Useful Information from Recent Webinars- Part 3

During the past two months, I summarized information from various recent webinars that might be useful to others. Below are seven more information tidbits in my final installment:

Back-Door IRAs- This is where people who earn too much income to qualify for a Roth IRA contribution put money into a non-deductible traditional IRA because there are no income limits for non-deductible traditional IRAs. They then convert the traditional IRA balance to a Roth IRA within a short time. The converted amount, plus any pro-rated earnings for the short time money is in the traditional IRA, are taxed at ordinary income tax rates.

 

Super Savers- It is unlikely that people who saved for retirement for decades in tax-deferred plans will die without leaving some money in an IRA, 401(k), or other tax-deferred asset. This speaks to the importance of beneficiary planning, especially for non-spouse beneficiaries who must withdraw all money from an inherited account within 10 years after the owner’s death.

 

Financial Education Mandates- By mid-June 2023, 22 states passed laws that require graduating students to take a personal finance course. Financial literacy is one of few topics today that has bipartisan support, as evidenced by state legislature voting and bills signed by Republican and Democratic state governors. There is little cost as schools generally reallocate existing teachers and free curricula and teacher professional development are widely available.

 

Financial Trauma- This was defined as the cumulative harm to a person’s wealth-building capability and relationship with money over time. As a result of financial trauma, many people feel shame about their finances. Financial educators and others in helping roles were advised to “meet people where they are” without any judgment and to use empathy by connecting to the emotions than underpin people’s lived experiences. Start with “What can I help you with?”

 

Estate Planning Triggers- The following events often increase interest in estate planning: birth/adoption of a child or grandchild, marriage, divorce, illness/disability, a large debt, a large change in the value of assets, purchase of a major asset (e.g., house), a major life or career change, receipt of an inheritance, and a required change in a guardian, executor, or trustee.

 

Gen Z Investing- A high school-age webinar presenter spoke about opening a Roth IRA at age 14 with earned income and the early compound interest gained by starting to save for retirement almost a decade earlier vs. waiting until college graduation. She also recommended a “set it and forget it” approach by combining a target date mutual fund with automatic deposits.

 

Portfolio Rebalancing- Left alone, an investment portfolio can go wildly off track, especially during stock market peaks and dips. Rebalancing is recommended and it is easier to rebalance regularly than wait for long periods of time. Rebalancing can be done by selling overweighted assets (do this within tax-deferred accounts) or with new cash deposits to underweighted assets.

 

Financial knowledge is power. I hope that you found these information tidbits useful.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.