A quick review of your beneficiary designations can prevent situations like the one above from occuring. Make sure that your beneficiaries’ information is current, including their name, social security number, and address. It’s also a good idea to name contingent beneficiaries in the rare event that there aren’t any surviving primary beneficiaries.

While most of us naturally shy away from discussing death, it’s important for you and your family to have peace of mind with regards to your estate planning. By spending a little time keeping your beneficiary designations up to date, you can rest assured that your family will be properly taken care of.

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1.) If your company has a match, defer enough salary to reach the full match.

This sounds overly simple, but far too often “free” money is left on the table from under contributing. If you start your 401k or 403b plan in the middle of year, you can still get the full match by contributing the correct amount.

2.) Just because you can defer more money than the match doesn’t mean that you should.

In most cases, the next $5,000 ($6,000  if you are 50+) of retirement savings above the match should be placed into a Roth or IRA instead of  your 401k or 403b. Roth’s and IRA’s offer you unlimited investment choices, allowing you to create a better portfolio.

3.) If you are maxing out your Roth or IRA, further fund your 401k or 403b.

You can save up to $16,500 ($21,500 if you are 50+) a year in a 401k or 403b. If you are able to save extra dollars, defer up to the max on your 401k or 403b.

4.) Globally diversify your investments.

Many 401ks and 403bs offer limited investment choices, so creating an optimal portfolio is difficult. However, it’s important  that you construct the best portfolio from the choices given. At the very least, ensure that your portfolio is spread out amongst multiple asset classes and keep your company stock investments to 10% or less of your total portfolio.

5.) Rebalance your portfolio annually.

Once you have created your investment allocation,  most 401ks and 403bs allow you to setup automatic rebalancing. This will ensure that your portfolio stays within your target asset allocation, helping to reduce unwanted changes in your portfolio.

Age- The younger you are, the more likely you are to benefit from a Roth Conversion. While there are several factors that contribute to this, the most important one is that you have longer to “catch-up” from paying taxes now.

Tax bracket- The rule of thumb is to convert to a Roth if you will be paying higher taxes in retirement than you are now. Unfortunately, it’s quite difficult to estimate future spending habits and tax code changes. Rarely do you know exactly how much income you will need in retirement, but often times it’s more than you would expect. Taxes are a moving target, and it’s difficult to know what they will be 20 years from now. Unless you have a very good idea that your taxes will be lower in retirement than they are now, a conversion might make sense.

Ability to pay taxes- If you can pay the taxes with funds from outside of your IRA, consider a conversion. When you convert your IRA to a Roth, you will have to pay ordinary income tax on the conversion amount. If you can’t pay these taxes from outside of the IRA, it’s generally not best to convert.

Wealth Transfer- Regardless of age, it might be in your best interest to convert if your goal is to leave your account to your heirs, instead of spending the money.  The Roth has several estate planning advantages, and you won’t have to take annual distributions when you turn 70 ½.

Tax Diversification- The best way to hedge against uncertain tax risks, is to have various accounts that are taxed differently. Holding an IRA, Roth, and taxable account provides you with several funding options in retirement, helping to smooth out the risk of incorrectly predicting changes in the tax code.

Finally, when done correctly, a Roth Conversion can be a wise move and a significant wealth planning tool that reduces taxes, preserves wealth, and endows future generations.

For more information on Roth Conversions, please read the Wall Street Journal’s excellent article by Kelly Greene, “Making a Good Deal for Retirement Even Better.”

The expressed views are that of only Chacon Diaz & Di Virgilio and are for informational purposes only.. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Chacon Diaz & Di Virgilio recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

Financial Professionals operate as either fiduciaries or salespeople. Fiduciaries have a legal duty to give advice that is solely for your benefit and in your best interest. Fiduciaries must put their own personal interests completely aside, in order to remain loyal to their fiduciary duty. On the other hand, salespeople are held to a suitability standard, which states that they must have reasonable grounds to believe that an investment is suitable for you.  Salespeople have no obligation to work in your best interest, disclose any conflicts of interest, or inform you of commissions on the investment products they sell.

Simply put, fiduciaries have a duty to act in their clients best interests while salespeople have a duty to act in their employer’s best interest. These differences in care should matter greatly to you because they could determine whether or not you receive optimal financial planning and investment management advice.  Learning how your advisor operates might seem like a challenging task, but it doesn’t have to be. In her article entitled, “Can you trust your financial adviser“, Liz Pullam Weston helps readers further distinguish the differences between the two standards of care. ]]> http://cddwealth.com/what-is-a-fiduciary-and-why-should-it-matter-to-me/feed/ 0