Why it Matters – Issue 4

Where were you when Neil Armstrong took that remarkable walk?

July 20 is just around the corner and I can’t help but remember watching the Apollo 11 lunar landing with my family 50 years ago. That Sunday afternoon, my mom and dad, brother and sisters, and I gathered in front of our 30-inch, black-and-white TV listening attentively to Walter Cronkite. With these words, “The Eagle has landed,silence fell over the gathering. We were in awe.

That awe continues to infuse my soul, especially when I pick up my smart phone for text messages, or to access directions…even a recipe. Apollo 11 had landed on the moon using technology that had 1,300 times less capacity than my smart phone. In fact, the Apollo 11 Mission travelled 240,000 miles in less than 76 hours, relying on four, 16-bit computers and a stable of NASA engineers using slide rules.

When Apollo 11 touched down in the Sea of Tranquility on July 20, 1969, it was a triumph of the human spirit, setting the stage for the world of remarkable innovation that we enjoy today.

This edition of Why It Matters features a particular technological innovation that every one of our clients can appreciate: a digital safety deposit box—a VAULT—that is available to you through myQuest, your personal financial hub. Additionally, we tackle the pros and cons of Roth IRA conversions. (For those clients with taxable portfolios, Roth conversions may make sense, particularly in a period of lower taxes.) And, finally, we are delighted to introduce a series of short videos that are available on the home page of our website: www.pwausa.com. In less than three minutes, these informative, fact-filled videos address Social Security, insurance strategies, estate planning, and more. We have branded these videos Just Ask Us—and we hope you do! Let us know what topics you think would be helpful in keeping yourself informed, along with family and friends.

Thanks for reading! Please be sure to let us know what you think.

Wishing all a safe and fun-filled summer,

Joe Scarpo

Founder and CEO

Imagine owning a digital safety deposit box with iron-clad security that you can access through any Internet-connected device. Why would you need—or want—such a tool? Here are a few scenarios worth considering:

  • You have given your child Power of Attorney. She now has online access to everything she needs through the myQuest VAULT: tax returns, deeds, insurance policies, and legal documents.
  • You are traveling abroad and lose your passport and international driver’s license. Simply head to the nearest Embassy and log into myQuest using your mobile phone.Personal documents can be stored in the myQuestVAULT for any time, any place access.
  • You lose critical documents in a fire. Using the myQuest VAULT, your estate planning documents (copies of your will and trusts) can be retrieved and provided to an attorney to create replacements. Additionally, insurance policies, along with photographs of your home, furniture, and other valuables can be readily accessed, speeding the recovery process.
  • There’s a sudden injury or death…You can make it easier on your loved ones by having everything in one secure, online place.

The files within the myQuest VAULT can be separated into two sets of folders: My Documents and Shared Documents. The “My Documents” folder is for storing private files, which is password-protected and accessible only by you. The “Shared Documents” folder is for saving files that you wish to share with your PWA Wealth Management Advisor. For example, you can upload an updated will to the VAULT—avoid sending it via email or fax—thereby eliminating points where sensitive information could be intercepted.

Following is a sampling of what you may want to store electronically:

Legal Documents

  • Deeds and Titles
  • Wills
  • Revocable & Irrevocable Trusts
  • Power of Attorney

Social Security and Veteran’s Administration Information

Insurance Policies

  • Life
  • Disability
  • Medical
  • Property and Auto

Medical Records

Bank & Investment Statements

  • Pensions, 401(k), and Retirement Accounts
  • Investment Accounts
  • Stock Options/Certificates

Liabilities

  • Credit Cards
  • Mortgages
  • Loans

Taxes

  • Tax Returns
  • 1099s
  • k-(1)s
  • W2

Identification

  • Birth Certificates
  • Marriage License
  • Driver’s License
  • Passports

Is the myQuest VAULT secure?

myQuest employs the most advanced security features and protocols to keep your data private and secure: 24/7/365. Please consult with your PWA Wealth Management Advisor to learn more about how you can streamline the communications process and to “clean house” when it comes to storing and accessing critical documentation.

One of the benefits of working with a PWA Wealth Management Advisor is being able to develop a tax-efficient retirement strategy. Clients with significant amounts in a profit-sharing plan or Traditional IRA might consider a Roth IRA conversion. Here’s how it works.

 Roth IRAs are a gift Congress gave some Americans for saving for retirement. A Roth IRA is funded with after-tax dollars, meaning you have already paid taxes on the money you put into it. In return for no up-front tax break (like a Traditional IRA), your investment grows tax free. Later, when you withdraw funds during retirement, you pay no taxes.Further,Roth IRAs are not subject to Required Minimum Distributions (RMDs) after age 70½­—and your heirs won’t owe taxes on their withdrawals upon inheriting the account.

Congress, however, placed income restrictions that prohibit many Americans from using a Roth IRA. In 2019, you are not eligible to directly participate if your Modified Adjusted Gross Income (MAGI) exceeds $137,000 (individual) or $203,000 (married couple, filing jointly).

Even if you make too much money to directly contribute to a Roth IRA, there are ways to enjoy its benefits: Roth IRA Conversions.

In addition to converting a Traditional, SEP, or SIMPLE IRA to a Roth IRA, you can also convert assets from your 401(k) or other employer-sponsored plan, but you need to make sure the money is transferred directly to a financial institution. (If the employer issues a check as a rollover, it must withhold 20% of the account balance for tax purposes. You’ll have 60 days to deposit all the money in a new Roth account—including the 20% that you didn’t receive.)

Regardless of where the tax-deferred funds originate, you must pay income taxes on the value of the account at the time of the conversion. If you lack the cash to pay the tax bill generated by the conversion, you can pay it with part of the converted balance. (Generally, those under age 59½ should only do a conversion if they have personal funds from which the tax on conversion can be paid.) Once converted, the funds must remain in the Roth account for a five-year period to fully enjoy the tax-free withdrawal benefits.

Roth conversions can be effective in years where an individual or “married filing jointly couple” expect to be in a lower tax bracket than is expected in the future. Given the current low rates, this applies to many individuals with significant IRA balances. Paying taxes today at an effective rate of 12%, 16%, or 22% is substantially better than paying taxes in the future at a 24% or 32% rate. Your PWA Wealth Management Advisor can walk you through the math and demonstrate whether this strategy should be considered.

Another overlooked but common scenario arises when an individual or couple decide to move to an assisted living facility. The move may result in deductions including the initiation or entrance fees (those attributable to medical costs as provided by the facility). That deduction could offset the ordinary income generated from a Roth conversion. The takeaway: There are a variety of opportunities that may arise where a Roth conversion could be highly beneficial to the taxpayer.

A Roth IRA conversion could be right for you…

  • If you like the idea of your investment earnings growing tax free.
  • If you want the ability to lower your future taxable income in retirement.
  • If you want to avoid RMDs, which the IRS mandates at age 70½ from a Traditional IRA.
  • If you have earnings and would like to continue adding to your retirement account after age 70½, which is prohibited with Traditional IRAs.
  • If you wish to leave your heirs a tax-free account.

PWA Wealth Management is ready to assist you in navigating through your retirement. Your personal Goal Policy Statement (GPS) will outline the roadmap to get you and your family to your desired destination. Please call us today to learn more about the pros and cons of converting to a Roth IRA and how we can help.

 This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal, or tax advice. Investments are subject to risk and loss of principal. Past performance does not guarantee or imply future results. 

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