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Category: Guidance

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.

Pigskins and Procrastinations

So, I have two sons who have flirted with college football. One, a quarterback, opted to forego several college football opportunities turning instead toward a career in medicine. Fine, whatever. Maybe I’d have better luck with number two? Sure enough, despite numerous run ins with the law – me – he managed to graduate near the top of his class and was presented with numerous opportunities to play football at the next level – only to delay the decision until the absolute last moment. For us parents, this was, as you might imagine…unpleasant…and ripe with anxiety, frustration, regret and maybe a few four-letter words from his mother. (Or maybe that was me. Heck, I don’t recall.)  And we’re just talking about football here! How might a belabored, or in some cases, a broken decision-making process affect your family when it comes to your finances?  And why is it so difficult at times to make financial decisions?

Large Financial Decisions are Ripe with Emotion:

Decisions involving money can take on a life of their own. For most of us, or unless you’re the Fed, there’s not an endless supply of money. We just can’t print more when we need more (the aforementioned once again excluded). Money is inextricably linked to provision, and provision is tied to those we care for most.  And therefore, large financial decisions can be ripe with emotion. As objective as we may believe we are, when we make large financial decisions, we invariably do so with emotions having a seat at the table. And understandably so, right? Emotions are involved because we recognize the weight of the decision and how it may impact those around us. Can we afford this home? Can I afford to remain in this career? Can we make it with one income? Will we have enough to live off during retirement?  Now, with those questions, you may have some control over the outcomes. But what about those you have zero control over? Are we about to enter a global recession? What happens if Europe and Asia become further unstable? Will inflation continue to rise?

All of these concerns have the potential to lead to emotionally based decisions.  And equally concerning, they can also lead to paralysis or making no decision at all. It’s a well-known question for a reason: Why do today, what you can put off until tomorrow? When you’re stressed and tensions are high, emotions go from having a seat at the decision-making table to holding the pen in their hand. And that doesn’t often end well.

In Light of the Above, Now What?  

Well, that’s the first step – acknowledging that emotion can play an important role in making financial decisions. Not that emotions are bad, mind you, they may just need to be tempered. You may need only to think back a day, a week, or five years ago when your emotions led to a decision, which then led to an outcome, which may have then led to regret. (If not, then you’ve not made many decisions up to this point, have you?)  Instead of rushing into a decision or putting it off altogether, let’s pause, take a step back, and insert a little objectivity. Can’t find it, you say?  Then allow me to offer the following:

  1. Are you able to recognize when your emotions are making the decisions? 
  2. What are the possible consequences of the decision that you’re contemplating currently?
  3. What emotion typically drives your decisions?  Fear? Happiness? Empathy?
  4. And if you have a spouse, do you have an agreed upon process with which to make large financial decisions?
  5. And finally, what is it that you value most out of life?

Here’s what I know about you, if I may be so bold.  If you’re willing to honestly address the five questions above, you’re on your way to living your one best financial life.  At the time this article was written, there’s quite a bit of uncertainty and volatility in the financial markets. And I’m going to presume that such times may create a little stress? If I’m speaking to you, as I’m speaking to myself, there’s little value in delaying a decision based on fear alone. Just as there’s little value in rushing into large financial decisions based on want alone.  If you’re in need of some objectivity within your financial decision-making process, that doesn’t make you unique, it makes you human. I happen to work with some pretty special humans who are quite gifted in helping with financial decisions.  You don’t have to go it alone. In CapSouth, you have a team to rely on. We can help.

So back to football. The second son did – finally – choose a school. In full disclosure, the emotional wear and tear was on that of his mother and me. He was dead set on what he wanted from a college experience, and he made a plan to get there. He contacted over 50 division1 football programs in search of a home, and he turned down nearly as many – some of which were financial no brainers. But that wasn’t his sole motivation. He was set on certain parameters and was willing to forgo others. He made a series of tradeoffs based on the realities of his recruiting process and chose – albeit 8 days before he was to report to camp – the opportunity that satisfied his ultimate goal – to be a part of a winning program and have an opportunity to play a role in the coming years. He didn’t do it alone, I must admit. He sought counsel from those he trusted and who could help him sort through the emotions that so often accompany large decisions.

If we can help you sort through your own emotionally charged decisions, please allow us. You don’t have to go it alone. We were made to live in community, and we’d be honored to serve our role in yours. You don’t have to go through it alone. We can help.

Happy fall and Go Eastern Kentucky Colonels!

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or call 800.929.1001 to schedule an appointment to speak with an advisor.

by: Billy McCarthy, Wealth Manager

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, 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.

Wealth Planning Challenges Corporate Executives Face

As you climb the corporate ladder, the financial rewards can be lucrative. It can also present some unique challenges for your overall wealth plan. What is the best payout election for your Non-Qualified Deferred Comp plan? How much money are you leaving on the table with unvested stock options if you take the new job offer? How much will you have to pay in taxes when your Long-term incentive reward pays out next year? These are just a few of the many questions corporate executives must answer when planning for their future.  A limited knowledge of your company’s retirement plan, benefits package, performance awards and long-term incentive programs could cost you thousands of dollars in lost income as well as taxes. In an effort to avoid those mistakes, let’s review some of the most common wealth planning challenges corporate executives face.

Determining Your Deferral into Your Company 401k Plan

Have you ever deferred a portion of your salary to your company’s 401k plan only to receive a letter in the mail accompanied with a check the following year that informs you that you can’t defer that much into the plan?  Provided you were under the IRS deferral limits, chances are your company’s retirement plan failed it’s year-end testing.  Asking your HR professional if highly compensated employees can max out their contributions into the retirement plan isn’t often high on the list of questions during an interview with a new company. It should be. The IRS sets the annual deferral limits along with the catch-up provisions. However, your plan also must pass various testing (I’ll spare you the reasons) at the end of the year.  Depending on your company’s plan design, highly compensated employees may not be able to max out the IRS limits.  If you have planned to use your 401k plan to save for retirement and fail to ask the right questions of your employer, you may find yourself having to find new vehicles for saving.

Understanding the Roth 401k

Many companies are now offering a Pre-tax and a Roth 401k option. One of the most common misconceptions I hear is, “I can’t contribute to the Roth 401k because I make too much money.”  The confusion here centers around the difference between a Roth IRA and a Roth 401k. The Roth IRA absolutely has a contribution limit that is determined by your Adjusted Gross Income (AGI).  As a high earner, it is probable that you earn too much to directly contribute to a Roth IRA. However, the beauty of the Roth 401k is that it is not subject to the same income limits.  No matter what your income is, if your company offers a Roth 401k option you are allowed to participate (provided you meet your plan’s other eligibility requirements).  The benefit of contributing to a Roth 401k is that while you must pay taxes on the income now, provided you follow the distribution rules, you won’t pay taxes if you withdraw from it during retirement. This means you never paid taxes on the earnings which is why it can be a significant wealth building tool.  Determining how much to defer to a Pre-Tax 401k vs. a Roth 401k option is another decision point you must consider, but you should at least be aware that you can contribute to the Roth 401k.

Realizing the Risks of a NQDC Plan

Your employer may offer a Non-Qualified Deferred Compensation plan (NQDC) to its highly compensated employees. It’s considered a benefit for corporate executives because it allows you to defer a larger portion of your compensation.  Another benefit is that you can schedule distributions throughout your career – not just during retirement. A NQDC plan differs drastically from a 401k plan, and it’s important to understand the differences.  A 401k plan is considered a qualified plan. As a qualified plan, it must abide by the Employee Retirement Income Security Act (ERISA).  ERISA provides a level of protection that is not afforded to a non-qualified plan. The NQDC plan is merely an agreement between an employer and employee.  There is substantial risk which includes losing your assets in the NQDC plan, especially if down the line your employer files for bankruptcy. When you are early in your career, trying to predict your company’s future in 30 years is challenging.  Knowing how to weigh the risk, plan your deferrals and your distributions can be intimidating even to the most seasoned executive. It’s critical to understand how much risk you can tolerate within your financial plan.  Participation in the plan should also warrant a tax planning conversation as you determine your elections.

Evaluating the Alphabet Soup of Corporate Executive Compensation

Acronyms. Get to know them well. As it relates to the wealth planning challenges corporate executives face, understanding your financial acronyms may be the most important to your financial success.  ESPP, RSU, PSU, and LTIP are just a few that will impact your planning. Equity performance rewards and long-term incentives often come in the form of company stock and have a stated vesting period. The vesting period determines the timing of the payout.  Let’s look at an example of how this impacts wealth planning. Consider if you were offered an $80,000 LTIP (Long-term Incentive Plan) that will pay out in RSUs (Restricted Stock Units), but it has a 48 month vesting period and an additional six month waiting period before you can sell them.  This means you would be able to potentially realize that money in four and a half years.  Will your company withhold a certain amount of your shares to cover your tax bill when the shares vest?  Will you decide to sell all the shares in four and a half years to receive the $80,000, or will you strategically consider a plan to diversify?  These are just a few of the questions you will need to consider in your wealth planning.  We’ll take a look later at what happens to these financial rewards if you decide to leave the company.

Thinking Long-Term for Your HSA

Speaking of acronyms, let’s talk about another one – the HSA. A Health Savings Account, commonly referred to as an HSA, is a savings account that allows you to defer a portion of your salary on a pre-tax basis to save for qualified medical expenses.  Unlike the FSA (Flexible Spending Account), the funds in an HSA rollover from year to year. With a maximum contribution limit of $7,000 annually for a family (if you are younger than 55), this small but mighty planning tool is often overlooked in the wealth planning for corporate executives. The common objection for corporate executives not contributing the max to an HSA is that you don’t have many medical expenses and wouldn’t use it. This is exactly why you should consider it!  If you think beyond the now and the current use for an HSA, it has the potential to be the triple threat of retirement planning.  You won’t pay taxes on the money contributed.  Provided that you use the funds to pay for medical expenses at some point, you won’t pay taxes on the earnings or when you make the withdrawal.  Rising health care costs could create a significant expense for corporate executives that want to retire before age 65 and Medicare.  When thoughtfully used, an HSA could be a solution to this problem.  HSA funds can also be used to pay for long-term care insurance premiums as well as Medicare premiums. Think twice before you overlook the HSA during open enrollment.

Unwinding a Concentrated Wealth Position

The definition of a concentrated wealth position can vary.  For our purposes, we will define it as any position that is more than 10% of your overall investment planning portfolio. As we examined earlier, company stock options can be lucrative. They can also create more risk. The longer you work for a company your chances for a concentrated wealth position increase.  You are likely awarded new performance rewards and incentives in the form of stock options each year which begin to layer on top of each other.  As the rewards vest, you’re faced with the decision of selling, donating or holding the position.  If you are feeling bullish about your company’s future, it’s tempting to hold the position so that you can leverage the future growth. What happens though if the future wasn’t as bright as you thought it might be? If you think it would never happen to your company, consider the following names: Texaco, General Motors and Enron. A pandemic in 2020 also accelerated the bankruptcies of JC Penney, Neiman Marcus, J. Crew, Guitar Center, and Pier One.  Could you afford to lose all the wealth associated with your company stock and still live the life you want to live?  If not, it’s time to consider diversification.  Even if your company never faces bankruptcy, you will still need to understand tax implications of holding or selling your company stock. Planning wisely could save you thousands of dollars in taxes.

Breaking the Golden Handcuffs

Incentives and performance awards are referred to as golden handcuffs for a reason – they are designed to deter you from leaving your current company.  Companies spend a great deal of money to recruit, hire and train employees. Yet, corporate executives are talented individuals and highly sought offer employees so there is a high probability you will have to consider breaking the golden handcuffs during your career. That presents the challenge of understanding what money you would be leaving on the table should you leave your current company. Non-vested awards and incentives are forfeited when you leave, which equates to loss of wealth. If you were participating in a NQDC plan, any vested money you have in the plan could be distributed to you immediately depending on the terms of your agreement.  Realizing the income that you had intended to defer for a later period may create a sizeable taxable event. Negotiating an employment offer with a new company will require you to understand what you are leaving behind. Do not be afraid to ask for a reasonable equity buy out.  Evaluate the terms and vesting period of the new awards the job offer includes. Compare the timing of the wealth pay outs you are leaving behind to the new terms of the wealth you are being offered.  Consider the culture of both companies. More money does not always equate to more happiness or job satisfaction. 

Finding the Right Partners

Often, the best strategy for managing your executive compensation rewards is to not try and tackle it alone. You are a leader for a reason. You know how to identify talent in others, delegate work and ultimately manage the team to produce the overall results you desire to achieve.  Identifying and working with a good team of professionals, including a CPA, a Wealth Advisor, and an Estate Attorney, to manage your wealth should be no different. A proactive team will seek to educate you, involve you as needed, guide you where appropriate and ultimately allow you to spend more time doing what you do best. It leaves you free to do the things you love and to dream about the life you want to lead in the future.

Article by: Jennifer Fensley, CFP®️,CRPS®️

If you would like to learn more about CapSouth Wealth Management please visit our website at www.CapSouthWM.com  If you would like to have a conversation to discuss this article further, I’d love to chat. 334.673.8600.  capsouthwm.com/services/financial-estate-planning/

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.  This material has been prepared for planning purposes only and is not intended as specific advice. 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.

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