Investing and Inheritance: Take Your Time … Emotions Will Be Involved
Plus Three Other Key Considerations
If you’ve received a windfall in the form of an inheritance, you might be surprised at the emotional aspect of the news. Being involved in an inheritance means many decisions, and investing an inheritance can be a complicated process.
Take some time. While you may feel an urgency to look at investment decisions quickly and plan to wait for later to work through your emotions, the opposite may be healthier. Most experts agree that taking some time before any action can be beneficial in the process.
Choose advisors wisely. You may have people all around you, and once they hear that you’ve received an inheritance, they’ll have a lot of opinions about the “right way” to handle the money. Be sure to work with a professional that you trust, and it might be a good idea to come up with a standard response for well-meaning friends and family that want to share their ideas (i.e., “I’ll bring that up to my advisor, thanks.”).
Keep the process positive. Hiring an investment professional to handle the estate can avoid surprise disagreements and keep the process positive for everyone. Long before the time comes for an inheritance to be passed along, it often helps to have an intergenerational meeting in which the plans for the inheritance are disclosed. A neutral advisor can help open the door to good communication and efficiency.
Think through financial categories. You may be tempted to start by scheduling a trip or buying that piece of property you’ve been thinking about for years, but it’s better to do some cool-headed planning in the early months following a windfall. Take a look at these four categories as a suggestion, and determine where you may need to contribute part of the money:
Safety: includes medical, transportation, home repair and insurance
Fun: vacations, entertainment
Future: money that won’t be touched in the near future
Cushion: for true emergencies
You could also include charity as an optional category. Each category does not need to be equal, nor does it need to be decided quickly. Fill out some ideas and then revisit the list in a few days or weeks and make adjustments.
If you have questions and concerns related to a financial windfall, such as an inheritance of the sale of a business, contact us at Lawson Kroeker. Our professional team is trained for investing an inheritance and in the art of building trust through diligence and a focused strategy. At Lawson Kroeker, we not only understand the need to take your time; we encourage it.
Have You Made These Common (But Lesser-Known) Missteps When Planning for Retirement?
Surprise. There is a fair amount of complexity associated with retiring. Sometimes there are feelings of genuine confusion over “what’s next?” For many retirees, it can take several months or a year (or more) to find a new and meaningful routine. For others, a big move to a new city can lead to excitement … mixed with a sense of disconnection.
The good news is that each of these challenges can be systematically and effectively resolved. However, when planning for retirement, you could have made a few missteps along your investment journey that could affect your plans in a different way.
Here are some common errors to avoid:
You think you’ll need less money in retirement. Think about what expenses you’ll have as a retired person: housing, utilities, clothing, health, groceries. None of these are items that are dependent on you having a job. Your expenses may even increase in retirement, depending on the plans you have for travel or entertainment. Most Americans will live 10 to 15 years longer than they anticipate.
You are not taking advantage of catch-up contributions. If you got a bit behind in your retirement savings while you were pursuing education or raising children during your 20s and 30s, don’t worry. Your 50s can be a time to shore up retirement funds, with the government allowing you to make catch-up contributions. This increases the maximum amount you can contribute; an extra $6,000 to a 401(k) or an extra $1,000 to an IRA.
You may feel that you can’t possibly put more away for retirement, but this is a prime opportunity to get your savings in line. Consider cutting expenses like eating out or take a more budget-friendly vacation, or you can take on a side job to maximize your contributions.
You could be under-thinking when it comes to taxes. Don’t forget to factor in taxes when planning for retirement. You may have saved well, and combined with your Social Security, you may be in good shape for a healthy income in retirement. But you can plan on the IRS claiming its share, as well. Unless you have a 401(k) or a Roth IRA, your income will be taxed as ordinary income.
Planning for retirement requires a long view of your financial situation. Contact us at Lawson Kroeker to get started on a vision for your retirement and what steps are necessary to make it a reality. We’re diligent, focused and consistent – and we can help you to be, also.
Why Are we Thankful to be in the Midwest?
Many of our team at Lawson Kroeker have experience at big investment firms, located in bigger cities.
Why have many returned to the Midwest? While each Chartered Financial Analyst at Lawson Kroeker may offer a slightly different answer to that question, many of the themes are the same. From the opportunity to personally serve clients to the benefits of raising kids in a great city like Omaha, they all enjoy advising clients and working hard in the Midwest.
While Omaha is a competitive market with an entrepreneurial spirit, it’s still small enough to allow for a more personal approach to advising clients. At Lawson Kroeker, decisions are never farmed out to another company, and there’s time to think carefully through the advice given to clients.
What makes us different also makes us thankful.
How Charitable Donations Through an IRA Can Impact Taxes and Investing … Are You Familiar with These Tax Changes Toward Charitable Donations?
Changes in determining who will include itemized deductions on their tax returns will affect millions this tax year. The Tax Cut and Jobs Act of 2017 is expected to drastically reduce the number of people enjoying tax savings related to their charitable donations, with only 16 million in 2018 versus 37 million in 2017. The updates impact taxes and investing for many Americans.
The itemized tax deduction will be limited to $10,000 for state and local taxes and the standard deduction will go up, with single returns at $12,000 and those married filing joint returns receiving a $24,000 standard deduction. Head of household returns will have a standardized deduction of $18,000. The thresholds are higher for those over the age of 65.
The percentage of households that report itemized deductions on their tax returns is expected to drop 39% with only 15% itemizing.
The good news for seniors: While this news may make it seem that the benefits of contributing to charity will be drastically changed, and both taxes and investing will require some changes in order to absorb the impact, there is good news for seniors. The new law does not change the ability to make a charitable contribution from an individual retirement account (IRA) without recognizing taxable income.
In the past, the ability to include charitable donations on itemized deductions meant that many people over the age of 70 ½ never took advantage of this ability. With the new changes in place, everyone who meets the minimum age requirement might consider changing the way they make their charitable contributions. (Essentially, individuals over the age of 70 ½ with IRAs could leverage some tax savings while giving to a philanthropy).
How it works: The law is generally referred to as a “charitable IRA rollover,” and it allows seniors to make donations to eligible charities directly from their IRA, excluding the donations from their gross income.
For younger taxpayers: If an investor is under the age of 70 ½, they may still be able to capture some of the benefits of their charitable donations by “bunching” their contributions. Instead of making a donation of $5,000 each year for three years, they could give $15,000 once every three years, allowing them to itemize on that tax return. This method can be a bit challenging for the charity in question because of budgeting and planning, but there are options like a private foundation or donor-advised fund that can manage the donation flow to the charity.
To learn more about how recent laws have impacted investment strategies, contact us at Lawson Kroeker Investment Management. We can help guide you.