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The beginning of the year always brings excitement, a fresh start and renewed motivation. But this time of year is also full of uncertainty, especially for those planning retirement.
2024 is no different, with continued concerns about inflation and interest rates in addition to the presidential election. Given the complexities ahead, leveraging expert insight is essential to making informed decisions.
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So I tapped Wealthlamp’s network to speak with five leading retirement planning experts to ask them about their current strategies to best prepare their clients for the challenges of 2024. I did. Here are their opinions:
Consider the benefits of a Roth conversion
“Roth IRAs offer benefits to both investors and their heirs,” explains Financial Advisor Katherine Brown of Joss Brown Wealth Advisors.
The appeal of a Roth IRA is that you can make tax-free withdrawals. Recognizing this advantage, Mr. Brown offers individuals between the ages of 55 and 72 a traditional IRA in a lower tax bracket before required minimum distributions (RMDs) and Social Security benefits begin. We advise you to consider converting to a Roth for a smaller amount.
This strategy is especially beneficial for those looking to leave a legacy. By choosing a Roth IRA, heirs have the option to defer withdrawals, avoiding the need to deplete the account within 10 years and face high taxes, a common scenario with traditional IRAs. .
Brown emphasizes the importance of timely action, especially when it comes to backdoor Roth IRA conversions, a common strategy used by high-income individuals who are not eligible to contribute directly to a Roth IRA. Instead, you can contribute to a traditional IRA and then convert it to a Roth. “Many investors contribute after-tax dollars to a traditional IRA, and the funds are kept in an account that can be converted to a Roth IRA without double taxation,” she advises.
She further clarified that “unless other rollover IRAs are involved, it may be best to cash out funds that have already been taxed before regulators eliminate this loophole.” If you have pre-tax funds from previous rollovers, transfer them to your company 401(k) before conversion to reduce the tax impact on your pre-tax IRA funds. ”
Brown also points to an often overlooked opportunity: after-tax funds in corporate retirement accounts. “Many investors don’t realize that these can be rolled over into a Roth IRA rather than being cashed out,” she says.
Rebalance your portfolio
“Rebalance, rebalance, rebalance” is the mantra emphasized by Mark Lieberman, portfolio manager at Shorepine Wealth Management. He believes that while it may seem like mundane advice, the act of tweaking your investment portfolio can pay big dividends. Lieberman emphasizes the importance of this process, especially after several years of market volatility.
He observes that many investors’ portfolios are likely moving away from their intended allocation. “For example, bond returns have been negative since July 2020,” he points out.
Lieberman expects the bond market to improve as the Federal Reserve potentially lowers interest rates. He cautions that many investors may find themselves underweight in this asset class. “If you haven’t properly rebalanced your portfolio recently, now is a great time to do so,” he advises.
Lieberman also warned investors to prepare for increased volatility in 2024. “In a presidential election year, the Federal Reserve is likely to move from raising interest rates to lowering them, the labor market is weak, corporate profits are weak, and consumers are spending their excess savings. The market is expected to be volatile.”
To weather this volatility, he suggests diversifying between gold and short-term government bonds. “Gold can act as a stabilizer during times of turmoil, and with government bonds yielding between 3% and 5%, it could provide a safe harbor while waiting for more favorable conditions.”
Consider private debt to increase your earning potential
Eric Hutchens, president and chief investment officer of Allodium Investment Consultants, is eyeing private debt as a key retirement income idea for 2024. “This type of fund offers attractive yields with significant diversification benefits,” he claims. By holding loans to maturity, private funds are less susceptible to the market volatility that affects publicly traded stocks and bonds, Hutchens said.
He details the diversity of private debt funds, ranging from low-risk to high-risk profiles. “Private debt funds range from low-risk to high-risk, and finding a quality private credit manager can significantly increase diversification and returns beyond traditional stocks and bonds. ” explains Hutchens.
However, he also highlights the potential trade-offs of this asset class. “Investing in this asset class typically requires managers to give up some liquidity as they hold the loans to maturity. However, investors are compensated by an “illiquidity premium.” , which can increase your revenue over time. ”
Take advantage of high rates with a ladder approach
Melissa Walsh, a financial advisor at Clarity Financial Design, observes a growing trend among retirees and those nearing retirement to seek lower-risk income options. “My first tip is to make sure you lock in today’s attractive interest rates. Certificates of deposit and municipal bonds are both still attractive,” she advises. Currently, FDIC-insured CDs offer yields of 4% to 4.75% with maturities of 1 to 5 years.
Walsh also emphasizes the tax advantages of municipal bonds for people who expect to pay higher income taxes in retirement. “For those who expect to be in a high-income bracket in retirement, high-quality municipal bonds should be given special consideration because they exempt interest from federal taxes,” she explains.
When it comes to managing your investments and retirement, Walsh suggests a “bucket approach.” She elaborates on this strategy:
“By splitting your money between short-term needs and long-term investments, you’ll be better prepared to stick to your plan and withstand inevitable market fluctuations. The first bucket should contain your living expenses for the next 12 months. Keep the money you need to cover you and an emergency reserve fund in interest-bearing conservative investments, such as high-yield savings accounts or money market funds.
“In the second bucket, we plan for short-term cash needs that will occur within the next 1 to 5 years, with a ladder of CDs and high-quality bonds that mature when the cash is expected to be needed. Finally, invest the rest of your retirement portfolio in a diverse mix of stocks and bonds that suits your risk tolerance.”
Navigate changing tax laws without clocking Congress
Robert Carroll, managing director at Carnegie Investment Advisors, advises caution and strategic planning in light of evolving tax laws. “Avoid the urge to ‘do something’ this year,” he says flatly.
With the Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, Carroll acknowledges that a plethora of strategies will likely emerge in response. But he cautioned against reactionary moves based on speculation about Congress’ actions. “The reality is that no one knows what will happen. For example, will current provisions such as an increase in the basic deduction limit continue?”
Carroll argues that Congress often works on issues close to deadlines, suggesting there is plenty of time to understand and adapt to any changes. He advises: “Take the time now to better understand your tax situation. Do you itemize or take the basic deduction? What is your effective tax rate? What is your marginal tax rate? It provides important context for developing tax planning strategies as policies are developed.”
He also highlights the huge opportunities for high-income and high-net-worth households. Carroll points out that income limits may limit his ability to traditionally fund his Roth IRA. His SECURE 2.0 Act, passed in 2022, expands on this feature, giving some plans the ability to contribute after-tax amounts to perform an “in-plan” conversion to a Roth. ”
Carroll emphasizes the importance of incorporating a Roth funding strategy into your overall financial plan, ideally with the guidance of a qualified tax professional.
Of course, not all the movements described above are suitable for everyone. Consider your own situation and consult a paid financial advisor to determine what adjustments are appropriate for your situation and ensure that the actions you take are in line with your specific financial goals and circumstances. please.
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This article was written by and represents the views of our contributing advisors and not of Kiplinger’s editorial staff. To check your advisor’s records, SEC or together finra.
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