What is a Bond?

In the simplest of terms, bonds are debt securities. When an organization needs a loan, they can issue a bond to finance it. An investor will purchase the bond and, after a set amount of time, the bond issuer will repay the principal amount of the bond. During the life of the bond, the issuer will pay the investor a fixed amount of interest. For many, bonds have been a safe and conservative investment because of these fixed rates.

Types of Bonds

There are many different kinds of bonds available. We’ll cover the 4 most common bonds here:

1. Government Bonds – generally the safest kind of bond because it is backed by the government. Also, because of it’s safety, government bonds will typically have low interest rates.
2. Municipal Bonds – similar to government bonds, they are issued by a state, municipality or county. Also, these bonds are typically exempt from federal taxation.
3. Mortgage Bonds – these bonds are backed by real estate. They are normally safer than corporate bonds and stocks as well, because if a homeowner cannot pay their mortgage, a bondholder will have their bond repaid through the liquidation of the property.
4. Corporate Bonds – the riskiest kind of bond, these are backed by corporations, but not real assets. If an issuer goes out of business, the bondholder may not get paid. Because of this inherent risk, these bonds have higher interest rates, in order to entice investors.

The Bottom Line

A healthy retirement plan has a variety of financial vehicles for the purpose of growing wealth and generating a guaranteed income. Because of the relative safety of bonds, they have been viewed as a foil to ‘risky’ stocks. When preparing to invest your retirement savings, it is critical to have someone with knowledge of the financial world and someone trustworthy, doing what is right for you. If you need help putting together a retirement plan or if you simply want a second opinion, now is the time to call Capital Financial. Coach Pete D’Arruda and the team want to help you create a plan that will get you the retirement you want.

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On your way to retirement, there are a few things to keep in mind to maximize your retirement income and navigate around financial termites like taxes and fees.

The first step in choosing when to retire is determining the kind of lifestyle you want in retirement. Different people want different things; retirement should be a time of rest and relaxation after a lifetime of working, so how do you spend your leisure time? Whether it’s hitting the links, taking the time to travel, or volunteering at your favorite organization, it’s important to know how you want to spend your time.

The second step is figuring out how much your retirement lifestyle will cost. Maybe you’ll need to work a few more years or maximize your 401k contributions. Maybe you’ll find that you can go ahead and retire now; either way, you’ll want to come up with some action steps to make sure your money will last throughout retirement.

The third step in choosing when to retire is factoring in key retirement dates to your plan. There are a few dates to highlight, like when government benefits kick in or when you can make withdrawals from retirement accounts without penalty.

There are a lot of moving parts to any retirement plan. It’s important to have someone you can trust to help navigate through the financial world and get you to where want to be in retirement. If you need help putting together a retirement plan or if you simply want a second opinion, now is the time to call Capital Financial. Coach Pete D’Arruda and the team want to help you decide the right time to retire for you.

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Every great retirement plan has 3 pillars:

1. Growth
2. Income
3. Protection

GROWTH

This first pillar is pretty obvious: you want to take your money and make more money with it. This is done by investing your money with the specific intent of growing it, well before retirement age, with plenty of time to recover from a market correction.

INCOME

When you finally get to retirement, the focus changes. You’ve spent all this time accumulating, and now it’s time to spend it! After growing your savings, we create a reliable and predictable monthly income with the least amount of risk in our investments. This leads right into our third pillar:

PROTECTION

When we think of protection, it’s concerning two things: taxes and loss. You’ll want to be sure that when your monthly income arrives, that it comes in the most tax-efficient way possible. There are a variety of strategies that could limit how much is taken in taxes during retirement or even be tax-free. Also, we want to protect ourselves from losing some of our income due to risk in the stock market.

Each of these pillars, when implemented at the right time with the right knowledge, will give you a reliable financial future so you can live the kind of life you want to in retirement. If you’re worried about your retirement plan, come see Coach Pete or one of his advisors to discuss it.  Call the Capital Financial team at 919-657-4201 to get a true practical review and let them help layout the roadmap to your retirement!

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1. Predictable payments – These payments may be guaranteed for a set period or the end of your life, the life of a spouse or another beneficiary;
2. Tax-deferred growth – Money paid into an annuity grows on a tax-deferred basis. When you receive annuity payments, the earnings of your payments are taxed as ordinary income, while the principal is normally tax free.
3. Death benefits – Depending on the annuity type chosen, your beneficiary can receive benefits after your death.

The period that you are contributing into your annuity is called the accumulation phase. In exchange for payments during the accumulation period, the company promises to make regular income payments to you in the future. The period that you start collecting payments from an annuity is called the distribution phase.  You choose when you want the payments to begin and how long you want them to last.

Deferred Annuity vs. Immediate Annuity

As the names above suggest, these are the two types of annuities you are looking for.  A deferred annuity is one that you wait a year or longer to start receiving payments on.  An immediate annuity is one where you start receiving payments within a year of the purchase of it.  Obviously, the longer you wait, the bigger your expected payout will be.

Three Types of Annuities: Fixed, Variable and Indexed

When talking about annuities, there are three types, fixed, variable and indexed.  

Fixed – pays you a guaranteed annual minimum, ensuring you     receive a baseline of income from the contract each year. It does not depend directly on the market. Safest.

Variable – income depends on market performance.  You choose investments (usually mutual funds, stocks, bonds), the amount of money paid to you is based on how these investments do after fees are paid. Risky.

Indexed – income depends on market index like S&P 500. Annual return is calculated over a specific time period, usually a year.  If the index gains value, then your annuity gains.  If the index loses, so too does your annuity.  There is a risk for volatility, but gains and losses are capped.

There can also be other fees associated with an annuity.  Such as, Lifetime income rider, a COLA rider, etc.  These fees can add up.  There are also fees for purchasing the annuity.  You may not see all of these fees.  

As Coach Pete says, all these termites can eat away at your savings.  If you think an annuity is right for you, or if you have an annuity and it is draining you, now may be the time to come in and sit down with Coach Pete or one of his advisors to discuss it.  Call the team at Capital Financial to get a true practical review and let them help get you on the right road to retirement!

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The definition of an emergency fund is money you set aside for unexpected financial expenses that come your way. Such as, a job loss, a car breaking down, a medical event or something else that may happen. The money is there so you don’t have to borrow from family or friends, use a credit card or take out a loan.  

HOW MUCH TO SAVE IN YOUR EMERGENCY FUND?

Most experts will tell you that you need to have 3-6 months of expenses in an emergency fund.  While that may be true, if you are just starting one, you may want to start small.  Save $500-$1,500 first.  That may help you feel you’ve accomplished something.  Then work your way up to saving for several months of expenses.  Your goal is going to depend on your income and your debt/expenses.  If you have debt, get out of debt first, then start saving for your emergency fund.

WHERE DO I KEEP MY EMERGENCY FUND?

Once you’ve decided how much money you want to save for, now it’s time to decide where to keep it.  There is not a one size fits all, but you will want to be able to access it quickly, when needed.  So that will take investing the money out of the equation.  A high yield savings account (connected to your checking account) or a money market account at a bank or online could work in your favor.  Do your research to find the best fit for your situation and with the highest yield.  

Remember, an emergency fund is for needs, not wants.  If it’s something that can wait a month, then it’s not an emergency.   Be sure to also replenish the fund if you do use it for an emergency, that way if you have to use it again in the future, you can.  An emergency fund is one of the best ways to help you take care of your future self should the need arise. 

The post Breaking Down the Emergency Fund appeared first on Capital Financial.

So you are leaving your job, hopefully for a better one, or god forbid, you’ve been laid off, do you know what to do with your 401(k)?  Believe it or not, most people don’t.  Here are a few options you can do with that 401(k) to better help you in retirement.

1. You can leave it where it’s at, as long as it is more than $5,000.  That’s right, you don’t have to move it at all, WITH some exceptions.  You will not be able to put any money in the account and your old employer will not be able to contribute any further monies either.  If it’s less than $5,000, the company is legally obligated to tell you that while you don’t have to take it out, you do have to move it from their accounts.  If you decide to leave it because there is more than $5000 in the account, it could be because your old company has better investment options than your new company or it could have lower fees.  It’s best to check out both companies’ options before moving the monies.  And remember, if you are not fully vested in the company, then any money they contributed, they can take back.

2. You can roll over your 401(k) to your new employer. Not all employers offer 401(k) plans so this may be why you chose to keep it with your old one.  If you choose this, your money will continue to grow tax-deferred and it can be easier having everything in one place, rather than having two 401(k)’s out there.  Be sure you understand the rules for your new plan if you chose to go with this option.  

3. You can roll it into an IRA.  A Rollover IRA is a retirement account that allows you to move your money from your former employer to an IRA with a bank or brokerage firm. Do your research and check on fees and commissions with any bank/brokerage firm offering you help with an IRA.  IRA’s let your money continue to grow tax-deferred, you also have a broader range of investments when it comes to IRA’s, unlike with an employer’s plan with limited variety to choose from.  If you are under 59 ½ , you can withdraw from an IRA, penalty free, for a first time qualifying home purchase and also for higher education expenses.  Don’t forget once you reach 72, if the IRA is not a Roth, you will have to take annual required minimum distributions (RMD’s)  from it or face penalties from the IRS.

4. You can decide to withdraw the money.  However any financial advisor will advise you against this, unless you are in dire financial straits.  That is because of the financial hit you will inevitably face with tax penalties from the IRS.  Consequences of course depend on your age and circumstances, but you could be hit with income taxes and penalty taxes if you chose to do this without financial assistance/advice.  

Most of all, don’t forget about a 401(k) if you leave a job.  More and more people are retiring or being laid off and they forget that they had this account in the first place.  If you find yourself in this situation, now is the time to call Capital Financial and Coach Pete D’Arruda and the team to help you decide what is the best decision for you.  They can guide you and help you get your financial roadmap together and put you on the right path!

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First, for some that don’t know, a Health Savings Account, or HSA, is a tax-advantaged account created to help people save for medical expenses that are not reimbursed by their high deductible health care plans.  There are tax advantages to a HSA:

1. Contributions are tax deductible in the year they are made;

2. The gains on your contributions are tax free and;

3. Withdrawals are tax free IF you use them for qualified health expenses.

The new limits for HSAs aren’t much but it’s better than nothing:

1. For someone with self-only health insurance coverage – $3,650  up $50.00 from 2021

2. For someone with family health insurance coverage – $7,300  up $100.00 from 2021

There is no change for 2022 in catch up contributions. That will remain at $1000 for now.  Depending on which plan you have, and if you are 55 or older, you could potentially contribute either $4,650 or $8,300 to your HSA.

Now the question is, are you eligible for a HSA?  They were designed to be used by people with high deductible health care plans and the IRS defines those as follows:

1. Self-only coverage at least a $1,400 annual deductible

And $7,050 out of pocket expenses

2. Family coverage at least a $2,400 annual deductible

And $14,100 out of pocket expenses

For people on Medicare, you are out of luck and are not eligible for an HSA.

Come in to Capital Financial today, and sit down with Coach Pete D’Arruda or one of the team and see if you are eligible for an HSA.  It could help you in the long term with your health expenses and save you money as well!

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So what is the difference between a Roth IRA and a Roth 401(k)?  Well for starters it all depends on how much money you make.  Let’s dive into which one may be the right fit for you.

ROTH IRA

Advantages:

A Roth IRA has been around since 1997, and is funded with after tax dollars.  That makes qualified distributions tax free.  It also does not require you to take RDM’s (required minimum distributions) at any point.  This means you can keep contributing to the account and let the monies continue to grow. You could leave it to your spouse or to any heirs if you pass away, as long as you do not let the account pass through probate.  Roth IRA also has a huge range of investment options for you to choose from.  You can also, with a Roth IRA, withdraw an amount equivalent to the contributions you have put into it at any time without penalty IF you have had the account for under five years.  This does NOT apply to the earnings on the account.  If you withdraw, pre-retirement(under 59 ½ ) , you’re looking at a 10% penalty.  Now there are situations where this can work to your advantage, such as, if you are buying your first home, you want to pay for kids/grandkids to go to school, medical costs, you could then withdraw earnings from your account free of any penalties, but not taxes, if you’ve held it for under five years, but free of penalty AND taxes if you have held it for more than five years.  

Disadvantages:

Roth IRA’s unfortunately do come with an income limit.  Persons who make more than $140,000 in 2021 or married couples making more than $208,000 are not eligible for Roth IRA contributions.  The contribution limit for Roth IRA’s is also lower.  $6,000 per year compared to $19,500 for a Roth 401(k) for 2021.  You also cannot get a loan from your Roth IRA.  However, you can initiate a Roth IRA rollover. You’ll have 60 days to move your money from one account to another, and as long as you return the monies OR move it to another Roth IRA account you will essentially be getting an interest free loan for 60 days.  But beware of any penalties and tax implications if you fail to do this! 

ROTH 401(K)

Advantages:

Roth 401(k)’s began in 2001.  They are like traditional 401(k)’s in that they are offered through employers, can be matched, contributions can be made directly from your paychecks and are not subject to income taxes.  There is no income limit with a Roth 401(k), which means people with higher gross incomes can contribute.  It also has a higher contribution limit than the Roth IRA.  You can contribute an annual maximum of $19,500 for 2021 plus a $6,500 catch up contribution if you turn 50 by the end of 2021.  Don’t forget those matching contributions from your employer!  Don’t leave this money on the table if your boss is offering this opportunity, free money is free money.  The catch to this is however, because the match is pre-tax dollars, and the Roth is funded with post-tax dollars, the matching funds and earring will be placed in a regular 401(k) account.  That means paying taxes on all monies, and earning, once distributions start being taken.  You can take a loan from a Roth 401(k) by borrowing up to 50% of the account or $50,000, whichever is smaller.  Be sure to pay this back, because if you don’t it will be considered a taxable distribution.

Disadvantages:

The dreaded RMD’s (required minimum distributions).  With a Roth 401(k), you do have to start taking RMD’s when you hit 72.  If you don’t expect a stiff penalty.  You are also limited to what type of financial investments you have to choose from.  Usually you’ll have to choose from what your financial administrator at your job has for you to decide from.  And that is more than likely only a handful of basic mutual funds.  Also, you won’t be able to access your Roth 401(k) before age 59 ½ without incurring a 10% penalty.  

When it comes to whether a Roth IRA or a Roth 401(k) is the better account for you, it really is going to be a matter of personal choice.  One is not better than the other.  The right financial advisor can help you decide which one is right for you and can help you with your long term financial goals.  Call Coach Peter D’Arruda and his team at Capital Financial now and let them put you on the right road to retirement.  

The post What’s the Difference? appeared first on Capital Financial.

DO YOU NEED TO FILE? – You may not have to file taxes this year IF you were a dependent, you turned 65 or older, or if you had low income.  It all depends on your circumstances, so find that out first before doing anything else.

SET AN ALARM FOR APRIL 15TH – Just because federal taxes pushed back their deadline, doesn’t mean your state did.  Find out online if your state is still making you file by April 15th, and if so, file by that date so you don’t incur any penalties. 

GATHER PERSONAL INFORMATION –  Get your SSN and any dependants SSN as well.  If you do not have the correct information, this could delay any refunds you may be eligible for.  Also have addresses, and bank routing numbers as well, to help expedite the process.  

GATHER NEEDED DOCUMENTS –  By now, you should have received all necessary documents needed to file your tax returns.  Have them all in one place to attach to your forms, or if they are on your computer, but them all in one folder where they are easily accessible.

DETERMINE FILING STATUS – Your filing status is mainly determined by being married or unmarried.  But there are other things that could affect it, such as, are you single, married filing jointly, married filing separately, and qualified widow(er).  Pick the best one for your situation.

DECIDE HOW YOU’LL BE FILING – Are you going to try and handle your taxes yourself?  Or will you be hiring someone to handle it for you?  If you chose the latter, then now is the time to contact someone and get in to see them.  They will be extremely busy and you do not want to procrastinate when it comes to filing your taxes.  If you are going to handle them yourself, look for tax software that is easy to use and understand.  

DETERMINE DEDUCTIONS – If you are doing your own taxes, you will need to figure out which deductions, if any, you will be taking.  You will also need documentation to back up your claims.  If you have an accountant, they can help you decide which ones you may qualify for.

TAX CREDITS – You may qualify for tax credits, earned income tax credit, retirement savings tax credits, green energy tax credits, etc.  If you have hired someone, they should be able to help point out which ones you might qualify for.  

WILL YOU OWE MONEY – Once everything has been tallied and you’ve applied all your credits, do you owe the state or federal government any money.  If so, now is the time to start putting money to the side to pay them off.  You don’t have to file right now, but it’s a good idea to go ahead and get that debt out of the way.  

TAX REFUND IN YOUR FUTURE – If by some chance you will be getting money back from the government, start a plan with what you might want to do with that money.  Do you want to save it, are there any home repairs you need?  Make a plan to keep you from wasting money.

The post Your Tax Checklist appeared first on Capital Financial.

HIGH YIELD SAVINGS ACCOUNTS

These are very much like a traditional savings account in that they are insured by the FDIC.  The difference is they usually offer a better interest rate than a traditional savings account.  

HEALTH SAVINGS ACCOUNT

HSA’s are used by people that have a high deductible health insurance plan or money set aside for any medical expenses in the future.  You can contribute money to them on a pre-tax basis, qualified withdrawals are tax free, and your balance grows tax free as well.  

ROTH IRA

One of the best options for many people.  There is no age limit to open a Roth with earned income.  With a Roth, you pay taxes on money invested, but not on the monies it made and you pull out for retirement. You can contribute $6,000 a year, $7,000 if over 50.  Roth’s also do not require minimum distributions once you turn 72.

TRADITIONAL IRA

This traditional individual retirement account provides many benefits and is probably the best known.  You make pre- tax contributions, and the earnings on those contributions in the account grow, tax deferred.  The contributions and earnings are not taxed until you make withdrawals in retirement.  You can withdraw funds at any time, but beware of penalties for doing this before age 59 ½. 

SEP IRA

If you are self-employed or own a small business, then this may be the retirement account for you.   It works in the same way as a Traditional IRA does, but the noticeable difference is that it has a very high contribution limit.  You can contribute 25% of your pre-tax income, up to $58,000.

SIMPLE IRA

This may be a good choice for a small business, with fewer than 100 employees, to make tax deferred contributions.  It’s a small company 401(k) version.  The company must make contributions and the vest immediately.  

401(K) PLANS

Probably the best known plan out there, it is a company sponsored retirement plan.  You contribute a portion of your wages to it, on a pretax basis.  It is made up of stocks, bonds, and mutual funds that you can pick yourself with the help of an advisor.  Hopefully, your employer will match your contribution dollar for dollar, or to a certain percentage.  It’s free money and you can start withdrawing the money when you retire.  You can also move the money to another 401(k) plan if you leave the company.

403 (B) PLANS

If you work for a tax-exempt or non profit organization, you may have access to a 403 (b) retirement plan.  It works like a 401(k) does, with the current annual contributions set at $19,500.  Unlike a 401(k), your investment choices aren’t as diverse.

BROKERAGE ACCOUNTS

You can grow your retirement savings by buying/selling stocks, bonds and mutual funds.  Many younger people enjoy this type of investment, but there are risks associated with this.  You may lose money you don’t have or want to lose.  However, you can get tax deductions from any losses you may have and you can access your money at anytime with no penalty.  

FIXED ANNUITIES

Annuities are a contract between you and a financial institution, usually a life insurance company.  It is funded with either a lump sum payment or monthly payments.  In exchange for these payments, the insurance company offers you tax-deferred growth of the money and a guaranteed stream of income upon retirement either for a specific period of time or for the rest of your life.  

Don’t delay, meet with Coach Pete D’Arruda or one of his team members today and get started on the road to financial freedom.  Find out which type of retirement account is best for you and your situation.  As a fiduciary, he is required to have his clients best interest in mind.  Working with Coach, all his clients receive unbiased, well-thought-out financial advice.  Not a sales pitch.  So what are you waiting for, contact Coach Pete and Capital Financial Advisory Group, LLC today!

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