Roth IRA vs. Traditional IRA

Individual Retirement Accounts (IRA) come in two types, Roth and Traditional, and there are several basic differences between them. 

The biggest difference between these two types of IRAs deals with how the distributions are taxed.  Traditional IRAs allow the IRA holder to take a current tax year deduction for the amount which they contributed to the IRA up to an annual limit.  When the IRA holder takes a distribution out of the IRA during retirement, however, each dollar of the distribution is taxed as income in the year it is withdrawn.  Thus any investment earnings in the traditional IRA are taxed deferred until withdrawn. Earnings in a Roth IRA, however, are tax free when withdrawn, but do not provide a current tax year deduction. 

For those covered by an employer sponsored retirement plan traditional IRAs have income limits pertaining to the amount that the account holder may deduct on their taxes; however, anyone can make a nondeductible contribution regardless of income.  Conversely, you may only contribute to a Roth IRA if your income is below a certain amount.

Another difference is that Roth IRAs do not require a Required Minimum Distributions (RMD) from the account when the account holder reaches age 70 ½ where traditional IRAs do.

Finally, with a traditional IRA there is a 10% penalty on withdrawals prior to attaining age 59 ½ unless an exception applies.  For Roth IRAs this penalty only applies to the earnings withdrawn and not the contribution amount.

Please note that we do not provide tax advice and you should consult with a qualified tax advisor regarding any tax questions. 

White House Financial & Investment Solutions helps families live an easier and less stressful life through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at www.whitehousellc.com for more information!

Annuities. Good, Bad or just Ugly?

We are regularly asked if an Annuity is a good or bad thing for clients, and like most answers in our business and in life, the answer is, “It really depends!”

At its most basic level, an annuity is a life insurance product designed to pay some level of income to the annuitant.  The investor gives the annuity product life insurance company a certain amount of money, called the premium, and the life insurer agrees to pay the annuitant a certain amount.  These amounts can be monthly, quarterly, annually for life, for a certain minimum period or both.   This is an example of a fixed annuity.  There are also indexed and variable annuities where the value is tied to some kind of stock or bond investments.

There are literally thousands of different annuity products with thousands of variations.  As with any financial product, whether the product is appropriate for a particular client depends on exactly what the client’s needs, sophistication, financial situation and risk tolerance are.

They also typically have steep surrender charges if the annuity is cashed out before a certain length of time.

When considering whether an annuity product is good for your financial goals you should make sure that you fully understand the product and that it is offered by a financially stable and large life insurance company with a long history.
White House Financial & Investment Solutions helps families live an easier and less stressful life through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at www.whitehousellc.com for more information!

What to consider when choosing a financial advisor

We are often asked what people should consider when looking to hire a financial planner or advisor. 

The most important criteria is whether you feel comfortable with that person and are able to share with them very personal and sensitive information.  If you cannot share this kind of information with your financial advisor, the value that they add will be very limited.

They should have earned the Certified Financial Planner designation and have been doing financial planning full time for at least five years. 

It is very important that your advisor is a great listener and able to explain very complex issues at the clients’ level. 

They should be independent from any entity that sells financial products, such as banks, brokerage houses, or insurance companies.  However, they should be overseen and regularly audited by an independent entity to ensure they are compliant with all rules and regulations.

The way that they are compensated should be flexible (i.e., flat fee, hourly, product commission, percent of asset) and fully disclosed to each client and prospective client.

Also very important is that they should be passionate about what they do.  Financial planning should not just be a job to them but a calling.

Morningstar developed detailed questions to ask your existing advisor or one you are considering hiring. For our Firm’s answers, please refer to the “Financial Advisor Interview” PDF file on the home page of our web site at www.whitehousellc.com
White House Financial & Investment Solutions helps families live an easier and less stressful life through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at www.whitehousellc.com for more information!

Helping clients determine if they can retire

This week we completed an analysis for a husband and wife who were referred to us by one of our best clients.  After checking with our references, they hired us to help them manage their retirement portfolio, but more importantly to help them determine if the husband could afford to retire.  The wife was retired and wanted her husband to retire from the University of Michigan where he had worked for almost thirty years.  They wanted to spend more time each year traveling and living outside the U.S.  The bulk of their retirement assets were in the University of Michigan Fidelity and TIAA-CREF retirement plans.  They were very diligent about saving for retirement and budgeting, however, they did not have confidence that they could achieve their income and travel goals if he retired, or at least not for very long.  This is a very common client concern we see over and over again.  Luckily, our analysis opened their eyes to several factors they did not consider in theirs, such as the effect of inflation and perhaps easing into retirement over the next several years.  We were able to help them tweak their budget and make them more comfortable with their retirement income number and the probability of achieving their goals.  It is critical that future inflation is taken into consideration when we are doing retirement income projections.  In addition, many clients are tied to this idea of not spending any principal.  In reality, most clients will spend some principal in certain years while in retirement. The current rule of thumb in financial planning is that a client with a well-balanced stock and bond portfolio can safely spend approximately 4.50% of the portfolio each year without depleting principal over time.  Again, this is just a rule of thumb; however, we have personally witnessed this work for clients.  When you are using an annual percentage spending goal as opposed to a fixed amount, you are leaving more principal to work and compound during the good years and taking less in bad years. 

White House Financial & Investment Solutions helps families live an easier and less stressful life by helping them accumulate and preserve their wealth.  We do this by acting as our clients’ trusted advisor providing client focused, custom, comprehensive, financial advice and exceptional service!  Please visit our web site at www.whitehousellc.com for more information!

Founded in 2001, White House Financial & Investment Solutions helps families live an easier and less stressful life through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at www.whitehousellc.com for more information!

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