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Relationships Matter

by | Jul 15, 2022 | The Ship's Wheel


Relationships Matter

I have been in the money management business for over 26 years now. I have cultivated many relationships with clients over that timeframe and learned a great deal from those relationships. Relationships are one of my favorite parts of my job. These are trust relationships, my clients are trusting me to help them make the correct investment decisions and guide them through the good times and bad. We have had many more good times over this period than bad when it comes to investing.

Most of the bad times have to do with health and family. I recently met with one of my first clients and it was a nice stroll down memory lane. We have been through a great deal together. Faye (all names have been changed for privacy) has become more than just a client. I truly think of her as part of my extended family. Her husband walked into my office 25 years ago and became a client. He handled all their financial decisions until he passed away in 2006. She has been on her own ever since. Faye has been a great advocate for me over the years, referring both of her sisters and many of her close friends as clients. Her older sister, Dorothy, passed away a couple of years ago. I visited with Dorothy the day before she died. It was heart breaking to see her in that state. She had also become part of my extended family. Faye and Dorothy were very close, so when I was visiting Faye the other day it brought back some good memories of Dorothy. Faye is gone too soon, which was one of the purposes of my visit.
Faye wanted to make sure all her beneficiaries were setup the way she wished. There have been some back-and-forth on this, because her only true heir is her sister Charlene. Charlene is a client as well and has the same concerns. The concerns stem from the fact that the only true heirs after they each pass are nieces and nephews who spend all their money once they get it. I understand the concerns because I have witnessed it before. We cannot take our money with us, but we should make the correct decisions on beneficiaries before we die.

One way to protect loved ones from blowing the inheritance you leave is through a trust. Within a trust document you can utilize spendthrift clauses to limit the spending of your heirs. Part of being a Financial Advisor is being able to recognize when certain documents may need to be created to protect assets. Investing is just a small part of my role as Financial Advisor. At Chapman Capital Advisors, we take a wholistic view of our client’s financial situations. We work directly with your accountant and trust attorney to ensure you are not only ready to live, but also prepared when you eventually die. The only two things certain in life is death and taxes. Both of which sound horrible to me.

Am I eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013, the income limitation does not exist for a conversion, but it still exists for contributions. This does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. After converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now than pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This is just one example of completing a Roth conversion. You can do partial conversions as well. This means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. The key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. This strategy works best for younger investors who have longer to allow the money to grow and compound. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution after you reach age 73. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your beneficiaries. Roth IRAs continue to grow tax-free after the conversion and after you die. There are distribution requirements for the beneficiaries, but the distributions are tax-free as well.
This strategy might not be right for everyone. I would advise you to consult with a Certified Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction like we experienced in 2022. If you have questions on this article or would like to schedule a free financial review. Please contact Jay Chapman at 772-320-9658 or email [email protected].

Jay Chapman| CFP®

Jay Chapman| CFP®

Founder

Jay Chapman, CFP®, is founder of Chapman Capital Advisors, as a member of the advisory team. He has over 20 years of experience in the Financial Services industry.

Will Thompson | CFA®, CFP®, AIF®

Will Thompson | CFA®, CFP®, AIF®

Advisor

Will provides the in-house expertise of CFP®, CFA®, and AIF® that is uncommon for boutique firms.


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