Leveraging Mentorship at Moneta to Thrive as an Independent RIA Through the Industry’s Great Consolidation

“Organic growth” may be all the rage at your local supermarket, but the term seems to have lost its luster in the RIA industry. After a year of record volume for RIA mergers and acquisitions, growth for individual firms and the industry at large is often associated with consolidation.

Yes, combining multiple firms into one can quickly produce impressive results in the size department – but to what end? Is bigger always better?

Moneta associates its growth with a different word: mentorship.

Equipping the Next Generation of Financial Advisors

In a little more than a half decade’s time, Moneta evolved from a single-office firm with $14.5 billion in assets under management (AUM) at the start of 2016, into a national firm with locations in five different cities and $32.8 billion AUM by the beginning of 2022.

Moneta celebrated its 30th anniversary as an RIA during that time as the group of founding Partners who built their practice from scratch arrived at the same inflection point that so many other firms found themselves at, too: what happens to my clients after I retire?

The firms without a succession plan in place often opted to sell, fueling the industry’s great consolidation.

Moneta’s founding Partners chartered a differed way forward.

During their three decades of empowering other people to navigate life’s path, they also prepared for this crossroads of their own. They knew planning for their clients’ future must include planning for the firm’s future, as well.

Maintaining continuity of service from one generation to the next within client households required a next generation of Partners and Advisors equipped to thrive.

Where would this wave of talent come from?

They had to be homegrown. They had to be mentored.

Planning for More Than Succession

Moneta solved for the sustainability of its business by creating the “Path to Partner” and “Partner in Training” (PIT) programs that were founded on and driven by mentorship.

The process was designed to develop next-gen Partners who could do more than function as a traditional succession plan by merely taking a handoff of someone else’s practice. The graduates needed to continue growing the business so they could continue improving client service.

The PIT program evolved through several iterations over many years. Its eventual success became increasingly apparent as Moneta more than doubled in AUM while expanding into multiple new markets for the first time in firm history.

Some might say Moneta stuck the landing on a high degree of difficulty transition move, but the recent hiring of Bill Rowe into the newly created position of Chief Growth Officer came as a clear indication that we are confident the firm is still taking off.

Trusting the Process

To lead Moneta’s growth both organically and inorganically, one of Rowe’s first major initiatives is to enhance and launch a new and improved PIT program. Mentorship remains the foundation and takes center stage as a main point of emphasis.

“Mentors are vital in any career,” Rowe said. “We all maintain different strengths and weaknesses. Leveraging the experience of others provides an efficient and effective way to learn and ultimately achieve one’s goals. We want to help everyone maximize their potential.”

The mission of the new PIT program is to create well rounded Partners who are prepared to lead their respective teams and contribute to the firm according to their strengths and interests. It focuses on setting goals, creating outcomes, and managing personal change in preparation of PIT candidates becoming Partners. Increased measurability and accountability will be hallmarks of the evolved process.

“The mentor plays many roles including teacher, supporter, counselor, listener and coach, all conveyed through a relationship based in ‘trust’,” Rowe said. “When the trust level is extremely high, people’s guard goes down and there is an increased opportunity to grow. No matter where you are in your career, you never master everything, and you can always find someone who has already been through what you are going through.”

“When one person grows, everyone benefits.”

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Leveraging Mentorship at Moneta to Thrive as an Independent RIA Through the Industry’s Great Consolidation appeared first on Moneta Group.

source https://monetagroup.com/blog/leveraging-mentorship-at-moneta-to-thrive-as-an-independent-ria-through-the-industrys-great-consolidation/

Ask the CFP: How Are 401(k), IRA, and Roth Limits Changing in 2023?

Welcome to this month’s Ask the CFP ®segment. This month’s question is, how are 401(k), IRA, and Roth limits changing in 2023? 

Contribution limits for retirement plans have increased for 2023. In addition to providing more resources for your retirement, this also means potentially higher tax deductions. 

Let’s start with 401(k), 403(b), and 457 plans. Limits on these plans have increased by about 10% to $22,500. For employees aged 50 and over, an additional “catch up” contribution is allowed. That amount has increased as well to $7,500, meaning individuals 50 or older may be able to defer a total of $30,000 into their employer’s retirement plan in 2023.  

If your employer allows you to make after-tax contributions to your retirement plan, the limits may be even higher. Although pre-tax or Roth contributions may be limited to $22,500 without the catch-up, the total limit on 401(k) contributions is $66,000, plus the catch-up. Keep in mind, this increased limit of $66,000 includes ALL dollars contributed into the retirement plan – pre-tax, Roth, after-tax, and employer-match or profit-sharing dollars.  

If you aren’t sure whether your employer allows you to make after-tax contributions, just send us the Summary Plan Document for your retirement plan and we may be able to research it for you.  

Moving on to IRAs… 

Aside from employer group retirement plans, if you contribute to a traditional IRA or Roth IRA, the limit has increased to $6,500. If you’re 50 or older, the catch-up amount for IRAs remains at $1,000.  

Finally, you may have heard about Roth IRA phase-out limits that dictate who is eligible to contribute to a Roth IRA based on income. Those income limits have also increased. For 2023, individuals are completely phased out of Roth IRAs at $153,000 of modified adjusted gross income, and joint filers are phased out at $228,000. Although taxpayers making above these thresholds can’t contribute to a Roth IRA, converting IRA dollars to Roth IRA dollars is still allowed.  

Deciding how much to defer into retirement accounts and whether pre-tax, Roth, or after-tax is right for you can be complex, so speak with a qualified professional before making any changes to your plans.  

If you have a question about this topic or have a suggestion for a future Ask the CFP ®  video, please send it to TFreeman@MonetaGroup.com. Thanks for watching and we’ll see you next month. 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.  

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

The post Ask the CFP: How Are 401(k), IRA, and Roth Limits Changing in 2023? appeared first on Moneta Group.

source https://monetagroup.com/blog/ask-the-cfp-how-are-401k-ira-and-roth-limits-changing-in-2023/

A Wintery Mix

Aoifinn Devitt – Chief Investment Officer

As earnings season moves into high gear, the mixed bag of results seems to be leaving markets in a state of some confusion.  While earnings have been mixed even within the same sector, greater than 60% of companies reporting have still beaten estimates, which either suggests a stronger than expected economy or an exceptionally fine-tuned telegraphing of expectations by companies.

That said, the index is reporting a year-over-year decline in earnings for the first time since Q3 2020, and the spread by which companies are beating estimates is lower than the 5 and 10year averages. There is an indication of a slowing of demand from the real economy to the online economy (e.g., cloud services) and transaction volume being more muted has eroded investment bank earnings and trading activity. The employment picture remains strong, though, with only 190,000 initial jobless claims in the last report.  So, a mixed outlook indeed.

News of sizeable cost cutting and layoffs, as was announced by Microsoft and 3M this week as well as Wayfair and Alphabet last week, has been greeted generally positively – both Wayfair and Alphabet rallied following their cost-cutting announcements, as if markets were pleased to see the dose of reality and discipline descend.  Overall returns have been solid year to date – especially for the growth sector, as the chart below shows:

Source: Morningstar as of 1/25/23

One distinct trend emerging in markets year to date is the steady outperformance of non-US markets, including Emerging Markets. There was a suggestion this past week that Europe would skirt recession, having shown modest positive growth in January based on the Purchasing Managers’ Index, as the continent continues to enjoy a warmer than usual winter which has reduced the severity of the energy crisis there and led to a drop in the price of natural gas. [1]  This positive surprise has been reflected in European markets as well as in Asia, where the faster than expected emergence of China from its protracted Covid restrictions has taken many commentators by surprise. The weaker dollar, which has continued to slip from the 20 year highs it displayed at the end of the year, is further driving the relative attractiveness of non-US markets.

Source: Morningstar Direct, as of 1/24/2023 The S&P 500 Index is a free-float capitalization-weighted index of the prices of approximately 500 large-cap common stocks actively traded in the United States. The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies.
The MSCI Europe Index is a float-adjusted market capitalization index that captures large and mid-cap representation across 15 Developed Markets countries in Europe.

The US Dollar Index measures the US dollar against six global currencies: the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.

The other twist in the start to the year was the stark inversion of the yield curve. As the chart below shows, there is considerably more yield available in the front end of the yield curve than in the medium to long end, which is typically strongly suggestive of a pending recession.  It underscores the attractiveness of short-term yields at the moment, why holding cash no longer has to be a drag, and the uncertainty that lies in the medium to long term around the direction of Fed policy. We have noted, however, that the forward yield curves are significantly flatter, suggesting that this is a short-term phenomenon which will shortly phase out.

Many of our clients obtain their fixed income exposure via bond ladders, which are designed to provide stability to a portfolio’s returns over time.  Because the goal is to stay invested in fixed income, a portfolio that is heavily weighted in the front end of the curve will face reinvestment risk when it matures- as clearly, the portfolio will need to be reinvested at lower yields at that stage. We encourage clients and advisors to stay the course and keep bond ladders intact.

[1] https://www.reuters.com/markets/europe/euro-zone-january-business-activity-returns-growth-pmi-2023-01-24/

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post A Wintery Mix appeared first on Moneta Group.

source https://monetagroup.com/blog/a-wintery-mix/

Entrepreneurs – The Paradox of Investing Outside of Your Business

By Michael Torney, CFP, J.D., LL.M. 

Most entrepreneurs have a single focus – working to make their business successful until it is generating steady profits. To achieve that goal, they often invest 100 percent of their annual profits back into the business. 

The strategy can have a number of benefits.  Yet, it often creates other problems. It doesn’t diversify the business owner’s wealth, making them completely dependent on the performance of the business.  It also leaves a business owner dependent on credit when times are hard.  Finally, it creates issues when selling the company because the founder’s entire retirement success is dependent on the sale price of the business.  Diversifying your wealth – in effect, spreading the risk – has some key advantages. 

I advise my clients who are entrepreneurs to annually reinvest some percent in a 1) safe liquidity for the owner’s lifestyle needs; 2) a broad mix of pre-tax contributions in retirement plans, 3) after-tax contributions in brokerage accounts. This money is allocated among stocks and bonds that have historically provided steady growth.  

Having a few years of lifestyle expenses in safe assets (T-bills for example) provides a business owner with the ability to fund growth plans in the business more easily knowing if there’s a down year in profits, there’s cash to fund their lifestyle. 

Some entrepreneurs believe investing in the stock market is riskier than investing in the business – and it does come with risks.  Yet, that same entrepreneur will invest 100% of all their money into one company.  Money invested in a basket of thousands of companies has a different risk profile than one single business.  Being unfamiliar with a certain kind of risk (the market) doesn’t mean it is more risky than investing in the business – take some time to learn how the risks in the market compare to your business. 

Investing outside of the business not only can help generate wealth, but also can provide liquidity and the ability to receive quicker approval for loans to expand the business. 

Wealth generated by investments also provides flexibility for the future. Let’s say the business becomes successful and a prospective buyer would like to purchase your company.  Because of your outside assets, you may have additional negotiating power. If the prospective buyer’s bid is strong, you could decide to sell.  If not, you can hold onto the business and continue to grow it, or eventually sell as part of an Employee Stock Ownership Plan (ESOP).  

Here is a quick summary of qualified retirement plans and other investment vehicles available to entrepreneurs: 

Traditional 401(k) Retirement Plan

This is a tax-deferred retirement account, which means the money you contribute is not taxed until you begin withdrawing it during retirement. As a business owner, you can contribute up to $66,000 in 2023 between employee and employer contributions. This amount increases to $73,500 for those who are 50 and older. 

A Simplified Employee Pension (SEP) Individual Retirement Account

A SEP IRA is an additional pre-tax retirement account option. Like a 401(k)-retirement plan, the money and the earnings from this account are tax-free until retirement. Te Secure Act 2.0 legislation has also added SEP Roth IRA accounts, funded with post-tax dollars. Contributions to a SEP in 2023 are limited to 25 percent of your compensation or $66,000, whichever is less. 

Traditional IRA or Roth IRA

A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. A traditional IRA is the same account funded with pre-tax dollars (though sometimes nondeductible contributions are made depending on your annual income).  Retirement withdrawals from a Roth IRA can be tax-free while the traditional IRA is subject to ordinary income tax. There is generally a penalty (additional 10% tax) for withdrawals made before age 59½, though there are some exceptions. There are also multiple five-year rules to consider for distributions from a Roth IRA to be considered qualified distributions and avoid any penalty.  In 2023, one can contribute up to $6,500 between these two types of accounts and those 50 and older can contribute up to $7,500. 

A Taxable Brokerage Account

Unlike the retirement plans mentioned above, the earnings from this account are taxable. However, there is no limit to the amount you can invest, and funds can quickly be accessed if the business has an emergency expense.  

Making a decision to invest outside of your business can raise many questions. For help in answering your questions, contact our team at Duffteam@monetagroup.com. We work with many small business owners and offer a free consultation on how a comprehensive financial plan can help you and your business. 

 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. 

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise 

The post Entrepreneurs – The Paradox of Investing Outside of Your Business appeared first on Moneta Group.

source https://monetagroup.com/blog/entrepreneurs-the-paradox-of-investing-outside-of-your-business/

test 2 – when distribute article will uncheck all selected team ( not i’m testing on CDC but on DEV )

The post test 2 – when distribute article will uncheck all selected team ( not i’m testing on CDC but on DEV ) appeared first on Moneta Group.

source https://monetagroup.com/blog/test-2-when-distribute-article-will-uncheck-all-selected-team-not-im-testing-on-cdc-but-on-dev/

test – when distribute article will uncheck all selected team ( not i’m testing on CDC but on DEV )

The post test – when distribute article will uncheck all selected team ( not i’m testing on CDC but on DEV ) appeared first on Moneta Group.

source https://monetagroup.com/blog/test-when-distribute-article-will-uncheck-all-selected-team/

All Too Routine “Extraordinary Measures”

Chris Kamykowski, CFA®, CFP® (Head of Investment Strategy and Research)
Rich McDonald, MBA (Head of Portfolio Management and Trading) 

Per the announcement yesterday (1/19), the US Treasury Department is beginning the use of “extraordinary measures” to keep paying government bills especially monies owed to government bondholders.  That message sounds ominous but has been well known for some time now and these measures have been used before. Prior to today, “extraordinary measures” has been a common occurrence and has been enacted 9 times since 2010: 

• May 2011 
• December 2012 
• May 2013 
• February 2014 
• March 2015
• March 2017 
• December 2017 
• March 2019 
• August 2021 

US Treasury Secretary Janet Yellen has stated that the Treasury can pay all obligations until at least early June using these accounting maneuvers.  These allow lawmakers about 5 months to figure out the debt limit – either by suspending or raising the debt limit. Republicans oppose raising the debt limit unless Democrats agree to spending cuts. The Democrats control the Senate and have the support of President Biden in saying they won’t be bullied into making cuts.  It’s up to lawmakers to produce a resolution as soon as possible but at this point the two sides seem very far apart. That said, according to the US Treasury, Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. 

Many have bad memories of the debacle of 2011’s debt ceiling debate.  It led to major consternation in the markets and ultimately, one of the major rating agencies, S&P, downgrading the US one notch from AAA to AA+ based on concerns of budget deficits and congressional inaction. Today, one can hope that politicians have learned it is bad policy to mess with the “full faith and credit” of the US which should be enough motivation to work together toward a solution.  However, politicians being of a sort to regularly haggle, there will be plenty of back and forth between parties.  Motivation to negotiate in good faith may be linked to the fact the Fed is not in the same position to calm markets as it was in 2011 when it enacted QE3; today, we are staring at a Fed set on reducing inflation through tighter monetary policy, something they will likely be reluctant to budge from due to Congressional ineptitude or stubbornness.  

Any failure by the U.S. to make interest payments on time could cause havoc in the financial markets as markets prefer certainty to uncertainty; when we are talking about THE risk-free rate that underpins global financial markets, this is even more apparent. Clearly, the closer we get to June without a resolution, the more perilous the situation could become.  However, at this point, compromise is the likely outcome if one looks to history but the path there will see potential for market volatility.  It’s also extremely possible this drags out until the very last moment.   

Finally, for perspective as markets fret about the debt ceiling, below are one year returns for the S&P 500 index following the initiation of previous “extraordinary measures”; past is not indicative of future returns, but more often than not, the market has moved past the debt ceiling concern to higher levels one year later. 

Sources: 

Morningstar 

 https://bipartisanpolicy.org/debt-limit-through-the-years/ 

https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/debt-limit 

Definitions: 

The S&P 500 Index is a free-float capitalization-weighted index of the prices of approximately 500 large-cap common stocks actively traded in the United States. 

Disclaimer 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.  

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. 

 

 

The post All Too Routine “Extraordinary Measures” appeared first on Moneta Group.

source https://monetagroup.com/blog/all-too-routine-extraordinary-measures/

How Do I Create Cash Flow in Retirement?

Transitioning from receiving a consistent amount via a paycheck to funding your own cash flow in retirement can be a stressful time.  Moneta is here to help relieve that burden.  Let’s talk about how we approach funding your ongoing cash needs.

 

A seamless way to make this change is to create a systematic transfer from the portfolio to your checking account to cover your typical monthly living expenses.  We refer to this as a “paycheck replacement.”  Though instead of your employer or business writing the check, you are the one in charge of the amount.

We also want to consider other cash needs that might occur in a given time period, generally 6 months ahead.  This provides sufficient lead time to have the cash on hand before the expenses arise.  Cash needs can include the “paycheck replacement” monthly transfers, plus payments for things such as taxes, insurance, travel, and home projects.

When looking to the portfolio to provide these funds, interest, dividends, as well as the growth of the investments are all sources.

 

 

We evaluate the portfolio’s asset allocation to determine the best space to harvest profits.  These funds are then set aside as a cash reserve to cover the pre-determined cash needs.  The process repeats itself each time we get together for a Financial Review update.

If you have more financial questions, don’t hesitate to ask your Family CFO.  We do more so you can too.

 

© 2023 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Examples contained herein are for illustrative purposes only based on generic assumptions. This is not an offer to sell or buy securities, nor does it represent any specific recommendation.  You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post How Do I Create Cash Flow in Retirement? appeared first on Moneta Group.

source https://monetagroup.com/blog/how-do-i-create-cash-flow-in-retirement/

If You Receive Restricted Stock or Stock Options, Consider This Tax-Saving Move

By Michael Torney, CFP, J.D., LL.M. 

Paying taxes when receiving stock grants instead of waiting for shares to vest could help you save thousands of dollars. 

Corporate executives often receive restricted stock or stock options as part of their total pay. But it’s possible to save a significant amount of money by taking advantage of section 83(b), a somewhat obscure, but important section of the Internal Revenue Service Code. 

Federal law allows individuals to pay taxes in the same year the stock awards are granted, even though the stock hasn’t yet vested. This is done through what’s called an 83(b) election.  Why would an investor do this?  The stock price at the grant date may be much lower than when the stock vests and is sold; this means the taxes owed can be tens, even hundreds of thousands of dollars less if paid when the stock award is granted.  

This special 83(b) election can be used for stock awards that have not fully vested, such as restricted stock and stock options. 

How Restricted Stock and Stock Options Work 

Restricted stock are shares of your company’s stock that will vest at a future date. For example, if you are granted 10,000 shares of stock in January 2023, but the shares don’t vest for three years, you won’t own these shares without restrictions until January 2026.  

If you anticipate the stock price will be higher in January 2026, you can minimize the tax bill by filing an 83(b) election and paying taxes on the value of the stock in January 2023. That means you’ll pay less in tax if these shares appreciate in value. 

Stock options are usually either incentive stock options (ISO) or non-qualified stock options (NSO).  Stock options give employees the right to buy or exercise shares of company stock at a pre-set price. ISO and NSO options are taxed differently.  Both of these options present some tax-saving opportunities with an 83(b) election, though the planning varies for each; 83(b) tax strategies for NSO and ISO options are covered in a different blog.  Let’s look at how you can save taxes on your restricted stock using an 83(b) election. 

Restricted Stock and an 83(b) Election 

If you receive restricted stock, here’s an example of how an 83(b) election can save money.  

On January 1, 2018, a senior-level executive at Apple, Inc., is awarded 10,000 shares of company stock that will vest in three years. The price at that time was $39.80, so the 10,000 shares are valued at $398,000. If the executive does not make the 83(b) election, there is no tax due.  Three years later, on Jan. 1, 2021, Apple’s stock price rose to $130.39. The executive’s shares – which they now own outright – are now worth $1,303,900.  There is now ordinary income tax due on $1,303,900. 

If instead, the executive made the 83(b) election, they would have included the $398,000 as part of their income when filing 2018 taxes.  Here’s why that’s important. No taxes are due upon vesting since they have already been paid.  Because the stock is now valued at over $900,000 more than when it was granted, the additional $900,000 of gain is deferred.   

Selling Your Stock 

It’s January 2, 2022. The executive decides to sell their shares one year and one day after the shares vest. The executive waits this long because a person must keep their shares for more than one year prior to selling for any profit to be taxed at more preferential capital gains rates. However, if the 83(b) election was made, then the holding period began at the grant date when the restricted stock compensation was included in income. In this example, the executive would not have needed to wait the extra year to be taxed at long-term capital gain tax rates. 

At this point, the shares are valued at $1,737,700 – nearly $1.3 million more than when the stock was granted. But once the stock is sold, the executive is only responsible for capital gains taxes – a maximum of 20 percent of profits – rather than the rate for ordinary income taxes, which can be as high as 37 percent. 

The tax will be applied on any gains above the taxpayer’s cost basis.  If the 83(b) election was made, the cost basis is $398,000.  If the election was not made, the cost basis is $1,303,900.   

How the Tax Math Stacks Up 

We need to make some assumptions about our hypothetical taxpayer to play out taxes.  Let’s say he lives in Florida, a state with no state income tax.  And he’s in the 37% federal tax bracket (for simplicity, we will ignore the Social Security and Medicare taxes on the ordinary income, which are additional savings in favor of the 83(b) election in this example). This means he will pay 23.8% in capital gains taxes for 2023 (20% capital gain plus 3.8% net investment income tax).  

No 83(b) Election: If the executive did not make the 83(b) election, he pays 37% of $1,303,900 (taxes due at stock vesting) and an additional 23.8% of $433,800 ($1,737,700 minus $1,303,900 cost basis).  The total tax due is $585,687.40.   

83(b) Election: If the executive did make the 83(b) election, he pays 37% of $398,000 (taxes due at stock grant) and an additional 23.8% of $1,339,700 ($1,737,700 minus $398,000 cost basis).  Total tax due is $466,108.60. 

When It Makes Sense to File an 83(b) 

Filing a section 83(b) election makes sense for some people, but not for everyone. Consider making an 83(b) election if: 

• You receive restricted stock with a low market value per share at the time of grant or options with a strike price that is close or equal to the market value per share.
• You can afford to pay any costs associated with the election;  
• You believe the value of the company’s stock will increase significantly over time; 
• The risk that you will forfeit the stock is small. For example, you expect to be with the company until the stock vests. 
• You believe you will be able to sell your stock later at a higher price 

For restricted stock, the election must be made within 30 days of receiving the award. For options, the election must be made within 30 days of exercise. You should confirm that your company’s plan allows you to exercise options before they vest. 

Making a decision on whether to file an 83(b) election can be a difficult choice. If you have questions about this topic or other issues involving stock compensation, contact our team at Duffteam@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan could help serve you well now and during retirement. 

 

 

© 2022 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.  

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. 

 

The post If You Receive Restricted Stock or Stock Options, Consider This Tax-Saving Move appeared first on Moneta Group.

source https://monetagroup.com/blog/if-you-receive-restricted-stock-or-stock-options-consider-this-tax-saving-move/

Learning From a Legacy

“Philanthropy is commendable, but it must not cause the philanthropist to overlook the circumstances of economic injustice which make philanthropy necessary.”¹

 

On January 16, America celebrates the legacy of Reverend Dr. Martin Luther King, Jr. In addition to his well-known civil rights activism, Dr. King was a proponent of financial literacy, identifying financial independence as a source of freedom. He believed that social inequality was driven by poverty, and he encouraged his audiences to bolster their aspirations with sound economic principles: understanding debt, spending wisely, and not competing with one’s neighbors through excessive materialism.

The Moneta Charitable Foundation focuses on financial literacy and economic access, in alignment with Dr. King’s advocacy. Our team members volunteer in classrooms and partner with nonprofits that teach healthy money habits, supporting practices that will last a lifetime.

Moneta thanks to our clients for their ongoing philanthropic and community investments, and we will continue to actively support financial education and asset-building to support our neighbors in the St. Louis area and beyond.

1 Strength to Love, 1963

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Learning From a Legacy appeared first on Moneta Group.

source https://monetagroup.com/blog/learning-from-a-legacy/

stage 33 portal testing, article for MON-2644

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source https://monetagroup.com/blog/stage-33-portal-testing-article-for-mon-2644/

When The Party is Over – Better Safe Than Sorry

Aoifinn Devitt – Chief Investment Officer

It is common to start a new year with a sense of hope and anticipation.  This year, however, the scars of a bruising equity and bond market are still felt. 2022 displayed the worst equity performance in US equity markets since 2008, and when the bond market performance was added, it was particularly challenging for traditionally balanced portfolios.

As we start the new year, uncertainty continues to percolate – whether it is surrounding a downturn to come in earnings, or the pervasive evidence of corporate woes.  Trading warnings such as that of Party City and Bed Bath & Beyond may have been a long time coming, but the evidence that limping companies are running out of road will be a milestone of sorts.  While 2020 and massive disruptions in consumer activity were met with bailouts and subsidies, this, together with the distorted nature of consumer behavior – fewer parties/more home improvement, less demand for services/a boom in online shopping – probably artificially prolonged the life of impaired companies. We expect that these two entities will not be the last to struggle in the months ahead.

Equity markets turned upwards in the last few days, following a lackluster end to the year, with value outperforming growth and defensive areas such as infrastructure performing well.

Source: Morningstar as of 1/10/23

This echoes our theme of safety for the first half of 2023 – we believe that given the overhang of company earning outlooks, investors will likely do well to focus on defensive sectors – like healthcare, utilities, consumer staples – and to expect further volatility in higher growth sectors such as technology and consumer discretionary. The dramatic downturn of Tesla may well be a bellwether for a lower confidence level in projections and growth plans.

News of layoffs, most recently from financial services firms such as Goldman Sachs, will further weigh on consumer sentiment, and already it appears that 4Q earnings will be delivered with a strong dose of caution.

The labor market remains strong though. The December employment report showed 223,000 jobs added in non-farm employment and the overall unemployment rate declining to 3.5% – while this is still positive news, the number of jobs added has slowed since the first half of 2022 when the monthly pace of growth averaged 444,000. This less frothy employment picture may give the Fed some comfort that their unprecedented rate of interest rate hikes (seven in 2022) are being felt in terms of deflating consumer demand and combatting inflation.  The Fed minutes of December confirmed that the Committee had made “significant progress” in getting policy to a sufficiently restrictive stance but remained committed to “ongoing increases” in the overnight rate as appropriate. They noted their preference to retain “flexibility and optionality”, which is not particularly surprising, but it gives them cover to not take anything (further rate hikes, further deceleration or even a pause) off the table.

Overall, we believe bonds look increasingly attractive at these levels, particularly as inflation starts to become unstuck.  We will be watching the coming December inflation number with interest and we expect to see a continuation of the downward trend evinced in recent months.

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

 

The post When The Party is Over – Better Safe Than Sorry appeared first on Moneta Group.

source https://monetagroup.com/blog/when-the-party-is-over-better-safe-than-sorry/

Stg article bug related to topic – test

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The Bear Market Roth Conversion Strategy – Using a Market Downturn to Pay Less Income Tax

Michael Torney, CFP, J.D., LL.M. 

John D. Rockefeller once said, “I always tried to turn every disaster into an opportunity.” With the stock market down by double digits in 2022, investors have such an opportunity right now: they can achieve long-term financial gains by converting money from a traditional Individual Retirement Account (IRA) into a Roth IRA. There will be no income taxes owed on qualified distributions from a Roth IRA for the rest of your life.  And this money will continue to grow tax free. 

While nearly anyone can take advantage of this tactic, there’s a special planning opportunity for those in their 60s or 70s who are near retirement or recently retired. That’s because while the money converted into a Roth IRA will be taxed, a depressed stock market means you will pay lower taxes than when the market is rising. 

Here’s a good example of how a Roth conversion works and the benefits to the investor: 

• A person with $50,000 in a traditional IRA converts this money into a Roth IRA.  They will need to pay taxes on the $50,000. If they are in the 22% percent tax bracket, they will pay $11,000.  Assume the taxes are paid from other funds, allowing the full $50,000 to be deposited in to the Roth IRA. 
• Next, the $50,000 is invested in the Standard & Poor’s 500 Index in shares of the Vanguard 500 Index Fund (VFIAX).  On September 1, 2022, each share in this fund was valued at 367.16 per share[1]. The investor now holds 136.18 shares in this fund in their Roth IRA. 
• As of September 1, 2022, VFIAX was down 15.9% on the year[2]. If, at some point, the S&P 500 recovers to its all-time high, the gain in the Roth IRA is tax-free. And all this money will continue to compound in the coming years – again, tax free. 
• At the time of the conversion, if the investor pays the taxes on the traditional IRA using cash or another non-taxable source of money, that’s extra money in the Roth that can grow tax free. 

Without a Roth IRA conversion, all of the money in your traditional IRA, 401(k) retirement plan and other tax-deferred accounts will be taxed when you withdraw it.  For example, if you withdraw $30,000 annually to help pay for living expenses, you will pay taxes on this amount every year. 

Eventually, everyone must tap into these accounts. Beginning at age 72, every retired investor is forced to begin withdrawing some of their money each year. The amount to be withdrawn is called a required minimum distribution (RMD). The amount is based on a formula set by the Internal Revenue Service. Again, taxes will be paid on these withdrawals each year for the rest of your life. 

Many investors could benefit from a Roth IRA conversion strategy, but it pays to evaluate current and future expectations for taxes. 

First, compare your tax bracket today to the likely future tax bracket. If today’s tax bracket is lower, a Roth conversion will save money in the future. For example, if you have retired but aren’t receiving Social Security benefits or withdrawing money from your IRA, you are likely in a lower tax bracket.   

For those investors considering a Roth conversion because of an anticipated higher future tax bracket, a bear market is a cherry on top of the tax savings sundae.  The temporary decline in prices puts the conversion on sale. 

Using Rockefeller’s idea to turn a disaster into an opportunity now makes sense. If you have questions or need to discuss a strategy for a Roth IRA conversion, contact our team at Duffteam@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan can help serve you well now and during retirement.

Sources:
[1]: https://finance.yahoo.com/quote/VFIAX/history?p=VFIAX
[2]: https://finance.yahoo.com/quote/VFIAX/history?p=VFIAX

2022 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. Personal financial situations may vary, and results may differ. Examples are meant to provide general guidance only and are not to be construed as investment advice. 

The post The Bear Market Roth Conversion Strategy – Using a Market Downturn to Pay Less Income Tax appeared first on Moneta Group.

source https://monetagroup.com/blog/the-bear-market-roth-conversion-strategy-using-a-market-downturn-to-pay-less-income-tax/