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Category: Retirement planning

Retirement Investment Accounts: Which One Is Right For You?

Posted on by Hillary Mitchell

If you have long-term or retirement investment goals, you may be thinking about investment strategies to match. Selecting a retirement investment account suited to your precise situation can help you reach those goals more effectively.   

Retirement investment accounts allow you to invest money now so it can grow over the course of your career, and you can eventually draw on it after you reach retirement age.   

There are numerous options when it comes to retirement investment accounts:  

401(k): a popular retirement savings plan many employers offer. You contribute to these directly through your paycheck, and your employer may match those contributions. The employer match is essentially “free money” your employer adds to your account just because you’re contributing!

  • Solo 401(k): This operates like a regular 401(k) but is created for those who are self-employed. 
  • 403(b): An account offered by only non-profit organizations and public schools as their voluntary retirement savings plan instead of a 401(k). 

IRAs: IRAs, or individual retirement accounts, are accounts individuals can open on their own (without their employer’s involvement) or sometimes with their employer. Contributions to these accounts are separately calculated from any 401(k) contributions—allowing you to put more towards retirement in a tax-advantaged way.  

  • Traditional and Roth: These IRAs may offer individuals more control or flexibility than a 401(k) with either pre-tax or after-tax savings.
  • SEP IRA and SIMPLE IRA: IRAs typically utilized by a small employer or self-employed individuals. SEP IRAs allow only employer contributions, whereas SIMPLE IRAs allow both employee and employer to contribute.

Getting Started 

A good first step might be to get in touch with a financial advisor you trust. This is especially the case if you’re self-employed or if you’re thinking about retirement investments beyond an employer-sponsored 401(k). A financial advisor can help you decide what retirement savings vehicles are appropriate for your needs and help you streamline the complex startup processes.   

Once you’ve found the right financial advisor for you and you’re ready to start investing, the following practical steps should help you get started:   

  1. If you’re interested in starting your investment journey with a one-time lump-sum investment, look at what you have in your accounts right now. Think about your upcoming short-term financial needs and any sums of money you prefer to keep tucked in an accessible short-term account (e.g., an emergency fund). After that’s accounted for, is there an amount of money you’d feel comfortable investing in a medium- or long-term account?  
  2. Next, look at your monthly cash flow. What seems like a reasonable amount to start investing every month? Is there a sum you’d be comfortable committing to, month in and month out? Of course, you can always alter this after you begin investing, but doing your research upfront to reach a consensus will save you stress later.   
  3. Finally, check with your financial advisor to see your automation options. If you can automate your monthly contributions into an investment account, that will make your investment journey that much easier!   

 If you’re interested in talking to a Commas advisor about your specific situation and the right retirement savings plan for you, you can schedule a conversation here. Let’s talk! 

Benefits of a Roth IRA

Posted on by A.Tuke

When thinking about your financial priorities, retirement may not be top of mind–especially if you’re in your early or mid-career and focused on shorter term goals like buying a home, managing student debt, or saving for your kids’ education. While retirement may seem a long way off, your early career is actually the ideal time to start saving into a Roth IRA so you can take advantage of a lower tax bracket, a long investment horizon, and years of compound interest.

How It Works

A Roth IRA is an individual retirement account funded with after-tax income. Since the money has been taxed before contribution, you’ll never be taxed on those funds again and your investments will grow tax-free, and withdrawals in retirement are also tax-free. 

Unlike workplace retirement plans like a 401(k), a Roth IRA is also owned personally, giving you greater flexibility when it comes to managing your account. This also means you have the ability to contribute the maximum into both your employer 401k and Roth IRA. 

Key Benefits of a Roth IRA

  • Tax-Free Growth & Withdrawals: Contributions are made with after-tax dollars, so you won’t pay taxes on your investment gains or qualified withdrawals (and neither will your beneficiaries).
  • Penalty-Free Contribution Withdrawals: You can withdraw the amount you’ve contributed at any time without tax or penalties, but withdrawing earnings before retirement (or age 59.5) may have restrictions.
  • No Required Minimum Distributions (RMDs): Unlike traditional retirement accounts, you’re not required to withdraw funds at a certain age, allowing your savings to continue growing tax-free.

Roth IRA vs. Traditional IRA 

Both Roth and traditional IRAs help you save for retirement, but they differ in tax treatment: 

  • Traditional IRA: Contributions are tax-deductible now, but withdrawals in retirement are taxed as income.
  • Roth IRA: Contributions are taxed upfront, but withdrawals in retirement are tax-free.

Contribution & Withdrawal Rules

  • Withdrawal Rules: Contributions can be withdrawn anytime without penalty, but withdrawing earnings before age 59.5 may result in taxes or penalties unless certain conditions are met.
  • Backdoor Roth IRA: High earners above the income limits may still contribute through a strategy called a Backdoor Roth IRA.
  • Inherited Rules: Congress has passed a law requiring inherited Traditional and Roth IRAs be emptied in 10 years. When you pass down a Roth IRA, your heirs will be able to make tax-free withdrawals (instead of the taxed withdrawals they would be making from a Traditional IRA), saving them significant taxes—and effectively providing them a larger inheritance!

When to Start a Roth IRA 

The best time to start is as soon as possible! As long as you have earned income, you can contribute to a Roth IRA now so you can reap the benefits later. Additionally, contributions for the previous year can be made until the tax filing deadline (April 15).

How to Open a Roth IRA in Four Steps 

  1. Choose a Provider: Select a trusted financial institution and review any fees.
  1. Complete the Setup: Provide your Social Security number, banking details, and beneficiary information.
  1. Select Investments: Align your portfolio with your risk tolerance and time horizon.
  1. Set Up Contributions: Choose a lump sum or automatic monthly contributions.

Is a Roth IRA Right for You? 

Want to build wealth long-term, but don’t have the spare time or mental resources to dedicate to investigating all of your options, building out a plan, and reorganizing your finances? We can help.

Backdoor Roth IRA Contributions: A Complete Guide

Posted on by Hillary Mitchell

For those investors seeking additional avenues for retirement savings, the term “backdoor Roth contribution” may have come up in your research.  

This strategy often raises numerous questions: what is it, who is eligible, and most importantly, how do you properly execute it? We answer these questions and more below, and can assist in executing the strategy, should it be right for you. 

What is the Backdoor Roth IRA contribution strategy? 

A Backdoor Roth contribution is a two-step strategy that allows high-income earners to fund a Roth IRA even when their income exceeds the IRS limits for direct Roth IRA contributions. 

Step 1: make a non-deductible contribution to a Traditional IRA. 

Step 2: convert that Traditional IRA to a Roth IRA. 

The Backdoor Roth IRA strategy provides high-income individuals with a means to contribute to a tax-free Roth IRA. This approach can be particularly beneficial for younger investors, as it allows for several years of compound growth, ultimately enabling tax-free withdrawals during retirement.  

The decision to implement this strategy depends on individual circumstances; however, it may be advantageous if there are additional funds available after establishing a fully funded emergency fund and maximizing any employer-sponsored retirement plan matching contributions. 

Who should consider a Backdoor Roth IRA contribution? 

  • High-income earners above the Roth IRA income limits. 
  • Individuals who have maxed out other retirement savings options.  
  • Those who want tax-free growth potential and tax-free withdrawals in retirement. 

The Backdoor Roth strategy tends to be most beneficial for individuals whose 2025 household income exceeds $246,000 for married filing jointly and $165,000 for single filer, as they are fully phased out from making direct contributions to a Roth IRA.  

This strategy is especially relevant for those who do not have any pre-tax balances outside of their employer sponsored plans including Traditional IRAs, Sep IRAs and SIMPLE IRAs. Unlike deductible IRA contributions, which are subject to income limitations, making a non-deductible contribution to a Traditional IRA is unrestricted by income.  

The crucial difference is the fact that a non-deductible contribution can be converted to a Roth IRA without incurring taxes, as it is after-tax money. This means that an investor with income above the Roth IRA contribution limit and no pre-tax funds in an IRA can effectively utilize this strategy without facing tax consequences, provided it is reported accurately. 

How should an investor make sure this strategy is completed correctly?  

4 steps for executing a clean backdoor Roth conversion: 

  1. Open a Traditional IRA (if you don’t already have one) 
  1. Make a non-deductible contribution to the Traditional IRA  
  1. Convert the Traditional IRA to a Roth IRA 
  1. File Form 8606 with your tax return to report the non-deductible contribution 

Avoid these common pitfalls: 

  • Failing to file Form 8606 to report non-deductible contributions 
  • Not considering the impact of existing Traditional IRA balances 
  • Waiting too long between contribution and conversion 
  • Missing contribution deadlines (generally April 15th of the following year) 

What are the tax implications? 

Completing the non-deductible IRA contribution and subsequent IRA conversion properly is the first step. Then, it is essential to accurately report this strategy on your tax return. 

  • The initial Traditional IRA contribution is made with after-tax, non-deductible dollars. 
  • If executed properly with no other IRA balances, the conversion should have minimal or no tax impact. 
  • The pro-rata rule may result in additional taxes if you have other Traditional IRA balances. The rule requires that all your IRA accounts be considered when determining the tax implications of a conversion. This includes Traditional IRAs, SEP IRAs, and SIMPLE IRAs.

Reporting your non-deductible IRA contribution.

Given that a contribution has been made to an IRA, it is necessary to inform the IRS that this contribution is non-deductible by utilizing IRS Form 8606.  

This form is instrumental in avoiding unnecessary taxation on the Roth conversion, as the IRS would otherwise presume that the converted amount was derived from pre-tax dollars and subject it to full taxation. 

Reporting your Roth conversion.

Your custodian will issue Form 1099-R for your IRA, which will document the Roth conversion. At first glance, the 1099-R may suggest that you have made a taxable IRA distribution. Therefore, it is crucial to file Form 8606 to indicate that the amount converted consists of post-tax dollars, rendering it tax-free.  

If you convert any pre-tax dollars or earnings in addition to your non-deductible IRA contribution, you must still utilize Form 8606 to differentiate the taxable and tax-free portions of the Roth IRA. It is also important to note that if both spouses complete a Backdoor Roth contribution, separate Form 8606 filings are required with their tax returns. 

Determining if a Roth conversion is right for you. 

Our team strongly recommends consulting with a qualified tax professional or your financial advisor before implementing this strategy as there are potential tax consequences to executing the strategy and to ensure it aligns with your specific financial situation and goals. 

Financial New Year’s Resolutions: 10 Goals for 2025

Posted on by Hillary Mitchell

The clean slate of a new year often comes with fresh motivation to meet our goals—whether that means reading more, getting in shape, or spending more quality time with loved ones. For some, these goals revolve around a particularly stressful topic: finances. While setting financial new year’s resolutions can feel daunting and complicated, the long-term return and peace of mind is well worth the effort.

To get you started, we’ve compiled a few tips from our team to reduce mental stress and help your financial life run like a well-oiled machine this year. Here are ten financial new year’s resolutions for your 2025:

Get better at budgeting. 

The key to budgeting is tracking and understanding your spending habits. Once you understand your habits, you can make incremental changes to meet your goals. When doubt, use the 50-30-20 rule. That is, you should allocate 50% of your budget to essentials, 30% for discretionary expenses, and 20% to savings.   

Max out your 401K contributions. 

While this is easier said than done, we recommend prioritizing these contributions as much as you’re able. At a minimum, you want to be contributing enough to get the full match from your employer. If possible, try to max out your 401k or employer plan at the annual limit ($23,500 for 2025).   

Automate your savings. 

Set up your accounts so that part of your paycheck automatically goes to a savings or investment account before you have a chance to spend it. You might also consider setting up different savings accounts for different goals. For example, an emergency fund account (which should be a top priority) can be separate from your vacation planning account.   

Update your estate plan and will. 

Ensuring your estate plan and will are up-to-date relieves the burden of making difficult decisions in a crisis. If estate planning feels overwhelming, don’t worry. Your Commas advisor can help you get connected to the right resources and ensure you have beneficiaries where appropriate. In the meantime, start small by creating a list of your personal and financial information and accounts, as well as your passwords, and put them all in a secure place.  

Pay attention to what conversations you have about finances. 

Every household’s approach to their finances is different. Whether you manage your finances individually or have shared accounts with another person (or people, if you have children), identifying the culture around money in your home can be a good early step in decreasing stress and finding financial peace of mind.  

Try asking yourself these questions:

  • What truly matters most to me, and how well do my financial decisions support those priorities? 
  • How do I/we make decisions about spending, saving, and giving, and what does that reveal about my/our shared priorities and values? 
  • Do we have open and honest conversations about money, or is it a source of tension in our home? 

For parents: 

If you do have younger children, you might consider using an app like Greenlight to offer an allowance and help them start understanding financial basics like spending, saving, and giving. Getting started young allows your kids to make (and learn from) financial mistakes while the stakes are still low, in a safe environment.  

If your children are teenagers or young adults and require less supervision, conversations will shift to managing money earned at a job, saving for college, or filing taxes. Talking about money with kids of any age shows you’re comfortable discussing finances with them—and opens the door for them to come to you with financial questions.   

Read (or listen to) a great book. 

Use some time this year to explore literature on financial management, investing, and market history. We particularly recommend The Investment Answer, The Opposite of Spoiled, The Psychology of Money, and The Millionaire Next Door.  

Track all your charitable giving. 

With some smart planning, you can increase your charitable giving by using available tax benefits. By taking time to educate yourself on the benefits of charitable giving, you can gift more by gifting smarter.  

Don’t let the content stream overwhelm you. 

With an incredible amount of content and current events coverage more accessible than ever, it’s often difficult to keep panic—or, at least, a constant sense of anxiety—at bay. Today’s financial news might seem urgent, and the markets may fall, but it’s the long-term view that matters most when it comes to investing. We know the markets reward discipline and resilience. Before you act on what you come across on your newsfeed, take a step back and refocus on your end goal.  

Don’t wait until April to do your tax planning. 

Rather than waiting until the last minute to scrounge up paperwork, spend some time thinking ahead about what you’ll need to file your taxes. This mindset may also end up saving you money, as some tax benefits can be gained by taking certain actions prior to December 31.  

Add this bonus financial new year’s resolution: create a file system (if you don’t already have one) to keep your tax paperwork handy throughout the year, especially if you work for yourself or run a business. 

Connect with a financial advisor. 

Financial advisors aren’t just for soon-to-be retirees. In fact, if you’re in the early or middle stages of your career, a relationship with a trusted financial advisor can make a significant difference to your future by helping you circumvent commonly made mistakes and stay on track with your goals. 

Having an experienced professional who can take an objective view of your financial situation and guide you through complicated financial decisions like major purchases, long-term savings, or equity compensation elections can help you make the most of your wealth accumulation years—and provide peace of mind along the way.  

If you have found yourself setting a goal to ‘get your finances in order’ for another consecutive year, it may be a good time to talk with a professional! At Commas, we love to work with people who are motivated to make the most of their income—even if they’re not sure where to start. If that sounds like you, we can help. Let’s talk. 

Benefits of a Roth IRA

Posted on by Kelsie Joos

Investing in a Roth IRA is a great option for when you are younger in your career. By paying taxes upfront while you’re likely in a lower tax bracket, you’re setting yourself up for tax-free growth on that money for life. This means that when it’s time to enjoy your hard-earned savings later, both your contributions and gains can be withdrawn without any extra tax.

“The Roth IRA is one of our favorite accounts and the reason is: you make contributions into the Roth IRA and you say I’m okay paying the tax on these funds today, but we’re in historically low tax brackets. And when you’re younger in your career, hopefully you’re earning less than you will later in your career so the idea is that your tax bracket and the income that you’re making is only going to increase over time. So, while you’re in a lower tax bracket can we pay the tax today to get the money into the Roth where it can grow tax free for the rest of your life. So when you go to pull funds out of the Roth IRA, not only is that contribution that you made tax free, but so is all that growth.”

Should You Contribute to a Cash Balance Plan?

Posted on by Kelsie Joos

Thinking about your retirement plan? A Cash Balance Plan could be your game-changer! They are perfect if you are a business owner looking to make substantial contributions, have extra cash sitting around, or foresee a large tax bill this year. Ready to explore if it’s right for you? Let’s talk!

“A cash balance plan is a type of retirement plan. It’s a defined benefit plan that qualifies for tax exempt status. Cash balance plans don’t make sense for everybody but for those who they do make sense for they can be really powerful.

Who is a good fit?

Business owners who want to make a large contribution into a retirement plan are the perfect fit, specifically if you’re wanting to get more into the account than traditional plans allow, such as a 401(k) or IRAs. So if you have a lot of cash sitting on the sidelines that you want to get put away for retirement, this could be a really good fit for you. Also if you’re expecting an extremely large tax bill in any given year, getting money put into this account will decrease that tax impact. And then thirdly, if you are getting close to retirement or starting to prioritize retirement more and are really looking to catch up this is a great way to get large lump sums into a plan.

How much can I contribute?

So there is no contribution amount for a cash balance plan that applies to everybody. These plans are age dependent so that means that you’re going to need an actuary to calculate how much you can contribute into a plan in any given year. But that being said it is quite flexible from year to year and so as cash flow changes, we’ll be able to change the plan contribution limits with you. A cash balance plan is an extremely powerful account for those who are wanting to prioritize retirement who have extra cash on the side or who want to decrease their tax bill in a given year. It doesn’t work for everybody but if it does work for you it could make make a huge difference in your plan so if you think that this might be a good fit, please don’t hesitate to reach out ”

When Should You Take Social Security?

Posted on by Kelsie Joos

Deciding when to take social security doesn’t have a one size fits all answer. Your ideal strategy depends on your benefit amount, other savings and investments, and your goals. Let us help you navigate this important decision!

“Social Security is a very common topic among our clients who are thinking about retirement and not as clear of an answer as many people would hope for, I think. When to take Social Security is by far the most common question we get and the answer depends on each client. There may be a different answer for every client. I think a lot of people, there’s two camps really. Some people want to take it right away and “give me my money,” I understand that.

And some people say “I’m going to wait as long as possible because then I can accumulate more Social Security benefits.” Both of those can be right, but sometimes one or the other might make a lot more sense depending on what else you have going on. Do you have a spouse? What does their social security picture look like? What other investments do you have? How much have you saved for retirement? What other types of accounts is that money in? There’s a lot of different variables that can impact the answer to the question “When I should take Social Security,” and we certainly help people navigate that.”

2024 Contribution Limits

Posted on by Kelsie Joos

401k, HSA, and IRA contribution limits have increased for 2024, giving you more opportunities to boost your savings! As the halfway point of the year approaches, now is a great time to review your current savings rates and adjust accordingly.

“New contribution limits for 2024 for 401k, HSA, and IRAs:

401k contribution limits have increased from 22,500 to 23,000 for the 2024 tax year. The catch-up contribution for people who are over 50 or turning 50 in 2024 is 7,500. Now the entire plan contribution limit is up from 66,000 to 69,000, so this includes your employee contributions, any match that your employer gives you, as well as any after-tax contributions that you would be making. So if your plan offers a mega backdoor Roth strategy or after-tax contributions or in plan Roth conversions, this is where that would come into play.

Traditional IRA and Roth IRA contributions have increased from 2023 to 2024. Instead of $6,500, you can now get $7,000 into those accounts. If you’re over 50 or turning 50 in 2024, you can get in an additional $11,000. In order to contribute directly to an IRA you need to be under the income limits. For married filing jointly filers, that limit is $240,000 and for single filers it’s $160,000 so once you get to that point, that’s when you want to talk to your advisor about possibly doing a backdoor Roth IRA strategy.

If you’re in a high deductible health plan you have access to contribute to something called a health savings account or an HSA. The contribution limits have increased from 2023 to 2024. If you are are in a family plan, you can now contribute $8,300. If you’re in an individual plan, you can now contribute $4,150. If you’re over 50 or turning 50 this year, you can get an additional $1,000 into that account. Now remember, these are total plan limits so if your employer gives you a match, that would be included in that dollar amount.”

What to Do With Leftover 529 Funds

Posted on by Kelsie Joos

The passing of Secure Act 2.0 in 2024 introduces a huge benefit for 529 account holders. You can now use those funds to make Roth IRA contributions. This means leftover dollars from education savings can now be redirected towards retirement, offering a smart head start for beneficiaries.

“Since the passing of Secure Act 2.0, there is a new law as of 2024 that anybody with a 529 account can actually then use those funds to make Roth IRA contributions. Now there are definitely some complexities and things that are in place that you want to talk to your financial advisor about before enacting this on your own. But big picture what can happen is you’ve been saving into a 529 all these years, you’ve gone through your education and now there’s leftover dollars.

Typically what would happen happen is you can either roll those over to a new beneficiary or keep it for legacy planning or maybe you just take the distribution and a 10% tax penalty on those funds that aren’t used for education expenses. Well now you have the opportunity to make Roth IRA contributions from the 529 funds. As long as the account has been opened for 15 years, you can then make up to the IRS yearly limit of Roth IRA contributions for the beneficiary. This can be a great tool for parents or grandparents or even kids who have leftover funds. You can start funding Roth IRAs for your beneficiaries that aren’t going to be using 529 funds for education and give them a great head start to retirement saving.”

Webinar: A Look Back at 2023 & Planning for the Year Ahead

Posted on by A.Tuke

The Commas team was excited to partner with our colleagues at Truepoint Wealth Counsel to host our first Truepoint Talks webinar of 2024, featuring August Hemmerich and Conor Feldmann. 

Some of the planning opportunities covered in the webinar include:

  • Utilizing retirement savings accounts and Health Savings Accounts (HSAs)
  • Navigating college funding and the FAFSA
  • Converting a 529 to a Roth IRA
  • Using Flexible Spending Accounts (FSAs)
  • Saving in a high interest rate environment
  • Reviewing your insurance coverage

Feel free to share with anyone who might be interested in these tips. And as mentioned in the recording, you can follow Conor’s ongoing market commentary on Demystifying Markets. 

If you have any questions about the content shared in the webinar linked above, please feel free to reach out to our team.