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Your Account is Open

April takes its name from the Latin word Aperire, meaning to open.  Naturally, my mind goes to the opening bell of the NFL draft at the end of the month, or maybe the opening of the tomb at the beginning of the month, or maybe in a moment of sensitivity (sensitive in a manly way of course), the opening of flowers and such.  Lest we forget, there are things that absolutely should not be opened – Pandora’s Box, for example. We certainly don’t need any more evils flying over the Earth now do we. Or maybe that can of worms often sitting on the tip of your tongue. Nope. I’ve opened that can more than a few times, sadly.   

While we’re on the subject, here’s a quick list of things that you might consider in this season of opening:

  1. 529 College Savings Account: A 529 account for your kids and or grandkids – Some offer some pretty nifty state tax deductions and a plethora of investment options. And when you withdraw the money for qualified educational purposes, you don’t pay taxes on the gains. Anyone can contribute to one on behalf of the beneficiary, and there are no age, income or residency limitations for the beneficiary. Beneficiary not going to college? No problem. You can change the beneficiary to another member of the family. For a more comprehensive review of such an account, check out:  https://www.collegecounts529.com/
  • Two-eth by Checking and Two-eth by Savings:  For checking, consider one checking account just for your bills and another just for spending money. For savings, maybe you have one account serving as an emergency fund and another for long-term savings goals.  The goal being to make your financial life easier to manage. Of the above, I strongly recommend an emergency fund. (It is what it is, and not everything is an emergency, now is it.)
  • Roth IRA Account:  Offers tax-free growth and tax-free qualified withdrawals in retirement.  Because none of us know what the tax code will look like in the future, Roth accounts offer some diversification in retirement as not all your retirement accounts would be tax deferred.  Speak with your financial advisor about your particular situation to see if the Roth IRA is a good option for you.
  • Health Savings Account (HSA):  Are you covered by a High Deductible Health Plan (HDHP)?  If so, you may want to investigate a Health Savings Account. An HSA allows you to make annual pre-tax contributions to pay for qualified medical expenses, and in some cases, it offers significant tax advantages.  
  • Investment Account: 401(k) opened and contributing to? Check. Roth IRA opened and contributing to? Check. Emergency Fund opened and maintained? Check. Consider a (non-retirement) investment account. This may be in the form of an individual or joint account that you contribute to, and it serves as your “do life out of “account. It’s funded with after-tax money, invested how you please and with no contribution limits. If there was a trinity of financial accounts, it may be the third. 1) The Tax Deferred Account. 2) The Roth Account. 3) The Taxable Account.  Speak with your advisor to see how this may fit into your financial plan.  

Your particular situation may or may not lend itself to one or more of the above. And for some, the above may just be scratching the surface. Speak with your advisor on how they may fit into your financial plan.

To learn more about CapSouth Wealth Management and the services we offer, visit our website at www.capsouthwm.com or www.capsouthwm.com/what-we-do/

Now, here’s a freebee for April readers. It’s very likely that you’re reading this article prior to Mother’s Day. That means – it’s still not too late!  Remember the can of worms reference from above? Avoid one altogether by remembering that Mother’s Day is May 14th .  Here’s a little something to get your juices flowing – and don’t say you weren’t warned!

Just How Does

It’s just after Mother’s Day

And all through the house,

The messes are so many

And I feel like a louse.

I had given my best shot

And used all of my might,

To keep the messes un-messed

And the fallen upright.

With dog hair in the hallway,

And my undies on the floor,

Reality sets in…

It’s Mother’s Day no more.

The kids run in from playing

While discarding shoes and socks,

With none of them landing in (or near)

The laundry basket box.

“This ain’t mommy’s job!” I bark,

“Come pick up all this mess!

Who did you think would get it?

Never mind. Let me guess…”

“Keep cleaning till you’re finished!

She’s on her way just now!

And when she passes through that door

She’d better be like, ‘Wow!’

Cause this year will be different!

And all the world will know,

That Mother’s Day in this one house

Is a twenty-four-hour show!”

So…

Dishes were cleaned and mostly put up.

That’s almost every plate and almost every cup.

Brooms were swishing and mops were swashing,

And most every elbow in the house was washing.

Many things needed doing.

A lot of straightening and even some gluing.

Then…

“The garage door just opened!

And soon she’ll be inside!

To witness what we’ve done!”

(As we all just beamed with pride.)

She passed right by the dog hair

– A little less now in the corner.

Over the damp and freshly mopped floor

 – Before we thought to warn her.

She scooted by the laundry,

And the sink which held no dishes,

And saw NOT the broken vase

As had been ALL our wishes.

She then plopped herself down

On the couch (once) covered with stuff,

And noticed not the pillow

And its lack of fluffy fluff.

She cared not about the mess

That once had covered the house,

Or the peanut butter stain

That was hiding on her blouse.

She cared only to be home

With the family she surely loves.

For whom she does so much for

Despite the mess and shoves.

She was gone but for an hour

And you’d think it was for days,

By all the attention that she got

In lots and many ways.

“But mommy did you notice?”

“And mommy did you see?”

“All the special things we did?

“All for you, all by me!”

And as they went on and on,

Telling tales of all their deeds,

I sat and wondered just how does

She attend to all our needs?

She is, after all, one person

Who’s the primary for all six,

Just how can she do it all

With such chaos in the mix?

She’s the mother of four boys

And the husband of this one.

She’s been given special gifts,

And we’re blessed by everyone.

So I left them to their gushing

For she’s deserving of every word.

And I wandered down the hall,

Twas their laughing that I heard.

No mention of the messes

That still lingered all around.

For with just the slightest glance 

One was certain to be found.

Every day should be for mom.

 A day for just – receiving.

A day where our love for her

 Is right there for – believing.

Show mom each and every day

That you don’t need a date,

To show how much you love her,

 And do appreciate

Everything she does for you

Things so big, things so small.

And show her that you love her

Everyday. One and all.

April, by the way, just happens to be National Poetry Month, as well.

CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results. This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth). CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from this article. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

Exercise Financial Muscles to Get Financially Fit

“Those who work their land will have abundant food, but those who chase fantasies have no sense.” This ancient advice from Proverbs illustrates the importance of financial fitness.

What is financial fitness? Well, we are all familiar with the term physical fitness. If pressed for a definition, we might define it in terms of our own ideas and circumstances.

When it comes to an explanation of financial fitness, the same applies. A lot may simply depend on the season you are in. Financial fitness might mean something different to someone who is single versus a couple with young kids, an empty-nester or a retiree. Even within those demographics, one’s perception could be colored by personal circumstances. Are you saddled with debt, debt-free, renting or a homeowner?

There are many ways to get ahold of your finances; you can increase earnings, lower spending, start saving more (short-term and longer-term) and implement debt management. For many, earnings are difficult to influence in the short-term.  For most, tackling the spending side of the equation will yield the quickest results. Below we consider six principles that will help you get into financially fit shape wherever you find yourself in life.

6 principles for financial fitness

 “An investment in knowledge pays the best interest.”—Benjamin Franklin

  1. Set goals. If you don’t have concrete financial goals, both shorter term and longer term, reaching some level of financial fitness becomes much more problematic. Simply put – you don’t have a destination. You are financially adrift. As George Harrison has noted, “If you don’t know where you’re going, any road will take you there.”

Short-term goals you might consider: Establishing three to six months of cash in an emergency fund, saving for a down payment on a home or auto, or saving for a vacation.

Long-term goals you might consider: College savings for your kids or saving 10-15% of your income for retirement.

  • Do you know what ‘buckets’ your income lands in? How do you spend your income? If you aren’t tracking expenditures, you won’t have a holistic picture.

You might be surprised at how much you spend on eating out, on entertainment, and even on a daily habit of barista-prepared lattes.Unnecessary spending can be diverted into savings or paying off debt, especially high interest rate credit cards. Make timely payments. This will not only prevent you from accruing needless fees, but it will raise your credit score.

Once credit cards are paid off, channel the excess funds into savings. When you accomplish shorter-term goals, reward yourself. It need not be extravagant, but accomplishments should be celebrated.

Finally, you will struggle to follow a plan that is too draconian. Trim frivolous spending but leave some room for fun and hobbies.

  • Your lifestyle shouldn’t exceed your income. If it does, you are burning through savings or taking on debt, and your stress level will likely reflect it.

Excessive spending is not a path that leads to financial fitness. You want financial space in your life. You want ‘money at the end of the month,’ not ‘month at the end of your money.’ A budget is your blueprint that helps achieve this goal.

  • Invest wisely. Among various factors, your financial goals, both shorter and longer term, will greatly influence the proper mix of investments. A diversified portfolio that crosses the spectrum can reduce risk and enhance your return over the long run.

“Don’t look for the needle in the haystack. Just buy the haystack!” advises John Bogle, founder of Vanguard. In other words, diversify!

We are here to assist you with that. Our recommendations are tailored to your financial goals and your unique circumstances.

We avoid get-rich-quick schemes, which are usually nothing more than schemes minus the riches. Accumulation of wealth over a longer period is our goal. We believe it should be yours, too.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” says Paul Samuelson, the first American to win the Nobel prize in economics.

  • Enjoy your retirement. Many enter retirement after accumulating wealth over decades. They have learned how to save. For some, suddenly relying on that savings rather than earning income from labor seems like a daunting leap, one they may be ill-prepared to make. It doesn’t have to be that way.

Your financial plan continues to be a valuable resource in retirement.  Your level of spending in retirement, both regular expenses and those planned extras along the way, along with how much risk you should be taking, when and how to draw Social Security and other sources of income…these factors and more should be considered within a sound financial plan. 

Clients are often surprised when we encourage them to spend more money.  As you work to identify your values and what is important to you, we want to see you realize those dreams and enjoy your life to the best of your ability.  Your plan serves as an outline that arms you with knowledge of necessary guardrails and enhances your financial fitness.

  • Protect your assets. Do you have life insurance, health insurance, and personal liability insurance? Do you have a will and estate plan? Who are your beneficiaries? What happens if you become disabled? Do you have a trusted advisor to handle your affairs? What about a back-up?

If you own your home without a mortgage, do you have homeowners’ insurance? Surprise, not all do. If you rent, renters’ insurance is cheap. It’s a must-have item in our opinion.

Absorbing the fundamentals—the foundation for success

Those who fail to put sound principles into practice are like those who build their homes on sand. The rains come and the winds blow, and financial misfortune overtakes them.

Wisdom encourages us to build our homes on a solid financial foundation. Though the rains come and the winds blow (and they will), the house and foundation are designed to withstand financial storms. In the words of Maren Morris, “If the bones are good, the rest don’t matter!”

Every situation is unique. You may have mastered the fundamentals, and only need to apply the principles we highlighted selectively, plugging small holes and shoring up your finances. Or a more aggressive approach might be in order. Focus on one theme at a time. Some may apply. Others may not.

Having said all that, we never want to give the impression that you are all alone on a financial lifeboat. We are always here to assist.

To learn more about CapSouth Wealth Management and the services we offer, visit our website at www.capsouthwm.com or capsouthwm.com/what-we-do/

By:  Scott F. McDowall, CFP® | Wealth Advisor

CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results. This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth). CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from this article. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

Secure in your 401(K)?

As is customary with our family, we had a (mandatory) New Year’s Day dinner celebration. It’s a wonderful time when the six of us (are forced to) share highlights and lowlights of the prior year and share our hopes and dreams for the year ahead. It went something like this,

Billy:           “Okay, welcome to the 2023 McCarthy Family New Year’s Dinner!

       First, I’d like to thank you all for…” [Interrupted by son #4]

#4:             “Hey dad, let me guess, you’re going to get in shape, eat better, and sleep more.

                     Please pass the meat.”  

I took the liberty of removing the distraction of food from son #4’s personal space and allowed him to listen to the rest of the family’s plans for 2023 unincumbered, that is, until I was over-ridden.  And while I might resemble his remarks, he left out at least one important component. The part where I learn from my mistakes.  

Over committing on resolutions isn’t uncommon and underperforming on them likely isn’t either. Missteps with your finances, however, can run the gamut from inconsequential to nearly catastrophic. Anybody relate?  Hopefully, you have more experience with the former. But life happens. We all make mistakes and sometimes they’re expensive. So what housekeeping tips would we offer for 2023 that may keep you from making costly decisions?  And what’s new for 2023 and beyond that you should be aware of?  Let’s start the year off with a little Retirement Account Housekeeping, shall we? (We’ll substitute Retirement Account with 401(k) for simplicity’s sake.)  

401(k) Housekeeping Tip #1:  

Max the Match.  If you’re currently participating in a retirement plan that has an employer matching contribution component, whereby they’ll match a percentage of your contribution up to a certain percentage of your compensation, I’d encourage you to capitalize on this benefit and max the match. Here’s how it works:  Maybe your employer matches 50% of your contribution up to 6% of your compensation. If you contribute 6% of your compensation, you’ll be maxing the match , as they say. By putting in 6% of your compensation into your 401(k), you’ll receive a 3% match from your employer (50% of 6% = 3%). There’s a technical term we use in the advisory world for that. It’s called:  free money [from the Latin freebieus cashus].  And if you’re maxing the match, that means you’ll be getting all the free money that’s available to you.  Check with your administrator today on what your plan may provide for.

The mistake to learn from:  Jack didn’t max the match and missed out on free money.

401(k) Housekeeping Tip #2:  

If your plan allows you to contribute a percentage or a fixed dollar amount, contribute a percentage. Why so?  Okay work with me:  Let’s say that throughout your career, you’ve made a good impression on the right folks and have found yourself making a good deal more money than when you started. And let’s say you chose to have a fixed dollar amount deposited each pay period. Anybody see the problem? (I’ll wait.) The amount you’re saving isn’t increasing along with your income is it?  No. The fixed dollar amount is – fixed.  You’re putting in the same dollar amount at with an income of $150,000 that you were putting in when you earned $50,000. Had you put in a percentage of your pay, your contributions would be increasing relative to your income. That means more money with more time in the market. And that’s not even considering an employer match. If you’re fortunate enough to have employer contributions being made on your behalf, maxing the match may allow for an even greater amount of savings. Use a percentage, not a fixed dollar amount.

The mistake to learn from:  Jack used a fixed dollar amount and missed out on increased retirement savings and the potential for additional compounding returns.

401(k) Housekeeping Tip #3:

If you have an old 401(k), 403(b) 457(b) or other employer sponsored retirement account, you may be able to transfer that account into your existing plan. Ask your plan administrator about your specific situation. You may even consider rolling that old balance into an IRA  to take advantage of different investment options and services. Sure, why not, right? What you don’t want to do, is leave it somewhere and forget about it.  I’m willing to venture that some of you have old retirement accounts out there, somewhere, and you’re unaware of the balance and of how it’s invested. Am I right? And of course, you don’t want to just “cash it out” without very careful consideration. While you may feast on an immediate influx of cash, you may also enjoy a side of premature distribution and the accompanying 10% penalty if you’re under 59.5. And any pre-tax distribution made will be added to your taxable income for the year in which it was taken.  Speak with your advisor or tax preparer about your particular situation if you’re considering a cash distribution.

The mistake to learn from: Jack didn’t do anything with his old account and eventually forgot he had one. Lots of potential for missed opportunity. 

401(k) Housekeeping Tip #4: 

Let’s talk about your beneficiary. Do you know who your beneficiary is for your 401(k)?  If you paused for even half a second, you need to check. Make sure you know who you’ve listed as the primary beneficiary of your 401(k).  Here’s why. The beneficiary designation on your 401(k) is the last will and testament for what one day, could be your single largest asset. And once you’re gone – as in dead – it’s too late to change it.  And that goes for insurance policies, too. So check your insurance policy beneficiaries while you’re at it. Go ahead. I’ll wait. It’s that important. Maybe even the most important aspect of your 401(k).

The mistake to learn from: Jack never checked his beneficiary after his divorce. Jack died. Jack’s ex-wife soon bought a new car…and a new garage to put it in…that came with a new house.

401(k) Housekeeping Tip #5: 

Be aware of changes that could affect your retirement. A new bill was signed into law at the end of last year that you should be familiar with. It’s the Secure Act 2.0. Yes, it does sound familiar, doesn’t it?  That’s because the first SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law in 2019. Hence, the need for its clever surname – 2.0.  

While there are over 90 new retirement plan provisions, I’ll not cover them all. In fact, I’m just going to mention a few published online earlier this year by Investopedia, titled Secure Act 2.0 Act of 2022. Some will take effect in 2023, of course, while others not until 2024, 2025 and even 2033.

401(k) Auto Enroll: 

Beginning in 2025, Section 101 of the act requires employers to automatically enroll eligible employees into 401(k) or 403(b) plans with a minimum participation amount of 3% but no more than 10%. The percentage will increase 1% per year up to a minimum participation amount of 10% and a maximum of 15%. That said, employees will be able to opt out of the plan if they wish, or select a different contribution percentage. This auto-enroll requirement only applies to new plans in 2025 – not existing 401(k) plans. There are some businesses that are exempt from this provision. (Small businesses with 10 or fewer employees, new business (less than 3 years old), church and government plans.  (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 1.)

RMD Age Change: Section 107 increases the RMD age from 72 to 73. This change takes effect on January 1, 2023. The RMD age will change again in 2033 to 75. (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 2.)

Pre-Death RMD: Section 325 eliminates the pre-death RMD for the owner of a Roth-designated account in an employer 401(k) or other retirement plan. Under current law, required minimum distributions are not required to begin prior to the death of the owner of a Roth IRA, although pre-death distributions are required in the case of the owner of a Roth-designated account in an employer retirement plan. This provision takes effect for taxable years beginning after December 31, 2023. (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 13.)

Catch-Up Contributions: Section 108 indexes the $1,000 catch-up contribution for savers age 50 and above to the IRS cost-of-living-adjustment (COLA). This provision is effective January of 2024 (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 2.)

Catch-Up Contributions for those aged 60 to 63: Section 109 substantially increases catch-up limits for 401(k), 403(b), and 457 plan participants aged 60 to 63 to the greater of $10,000 or 150% of the “standard” catch-up amount for that year, beginning January, 2025.  (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 2.)

Catch-Up Contributions for those making more than $145,000 per year: Section 603 requires that beginning in January of 2024, catch-up contributions to your plan must be made with Roth (after-tax) dollars. (U.S. Senate, Committee on Finance. “SECURE 2.0 Act of 2022 Summary,” Page 18.)

Other: The Act also has provisions for natural disasters, domestic abuse, a Roth emergency savings account, and even a once per year, penalty free withdrawal up to $1,000 for personal or family emergency expenses.

For more information on how these provisions may apply to you, contact your 401(k)-plan administrator.

The mistake to learn from:  Jack didn’t keep up with his benefits and missed out on opportunities to better his retirement.

One of the better quotes on mistakes comes from artist, Bob Ross, who said, “There are no mistakes, just happy accidents.” Sure, that may be true if you’re trying to paint a tree. And since Bob Ross isn’t your financial advisor, let’s go with this one, “Mistakes are much less painful when you learn from someone else having made them.”

Moral of the story when it comes to your retirement:  Don’t be a Jack.

To learn more about CapSouth Wealth Management visit our website at capsouthwm.com/what-we-do/ or Connect With Us to learn more about our process.

By: Billy McCarthy, Wealth Manager

CapSouth Partners, Inc, dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice. Any performance data quoted represents past performance; past performance is no guarantee of future results. This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth). CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from this article. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

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