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By Greg Farrall, PPC®, CWS®, CPFA®

After the extreme volatility of the last couple years, it’s a great time to express a little gratitude! Even though this year brought with it yet another set of challenges (and it would be all too easy to focus only on the bad), we are choosing to cultivate a heart of gratitude and acknowledge the many things we have to be thankful for this Thanksgiving season. 

Family & Friends

Family and friends probably tops the list for most of us, but in this season especially, we are reminded of how much family means (from parents, grandparents, and siblings, to spouses, children, and grandchildren—and even our pets!) and the importance of surrounding yourself with people who know you, love you, and support you.

No matter how busy we are or what life changes come our way, family and friends are vital to our well-being. At Farrall Wealth, we are incredibly grateful for the community that surrounds us, and we are privileged to consider many of our clients as friends as well. 

Freedom

This year brought shocking geopolitical events with the Russian invasion of Ukraine. Now, more than ever, we are reminded how privileged and blessed we are to live in a prosperous and free country. There are many people all over the world who long to live here, to be able to worship and vote for whomever and however they want, and we are lucky to have the opportunities this country affords, no matter how divided our country may feel at times.

A Chance to Serve

For us, one of the most important parts of our lives is joining you on your journey and serving you as you pursue your goals. It is truly our joy to celebrate with you when you reach a milestone and support you when life gets shaky. 

There aren’t many people who can say they get to go to their dream job every day, so we are incredibly grateful that we get to do just that, providing education and support for so many families in our community who are on the road to a confident financial future.

As we reflect on all we’re grateful for this year, we want to make sure to thank you, our clients, for choosing Farrall Wealth to guide you in your financial life. We look forward to investing in you and your family in the future!

Give Thanks

Reflecting on all the things to be thankful for is a great step toward becoming a happier and wealthier person overall. 

We hope your Thanksgiving is filled with love and laughter (another two things to be thankful for!) and leaves you refreshed and ready to look forward with hope. Through all the ups and downs, we are here for you and your family. Reach out to us at 219-246-2516 or [email protected] with your questions, concerns, or just to touch base before the end of the year. We are thankful for you! 

About Greg

Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.

Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board. 

When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

By Greg Farrall, PPC®, CWS®, CPFA®

When Snoopy wrote a letter to the IRS saying, “Dear IRS, I am writing to you to cancel my subscription,” most of us could definitely relate. And if you have an investment or asset you are going to be selling for a profit, the IRS will surely come calling. But capital gains taxes don’t have to be such a burden if you employ a few strategies to help reduce your capital gains. 

1. Wait a Little Longer to Sell

Timing the sale of your investments is critical to lowering your capital gains taxes. Selling your shares after holding for less than a year will result in a short-term capital gains tax. This means that all the gains you made from the sale of the stock will be taxed at your ordinary income rate, which can be 32%-37% for high-earners. Holding on to an asset for more than one year will be taxed at the long-term capital gains tax rate, which can be 0%, 15%, or 20%.

Holding periods are also critical when it comes to the sale of real estate. If you sell your primary home and you lived in the home for at least two years of the five-year period before the sale, the IRS allows you to exclude the first $250,000 of capital gains (or $500,000 for a married couple filing jointly). While the capital gains exclusions do not apply to investment properties, you may be able to utilize like-kind exchanges to defer capital gains tax by reinvesting in other real estate.

2. Utilize Tax-Loss Harvesting (TLH)

Losing money on your investments is usually a bad thing, but utilizing a tax-loss harvesting strategy means you can claim capital losses to offset your capital gains. If you show a net capital loss, you can use the loss to reduce your ordinary income by up to $3,000 (or $1,500 if you are married and filing separately). Losses above the IRS limit can be carried over to future years. Sometimes it is advantageous to sell depreciated assets for this reason. A tax-loss harvesting strategy can help minimize your tax liability and keep more money in your pocket. However, trying to reduce taxes shouldn’t come at the expense of maintaining a thoughtful asset allocation in your portfolio.

3. Asset Location

Some investments will be more tax-efficient than others. For example, a municipal bond is considered the most tax-efficient security because income from municipal bonds are federally tax-exempt and may be state tax-exempt. Investments like high-yield bonds are considered less tax-efficient because payments are not tax-exempt, meaning they are taxed as ordinary income. 

Like assets, there are investment accounts that are more tax-friendly. Tax-advantaged accounts allow you to defer paying taxes on the gains or earnings to a later date. For example, a traditional IRA or a 401(k) will allow you to contribute using pre-tax income and withdrawals are taxed when you retire, when your income is typically lower. 

Pairing tax-advantaged accounts like a 401(k) with tax-inefficient assets like a high-yield bond and pairing taxable accounts (individual, joint, trust, etc.) with more tax-efficient assets will create a more optimal mix to minimize tax liability. Placing investments that have higher tax rates with accounts that delay taxes will help reduce the amount you owe. Since you are not expected to pay federal taxes on something like income from a municipal bond, there is no use placing it in a tax-advantaged account because there are no taxes to delay. 

Of course, this is a bit of an oversimplification as there are many nuances that can make certain investment vehicles more tax-efficient than others. For example, although REITs are at the bottom of the chart, there are still plenty of advantages to investing in them. Dividends from REITs are sheltered from corporate tax, and some dividends are considered a return of capital that isn’t taxed at all. This is why it is imperative to work with an experienced professional who can use the nuances of each financial instrument to your advantage.

4. Understand Cost Basis & Share Lots

When you buy any amount of stock, the stock is assigned a lot number regardless of the number of shares. If you have made multiple purchases of the same stock, each purchase is assigned to a different lot number with a different cost basis (determined by the price at the time of each purchase). Consequently, each lot will have appreciated or depreciated in different amounts. Some brokerage accounts use first in, first out (FIFO) by default. If you utilize FIFO, your oldest lots will be sold first. Sometimes FIFO makes sense, but not always. Sometimes it is ideal to sell lots with the highest cost basis, which is commonly done as part of a tax-loss harvesting strategy.

Passing on assets as an inheritance can also increase your cost basis. Assets passed on to the next generation at the time of death allow your heirs to pay tax only on capital gains that occur after they inherit your property, through a one-time “step up in basis.” For example, when one spouse dies, assets passed on to the surviving spouse will have a cost basis of the price of the asset on the day in which they passed. This eliminates the deceased spouse’s portion of capital gains.

We’re Here to Help

Minimizing capital gains taxes is only one component of a sound financial plan. Through our investment management services at Farrall Wealth, our goal is to minimize fees, reduce taxes, and seek to protect your investments while positioning them for growth. To learn more, call our office at 219-246-2516, email [email protected], or schedule a complimentary consultation online. Be sure to visit our website to learn more and connect with us on LinkedIn, Facebook, Twitter, and YouTube.

About Greg

Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.

Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board. 

When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.

No strategy assures success or protects against loss.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Investing in Real Estate Investment Trusts (REITS) involves special risks such as potential liquidity and may not be suitable fr all investors. Three is no assurance that the investment objectives of this program will be attained.

By Greg Farrall, PPC®, CWS®, CPFA®

As a plan sponsor, you have a lot of responsibilities to your employees—they’re even outlined on your own page on the IRS’s website! When providing retirement and healthcare plans to your employees, you must act in their best interest, maintain their accounts, and make the smartest investment decisions to help them take care of themselves and their family. They’re relying on your integrity to help them build a solid financial foundation for their future (no pressure!), so it’s critical not to neglect one of the most important elements: plan fee review.

If you don’t take the proper measures to disclose your fees or ensure they’re competitive and reasonable, your plan offerings probably won’t seem as effective for your employees. As a sponsor, you should know that the higher your plan’s fees, the less your employees will have to contribute to their plans. This is why you should review your fees to make sure your employees can count on you to help them save for retirement. 

How Often Should You Review Your Plan Fees? 

Some say that reviewing your plan fees every two to three years is just fine, but I believe an annual review is the better move. Because lawsuits surrounding 401(k) and 403(b) plans have ramped up in recent years, it’s wise to take a proactive role in monitoring plan fees to ensure they can clearly show a prudent review process is followed.

As a plan sponsor, you should look over your plan fees on a periodic basis for a few reasons:

• You have a fiduciary responsibility to monitor plan fees and verify they are “reasonable.” 
• If you have higher fees, be prepared with a good reason as to why you wouldn’t go with a less expensive alternative. 

How Should You Review Plan Fees? 

No two plan sponsors are exactly alike! To start your review of your plan fees, it’s best to look at what you currently charge your employees to maintain their retirement accounts. Although plans can have varying types of fees, the two most common are the investment and administrative fees. 

The investment fee is one of the most significant retirement plan expenses, but there’s an upside. This fee is usually charged as a percentage of your employee’s assets invested, meaning that the fee is justified by how much money they have invested. Overall, this fee is what is paid to manage their investments in the 401(k) plan. This fee will vary based on the type of investment management approach (i.e., passive vs. active and domestic vs. international), but it is important to benchmark these fees to their appropriate peers.

The administrative fee is charged to pay service providers who ensure the plan is running smoothly. This includes paying recordkeepers, accountants, and legal services who can protect you as the sponsor and your employees. This can either be charged as a flat dollar amount, as a percentage against their total assets invested, or a combination of the two. Evaluating which fee approach to use for your plan is an important fiduciary decision and should be discussed and documented.

As the plan sponsor, it’s up to you to determine whether one or both of these fees are reasonable. Additionally, there are several online resources that can help you compare your plan, but you should always consult with a fiduciary consultant or advisor who understands your position as a plan sponsor. Speaking with a professional about your plan fees can offer a different perspective so you can better help your employees retire well. 

Could You Benefit From Consulting With Us?  

At Farrall Wealth, we provide institutional retirement plan consulting for 401(k), 403(b), and defined benefit plans. As valued consultants in the industry, we can help you build a sound strategy for reviewing your plan fees so you can drive positive results for your employees. Our goal is to provide confidence and clarity when it comes to your company’s benefit plans—it’s why we do what we do. 

We use a comprehensive approach to manage the fiduciary risk to plan sponsors and their committees, as well as mitigate the risk of negative participant outcomes. Interested in speaking with an industry leader that keeps your best interests in mind? Call our office at 219-246-2516, email [email protected], or schedule a complimentary consultation online. Be sure to visit http://www.farrallwealthstewards.com/401-k-start-here.

About Greg

Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.

Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board. 

When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

This information was developed as a general guide to educate plan sponsors, but is not intended to be authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does an advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

By Greg Farrall, PPC®, CWS®, CPFA®

This past year has been stressful, to say the least. With a war in Ukraine, unsettling economic outlooks, and concerns about inflation, it hasn’t exactly been the smooth recovery from the pandemic we had hoped for. As overwhelming as these issues are, it’s always a good time to take control of your finances to set yourself up for a successful 2023. Build up your financial confidence before the new year by following these 5 tips.

1. Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund or create a plan to build this up over the next year. An adequate emergency fund should cover 3-6 months of necessary living expenses, including mortgage or rent, utilities, groceries, transportation, etc. 

With all stock market uncertainty and recession fears, many experts have suggested maintaining a larger emergency fund, closer to 6-12 months of expenses. (1) If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so that you don’t lose out on potential growth.

2. Review Your Asset Allocation & Invest with Impact

The end of the year is also a great time to review your asset allocation strategy and incorporate ESG and impact investing if desired. Given the dramatic market volatility and historic levels of inflation over the last year, it’s crucial that you evaluate your investments and make sure your portfolio is properly diversified. It should also be tailored to your specific risk tolerance level, ensuring that you are earning enough returns to keep up with inflation, but you are not overexposing yourself to risk. 

If you are interested in using your funds to support environmental, social, or governmental issues (ESG), you can also consider impact investing as a way to earn returns while also promoting change on causes you care about.

3. Consider Charitable Donations

Charitable donations are another option that can be reviewed as the year-end approaches. The holidays are a great time to give money and assets to your favorite non-profits, churches, and organizations. 

Charitable donations can be used as part of your overall tax strategy, or as part of a comprehensive estate plan. Both options provide many potential benefits including supporting causes you care about, reducing your taxable income, and reducing your taxable estate.

4. Use Up Your Employee Benefits

While every employee benefit plan has its own rules and regulations, many of them expire or reset at the end of the year. You worked hard for these perks, so be sure to use them before it’s too late!

Medical and Dental Benefits

Now’s the time to take care of all your healthcare needs before your deductible resets. Dental plans in particular often have a maximum coverage amount. If you haven’t used the full amount and anticipate any treatments, make it a priority to set an appointment before December 31st.

Flexible Spending Account

Like your health insurance benefits, you’ll want to use up as much of your FSA (flexible spending account) dollars as possible by the end of the year since you are only allowed to carry over $570 for the plan year ending 2022. (2) Also, keep in mind that the COVID-19 relief measures that allowed taxpayers to carry over their entire FSA balance are no longer in effect for 2022. (3)

That being said, check the restrictions on your account to see what the money can and cannot be used for, and take care of any needs you may have as allowed by your plan.

Sick and Vacation Time

Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If it does expire, fit in a last-minute staycation or take some time off to work on projects you’ve been putting off. If you need to make any trips to the doctor, schedule those appointments now to make use of paid-time-off benefits before you lose them.

5. Revisit Your Plans and Policies

Lastly, take another look at your estate plan and insurance coverage. If you took the time and energy to create an estate plan, check it periodically to ensure all the documents are up to date and no major details have changed. 

Your insurance needs may also change as the year goes by, so periodically review your coverages and designated beneficiaries to bring them up to date to reflect your current financial situation. For example, if you paid off debt, you may not need as much life insurance coverage since your family’s liabilities have decreased. You might also want to evaluate your need for other types of insurance, such as long-term care or disability insurance. 

Partner With a Professional

At Farrall Wealth, we can help you take back control of your finances after a rocky couple of years. Together, we can work towards your financial New Year’s resolutions in 2023! Reach out to us today by calling our office at 219-246-2516, emailing [email protected], or scheduling a complimentary consultation online. Be sure to visit our website to learn more and connect with us on LinkedIn, Facebook, Twitter, and YouTube.

About Greg

Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.

Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board. 

When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Socially responsible investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.

No strategy assures success or protects against loss.

__________________

(1) https://www.fool.com/the-ascent/personal-finance/articles/suze-orman-warns-your-emergency-fund-may-not-cut-it-heres-why/

(2) https://www.epicbrokers.com/insights/irs-2022-health-fsa-qualified-transportation-limits/

(3) https://www.epicbrokers.com/insights/irs-2022-health-fsa-qualified-transportation-limits/