One Day You May Be Offered Ownership in a Medical Practice. Here are the Financial Questions You Need to Answer

By Michael Torney, CFP, J.D., LL.M.

Medical doctors working in a private practice may one day get the opportunity to become an owner of the business. When this offer is made, a physician needs answers to several questions, ranging from how the business is run, the cost to become a partner and how much more money they will earn.

To answer these questions, we recommend meeting with an attorney who specializes in healthcare mergers and acquisitions, and who has a high degree of experience and expertise. They can provide advice on the standard parts of the buy-in process, as well as what items can be negotiated. And, once several pieces of important information are collected, they can work with a financial planner to help guide you through the decision-making process.

You will want to gather information and understand the following:

• How the medical practice makes decisions on topics such as practice management, billing, hiring, finances and more.
• At least the most recent three years of financial statements and its cash flow. Ask the attorneys to review and provide you with a summary of their findings.
• If the practice owns any real estate. If so, will you also be an owner and in what proportion?  What is left on the mortgage and how are the payments made?
• If you will be responsible for your patients’ accounts receivable? If the practice doesn’t collect these payments, what does it mean?
• What does the cash flow of the practice look like each year?
• Whether there is any goodwill related to the practice that makes it more or less desirable?
• Finally, how much will you earn once you are a partner? Medical practices have different payment models. For example, some pay partners in equal shares and others pay partners on production (RVUs).  Some have a hybrid model.

Determining the Value of the Medical Practice

After receiving answers to these questions, the attorney can help you understand the value of the business.

There are three primary ways to value a medical practice. There is the price/earnings ratio; the discounted cash flow method, and the comparable sales model. There are other methods that the attorney can explain, but here is a short description of these three methods:

• The price earnings ratio, referred to as the P/E ratio, attempts to find a reasonable price to pay for earnings of the practice. This ratio shows the value of the practice based on its past or future earnings.
• The discounted cash flow model attempts to take current and expected earnings on the business and come up with a present value of future cash flows. However, the present value is the price you should be willing to pay.
• The comparable sales model reviews the sale prices for similar medical practices in recent years to establish a base price for your practice. We advise using more than one model to see if the price is similar under different valuation methods.

How to Finance Your Part of the Ownership

Once a sales price for your piece of the business is established, you may not have enough money to make a cash purchase. If that’s the case, you’ll need to finance the purchase over time. There are a few different ways to accomplish this goal:

• A bank loan in exchange for collateral.
• An internal agreement with the partners.
• Use equity payments you would otherwise be entitled to until your purchase price is paid.

Let’s use the equity payments as an example.  Assume you earn $300,000 now, but are projected to earn $450,000 as a partner with $150,000 profit distributions. If the purchase price to become a partner is $450,000, you would give up three years of the extra $150,000 of profit sharing distributions to finance the purchase. In year four, you would earn the full $450,000. This method also allows you to pay before your money is taxed, making it even more advantageous.

Becoming the owner of a medical practice is an exciting day for any medical doctor. By doing your research and employing professionals, this decision can propel your medical career to a new level and help you achieve financial security.

If you have questions about buying into a medical practice and want to discuss a strategy, our team can be reached at duffteam@monetagroup.com. We offer a free consultation to help discuss how we may be able to help accomplish a smooth purchase that is incorporated into your overall financial plan.

© 2022 Moneta Group Investment Advisors, LLC. All rights reserved. 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. 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 post One Day You May Be Offered Ownership in a Medical Practice. Here are the Financial Questions You Need to Answer appeared first on Moneta Group.

source https://monetagroup.com/blog/one-day-you-may-be-offered-ownership-in-a-medical-practice-here-are-the-financial-questions-you-need-to-answer/

Ask the CFP: What is a Stock Split and Why Do Companies Do Them?

 

Hello everyone and welcome to this month’s Ask the CFP segment. This month’s question is, “what is a stock split and why do companies do them?” Stock splits are a common strategy used by publicly traded companies. Some have made headlines, such as Alphabet, which is the parent company of Google, when they announced a 20-for-1 stock split. This means an investor with 1 share of Alphabet has 20 shares after the split. This may seem like a drastic change for shareholders, so why do companies initiate stock splits?

Stock splits often create more liquidity for shareholders. Imagine if a stock rose to $50,000 per share. You would need $50,000 just to buy one full share of that company. Because of the high limit to buy a single share, fewer people are likely to bid on the stock. Fewer bidders limits transactions for sellers, thus limiting liquidity. In the example of Alphabet, their share price was approaching $3,000 per share before the split. When most companies conduct stock splits, they use 2-for-1 or 3-for-1 splits. For Alphabet, they felt the price needed to be lower and in closer reach of smaller investors. Keep in mind, trading of shares often occurs in lots of 100. Smaller lots can be traded, but using round lots of 100 offers a greater likelihood of realizing the same share price for a market order. A “small investor” might be one that buys 100 or 200 shares vs. a single share.

When companies split their stock, the value of the stock doesn’t change. It’s like asking someone to split a $20 dollar bill for two $10 dollar bills. You have the same amount of money, but two bills. That’s a perfect example of a 2-for-1 split. The value stays the same even though the number of bills or shares increased. Also, stock splits generally don’t trigger taxation since shares aren’t being sold or converted. They’re simply being split into smaller pieces.

Sometimes stock splits can also work in reverse. A reverse stock split is just the opposite, where someone may start with 200 shares and end up with 100 shares after a 2-for-1 reverse split. This usually happens when a company’s share price has declined. Some stock exchanges will remove a stock once the price per share is less than one dollar. Right or wrong, stocks with low share prices are often seen as riskier. Companies that wish to avoid the stigma associated with a low share price may elect for a reverse stock split.

Overall, stock splits are fairly common, having occurred with companies such as Amazon, Microsoft, Apple, Disney, Caterpillar and Mastercard. They’re often seen as good news by investors but remember the $20 dollar bill example. The bills still add up to $20 dollars. If you have a question about this topic or have a question for next month’s video, please send it to dtroyer@monetagroup.com  Thanks for watching and we’ll see you next month.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please speak with a qualified tax or legal professional before making any changes to your personal situation.

©2022, Moneta Group Investment Advisors, LLC. Trademarks and copyrights of materials referenced herein are the property of their respective owners. These materials have been prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Past performance is not indicative of future returns. You cannot invest directly in an index. These materials do not constitute an offer or recommendation to buy or sell securities, and do not take into consideration your circumstances, financial or otherwise. You should consult with an appropriately credentialed investment professional before making any investment decision.

The post Ask the CFP: What is a Stock Split and Why Do Companies Do Them? appeared first on Moneta Group.

source https://monetagroup.com/blog/ask-the-cfp-what-is-a-stock-split-and-why-do-companies-do-them/

Update article for new post

By Ryan Martin & Lauren Hunt, Senior Advisors

What is the right percentage of stocks, bonds and other investments I should have in my investment portfolio?

This is one of the most important questions each investor has – one we often hear, especially from people worried about any short-term drop in their portfolio’s value during periods of market volatility. Each person has different needs and objectives, so our answers will vary.  Yet the fundamental goal is generally the same — to build a diversified portfolio that can grow steadily with a reasonable amount of risk to generate and sustain wealth to meet your financial objectives.

To accomplish that goal, many people choose an investment portfolio consisting of some percentage of growth-oriented holdings (stocks and alternative investments) and some percentage of holdings meant to preserve capital (cash and bonds). The stocks will often include large-, mid- and small-cap US companies, as well as international companies, while the bonds may consist of short- to intermediate-term corporate, municipal and government bonds.

Each person’s allocation decision should be based on their individual circumstances, but there are a few basic principles that anyone can apply. Here they are:

Choose an Allocation for Good and Bad Times

Deciding on the right allocation of stocks, bonds and other investments — and staying with this mix through thick and thin — means you are less likely to make decisions based on emotions when things go wrong. While a fairly evenly weighted portfolio (½ stocks and ½ bonds) will often provide for meaningful growth over a long period, there will probably be difficult years where your investments lose money. You may begin to question your mix of stocks and bonds during the tough times, but it’s critically important to stay the course in response to a short-term drop in your portfolio’s value.

The Standard & Poor’s 500 Index dropped 20.6 percent in the first six months of 2022. But the index also rose by a stunning 18.5 percent average annual rate of return during the previous five years, providing people with a significant increase in their wealth. Understand that the market is always moving; even if it’s in the wrong direction now, keep your long-term objectives as the goal.

Determine How Much Growth is Needed to Retire Comfortably

Whether it’s a comfortable retirement income, a vacation home, or an annual European vacation, a financial plan is needed to meet these objectives. That’s where an individual strategy comes into play.

A person who started investing later in life may need to take on more risk to achieve their goals. For example, if they would like to retire with $5 million at age 65, and have only $2 million at age 50, they may need to allocate a higher percentage of money into stocks unless they are able to save substantially more money.

On the other hand, someone with more than enough wealth to meet their objectives may not need such risk and doesn’t want to see their portfolio vacillate up and down.  While they may accept a lower rate of return as a tradeoff for less risk, they can do so based on their resources.  Going one step further, retirees with no concern about outliving their wealth may want to revise the allocation in their portfolio to leave more money for their heirs. For example, at age 80, if their portfolio is 60 percent stocks and 40 percent bonds, they may actually want to change their investment mix to generate higher returns. While this usually means taking on more risk, there may be little downside, as they may be able to live comfortably despite the outcomes. The objective is to generate more growth that can be passed on to their adult children and grandchildren.

Choose The Right Amount of Risk to Maximize Your Returns

In theory, you should be compensated for taking more risk with higher potential returns.  But how much risk are you willing to endure?  Because stocks often provide the highest returns over a long period, a person in their 30s or 40s will likely have more of their investments in stocks than the typical portfolio and they can accept a riskier mix of assets.

While some young investors have recently watched their investments drop in value, they shouldn’t be too concerned; they will have two or three decades to recover. They’ve also been presented with an unusual opportunity: buying many stocks at a discount to their value, enabling them to reap the rewards from any new investment in the years to come.

No matter what your age, it’s important to feel at ease with a certain level of volatility. One simple scenario to consider during the decision-making process is how did you react during the last downturn in the market?  Did this cause unrest, or did you pay little attention to the fluctuations and headlines?

Occasionally Change Your Allocation – But Not Often

People approaching retirement who are on track to meet their retirement goals will likely want to make some changes within their portfolio to take on less risk. After building wealth for decades, now is the time to protect assets.

At the same time, however, pre- and early retirees should maintain a portfolio that isn’t too conservative. Their investments should continue to outpace inflation – realizing that the current inflation rate is unusually high.

No matter your situation, plan to have enough money to last a lifetime. Even if you retire at age 65, understand that your money will possibly need to last for the next 25-35 years, depending on your circumstances.

We generally caution making allocation changes at presumably inopportune times – avoid getting more conservative after markets have dropped (selling stocks after a pullback) and getting more aggressive after a bull market run (getting greedy and buying more stocks after a period of good performance).

If you have questions or need to discuss your investment strategy, feel free to contact us at rmartin@monetagroup.com or lhunt@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan can enable your business and personal wealth to grow.

© 2022 Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and 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. Index and/or Style 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. You cannot invest directly in an index. 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 Update article for new post appeared first on Moneta Group.

source https://monetagroup.com/blog/update-article-for-new-post/

new article for test

By Ryan Martin & Lauren Hunt, Senior Advisors

What is the right percentage of stocks, bonds and other investments I should have in my investment portfolio?

This is one of the most important questions each investor has – one we often hear, especially from people worried about any short-term drop in their portfolio’s value during periods of market volatility. Each person has different needs and objectives, so our answers will vary.  Yet the fundamental goal is generally the same — to build a diversified portfolio that can grow steadily with a reasonable amount of risk to generate and sustain wealth to meet your financial objectives.

To accomplish that goal, many people choose an investment portfolio consisting of some percentage of growth-oriented holdings (stocks and alternative investments) and some percentage of holdings meant to preserve capital (cash and bonds). The stocks will often include large-, mid- and small-cap US companies, as well as international companies, while the bonds may consist of short- to intermediate-term corporate, municipal and government bonds.

Each person’s allocation decision should be based on their individual circumstances, but there are a few basic principles that anyone can apply. Here they are:

Choose an Allocation for Good and Bad Times

Deciding on the right allocation of stocks, bonds and other investments — and staying with this mix through thick and thin — means you are less likely to make decisions based on emotions when things go wrong. While a fairly evenly weighted portfolio (½ stocks and ½ bonds) will often provide for meaningful growth over a long period, there will probably be difficult years where your investments lose money. You may begin to question your mix of stocks and bonds during the tough times, but it’s critically important to stay the course in response to a short-term drop in your portfolio’s value.

The Standard & Poor’s 500 Index dropped 20.6 percent in the first six months of 2022. But the index also rose by a stunning 18.5 percent average annual rate of return during the previous five years, providing people with a significant increase in their wealth. Understand that the market is always moving; even if it’s in the wrong direction now, keep your long-term objectives as the goal.

Determine How Much Growth is Needed to Retire Comfortably

Whether it’s a comfortable retirement income, a vacation home, or an annual European vacation, a financial plan is needed to meet these objectives. That’s where an individual strategy comes into play.

A person who started investing later in life may need to take on more risk to achieve their goals. For example, if they would like to retire with $5 million at age 65, and have only $2 million at age 50, they may need to allocate a higher percentage of money into stocks unless they are able to save substantially more money.

On the other hand, someone with more than enough wealth to meet their objectives may not need such risk and doesn’t want to see their portfolio vacillate up and down.  While they may accept a lower rate of return as a tradeoff for less risk, they can do so based on their resources.  Going one step further, retirees with no concern about outliving their wealth may want to revise the allocation in their portfolio to leave more money for their heirs. For example, at age 80, if their portfolio is 60 percent stocks and 40 percent bonds, they may actually want to change their investment mix to generate higher returns. While this usually means taking on more risk, there may be little downside, as they may be able to live comfortably despite the outcomes. The objective is to generate more growth that can be passed on to their adult children and grandchildren.

Choose The Right Amount of Risk to Maximize Your Returns

In theory, you should be compensated for taking more risk with higher potential returns.  But how much risk are you willing to endure?  Because stocks often provide the highest returns over a long period, a person in their 30s or 40s will likely have more of their investments in stocks than the typical portfolio and they can accept a riskier mix of assets.

While some young investors have recently watched their investments drop in value, they shouldn’t be too concerned; they will have two or three decades to recover. They’ve also been presented with an unusual opportunity: buying many stocks at a discount to their value, enabling them to reap the rewards from any new investment in the years to come.

No matter what your age, it’s important to feel at ease with a certain level of volatility. One simple scenario to consider during the decision-making process is how did you react during the last downturn in the market?  Did this cause unrest, or did you pay little attention to the fluctuations and headlines?

Occasionally Change Your Allocation – But Not Often

People approaching retirement who are on track to meet their retirement goals will likely want to make some changes within their portfolio to take on less risk. After building wealth for decades, now is the time to protect assets.

At the same time, however, pre- and early retirees should maintain a portfolio that isn’t too conservative. Their investments should continue to outpace inflation – realizing that the current inflation rate is unusually high.

No matter your situation, plan to have enough money to last a lifetime. Even if you retire at age 65, understand that your money will possibly need to last for the next 25-35 years, depending on your circumstances.

We generally caution making allocation changes at presumably inopportune times – avoid getting more conservative after markets have dropped (selling stocks after a pullback) and getting more aggressive after a bull market run (getting greedy and buying more stocks after a period of good performance).

If you have questions or need to discuss your investment strategy, feel free to contact us at rmartin@monetagroup.com or lhunt@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan can enable your business and personal wealth to grow.

© 2022 Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and 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. Index and/or Style 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. You cannot invest directly in an index. 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 new article for test appeared first on Moneta Group.

source https://monetagroup.com/blog/new-article-for-test/

What is the Right Asset Allocation for You? Consider These 4 Guidelines

By Ryan Martin & Lauren Hunt, Senior Advisors

What is the right percentage of stocks, bonds and other investments I should have in my investment portfolio?

This is one of the most important questions each investor has – one we often hear, especially from people worried about any short-term drop in their portfolio’s value during periods of market volatility. Each person has different needs and objectives, so our answers will vary.  Yet the fundamental goal is generally the same — to build a diversified portfolio that can grow steadily with a reasonable amount of risk to generate and sustain wealth to meet your financial objectives.

To accomplish that goal, many people choose an investment portfolio consisting of some percentage of growth-oriented holdings (stocks and alternative investments) and some percentage of holdings meant to preserve capital (cash and bonds). The stocks will often include large-, mid- and small-cap US companies, as well as international companies, while the bonds may consist of short- to intermediate-term corporate, municipal and government bonds.

Each person’s allocation decision should be based on their individual circumstances, but there are a few basic principles that anyone can apply. Here they are:

Choose an Allocation for Good and Bad Times

Deciding on the right allocation of stocks, bonds and other investments — and staying with this mix through thick and thin — means you are less likely to make decisions based on emotions when things go wrong. While a fairly evenly weighted portfolio (½ stocks and ½ bonds) will often provide for meaningful growth over a long period, there will probably be difficult years where your investments lose money. You may begin to question your mix of stocks and bonds during the tough times, but it’s critically important to stay the course in response to a short-term drop in your portfolio’s value.

The Standard & Poor’s 500 Index dropped 20.6 percent in the first six months of 2022. But the index also rose by a stunning 18.5 percent average annual rate of return during the previous five years, providing people with a significant increase in their wealth. Understand that the market is always moving; even if it’s in the wrong direction now, keep your long-term objectives as the goal.

Determine How Much Growth is Needed to Retire Comfortably

Whether it’s a comfortable retirement income, a vacation home, or an annual European vacation, a financial plan is needed to meet these objectives. That’s where an individual strategy comes into play.

A person who started investing later in life may need to take on more risk to achieve their goals. For example, if they would like to retire with $5 million at age 65, and have only $2 million at age 50, they may need to allocate a higher percentage of money into stocks unless they are able to save substantially more money.

On the other hand, someone with more than enough wealth to meet their objectives may not need such risk and doesn’t want to see their portfolio vacillate up and down.  While they may accept a lower rate of return as a tradeoff for less risk, they can do so based on their resources.  Going one step further, retirees with no concern about outliving their wealth may want to revise the allocation in their portfolio to leave more money for their heirs. For example, at age 80, if their portfolio is 60 percent stocks and 40 percent bonds, they may actually want to change their investment mix to generate higher returns. While this usually means taking on more risk, there may be little downside, as they may be able to live comfortably despite the outcomes. The objective is to generate more growth that can be passed on to their adult children and grandchildren.

Choose The Right Amount of Risk to Maximize Your Returns

In theory, you should be compensated for taking more risk with higher potential returns.  But how much risk are you willing to endure?  Because stocks often provide the highest returns over a long period, a person in their 30s or 40s will likely have more of their investments in stocks than the typical portfolio and they can accept a riskier mix of assets.

While some young investors have recently watched their investments drop in value, they shouldn’t be too concerned; they will have two or three decades to recover. They’ve also been presented with an unusual opportunity: buying many stocks at a discount to their value, enabling them to reap the rewards from any new investment in the years to come.

No matter what your age, it’s important to feel at ease with a certain level of volatility. One simple scenario to consider during the decision-making process is how did you react during the last downturn in the market?  Did this cause unrest, or did you pay little attention to the fluctuations and headlines?

Occasionally Change Your Allocation – But Not Often

People approaching retirement who are on track to meet their retirement goals will likely want to make some changes within their portfolio to take on less risk. After building wealth for decades, now is the time to protect assets.

At the same time, however, pre- and early retirees should maintain a portfolio that isn’t too conservative. Their investments should continue to outpace inflation – realizing that the current inflation rate is unusually high.

No matter your situation, plan to have enough money to last a lifetime. Even if you retire at age 65, understand that your money will possibly need to last for the next 25-35 years, depending on your circumstances.

We generally caution making allocation changes at presumably inopportune times – avoid getting more conservative after markets have dropped (selling stocks after a pullback) and getting more aggressive after a bull market run (getting greedy and buying more stocks after a period of good performance).

If you have questions or need to discuss your investment strategy, feel free to contact us at rmartin@monetagroup.com or lhunt@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan can enable your business and personal wealth to grow.

© 2022 Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and 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. Index and/or Style 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. You cannot invest directly in an index. 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 What is the Right Asset Allocation for You? Consider These 4 Guidelines appeared first on Moneta Group.

source https://monetagroup.com/blog/what-is-the-right-asset-allocation-for-you-consider-these-4-guidelines/

Demo Article for Multiple teams

Kevin Ward, Advisor

For many, retirement increasingly represents a meaningful share of our lives—the benefit, partly, of the miracles of modern medicine which have extended our lifespans. But without a daily job to go to, many can feel adrift, the years stretching before them shrouded in uncertainty—about how to spend their time and replace the sense of meaning that often accompanies a professional occupation. In a prior introductory piece, we explored two broad buckets for consideration when approaching retirement: financial considerations and lifestyle and emotional considerations. Herein, we will closely examine the lifestyle and emotional considerations. And while hardly a replacement for meaningful conversations with your family, friends, and other advisors or confidants, we hope this piece provides you with a starting point for approaching retirement ready to embrace its changes and evolution productively and joyfully.

One of retirement’s most significant lifestyle shifts is how you will spend much of your time. Most professionals spend anywhere between 40 and 80+ hours each week dedicated primarily to work. The sudden shift to zero hours can be jarring, particularly if you were passionate about your work. Fortunately, you don’t necessarily have to slam quite so hard on the brakes if you don’t want to. Perhaps your employer is willing—even eager—to retain your services part-time. Your years of experience are undoubtedly valuable—if not to your last employer, then perhaps to another who recognizes the value a seasoned professional could provide their staff. Maybe there are opportunities to mentor younger employees. Such an approach—partially stepping away and decreasing but not eliminating the hours you spend at the office—could help you ease out of full-time employment.

Depending on how you spent your career and how eager you are for a new professional challenge, there might also be an opportunity to start your own business. Many professionals spend years learning the inside baseball of their industry and their specific company. You undoubtedly have some insights into how to do things more efficiently, profitably, etc., which could form the basis of a valuable second career as a consultant—either on your own or with an existing consulting company. A significant benefit to pursuing this type of occupation is you call more of your shots—you control how much time you spend working and which clients you take on. This also means you can better balance a sense of purpose with other occupations or interests you may want to pursue in retirement.

Many of us are drawn to particular causes because of personal experiences or a desire to give back. Serving on a board can be an excellent way to support your preferred cause while continuing to exercise the professional muscles you spent years developing and strengthening. For example, many retired executives or professionals find their accumulated experience and wisdom useful on boards, both for-profits, and non-profits.

On the other hand, maybe your career was never your life’s passion, and you’re ready for an entirely new chapter. In which case, assuming you’ve planned accordingly financially, the world is your oyster. You could take courses in which you’re interested at a local college. You could take up a new hobby and take classes to develop your skills and meet others who share your interest. Maybe your piano has sat neglected in your living room for too long, and it’s time to refresh your skills, take some lessons, and rekindle your love of music. Others prefer to scratch the athletic itch, join golf or tennis clubs, and stay active.

Many also choose to spend more time traveling during retirement—whether touring the US in an RV or flying to far-flung destinations. Provided you’ve saved enough to support your travel dreams, retirement can be a wonderful time to explore whatever part of the world takes your fancy.

Another significant lifestyle shift in retirement could be where you live. While some of these decisions are likely tied to financial considerations:

• Is your home paid off?
• Is it expensive to maintain?
• Is it in a costly location, like a major city?

Some of it is undoubtedly emotional, too. Perhaps you and your spouse raised your family in your current home, and you’ve always envisioned grandchildren running around the backyard during summer visits. Or maybe the house feels too big now, and you’d prefer to move into a more manageable home.

If moving is in your plans, location is the next big question. And the considerations here are many:

• What kind of climate would you prefer?
• What cost of living?
• Rural or urban?
• Condo or townhome?

Maybe you’d prefer to be in a high-rise downtown in a major city, with public transportation to cultural events and nice restaurants. Or perhaps you’d prefer to buy the small farmhouse that needs some tender, loving care on a reasonable piece of land.

The key to many of these emotional and lifestyle shifts is considering them in advance and critically discussing them with your loved ones. Changes in your life will equally impact your spouse. Presumably, you will be spending more time together. How will that look? Would you like to do things together, or would you prefer to have your own interests to pursue, or somewhere in between? Aligning your visions of the future will help you both make the transition successfully and, ideally, joyfully. Retirement is a tremendous reward for a life dedicated to work and responsibility. Planning ahead and communicating with your family can ensure you fully capitalize on all the benefits it can offer.

Also important is communicating these preferences and dreams to your financial advisor so that you can live them out in a financially responsible way. The last thing you want is to retire, having dreamed of traveling the world without financial care, only to find out you can’t afford it. So, communicate with everyone who will be impacted by your retirement early and often—and make sure your financial advisor is among them. Then, get ready to enjoy the journey, wherever it takes you.

If you have more questions, please reach out to our team at breckenridgeteam@monetagroup.com.

© 2022 Moneta Group Investment Advisors, LLC. All rights reserved. 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. 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 and opinions contained herein are 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.

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Did You Earn $500,000 in 2021? You May Still Have Time to Reduce 2021 Taxes and Set Up a Long-Term Retirement Savings Plan

By Maggie Rapplean, CFP®, Senior Advisor, Moneta

Solo entrepreneurs, business owners and professionals often work days, nights and weekends. They may not have time to put together a financial plan that would save a significant amount of their income for retirement while also cutting their taxes by possibly tens of thousands of dollars each year. But it’s often easy to do – and there is still time to do this and file your 2021 taxes on time if you filed an extension.

Consider this scenario:

You work as a medical doctor, attorney, real estate professional or tech company owner and earned $500,000 in 2021. If you are married and file a joint return, you and your spouse will pay a marginal income tax rate of 35 percent in federal income taxes alone on part of your earnings. At a 35 percent marginal tax rate, a $50,000 retirement contribution would save you $17,500 in federal income taxes.

If you have a calendar-year partnership or S Corporation and filed an extension, you have until September 15 to file the 2021 federal business return. If you have a Schedule C on your Form 1040 and filed an extension, you have until October 15 to file your 2021 federal income tax return. You still have time to start one or more new retirement savings plans – a way to build long-term wealth – while potentially making a huge dent in your tax bill.

Here’s a quick summary of some of the retirement plans available to you:

A Simplified Employee Pension (SEP). A SEP allows a small business owner to set up and contribute to a SEP Individual Retirement Account (SEP IRA). Contributions to a SEP are limited to approximately 20% of your net earnings from self-employment (or 25% of your W-2 wages if you have an S Corporation) with a limit of $58,000 for 2021 and $61,000 for the 2022 tax year. Business owners who haven’t yet filed their 2021 returns still have time to contribute to one of these plans until the extended due date.

A Solo 401(k) Retirement Plan. This is a retirement account designed for self-employed business owners with no other employees (besides a spouse). While the deadline has passed to make an “elective deferral” contribution for the 2021 tax year, there is still time to make an election to adopt a plan for the 2021 tax year, which would allow the “employer” contribution for 2021.

If you were paid a sufficient salary or had sufficient net earnings from self-employment (depending on entity type), the “employer” can contribute up to $58,000 for the 2021 tax year and $61,000 for the 2022 tax year. In future years when an “elective deferral” is possible, a catch-up contribution of an extra $6,500 is available for those 50 or older.

Cash Balance Plans. These plans give one more option for retirement and tax savings for solo business owners with high incomes – such as those already maximizing the 401(k) plan or SEP IRA. If you extended your return, you have until September 15 to still make contributions to a cash balance plan for the 2021 tax year (a Schedule C does not get an extra month like the other plans).

These plans are different from SEPs and 401(k)s because they are defined benefit plans instead of defined contribution plans and will require a contribution each year. The maximum amount you can contribute is dependent on your age and the terms of the plan (you work with an actuary to determine the contribution), but over time may allow larger and larger contributions. These plans can be combined with a 401(k) to allow even higher contributions, though you will have to coordinate the overall contributions between the plans.

With a combined plan, you could be contributing more than $100,000 annually to retirement (and sometimes much more). In addition to helping a solo owner quickly build wealth, a cash balance plan has other benefits. For example, once the owner retires, they have the option of taking these savings in an annuity spread out over several years or as a lump sum, which can be invested.

It’s clear that by contributing to one or more of these plans, entrepreneurs and solo small business owners can likely generate the savings and investment returns they will need to comfortably retire. Generally, I recommend to my clients that they contribute at least 10-15 percent annually, enabling them to accomplish that goal.

If you are a small business owner, medical doctor, attorney, or real estate professional with questions or would like to discuss a strategy for retirement and tax savings, please contact me at MRapplean@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan can serve you well now and during retirement.

© 2022 Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and 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. 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 and opinions contained herein are 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 post Did You Earn $500,000 in 2021? You May Still Have Time to Reduce 2021 Taxes and Set Up a Long-Term Retirement Savings Plan appeared first on Moneta Group.

source https://monetagroup.com/blog/did-you-earn-500000-in-2021-you-may-still-have-time-to-reduce-2021-taxes-and-set-up-a-long-term-retirement-savings-plan/