the availability and cost of money and credit. This, in turn, influences the willingness of consumers and businesses to spend money on goods and services. For example, if the Fed maneuvers short-term interest rates lower, borrowing money becomes less expensive, and people may be motivated to spend. Consumer spending may stimulate economic growth, which may cause companies to produce more products and potentially increase employment. When short-term rates are low, the Fed closely monitors economic activity to watch for signs of rising prices. On the other hand, if the Fed pushes short-term rates higher, borrowing money becomes more expensive, and people may be less motivated to spend. This may, in turn, slow economic growth and cause companies to decrease employment. When short-term rates are high, the Fed must watch for signs of a decline in overall price levels. Federal Reserve's 2nd Goal: Supervise and Regulate The Fed establishes and enforces the regulations that banks, savings and loans, and credit unions must follow. It works with other federal and state agencies to ensure these financial institutions are financially sound and consumers are receiving fair and equitable treatment. When an organization is found to have problems, the Fed uses its authority to have the organization correct the problems. Federal Reserve's 3rd Goal: Financial System The Fed maintains the stability of the financial system by providing payment services. In times of financial strain, the Fed is authorized to step in as a lender of last resort, providing liquidity to an individual bank or the entire banking system. For example, the Fed may step in and offer to buy the government bonds owned by a particular bank. By doing so, the Fed provides the bank with money that it can use for its own purposes. Federal Reserve's 4th Goal: Banker for Banks, U.S. Government The Fed provides financial services to banks and other depository institutions as well as to the U.S. government directly. For banks, savings and loans, and credit unions, it maintains accounts and provides various payment services, including collecting checks, electronically transferring funds, distributing new money, and receiving and destroying old, worn-out money. For the federal government, the Fed pays Treasury checks; processes electronic payments; and issues, transfers, and redeems U.S. government securities. Each day, the Fed is behind the scenes supporting the economy and providing services to the U.S. financial system. And while the Fed's duties are many and varied, its focus is to maintain confidence in banking institutions. A Decentralized Central Bank The Federal Reserve System consists of 12 independent banks that operate under the supervision of a federally appointed Board of Governors in Washington, D.C. Each of these banks works within a specific district, as shown. Federal Reserve District boundaries are based on economic considerations; the Districts operate independently but under the supervision of the Federal Reserve Board of Governors. Final thought. Interest rate hikes or declines can significantly affect consumer finances. When the Fed alters rates, the effect spreads throughout the entire economy, impacting where individuals invest money to how they spend and borrow money. By understanding these connections you can help be more prepared for future interest rate changes. Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Extended care coverage, also known as long-term care insurance, is a type of insurance designed to cover the costs of long-term care services. These types of services include things like nursing home care, home health care, and assisted living. It is intended to help individuals cover the expenses associated with extended care that may not be covered by traditional health insurance or Medicare. Experts recommend individuals begin planning for long-term care as early as in their 40s. Consider it as one step in your financial planning and estate planning. Here's a list of questions to ask that may help you better understand the costs and benefits of long-term care policies. What types of facilities are typically covered by extended care insurance? Extended care policies can cover nursing home care, home health care, respite care, hospice care, personal care in your home, assisted living facilities, adult daycare centers, and other community facilities. Many policies cover some combination of these. Ask what facilities are included when you're considering a policy. What is the daily, weekly, or monthly benefit amount? Policies normally pay benefits by the day, week, or month. You may want to evaluate how (and how much) eldercare facilities in your area charge for their services before committing to a policy. What is the maximum benefit amount of extended care insurance? Many policies limit the total benefit they'll pay over the life of the contract. Some state this limit in years, others in total dollar amount. Be sure to address this question. What is the elimination period of the extended care insurance? Extended care policy benefits don't necessarily start when you enter a nursing home or assisted living facility. Most policies have an elimination period – a timeframe during which the insured is wholly responsible for the cost of care. In many policies, elimination periods will be either 30, 60, or 90 days after nursing home entry or disability. Does the extended care policy offer inflation protection? Adding inflation protection to a policy may increase its cost, but it could be very important as the price of extended care may increase significantly over time. When are long-term care benefits triggered? Insurers set some criteria for this. Commonly, extended care policies pay out benefits when the insured person cannot perform 2 to 3 out of six activities of daily living (ADLs) without assistance. The six activities, cited by most insurance companies, include bathing, caring for incontinence, dressing, eating, toileting, and transferring. A medical evaluation of Alzheimer's disease or other forms of dementia may also make the insured eligible for benefits. Is the extended care policy tax qualified? In such a case, the policyholder may be eligible for a federal or state tax break. Under federal law and some state laws, premiums paid on a tax-qualified extended care policy are considered tax-deductible medical expenses once certain thresholds are met. The older you are, the more you may be able to deduct under federal law. You must itemize deductions to qualify for such a tax break, of course. How strong is the insurance company? There are several firms that analyze the financial strength of insurance companies. Their ratings can give you some perspective. There are many factors to consider when reviewing extended care policies. The best policy for you may depend on a variety of factors, including your own unique circumstances and financial goals. Your financial advisor can help you with selecting the right coverage. Final thought. Extended care coverage is an important consideration for individuals who want to cover the costs associated with long-term care services as part of their retirement planning. By asking the right questions and doing research, individuals can find a policy that meets their long-term care needs and provides financial protection, particularly if you are planning to leave a legacy. Do you need help identifying risks that might impact your family? Have you evaluated long-term care policies and how you will cover this cost? Are you certain your risks have been adequately transferred with insurance? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

I recently enjoyed a coffee with a close friend, Mary. She expressed immense pride in her son, Michael, who is set to graduate in May and begin his career at Amsted Industries in Chicago. While Mary went over her plans – from assisting Michael with settling into a city apartment to converting his room into a guest room – she had a sudden realization. After two decades of parenting, she and her husband were on the brink of having the house to themselves again. With graduation just around the corner I know many parents may be finding themselves in a similar situation. This means you’ll be reevaluating financial priorities as your next major milestone – retirement – moves into the foreseeable future. You are probably at the height of your earning potential and fast approaching the peak of wealth accumulation. During this final stretch to retirement — and throughout your retirement period — wealth protection and insurance review is critical. Protecting your assets might not solely be a function of your investment strategy, but could include a comprehensive insurance approach to safeguard against an array of financial risks. Review the following 5 insurances today. Homeowner’s Insurance Even though your mortgage may be paid off — and thus released of the lender’s requirement to have homeowners insurance — it remains important to consider coverage against property loss and exposure to personal liability. The cost of replacing your home and the belongings contained therein may have grown over the years, making now the ideal time to review your policy coverage. Also, consider obtaining an umbrella policy, which is specifically designed to safeguard against financial risks associated with personal liability. Health Insurance Health care costs often represent one of the most significant expenses during retirement, as medical needs tend to increase with age. Planning for these costs is essential to ensure a comfortable and stress-free retirement. If you plan to retire prior to age 65 when Medicare coverage is set to begin, you will need coverage to bridge the gap between when you retire and when you turn 65. If your spouse continues to work, you may want to consider getting yourself added to his or her plan, though you may need to wait until the employer’s annual enrollment period. Alternatively, you also may purchase coverage through a private insurer or through HealthCare.gov (or your state’s program, if available). Drop Your Disability Insurance Disability insurance replaces your income if you are medically certified as being unable to work or can’t perform your job duties with a corresponding income reduction. If you are no longer working and in retirement, you probably no longer need this coverage. When you stop working, you should consider canceling your disability insurance as the need for it has expired. Life Insurance The financial obligations that drove your life insurance needs while you were raising a family may have evaporated. However, you may find new needs arising from estate issues, such as liquidity, creating a legacy, etc. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. Extended Care For some, extended care insurance is a priority in this stage of life. With the expense of children in the rearview mirror, you can now turn your focus to buying protection against potentially the most significant health-care expense you are likely to face in retirement. Designed to pay for chronic, long-lasting illnesses and regular care, whether in-home or at a nursing home, extended care insurance coverage is critically important since most of these costs are not covered by Medicare. Final thought. As you shift your focus towards wealth protection, a comprehensive insurance strategy becomes more important. Navigating the complexities of insurance is essential for safeguarding your financial well-being, ensuring access to necessary healthcare, and fulfilling your estate and legacy goals. By evaluating your insurance needs and adjusting your coverage accordingly, you can secure peace of mind and financial stability entering your retirement years. Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Have you or a loved one recently had a baby or adopted a child? A growing family, by definition, means growing financial obligations – both present and in the future. Raising children can increase your insurance needs and heightens the urgency for being prepared. Each time you experience a major change in your family – from marriage to a new child, purchasing a new home, changing jobs, or your child starting to drive – reevaluate your insurance policies to make sure you are adequately protected. Life Insurance With children, the amount of future financial obligations increases. The cost of raising children and funding their college education can be expensive. Should one of the spouses die, the loss of income might severely limit the future quality of life for your surviving children and spouse. Not only does death eliminate the future income of one spouse permanently, but the future earning power of the surviving spouse might be diminished as single parenthood may necessitate fewer working hours and turning down promotions. The amount of life insurance coverage needed to fund this potential financial loss is predicated on, among other factors, lifestyle, debts, age and number of children, and anticipated future college expenses. Some couples decide to have one parent stay at home to care for the children full time. The economic value of the stay-at-home parent is frequently overlooked. Should the stay-at-home parent die, the surviving parent would likely need to pay for a range of household and child-care services and potentially suffer the loss of future income due to the demands of single parenthood. Auto Insurance When a child becomes a new driver, one choice is to add the teenager to the parents’ policy. You may want to discuss with your auto insurer ways to reduce the additional premium that accompanies a new driver. You may want to consider an umbrella liability policy as well. This policy covers you after underlying auto limits have been exhausted. Home Insurance You should review your homeowners insurance when you have new household members or you purchase a larger home to accommodate your growing family. A growing family generally accumulates increasing amounts of personal belongings. Think of each child’s toys, clothes, electronic equipment, etc. Moreover, household income tends to rise during this time, which means that jewelry, art, and other valuables may be among your growing personal assets. With growing assets, you may want to increase liability coverage, or if you do not have an umbrella policy, consider adding it now. Liability insurance is designed to help protect against the financial risk of personal liability. For example, if a house guest is badly hurt on the trampoline in your backyard. Health Insurance With your first child, be sure to change your health care coverage to a family plan. If you and your spouse have retained separate plans, you may want to evaluate which plan has a better cost-benefit profile. Think about whether now is the appropriate time to consolidate coverage into one plan. Disability Insurance If your family is likely to suffer economically because of the loss of one spouse’s income, then disability insurance serves an important role in replacing income that may allow you to meet living expenses without depleting savings. If you already have disability insurance, consider increasing the income replacement benefit since your income and standard of living may now be higher than when you bought the policy. Have a conversation with your financial advisor and your insurance agent whenever you have life changing events that affect your household. Have a conversation with your financial advisor and your insurance agent whenever you have life changing events that affect your household. These changes could include a new child, a larger home, a higher income, one parent deciding to stay home, or a new driver. Final thought. Do you need help identifying risks that might impact your family? Have you evaluated and quantified the risks to your financial well being? Are you certain your risks have been adequately transferred with insurance? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. You may also be interested in reading: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

A close friend of mine, ‘Jim’, was recently diagnosed with Corticobasal Syndrome – a type of Frontotemporal Degeneration (FTD). Jim is 53 years old and had been a successful engineer before he began showing symptoms ranging from burnout and fatigue to the inability to complete tasks. It had been the subtle signs of dementia that forced him to stop working. If FTD sounds familiar to you, it may be because it is the same condition that Bruce Willis was recently diagnosed with. With FTD, Jim will be facing a decline in motor functions and potentially the inability to walk, trouble with his speech and language, and difficulty thinking. It is life events like this that make it important to prepare for the unexpected. Fortunately, Jim’s company had employer-sponsored long-term disability insurance. It took 6 months for the policy to kick in, but Jim will now receive 60% of his previous income until age 67. This will cover his basic living expenses, easing his financial worries and preserving his nest egg for bucket list trips and legacy for his children. While disability insurance is a critical component of any financial planning strategy, it remains an underutilized and misunderstood product. Disability insurance replaces your income if you are medically certified as being unable to work or can’t perform your job duties with a corresponding income reduction. This could happen as a result of cognitive degeneration or other extreme illness or accident. What is disability insurance? Disability insurance protects against loss of income due to disability. It provides a portion of your income, usually up to 50 or 66 percent, if you become sick or injured and are unable to work. Disability payments are usually tax free as long as the premiums were paid with after tax dollars. This type of insurance may have significant benefits since a disability can be a two-fold financial problem. Those who become disabled often find they are unable to work and are also saddled with unexpected medical expenses such as high deductible payments. What qualifies as a disability? A disability is commonly defined as an inability to perform the duties of one’s job coupled with a loss of income of at least 20% compared to pre-disability earnings. And while insurance policies and the Social Security Act may define disability in different ways, many companies require that these criteria be met in order for an individual to qualify for benefits. How long should disability insurance last? The length of time disability insurance benefits are paid will be based on the type of policy you purchase. For example, a short-term disability policy will pay benefits for 1 year while a long-term disability policy may pay for a set number of years or to a certain age. Many individuals opt for coverage of wages until retirement age 65 or 70. How does disability insurance work? Even if your work has coverage, it's likely only for half your income. By protecting yourself with personal disability insurance, you can create the right protection for your lifestyle. Some personal disability policies can increase coverage to 66% of wages. Long-term disability insurance reduces the risk of financial ruin if you become disabled. Without a policy in place, that period without income could make it hard to afford everyday necessities, support your family, or keep up with retirement goals. Long-term disability policies may have a waiting period before benefits are paid. The ideal situation is to have a short-term disability insurance plan with a benefit period that matches the waiting period of your long-term insurance plan. That way, there’s no lapse in income – when your short-term benefits run out, the long-term benefits kick in. If you become disabled, personal disability insurance can be structured to pay a benefit weekly or monthly. And benefits may not be taxable if you have paid the premiums with after-tax dollars. When you purchase a policy, you may be able to tailor coverage to suit your needs. For example, you might be able to adjust benefits or elimination periods. You might opt for comprehensive protection or decide to define coverage more specifically. Some policies also offer partial disability coverage, cost-of-living adjustments, residual benefits, survivor benefits, and pension supplements. Since coverage is designed to replace income, many people choose to purchase protection only during their working years. What about Social Security disability insurance? Social Security disability insurance (SSDI) is a federal program that provides payouts to qualifying disabled U.S. workers and families. This is a benefit that comes with paying Social Security taxes. Unfortunately, SSDI typically provides only a modest supplemental income, and qualifying can be difficult. If you don't want to rely solely on Uncle Sam in the event of an unforeseen accident or illness, disability insurance may be a sound way to protect your income and savings. Think disability won’t happen to you? Think again. The Social Security Administration (SSA) reports that one in four of today’s 20-year-olds will become disabled for 90 days or more before they turn 67 years old—and that a massive 65% of non-government workers have no disability insurance. What About Workers Compensation? Many people think of workers compensation as a disability safety net. But workers compensation pays benefits only to individuals who become disabled while at work. If your disability is the result of a car accident or other off-the-job activity, you may not qualify for workers compensation. Even with workers compensation, each state makes its own rules about payment and benefits, so coverage may vary considerably. You might consider finding out what your state offers and plan to supplement coverage on your own, if necessary, especially if you have a high-risk profession. Likewise, if you have an active lifestyle that puts you at a higher risk of disability, considering an extra layer of protection may be a sound financial decision. What questions should you discuss with your trusted financial professional about disability insurance? When you discuss disability plans with your financial professional, be prepared to share as much as you can about your financial situation and goals, so your disability policy may be tailored to your needs. Ask a lot of questions – and make sure you get clear answers: How much coverage can I qualify for? How does the definition of disability work? Is it for my current-occupation or any-occupation? What conditions are covered? How long will benefits be payable, and when do they begin? Could my policy be changed or canceled — or could my premium increase? How do I make a claim if and when needed? You’ll probably want to look at the cost for a few different plans before choosing one that provides the best combination of benefits and value for your needs. After you’ve made a decision, there will be a medical exam and some paperwork to do – and you’ll have income protection that can last for years. Consider how you would pay your bills if you were no longer receiving a paycheck. Think about what would happen if your adult children lost their job, would they turn to you for financial assistance? Can you afford that help? If you don’t have a good answer, have a conversation with your financial advisor about disability insurance options. Final thought. Do you need help identifying risks that might impact your family? Have you evaluated and quantified the risks to your financial well being? Are you certain your risks have been adequately transferred with insurance? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. Other Useful Resources: https://www.ssa.gov/benefits/disability/ https://www.usa.gov/disability-benefits-insurance You may also be interested in reading more about Insurance: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Don’t Miss Your Boat: Plan for Insurance Changes Before Retirement Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

If you ask a homeowner, replacing a roof is probably the least satisfying expense they will ever face. While the value of such an investment is obvious, it doesn’t provide quite the satisfaction of new landscaping. Yet, when a hail storm comes, ask that same owner if they would have preferred nice flowers or a sturdy roof. Insurance is a lot like that roof. It's not a terribly gratifying expenditure, but it offers peace of mind for financial storms that may affect your life. Some financial storms such as car accidents or hail damage to your roof are more widely known. Others, such as becoming disabled or needing long term care come up less in conversations and the news. Identify, Quantify & Transfer Risk It’s good to take stock of the risks that could disrupt your lifestyle and family’s well being. Your financial advisor can help identify risks that may impact your well being. He or she can quantify your financial exposure and recommend strategies to transfer that risk to an insurance company. To identify risks, your advisor should ask you about your income, mortgage, other debts, investments, net worth, and desires to leave money to heirs. Below are examples of information advisors collect, the various risks identified, and the insurance available to transfer. Family Income – recommend a proper amount of disability insurance in case you or your adult children are unable to work. Income, mortgage, debts, and investments – recommend the right amount of life insurance to be sure your family can pay the bills and meet goals such as college if you suddenly pass away. Net worth and how your assets are titled – recommend sufficient umbrella liability insurance to protect your hard earned wealth in the event of a lawsuit from a car accident or other unfortunate event. Net worth – if above $12.92 million ($25.84 million, if married) you may owe estate taxes. Your advisor and attorney may recommend permanent insurance to cover taxes. Or, offer gifting or trust strategies to lower the value of your taxable estate. Net worth and income – evaluate whether to accept the financial risk for long term care expenses, or purchasing a policy which provides in-home care or assisted living to protect your nest egg. Your desires to leave money to children, a charity, other person or organization – forecast the future value of your investments to see whether you have enough to meet your goals. Or, if you need to supplement with life insurance. Insurance premiums aren't a financial “loss.” They are an important investment designed to help protect you and your family as you build and grow your personal wealth. Protect Your Family’s Lifestyle Some insurance, such as homeowners or car insurance, may be required. When it isn't mandated – as in the case of life insurance, long term care, or disability – individuals may be tempted to avoid the certain financial “loss” associated with insurance premiums, assuming the risk of much larger losses that are less likely to happen. But insurance premiums aren't a financial “loss.” They are an important investment designed to help protect you and your family as you build and grow your personal wealth. Final thought Do you need help identifying risks that might impact your family? Have you evaluated and quantified the risks to your financial well being? Are you certain your risks have been adequately transferred with insurance? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. You may also be interested in reading more about how to protect your wealth: Bulletproof Your Wealth for the Next Generation 6 Scenarios Where You May Need an Investment Expert You may also be interested in reading more about Insurance: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Don’t Miss Your Boat: Plan for Insurance Changes Before Retirement Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Originally published on Kiplinger.com on Mar 29, 2023. Bank concerns that began with Silicon Valley Bank have dominated the headlines since March 9. Below are suggestions to protect your cash and investments in a banking crisis, including some details about what happened with Silicon Valley Bank (SVB) and why. How did the bank collapse? Silicon Valley Bank benefited from the tech boom. It enjoyed a huge increase in deposits following COVID-19. Most deposits came from large venture capital-backed technology businesses. The money held on deposit with SVB tripled from 2019 through 2021 to $189 billion. The bank had to put this money to work. SVB invested deposits in long-term bonds. SVB purchased Treasury bonds with average earnings of about 1.8% plus a large amount of agency-guaranteed mortgage bonds maturing in 10 years or more. This saw positive returns for a while, as the bond earnings were above the deposit rate customers are paid, but it quickly unfolded. The Federal Reserve increased interest rates. This caused the amount SVB was paying to new depositors to increase to around 4% per annum. This was considerably beyond the income they were receiving on Treasury bonds. The bank began losing money. And the assets SVB held in long-term agency-guaranteed mortgage bonds fell in value due to the Fed’s rate increases, creating billions in losses. The downfall of Silicon Valley Bank. SVB tried to create liquidity on its balance sheet. They attempted this by selling long-term bonds. But since the long-term bonds had fallen in value, the proceeds they received resulted in losses. Word of these losses got out within the venture community. People became skittish and the majority attempted to withdraw their money, more than $42 billion on March 9. Unable to meet all depositor withdrawals, SVB was left with no liquidity and major losses, forcing it to default. A silent bank run. Overwhelming withdrawal requests from depositors seized operations at SVB. This was a silent bank run with most withdrawals requested electronically. There was not enough cash and liquid assets available for immediate sale to fund deposit outflows, without wiping out their equity capital base. Banks do not hold enough cash to fund 100% of their deposits. According to regulations, they’re allowed to invest around $10 for every dollar of deposits. These investments, which could be in the form of loans to customers or invested in publicly traded securities such as U.S. Treasuries or mortgage-backed securities (MBSs), are generally longer-term in nature and are not always able to be sold at a profit. This is clearly as Warren Buffet would say, a ‘see who’s swimming naked when the tide goes out’ moment. Protecting Depositors On March 12, the Federal Reserve, the FDIC and the U.S. Department of the Treasury addressed the solvency of insured and uninsured depositors at SVB. And President Biden assured Americans the banking system is sound. At Peak Wealth Planning, we believe the current administration will do everything possible to prevent bank collapses in the United States that hurt depositors. Unfortunately, equity holders and bondholders may not fare so well. The rapid rise in interest rates has caused short-term losses for the banking industry that are meaningful, bank industry capital levels should be well positioned to weather the storm. The response from the Federal Reserve, the FDIC and the U.S. Department of the Treasury has been coordinated and substantial to ameliorate concerns. Equity market volatility will likely remain elevated, reflecting the uncertainty around the banking sector, but most banks have more diversified sources of funding than SVB, including a higher number of accounts below $250,000, and lend to a wider range of industries. Protect Your Cash and Investments For investors, including retirees with near-term cash needs, consider migrating money market funds and short-term bond funds to Treasury-only options. Peter Newman, CFA, doesn’t feel the incremental yield pick-up from corporate credit risk—often concentrated in financials, is worthwhile in funds with average maturities inside of a three-year window. If you have bank deposits, confirm your bank is FDIC-insured. And make sure you are below the $250,000 FDIC insurance limit for individual accounts or $500,000 for joint accounts. If you need to spread deposits across multiple institutions, be sure to keep good records and properly title your accounts if you have a trust. If you have a brokerage account with cash you need within the next 36 months, ask your financial adviser to invest in a Treasury-only money market or bond fund. You might also consider buying CDs from different banks up to FDIC limits within a brokerage account. Another alternative is using a service like maxmyinterest.com, which spreads your money across multiple online savings accounts below the FDIC limit. For longer term investors, you may want to consider i-bonds as one part of your investment portfolio, especially if you are saving for college. There are pros and cons to each approach, and your financial adviser can assist you in choosing one that works best for you. Final thought. Do you have cash you may need to spend in the next three years? Are you confused by the myriad of options? If you have more than $2 million saved and need help deciding where to invest your cash, the Peak Wealth Planning team can assist. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

An essential part of retirement planning is determining how much income you will need to meet expenses in the years after you’ve finished working. Don’t overlook the impact of taxes on your retirement income. The paycheck you create will likely come from taxable, pre-tax, and after-tax sources. You are responsible to make sure the appropriate taxes are paid. Remember, at the end of the day, your expenses will be paid with after-tax dollars during retirement. Will you pay higher taxes in retirement? Many people assume their tax rate in retirement will be lower than in pre-retirement years. However, this isn’t always the case. In fact, it largely depends on how your retirement paycheck is generated. When you enter retirement, your money isn’t just sitting there waiting for you to spend it. It is a nest egg meant to help with 20 to 30 years of living expenses and perhaps leave money for your grandkids or favorite charity. While you may have cash in the bank, the majority of your nest egg is invested. As you move through retirement, your nest egg grows and compounds before being sold off and moved to your cash savings. When taxable or pre-tax investments are sold, this can create taxable income. If you work part-time or draw an annuity or pension, this will also create taxable income. Consider the role Social Security will play in your retirement. When do you plan to start to take Social Security benefits? If you have a spouse, when do they plan on taking benefits? It’s critical to address Social Security, pension, and annuity timing questions so you have an understanding of how much they will affect your taxable income and your federal tax liability. What’s a pre-tax investment? Traditional IRAs and 401(k)s are examples of pre-tax investments that are designed to help you save for retirement. You won’t pay taxes on the contributions you make to these accounts until you start to take distributions. Pre-tax investments are also called tax-deferred investments, as the money you accumulate in these accounts can benefit from tax-deferred growth. You might even receive a tax deduction when you add savings to pre-tax investments. Keep in mind that once you reach age 73, you must begin taking required minimum distributions (RMD) from a traditional IRA, 401(k), and other defined contribution plans in most circumstances. Beginning in 2033, the age you must take RMDs bumps up to 75. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. What’s an after-tax investment? A Roth IRA is the most well known after-tax retirement investment account. When you put money into a Roth IRA, the contribution is made with after-tax dollars. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2022, contributions to a Roth IRA are phased out between $204,000 and $214,000 for married couples filing jointly and between $129,000 and $144,000 for single filers. If you are not eligible for Roth contributions, your financial advisor can evaluate whether it makes sense to convert your pre-tax investments to a Roth IRA account. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals. Do Roth conversions make sense? Sometimes it is better to do Roth conversions to reduce or avoid future RMDs depending on your current tax situation and liquidity profile. In the years leading up to retirement, if you have cash to pre-pay tax on IRAs by converting them to Roth, you could potentially reduce your lifetime tax liability by hundreds of thousands or millions of dollars. Your financial advisor can help model these savings using financial planning tools and making reasonable assumptions about tax brackets and investment returns. Forecast your tax burden. With the help of your financial advisor, you can load your taxable, pre-tax, and after-tax income sources into planning software. By making some assumptions and including planned annuity, pension, or social security earnings, your federal and state tax liability can be forecast. This provides an opportunity to evaluate whether to keep contributing to after-tax or pre-tax accounts in the years leading up to retirement. It also helps with decisions on Roth conversions and when to start taking annuity or social security payments. Depending on your level of wealth, Roth conversions could potentially save you and your heirs hundreds of thousands of millions of dollars across several decades. Final thought. Are you striving for greater tax efficiency? In retirement, it is especially important – and worth a discussion. Preparing for taxes well in advance can have a significant impact on how long your assets last in retirement. A few financial adjustments may help you reduce your tax liabilities. If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

By May 20, 2022, over 145 million taxpayers had dutifully filed their federal income tax returns. And they all made decisions about deductions and credits – whether or not they realized it. When you take the time to learn more about specific tax concepts, you may be able to put the tax code to work for you. A good place to start is with credits and deductions. Credits As tax credits are usually subtracted, dollar for dollar, from your actual tax liability, they potentially have greater leverage in reducing your tax burden than deductions. Tax credits typically have phase-out limits, so please consult a legal or tax professional for specific information regarding your individual situation. Here are a few tax credits that you may be eligible for: The Child Tax Credit is a federal tax credit for families with dependent children under age 17. The maximum credit is $2,000 per qualifying child, depending on your income level. The American Opportunity Credit provides a tax credit of up to $2,500 per eligible student for tuition costs for four years of post-high-school education. Those who have to pay someone to care for a child (under 13) or other dependent may be able to claim a tax credit for those qualifying expenses. The Child and Dependent Care Credit provides up to $4,000 for one qualifying individual or up to $8,000 for two or more qualifying individuals. Deductions Deductions are subtracted from your income before your taxes are calculated, and thus, may reduce the amount of money on which you are taxed, and by extension, your eventual tax liability. Like tax credits, deductions typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation. Here are a few examples of deductions. Under certain limitations, contributions made to qualifying charitable organizations are deductible. In addition to cash contributions, you can potentially deduct the fair market value of any property you donate. And you may be able to write off out-of-pocket costs incurred while doing work for a charity. If certain qualifications are met that were updated in the 2017 Tax Cuts and Jobs Act, you may be able to deduct the mortgage interest you pay on a loan secured for your primary or secondary residence.6 Amounts set aside for retirement through a qualified retirement plan, such as an Individual Retirement Account, may be deducted. The 2023 contribution limit is $6,500, and if you are age 50 or older, the limit is $7,500. If you itemize your tax deductions, the state and local tax deduction allows you to deduct up to $10,000 of your state and local property taxes, as well as your state income or sales taxes. You may be able to deduct the amount of your medical and dental expenses that exceed 7.5% percent of your adjusted gross income. Standard Deduction or Itemize? The IRS has a handy guide to help you understand the difference between itemizing or taking the standard deduction. You should also consult your tax professional for his or her suggestions on this matter. If you do not itemize deductions, you are entitled to take the standard deduction on your taxes. For 2023 that amount is $13,850 for single individuals and $27,700 for those who are married and filing jointly. Final thought. Understanding credits and deductions is a critical building block to making the tax code work for you. But remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties. Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Who among us wants to pay the IRS more taxes than we have to? While few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let's take a quick look at the five most overlooked opportunities to manage your tax bill. 1. Reinvested Dividends When a mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA). If you're like most fund owners, you reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment's cost basis, it can result in double taxation of those dividends. Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. 2. Out-of-Pocket Charity Keep a written record of cash donations including the date, the organization and the amount given. It's not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these are potential tax deductions. Keep records of the mileage traveled and dates you volunteered. Just be sure to get a receipt for any amount over $250. 3. State & Property Taxes Did you owe state taxes when you filed last year's tax returns? Or, did you pay property taxes? If you did, don't forget to include these payments as a deduction on your current year's tax return. There is currently a $10,000 cap on the state and local tax deduction.3 4. Medicare Premiums If you are self-employed (and not covered by an employer plan or your spouse's plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance, and Medicare Advantage Plan. This deduction is available regardless of whether you itemize deductions or not. 5. Income in Respect of a Decedent (IRD) If you've inherited an IRA, you may be able to deduct estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account. The purpose of the IRD deduction is to avoid a “double” taxation effect, by providing that beneficiaries who inherited an IRA will receive an income tax deduction for any additional estate taxes that were caused by that pre-tax asset. The IRD deduction is claimed by the beneficiary of the IRA, at the time that distributions occur from the IRA (this ensures that the deduction applies at the same time that the IRA becomes taxable in the first place). Don’t Forget Investment Losses 2022 was a tough year for stocks and bonds. You may have taken losses in your investment accounts. Check with your financial advisor or accountant to see if you can offset gains you may have taken with losses. In addition, you may be able to write off up to $3,000 of losses above gains taken. There are specific rules regarding gains and losses that you should review, or check with your accountant. Unused losses may be carried forward to future years. You may also be interested in reading: How Tax-Loss Harvesting Works for Average Investors Final thought. Check with your financial advisor and your accountant if you need help identifying overlooked tax deductions. Many CPAs provide a questionnaire to help you recall overlooked items. Your financial advisor or CPA can review your investments and tax return to help identify missed opportunities. Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

Do you have a long-lost retirement account left with a former employer? Maybe it’s been so long that you can’t even remember. With over 24 million “forgotten” 401(k) accounts holding roughly $1.35 trillion in assets, even the most organized professional may be surprised to learn that they have unclaimed “found” money. This article will help you discover whether you have money left at a former employer’s retirement plan. The time spent could be well worth the effort. A couple years ago, one Peak Wealth Planning client discovered a forgotten account with $100,000. Of course you may find a lower amount, but found money is better than none at all. What Are “Forgotten” Retirement Accounts? Considering that baby boomers alone have worked an average of 12 jobs in their lifetimes, it can be all too easy for retirement accounts to get lost in the shuffle. Think back to your first job. Can you remember what happened to your work-sponsored retirement plan? If you’re even slightly unsure, then it’s time to go looking for your potentially forgotten funds. Starting Your Search One of the best ways to find lost retirement accounts is to contact your former employers. If you’re unsure where to direct your call, try the human resources or accounting department. They should be able to check their plan records to see if you’ve ever participated. However, you will most likely be asked to provide your full name, Social Security number, and the dates you worked, so be sure to come prepared. If your former employer is no longer around, look for an old account statement. Often, these will have the contact information for the plan administrator. If you don’t have an old statement, consider reaching out to former coworkers who may have the information you need. Even if these first steps don’t turn up much info, they can help you gather important information. Websites to Check Next, it’s time to take your search online. Make sure you have as much information as possible at hand and give the following resources a try. National Registry of Unclaimed Retirement Benefits This database uses employer and Department of Labor data to determine if you have any unpaid or lost retirement account money. Like most of these online tools, you’ll need to provide your Social Security number, but no additional information is required. FreeERISA If your forgotten account was worth more than $1,000 but less than $5,000, it might have been rolled into a default traditional Individual Retirement Account (IRA). Employers create default IRAs when a former employee can’t be located or fails to respond when contacted. You can search for retirement and IRA accounts for free using this database, but registration is required. U.S. Department of Labor Finally, the Department of Labor tracks plans that have been abandoned or are in the process of being terminated. Try searching its database to find the qualified termination administrator (QTA) responsible for directing the shutdown of the plan. What’s Next? Once you’ve found your retirement account, what you do with it depends on the type of plan and where it’s held. It also depends on how close you are to retirement and how the account fits into your overall retirement strategy. No matter what you decide to do, be sure to involve your tax preparer and financial advisor since they’ll be informed on up to date regulations that may affect you. They can also help you identify a strategy for your newfound money: travel, investment, or maybe that vacation home you’ve always wanted. You worked hard for that money, after all, so you should get to enjoy it! Final thought. Do you need help getting organized for retirement? Want to learn when you can actually retire, or forecast how much money you need to retire? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.

One common issue with a mobile workforce is that many individuals who leave their job are faced with a decision about what to do with their 401(k) or 403(b) account. There are four choices to consider carefully with a 401(k) or 403(b) account from your previous employer. Choice 1: Leave It with Your Previous Employer You may choose to do nothing and leave your account in your previous employer’s 401(k) or 403(b) plan. However, if your account balance is under a certain amount, be aware that your ex-employer may elect to distribute the funds to you. There may be reasons to keep your 401(k) or 403(b) with your previous employer —such as investments that are low cost or have limited availability outside of the plan. Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans, or to retain the ability to borrow from it, if the plan allows for such loans to ex-employees. The primary downside is that individuals can become disconnected from the old account and pay less attention to the ongoing management of its investments. Choice 2: Transfer to Your New Employer’s 401(k) Plan Provided your current employer’s 401(k) or 403(b) accepts the transfer of assets from a pre-existing 401(k) or 403(b), you may want to consider moving these assets to your new plan. The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature. If the new plan has a competitive investment menu, many individuals prefer to transfer their account and make a full break with their former employer. Choice 3: Roll Over Assets to a Traditional Individual Retirement Account (IRA) Another choice is to roll assets over into a new or existing traditional IRA. It’s possible that a traditional IRA may provide some investment choices that may not exist in your new 401(k) plan. The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k) or 403(b) loan feature. Remember, don’t feel rushed into making a decision. You have time to consider your choices and may want to seek professional guidance to answer any questions you may have. Choice 4: Cash out the account The last choice is to simply cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½. In addition, employers may hold onto 20% of your account balance to prepay the taxes you’ll owe. Think carefully before deciding to cash out a retirement plan. Aside from the costs of the early withdrawal penalty, there’s an additional opportunity cost in taking money out of an account that could potentially grow on a tax-deferred basis. For example, taking $10,000 out of a 401(k) instead of rolling over into an account earning an average of 8% in tax-deferred earnings could leave you $100,000 short after 30 years. Final thought. Have you recently changed jobs and need to decide how to handle your 401k or 403b? Do you need help to get organized and see how much income you can generate from multiple retirement accounts? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.