BALTIMORE - WASHINGTON FINANCIAL ADVISORS JANUARY 2022 - Baltimore Washington Financial Advisors
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BALTIMORE - WASHINGTON FINANCIAL ADVISORS • JANUARY 2022
COVER PHOTO: The Cordillera Huayhuash
mountain range in the Peruvian Andes.
Do you know January 2022
someone who needs
guidance with their 2 President’s Address
ROBERT G. CARPENTER
wealth management? President & CEO
Maybe you know someone who
is retired, nearing retirement, or
8 Investment Management
saving for retirement and could
JOSEPH MANFREDI | MBA
COO, Senior Portfolio Manager & Executive Manager
benefit from our services?
We ask you, our existing clients,
11 Business Services
Wealth Management Advice to recommend our services to
friends or family members that
BRIAN MACMILLAN
Managing Director Mergers & Acquisitions
from an Award Winning Firm
could benefit from our support.
By helping us grow our “family 12 Financial Planning
of clients,” we get to share our
THAD ISMART | CFP®
passion with more people just Senior Financial Planner
like you.
PLEASE CONTACT MEGHAN 16 Financial Planning
AT MMANAS@BWFA.COM CHRIS KELLY | CPA, CFP®, M. ACCY
Financial Advisor, Portfolio Manager & Executive Manager
This publication is not a solicitation to buy
or sell any securities or advisory products.
Baltimore-Washington Financial Advisors 19 Employee Spotlight
is an SEC-Investment Adviser. Registration
of an Investment Adviser does not imply any
YUAN ZHANG | EA
Today’s investment landscape is more complex than it has ever been. specific level of skill or training and does not Client Associate
constitute an endorsement of the Firm by
Increasingly, it takes a team of dedicated experts to effectively manage the U.S. Securities & Exchange Commission.
20 Tax Services
your money, and more and more people are realizing the value of Investing involves risk, including the risk
of principal loss. Past performance is no
working with a fee-only investment advisor such as BWFA. guarantee of future returns. Meet Your BWFA Tax Team
Baltimore-Washington Financial Advisors, Inc. was founded in 1986
and is headquartered in Columbia, Maryland. BWFA is among the 22 Tax Preparation Checklist 2021
largest and oldest independent, Fee-Only financial advisory firms in MATTHEW SMILER | ChFC®
the Baltimore/Washington metropolitan area. BWFA acts as a fiduciary Tax Advisor & Associate Financial Planner
and serves clients throughout the Mid-Atlantic area and nationally.
BWFA is recognized as a top firm in the industry, with appearances 24 Tax Services
in Forbes, Fortune, and Baltimore magazine. BWFA professionals are YUAN ZHANG | EA
quoted in the Wall Street Journal, Business Week, Washington Post, and Client Associate
InvestmentNews. BWFA is honored to have earned numerous accolades
over the years, among them: the Financial Times FT 300 Award for seven
years in a row, Howard Magazine’s “Best of Howard” Award for seven years
27 A Healthier You in 2022!
ALL NEW – Eve Kennedy’s Book Nook, Wellness Webinars to
in a row, recognized as a Forbes Leading Financial Advisor in the Mid-Atlantic,
Kickstart the New Year & Bon Appétit: Cooking with Chef Alba
featured as a “Leader in Finance” in Baltimore Magazine, and listed as
one of the “Best Financial Advisor Firms in Maryland” by investor.com.
36 What’s Happening at BWFA
We invite you to experience the excellence that has built our reputation
as a leading Registered Investment Advisor in the industry. Contact us
today at BWFA.com to schedule your complimentary consultation. 40 Upcoming Events
1
President ’s Address
TRANSITIONING INTO RETIREMENT
CAN BE A GOOD THING
ROBERT G. CARPENTER
President & CEO
rcarpenter@bwfa.com
If you’re considering retirement within the next five
years or so, you’re in the retirement “zone.” This is a
critical time period during which you’ll be faced with
a number of important choices, and the decisions
you make can have long-lasting consequences.
THE RETIREMENT “ZONE” ARE YOU READY TO RETIRE?
It’s a period of transition: a shift The first question that you should
from a mindset that’s focused on ask yourself is: “Am I ready to retire?”
accumulating assets for retirement For many, the question isn’t as easy
to one that’s focused on distributing to answer as it might seem. That’s
In fact, postponing retirement can If you’re financially responsible for • Estimate the income that you’ll be • Take stock of your personal
wealth and drawing down resources. because it needs to be considered
pay dividends on the financial side other family members, or plan to able to rely on from Social Security savings. Are your personal savings
It can be confusing and chaotic, but on two levels. The first, and probably
of the equation. Similarly, if you’re make monetary gifts, you’ll want to and any benefits from a traditional sufficient to provide you with the
it doesn’t have to be. The key is to the most obvious, is the financial
emotionally ready to retire, but come include these commitments in your employer pension, and compare the annual income that you’ll need?
understand the underlying issues, and side. Can you afford to retire? More
up short financially, consider whether calculations. Be as specific as you result with your projected retirement
to recognize the long-term effects specifically, can you afford the • When will you retire? The age
your plans for retirement are realistic. can. If it’s been more than a year income need. The difference may
of the decisions you make today. retirement you want? On another at which you retire can have an
Evaluate how much of a difference since you’ve done this exercise, need to be funded through your
BWFA can help with these decisions. level, though, the question relates enormous impact on your overall
postponing retirement could make, revisit your numbers. Consider and personal savings.
to the emotional issues surrounding retirement income situation, so
TIP: If you’ve recently retired, and then weigh your options. account for inflation.
retirement — how prepared are you’ll want to make sure you’ve
you’re also in the retirement zone. you for this new phase of your life? considered your decision from every
You’ll want to evaluate your financial Consider both the financial and TRANSITIONING angle. Why does the timing of your
situation in light of the decisions that emotional aspects of retirement INTO RETIREMENT: retirement make such a difference?
you’ve already made, and consider carefully; retiring before you’re ready FINANCIAL ISSUES
adjusting your overall plan to reflect can put a strain on the best-devised
The first question that you should ask yourself is: The earlier you retire, the sooner
you need to start drawing on your
your current expectations and
circumstances.
retirement plan. Start with the basics: “Am I ready to retire?” For many, the question retirement savings. You’re also
TIP: There’s not always a “right” • If you do not already have a isn’t as easy to answer as it might seem. That’s giving up what could be prime
earning years, when you could be
time to retire. There can be, though,
a wrong time to retire. If you’re not
projection of the annual income because it needs to be considered on two levels. making substantial additions to your
you’ll need in retirement, spend retirement savings. That combina-
emotionally ready to retire, it may not the time now to develop one. The first, and probably the most obvious, is the tion, even for just a few years, can
make sense to do so simply because
you’ve reached age 62 (or 65, or 70).
Factor in anticipated costs relating
to basic needs, housing, health
financial side. Can you afford to retire? More make a tremendous difference.
care, and long-term care. If you plan specifically, can you afford the retirement you want?
(CONTINUE READING ON PAGE 5)
to travel in retirement, estimate a
corresponding annual dollar amount.
2 3
(CONT’D FROM PAGE 3) Transitioning Into Retirement Can Be A Good Thing
OTHER FACTORS TO CONSIDER: • If you plan to start using your
401(k) or traditional IRA savings
before you turn 59½ [55 in the
• The longer the retirement period
case of distributions from a 401(k)
that you need to plan for, the
plan after you terminate employ-
greater the potential that inflation
ment], you may have to pay a
will eat away at your purchasing
10% early distribution penalty tax
power. That means the earlier
in addition to any regular income
you retire, the more important it
taxes (with some exceptions,
is to account for inflation in your
this includes payments made
overall plan.
due to disability). Consider as well
• You can begin receiving Social the order in which you’ll tap your
Security retirement benefits as personal savings during retirement.
early as age 62. However, your For example, you might consider
benefit may be as much as 25% withdrawing from tax-advantaged
to 30% less than if you waited accounts like IRAs and 401(k)s last.
until full retirement age (66 to 67, If you postpone retirement beyond
depending on the year you were age 72 (age 70½ if reached before
born). Weigh your options, and January 1, 2020), you’ll need to
choose the start date that makes begin taking required minimum
the most sense for your individual distributions from any traditional
financial circumstances. IRAs and employer-sponsored
retirement plans (other than your
• If you’re covered by a traditional current employer’s retirement plan),
employer pension plan, check to even if you do not need the funds.
make sure it won’t be negatively
affected by your early retirement. • You’re not eligible for Medicare
Because the greatest accrual of until you turn 65. Unless you’ll
benefits generally occurs during be eligible for retiree health benefits
the final years of employment, through your employer (or have
it’s possible that early retirement coverage through your spouse’s
could effectively reduce the benefits plan), or you take another job that
you receive. Make sure that you offers health insurance, you’ll need
understand how the plan calculates to calculate the cost of paying
benefits and any payout options for insurance or health care out-
under the plan. of-pocket, at least until you can
receive Medicare coverage.
You can begin receiving Social Security retirement benefits
as early as age 62. However, your benefit may be as much as
25% to 30% less than if you waited until full retirement age
(66 to 67, depending on the year you were born).
(CONTINUE READING ON PAGE 6)
4 5
(CONT’D FROM PAGE 5) Transitioning Into Retirement Can Be A Good Thing
TRANSITIONING • Volunteering your time — You the success that you’ve had in
INTO RETIREMENT: can provide a valuable service your career, and giving up that
NON-FINANCIAL ISSUES to the community, while sharing career can be disconcerting on
your unique skills and interests. a number of levels.
Hospitals, community centers,
When it comes to retirement, it’s • Loss of structure — Your job
day-care centers, and tutoring
easy to focus on the financial aspects provides a certain structure to
programs are just a few of the
of your decision to the exclusion your life. You may also have work
places where you could make
of all other issues. After all, we’ve relationships that are important
a difference.
spent much of our lives saving for to you. Without something to fill the
retirement, and for many of us, the • Going to school — Retirement void, you may find yourself needing
retirement lifestyle we hope to enjoy can be the perfect time to pursue to address unmet emotional needs.
depends primarily on the wealth a degree, advance your knowledge
that we’ve accumulated during in your current field or in a new field, • Fear of mortality — Rather than
our working years. But, there are a or just take classes that interest a “new beginning,” some see the
number of non-financial issues and you. In fact, many institutions offer “beginning of the end.” This can
concerns that are just as important. special rates and programs be exacerbated by the mental shift
Fundamentally, your retirement for retirees. that accompanies the transition
income plan is just a means to an from accumulating assets to
end: having the ability to do the • Starting a new career or business drawing down wealth.
things you want to do in retirement, — Retirement can be the perfect
for as long as you want to do them. opportunity to try something • Marital discord — If you’re married,
But that presupposes that you different. If you’ve ever dreamed consider whether your spouse is
know what it is you want to do in of starting your own business, now as ready as you are for you to
retirement. Many of us have never may be your chance. retire. Does he or she share your
thought beyond the vague notion ideas of how you want to spend
we’ve held during most of our working Having concrete plans can also your retirement? Many married WORKING IN RETIREMENT • Will working in retirement allow Federal law encourages these phased
lives: that retirement — if properly help overcome problems commonly couples find the first few years of you to delay receiving Social retirement programs by allowing
planned for — will be something of experienced by those who transition retirement a period of rough Security retirement benefits? pension plans to start paying benefits
Many individuals choose to work
an extended vacation, a reward for into retirement without thinking ahead: transition. If you haven’t discussed If so, your annual benefit when once you reach age 62, even if you’re
in retirement for both financial and
a lifetime of hard work. Retirement your plans with your spouse, you you begin receiving benefits still working and haven’t yet reached
• Loss of identity — Many people non-financial reasons. The obvious
may be just that … for the first few should do so; think through what may be higher. the plan’s normal retirement age.
identify themselves by their advantage of working during
weeks or months. The fact is, though, the repercussions will be — both
professions. Affirmation and retirement is that you’ll earn money • If you’ll be receiving Social CAUTION: Many people who count
that your job likely demanded your positive and negative — on your
self-worth may have come from and rely less on your retirement Security benefits while working, on working in retirement find that
attention for a majority of your waking roles and relationship.
savings — leaving more to potentially how will your work income affect health problems or job loss prevents
hours. No longer having that job grow for the future, and helping your the amount of Social Security them from doing so. When making
leaves you with a lot of free time to savings last longer. But many retirees benefits that you receive? your retirement plans, it may be wise
fill. Just as you have a financial plan also work for personal fulfillment — to Additional earnings can increase to consider a fallback plan in case
when it comes to your retirement, stay mentally and physically active, to benefits in future years. However, everything doesn’t go as you expect.
you should consider the type of Just as you have a financial plan when it comes enjoy the social benefits of working, for years before you reach full
lifestyle you want and expect from or to try their hand at something new.
retirement as well. to your retirement, you should consider the type If you are thinking of working during
retirement age, $1 in benefits will At BWFA, our Financial Planners,
generally be withheld for every $2 Tax Advisors, and Senior Wealth
What do you want to do in retirement? of lifestyle you want and expect from retirement your retirement, you’ll want to make you earn over the annual earnings Advisors can meet to offer recom-
sure that you understand how your
Do you intend to travel? Pursue a as well. What do you want to do in retirement? continued employment will affect
limit ($18,960 in 2021). Special rules
apply in the year that you reach full
mendations based on your own
personal goals and circumstances.
hobby? Give some real thought to
how you’re going to spend a typical Do you intend to travel? Pursue a hobby? Give other aspects of your retirement. retirement age. Please reach out to discuss.
For example:
week, and consider actually writing some real thought to how you’re going to spend TIP: Some employer pension Sincerely,
down a hypothetical schedule. If you • If you continue to work, will you
haven’t already, consider: a typical week, and consider actually writing have access to affordable health
plan programs allow for “phased
retirement.” These programs
down a hypothetical schedule. care through your employer? allow you to continue to work on a
If so, this could be an incredibly part-time basis while accessing all or
valuable benefit. President & CEO
part of your pension benefit.
6 7
Investment Management
Some corporate bonds are convertible
and can be exchanged for shares of
the company’s stock on a fixed date.
ARE BONDS “CONSERVATIVE You can also purchase zero-coupon
INVESTMENTS”? MAYBE NOT. bonds, which are issued at a discount
to (below) face value. No interest is
paid, but at maturity you receive the
face value of the bond. For example,
JOSEPH MANFREDI | MBA you pay $600 for a 5-year, $1,000
COO, Senior Portfolio Manager & Executive Manager
zero-coupon bond. At the end of 5
jmanfredi@bwfa.com
years, you receive $1,000. Corporate
bonds have maturity dates ranging
from one day to 40 years or more
BWFA has been underweighting allocations to bonds and generally make fixed interest
and other interest rate sensitive investments, given payments every six months.
that many of these choices pay very little, and there
U.S. GOVERNMENT SECURITIES
is a risk to principle eroding, if interest rates go up.
The securities backed by the full faith
Bonds may not be as glamorous as HOW BONDS WORK BOND RISK FACTORS Bonds may not be Since bonds typically pay a fixed rate and credit of the U.S. government
stocks or commodities, but they could of interest, they are open to inflation carry minimal risk. United States
be a component of some investment
When you buy a bond, you are Although bonds may be considered
as glamorous as risk. As consumer prices generally Treasury bills (T-bills) are issued for
portfolios. Bonds are traded in huge
volumes every day, but their full use-
essentially loaning money to a bond conservative, lower-risk investments, stocks or commo- rise, the purchasing power of all fixed
investments is reduced. Also, there
terms from a few days to 52 weeks.
They are sold at a discount and are
fulness must be assessed carefully
issuer in need of cash to finance a
venture or fund a program, such as
many are not, and all carry some risk.
Because bonds are traded in the
dities, but they could is a chance that the issuer will be redeemed for their full face value at
given the economic environment we
are in today.
a corporation or government agency. securities markets, there is always the be a component of unable to make its interest payments
or to repay its bonds’ face value at
maturity. Other Treasury securities
include Treasury notes, which have
In return for your investment, you chance that your bonds can lose favor
receive interest payments at regular and drop in price due to market risk; some investment maturity. This is known as credit or terms from 2 to 10 years, Treasury
Interestingly, many employer-based
retirement plans have investment intervals, usually based on a fixed as a result, a bond redeemed prior to portfolios. Their full financial risk. To help minimize this
risk, compare the relative strength of
Inflation Protected Securities (TIPS),
which have terms from 5 to 30 years,
annual rate (coupon rate). You are maturity may be worth more or less
choices that, unbeknownst to
the employee investing, maintain also paid the bond’s full face amount than its original cost. Much of this usefulness must be companies or bonds through a ratings and Treasury bonds, which have a
service such as Moody’s, Standard
extremely high allocations in bonds. at its stated maturity date. volatility in prices is tied to interest-
rate fluctuations. For example, if
assessed carefully & Poor’s, A. M. Best, or Fitch. Finally,
term of 30 years. Although the interest
earned on these securities is subject
These investments should be
reviewed by BWFA to be sure you
You can purchase bonds in denom- you pay $1,000 for a 3 percent bond, given the economic bonds also involve reinvestment risk: to federal taxation, it is not subject to
inations as low as $1000. Some are the risk that when a bond matures, state or local taxes.
have the most appropriate invest-
backed by tangible assets, such as
that same $1,000 might buy you a
4 percent bond the following month,
environment we are you may not be able to get the same
ment choices for your situation
and to ensure you optimize results.
mortgage contracts, buildings, or if interest rates rise. Consequently, in today. return when you reinvest that money. Various federal agencies also issue
bonds. As with any investment, these
equipment. In many other cases, your old 3 percent bond may be worth
you simply rely on the issuer’s ability only about $900 to current investors. bonds carry some risk. However,
CORPORATE BONDS
WHY INVEST IN BONDS? to pay. You can buy or sell bonds in because the U.S. government
the open market in the same manner guarantees timely payment of
as stocks and other securities. Bonds issued by private corporations principal and interest on them, they
Bonds, at times may help diversify vary in risk from typically super- are considered very safe. Some
your investment portfolio. Interest Therefore, bonds fluctuate in price,
selling at a premium (above) or steady utility bonds to highly volatile, of these bonds use mortgages as
payments from bonds can act as a high-interest junk bonds. Also, many collateral. Most mortgage-backed
hedge against the relative volatility discount (below) to the face value
(par value). Generally, the longer a corporate bonds are callable, meaning securities pay monthly interest to
of stocks, real estate, or precious that the debt can be paid off by the bondholders.
metals. Those interest payments bond’s duration to maturity, the
more volatile its price swings. These issuing company and redeemed on a
also can provide you with a steady fixed date. The company pays back
stream of income. factors expose bonds to certain
inherent risks. your principal along with accrued (CONTINUE READING ON PAGE 10)
interest, plus an additional amount
for calling the bond before maturity.
8 9
(CONT’D FROM PAGE 9) Are Bonds “Conservative Investments”? Maybe Not.
Business Services
MUNICIPAL BONDS Munis come in two types: general coupon amount and the term and
obligation (GO) bonds and revenue calculated duration of a bond will
bonds. GO bonds are backed by the affect the amount of volatility given
Municipal bonds (munis) are issued
by states, counties, or municipalities,
taxing authority of the issuing state a change in interest rates. Generally, 10 RESOLUTIONS THAT WILL BOOST
and are generally free from federal
or local government. For this reason, the lower the “coupon” rate (the THE VALUE OF YOUR COMPANY
they are considered less risky but amount the bond pays or earns each
taxation (with some exceptions).
have a lower coupon rate. Revenue year), the more fluctuation, given a
Some may be completely tax free
bonds are supported by money raised change in interest rates. The longer
if you are a resident of the state, BRIAN MACMILLAN
from the bridge, toll road, or other the term to maturity of a bond, the
county, or municipality of issuance. Managing Director Mergers & Acquisitions
facility that the bonds were issued to more volatility given a change in
Though municipal bonds generally bmacmillan@bwfa.com
fund. They pay a higher interest rate interest rates.
offer lower interest payments
and are considered riskier. Therefore,
compared with taxable bonds, Interest rates also tend to affect
research the project being funded to
their overall return may be higher
the extent possible before you invest, a bond’s current yield, which 2021 is in the books. 4. DROP THE PRODUCTS
because of their tax-reduced (or OR SERVICES THAT
tax-free) status. Some municipal
to make sure that it will generate measures the coupon rate of
your bond in relation to its current
If your goal as a DEPEND ON YOU,
sufficient income to make payments.
bond interest also could be subject price. The current yield rises with a business owner is to THE BUSINESS OWNER.
to the alternative minimum tax. You
must select bonds carefully to ensure
Of course, BWFA keeps an eye on
your bond portfolio, as we do with all
corresponding drop in the price of
a bond, and vice versa. In addition,
build a more valuable If you offer something that needs
8. FIND A BACKUP SUPPLIER
a worthwhile tax savings. Because your investments, if we are charged inflation, corporate finances, and company in 2022, here you to produce or sell it, consider
FOR YOUR MOST CRITICAL
RAW MATERIALS.
municipal bonds tend to have lower with your professional investment government fiscal policy can affect
yields than other bonds, the tax management. Although other factors bond prices. are some New Year’s dropping it from your company’s
offerings. Services and products that
benefits tend to accrue to individuals
with the highest tax burden.
may affect them, bond prices are
Given all these factors, bonds may
resolutions to consider: require you suck up your time and Consider placing a small order to
often closely tied to interest rates. cash and don’t contribute significantly establish a commercial relationship
When rates go up, the market price not be the investment of choice to your business’s value. and diversify the sources of your
of your bonds tend to go down; for the majority of an individual’s most-difficult-to-find materials.
1. STOP CHASING REVENUE.
when interest rates fall, your bonds portfolio. At BWFA we are cautious
in this area of the investment markets. 5. COLLECT MORE MONEY
generally rise in value. The interest
A bigger company is not necessarily UP FRONT. 9. TEACH THEM TO FISH.
a more valuable one if the extra
sales come from products and Turn a negative cash flow cycle into Answer every employee question
services that are too reliant on a positive one and you boost your of you with “What would you do if
you to deliver them. business’s value and lessen your you owned the business?” Your goal
stress load. should be to cultivate employees
2. START SURVEYING who think like owners so they can
YOUR CUSTOMERS. start answering their own questions
6. CREATE MORE
without coming to you.
RECURRING REVENUE.
It is a fast and easy way for your
customers to give you feedback. Predictable sales from subscriptions
10. CREATE AN
or recurring contracts mean less
INSTRUCTION MANUAL.
3. SELL LESS STUFF stress in the short term and a more
TO MORE PEOPLE. valuable business over the long run. Document your most important
processes so your employees can
do their work independently.
The most valuable companies 7. BE DIFFERENT.
have a defendable niche selling a
few differentiated products and Refine your marketing strategy
services to many customers. The to emphasize the point of differ-
least valuable businesses sell lots
of undifferentiated products and
entiation that customers value.
Be relentless in highlighting this
Here’s to building
services to a concentrated group advantage. a more valuable
of buyers.
company in 2022!
10 11
Financial Planning
MEDICARE 101
THAD ISMART | CFP®, CEPS
Senior Financial Planner
tismart@bwfa.com
Medicare is a federal MEDICARE PART A Laboratory tests, physical therapy or Several types of Medicare Advantage WHAT IS NOT COVERED BY • You receive or are eligible to
(HOSPITAL INSURANCE) rehabilitation services, and ambulance plans may be available, including MEDICARE PARTS A AND B? receive Social Security or Railroad
program that provides service are also covered. Medicare health maintenance organization Retirement Board benefits based
health insurance to Generally known as hospital
Part B also covers 100% of the cost
of many preventative services and an
(HMO) plans, preferred provider
organization (PPO) plans, private
Some medical expenses are not
on your own work record or on
someone else’s work record (as
retired individuals, insurance, Part A covers services
associated with inpatient hospital
annual wellness visit. fee-for-service (PFFS) plans, and
covered by either Part A or B.
These expenses include:
a spouse, divorced spouse, widow,
regardless of their care. These are the costs associated
special needs plans (SNPs). You can
choose to enroll in either Original
widower, divorced widow, divorced
widower, or parent).
MEDICARE PART C • Your Part B premium
medical condition, and with an overnight stay in a hospital,
skilled nursing facility, or psychiatric (MEDICARE ADVANTAGE) Medicare or a Medicare Advantage
• Deductibles, coinsurance, • You or your spouse worked long
certain younger people hospital, including charges for the
plan. If you enroll in a Medicare
Advantage plan, you’ll generally pay or co-payments that apply enough in a government job where
hospital room, meals, and nursing
with disabilities or end- services. Part A also covers hospice
A Medicare Advantage plan is a a monthly premium for it, in addition
• Most prescription drugs
Medicare taxes were paid.
private health-care plan that contracts to your Part B premium.
stage renal disease. care and home health care. with Medicare to provide Part A
• Dental care
In addition, if you are under age 65,
and Part B benefits. A Medicare you can get Part A without paying a
MEDICARE PART D monthly premium if you have received
Here are some basic facts about MEDICARE PART B Advantage plan covers all of the • Hearing aids
(PRESCRIPTION DRUG Social Security or Railroad Retirement
Medicare that you should know. (MEDICAL INSURANCE) services that Original Medicare covers
except hospice care. Some plans COVERAGE) • Eye care Board disability benefits for 24 months,
offer extra coverage for expenses not or if you are on kidney dialysis or are
WHAT DOES MEDICARE COVER? Generally known as medical insurance, • Custodial care at home a kidney transplant patient.
covered by Original Medicare such All Medicare beneficiaries are eligible
Part B covers other medical care. or in a nursing home
as vision, hearing, dental, and other to join a Medicare prescription drug Even if you’re not eligible for free
Physician care — whether you
Medicare coverage consists of health expenses. Most also offer plan offered by private companies Medicare Part C may cover some Part A coverage, you may still be able
received it as an inpatient at a hospital,
two main parts: Medicare Part A prescription drug (Part D) coverage. or insurers that have been approved of these expenses, or if you’re to purchase it by paying a premium.
as an outpatient at a hospital or other
(hospital insurance) and Medicare by Medicare. Although these plans enrolled in Original Medicare you can Call the Social Security Administration
health-care facility, or at a doctor’s
Part B (medical insurance). These vary in price and benefits, they all purchase a supplemental Medigap (SSA) at 800-772-1213 for more
office — is covered under Part B.
parts together are known as Original cover a broad number of brand name insurance policy that will help cover information.
Medicare. A third part, Medicare and generic drugs available at local what Medicare does not.
Part C (Medicare Advantage), covers pharmacies or through the mail. Although Medicare Part B (medical
all Part A and Part B services, and Medicare prescription drug coverage insurance) is optional, most people
ARE YOU ELIGIBLE
may provide additional services. A is voluntary, but if you decide to join sign up for it. If you want to join a
FOR MEDICARE?
fourth part, Medicare Part D, offers Most people age 65 or older who are citizens a plan, keep in mind that some plans Medicare managed care plan or a
prescription drug coverage that can cover more drugs or offer a wider Medicare private fee-for-service plan,
help you handle the rising costs of or permanent residents of the United States are selection of pharmacies (for a higher Most people age 65 or older who are you’ll need to enroll in both Parts A
prescriptions. eligible for Medicare Part A (hospital insurance) premium) than others. citizens or permanent residents of the and B. And Medicare Part B is never
United States are eligible for Medicare free — you’ll pay a monthly premium
without paying a monthly premium. Although You can get information and help Part A (hospital insurance) without for it, even if you are eligible for
with comparing plans on the
Medicare Part B (medical insurance) is optional, Medicare website, medicare.gov,
paying a monthly premium. premium-free Medicare Part A.
most people sign up for it. Medicare Part B is or by calling a Medicare counselor You are eligible at age 65 if:
(CONTINUE READING ON PAGE 14)
at 1-800-Medicare.
never free — you’ll pay a monthly premium for it.
12 13
(CONT’D FROM PAGE 13) Medicare 101
Cost for Standard Part B Premium (2021)
HOW MUCH DOES PREMIUM DEDUCTIBLE COINSURANCE HOW DO YOU SIGN UP
MEDICARE COST? FOR MEDICARE?
Part A None for most $1,484 per $371 a day for the 61st
(hospital) people, but non- benefit period to 90th day each benefit
Medicare deductible amounts You’ll generally be automatically
eligible individuals period; $742 a day for
and premiums change annually. enrolled in Medicare when you turn
pay up to $471 per the 91st to 150th day for
The tables on the right show what 65 if you’re already been receiving
month (if they have each lifetime reserve day
you’ll pay in 2021. Social Security or Railroad Retire-
39 or fewer quarters (total of 60 lifetime reserve
ment Board benefits for at least
Most people pay the standard Part of Medicare-covered days); $185.50 a day for
four months before you turn 65.
B premium of $148.50. But if your employment). the 21st to 100th day each
The SSA will notify you that you’re
modified adjusted gross income as benefit period for skilled
being enrolled. If you’re not auto-
reported on your federal income nursing facility care.
matically enrolled and are eligible
tax return from two years ago is Part B The standard Part B $203 per year After satisfying a for Medicare at age 65, you have a
above a certain amount, you’ll pay (medical) premium amount is deductible if one applies, 7-month initial enrollment period to
the standard premium plus an extra $148.50. However, you normally pay 20% sign up for Part A and/or Part B.
charge called the Income Related some people who of the approved amount
Monthly Adjusted Amount (IRMAA). get Social Security for medical expenses Although there’s no cost to enroll in
benefits will pay (20 to 40% for outpatient Medicare Part A, you’ll pay a premium
To determine if you’re subject to to enroll in Medicare Part B. If you’ve
more than this mental health services,
income-related premiums, the been automatically enrolled in Part
amount. See below 20% for hospital charges
SSA uses the most recent federal B, you’ll be notified that you have
for more information. for out-patient hospital
tax return provided by the IRS. a certain amount of time after your
services, nothing for
Generally, the tax return you filed enrollment date to decline coverage.
laboratory services).
in 2020 (based on 2019 income) Even if you decide not to enroll in
will be used to determine if you will Medicare Part B during the initial
pay an income-related premium enrollment period, you can enroll later
in 2021. You can contact the SSA Cost for Standard + Income Related Premiums (2021) during the annual general enrollment
at 800-772-1213 if you have new
information to report that might If you’re not automatically enrolled and are eligible period that runs from January 1 to
March 31 each year. However, you
If you file an If you file a If you file an income
change the determination and
individual income joint income tax return as married
MONTHLY for Medicare at age 65, you have a 7-month may pay a slightly higher premium
lower your premium.
tax return with tax return with filing separately
PREMIUM
IN 2021:
initial enrollment period to sign up for Part A as a result, depending on the
circumstances.
income that is: income that is: with income that is:
and/or Part B.
$88,000 or less $176,000 or less $88,000 or less $148.50 If you decide to postpone applying
for Social Security past your 65th
Above $88,000 Above $176,000 N/A $207.90 birthday, you can still enroll in
up to $111,000 up to $222,000 Medicare when you turn 65. The SSA
Above $111,000 Above $222,000 N/A $297.00 Since Original Medicare doesn’t WHO ADMINISTERS THE suggests that you call 800-772-1213
up to $138,000 up to $276,000 cover every type of medical care, and MEDICARE PROGRAM? three months before you turn 65 to
you’ll have to pay deductibles and discuss your options. The easiest
Above $138,000 Above $276,000 N/A $386.10 coinsurance, you may want to buy way to apply for Medicare is online
up to $165,000 up to $330,000 The Centers for Medicare &
a Medicare supplemental insurance at ssa.gov/benefits/medicare.
Medicaid Services (CMS) has overall
Above $165,000 Above $330,000 Above $88,000 $475.20 (Medigap) policy.
responsibility for administering the
and less than and less than and less than Medicare program and sets standards
If you’re enrolled in a Medicare
$500,000 $750,000 $412,000 and policies. The CMS also manages
Advantage plan, you’ll generally pay
$500,000 $750,000 $412,000 $504.90 one monthly premium for that plan the official government website for
and above and above and above in addition to your Medicare Part B Medicare, medicare.gov. But it’s
premium. Each Medicare Advantage the SSA that processes Medicare
plan has different premiums and costs applications and answers Medicare
for services, and coverage varies, so eligibility questions.
what you’ll pay depends on the plan
you have.
14 15
Financial Planning
UNDERSTANDING
DEFINED BENEFIT PLANS
CHRIS KELLY | CPA, CFP®, M. ACCY
Financial Advisor, Portfolio Manager & Executive Manager
ckelly@bwfa.com
You may be counting on funds from a defined
benefit plan to help you achieve a comfortable
retirement. Often referred to as traditional pension
plans, defined benefit plans promise to pay you a
specified amount at retirement.
To help you understand the role a However, these tax incentives come
defined benefit plan might play in your with strings attached — all qualified
retirement savings strategy, here’s a plans, including defined benefit plans,
look at some basic plan attributes. must comply with a complex set of
You may have to work for a specific A defined benefit • A single life annuity: You receive WHAT ARE SOME ADVANTAGES
number of years before you have a a fixed monthly benefit until OFFERED BY DEFINED
But since every employer’s plan is a
little different, you’ll need to read the
rules under the Employee Retirement
Income Security Act of 1974 (ERISA)
permanent right to any retirement plan guarantees you die; after you die, no further BENEFIT PLANS?
summary plan description, or SPD, and the Internal Revenue Code.
benefit under a plan. This is generally
you a certain benefit payments are made to your
referred to as “vesting.” If you leave survivors.
provided by your company to find out
the details of your own plan.
your job before you fully vest in an when you retire. How • Defined benefit plans can be a
major source of retirement income.
HOW DO DEFINED • A qualified joint and survivor
BENEFIT PLANS WORK?
employer’s defined benefit plan, you
won’t get full retirement benefits from
much you receive annuity: You receive a fixed They’re generally designed to
replace a certain percentage
WHAT ARE DEFINED the plan. generally depends monthly benefit until you die;
(e.g., 70 percent) of your pre-
BENEFIT PLANS? after you die, your surviving
A defined benefit plan guarantees
you a certain benefit when you retire.
on factors such as spouse will continue to receive
retirement income when
HOW ARE RETIREMENT combined with Social Security.
Defined benefit plans are qualified How much you receive generally BENEFITS CALCULATED? your salary, age, and benefits (in an amount equal
to at least 50 percent of your
employer-sponsored retirement plans.
Like other qualified plans, they offer
depends on factors such as your
salary, age, and years of service with
years of service with benefit) until his or her death.
• Benefits do not hinge on the
performance of underlying
tax incentives both to employers the company.
Retirement benefits under a defined
benefit plan are based on a formula.
the company. • A lump-sum payment: You
investments, so you know ahead
and to participating employees. For of time how much you can expect
Each year, pension actuaries calculate This formula can provide for a set receive the entire value of your
example, your employer can generally to receive at retirement.
the future benefits that are projected dollar amount for each year you work plan in a lump sum; no further
deduct contributions made to the
to be paid from the plan, and for the employer, or it can provide for payments will be made to you • Most benefits are insured up
plan. And you generally won’t owe
ultimately determine what amount, a specified percentage of earnings. HOW WILL RETIREMENT or your survivors. to a certain annual maximum
tax on those contributions until you
begin receiving distributions from if any, needs to be contributed to the Many plans calculate an employee’s BENEFITS BE PAID? by the federal government
Choosing the right payment option
the plan (usually during retirement). plan to fund that projected benefit retirement benefit by averaging the through the Pension Benefit
is important, because the option
payout. Employers are normally the employee’s earnings during the last Guaranty Corporation (PBGC).
Many defined benefit plans allow you choose can affect the amount
only contributors to the plan. But few years of employment (or, alter-
you to choose how you want your of benefit you ultimately receive.
defined benefit plans can require that natively, averaging an employee’s
benefits to be paid. Payment options You’ll want to consider all of your
employees contribute to the plan, earnings for his or her entire career), (CONTINUE READING ON PAGE 18)
commonly offered include: options carefully, and compare the
although it’s uncommon. taking a specified percentage of the
average, and then multiplying it by the benefit payment amounts under
employee’s number of years of service. each option.
16 17(CONT’D FROM PAGE 17) Understanding Defined Benefit Plans
Employee Spotlight
HOW DO DEFINED BENEFIT Your employer promises to pay you your employer), but your employer is
PLANS DIFFER FROM DEFINED a certain amount at retirement and not obligated to pay you a specified
CONTRIBUTION PLANS? is responsible for making sure that amount at retirement. Instead, the
there are enough funds in the plan to amount you receive at retirement will
Though it’s easy to do, don’t confuse
eventually pay out this amount, even depend on the investments you choose GET TO KNOW YUAN
if plan investments don’t perform well. and how those investments perform.
a defined benefit plan with another
type of qualified retirement plan, the In contrast, defined contribution Some employers offer hybrid plans.
defined contribution plan (e.g., 401(k) plans focus primarily on current Hybrid plans include defined benefit YUAN ZHANG | EA
plan, profit-sharing plan). As the name contributions made to the plan. plans that have many of the char- Client Associate
implies, a defined benefit plan focuses Your plan specifies the contribution acteristics of defined contribution yzhang@bwfa.com
on the ultimate benefits paid out. amount you’re entitled to each year plans. One of the most popular
(contributions made by either you or forms of a hybrid plan is the cash
balance plan. WHAT LEAD YOU TO MOST REWARDING PART WHO/WHAT INSPIRES YOU?
THIS CAREER? OF WORKING AT BWFA?
WHAT ARE CASH Being challenged inspires me. I like
BALANCE PLANS? I am excellent at math, one of the Definitely the teamwork! Most of the challenges because they lead me to
Your employer promises to pay you a certain most important factors for being a tasks require a collaboration from learn new things. Also, a challenge
tax accountant. My knowledge and all teams — Tax, Client Services, motivates me to do my best.
amount at retirement and is responsible for Cash balance plans are defined
understanding of tax regulation allow Financial Planning, and Investment
benefit plans that in many ways
making sure that there are enough funds in the resemble defined contribution plans.
me to effectively communicate and
assist clients with tax solutions. The
Management. This integration
improves communication and
SHARE A MEMORABLE
TRAVEL EXPERIENCE.
plan to eventually pay out this amount, even if plan Like defined benefit plans, they are
obligated to pay you a specified
tax services industry is expected to boosts productivity.
investments don’t perform well. amount at retirement, and are insured
grow faster than the average career.
I went to Canada several years ago
by the federal government. But they FAVORITE THINGS TO DO and traveled to different places
also offer one of the most familiar IF YOU WERE NOT IN OUTSIDE OF BWFA? including Quebec, Montreal, Toronto,
features of a defined contribution THE FINANCIAL WORLD,
and Ottawa. Each city had different
plan: Retirement funds accumulate in YOU WOULD BE...?
I enjoy playing badminton, hiking, views and local cultures, which I
an individual account. and cooking. enjoyed learning about.
I would be a math teacher.
This allows you to easily track how
much retirement benefit you have WHERE DO YOU SEE FUN FACT ABOUT YOURSELF?
accrued. And your benefit is portable. SHARE A SIGNIFICANT YOURSELF IN 5 YEARS?
If you leave your employer, you can CAREER ACCOMPLISHMENT.
I like to watch the TV show “Friends”.
generally opt to receive a lump-sum Here at BWFA, meeting with clients
distribution of your vested account I spent 3 months getting my Enrolled to discuss and solve their tax needs.
balance. These funds can be rolled Agent certification.
over to an individual retirement
account (IRA) or to your new
employer’s retirement plan.
WHAT YOU SHOULD DO NOW
It’s never too early to start planning
for retirement. Your pension income,
along with Social Security, personal
savings, and investment income, can
help you realize your dream of living
well in retirement.
18 19Tax Services
MEET YOUR BWFA TAX TEAM
LAWRENCE M. POST ANN GARCZYNSKI MATTHEW SMILER BRIAN MURRAY GARY TROTTER YUAN ZHANG LEX RUYGROK ANA WELBORN
CPA, MST, CFP®, CIMA® CPA ChFC® Tax Advisor Tax Associate EA CPA, ESQ. CPA
Senior Tax & Planning Advisor Associate Tax Advisor Tax Advisor & Assoc. Financial bmurray@bwfa.com gtrotter@bwfa.com Client Associate Tax Consultant Tax Consultant
lpost@bwfa.com agarczynski@bwfa.com Planner | msmiler@bwfa.com yzhang@bwfa.com lruygrok@bwfa.com awelborn@bwfa.com
Larry Post is a financial Ann Garczynski is a Matthew is a Chartered Brian brings many years Gary has been with Yuan Zhang graduated Lex has worked inside the Ana has been a BWFA
professional dedicated graduate of the University Financial Consultant of tax experience to BWFA for many years. from the University BWFA tax advisory team tax consultant for several
to serving the needs of of Baltimore with a (ChFC) and holds a B.S. BWFA working on both He graduated from SUNY of Maryland where for many years. He is a years. She is a graduate
individuals and families. Bachelor’s Degree in in Business from Towson business and individual tax Stony Brook, NY with she earned her BS in graduate of the University of UMBC with a major in
Prior to joining BWFA, Larry Business Administration University. Matthew has preparation. He is currently a Bachelor’s degree in Accounting. Prior to of Virginia and an honors financial economics and
held various positions in and Accounting. Ann worked in the accounting working to achieve his Engineering and then joining BWFA, Yuan graduate of the University a minor in accounting.
Hawthorn, PNC Family Office, has worked at BWFA for and financial advisory Enrolled Agent Certificate. earned a Master’s Degree was a staff accountant of Maryland School of Prior to BWFA, Ana was
PNC Wealth Management, many years in both the industry for close to Brian grew up in Boston in Business Management in a regional CPA firm in Law. Lex is a former tax a tax manager at DHG,
and was a partner with a Tax Services and Client twelve years. He resides in and recently moved to from Brooklyn Polytechnic Bethesda. Yuan lives in manager at Deloitte and LLP (formerly Stegman &
CPA and financial planning Services departments. Baltimore with his wife and Silver Spring, MD. He University. Gary is a Ellicott City, MD with her served as a tax director Co.) working with various
firm. Additionally, he was She is a native of New enjoys playing basketball, enjoys traveling, food, veteran of the US Navy. husband and two kids. for the personal tax types of business entities,
an instructor of financial York City and began her golf and spending time playing sports and rooting He previously worked at She enjoys cooking and services group of a larger individuals, non-profits,
planning, and an adjunct career as a legal secretary with family and friends. for all of his hometown Verizon Communications. likes to spend time with regional accounting firm. and trusts. Ana is a
professor of accounting in Manhattan. After moving professional teams. Currently, he is preparing friends and her family. In addition to practicing member of the American
and taxation. Larry earned to Maryland, she worked for the licensing exam to law, Lex teaches personal Institute of Certified
a Bachelor of Science in at the law firm of Weinberg become an Enrolled Agent. and business tax classes Public Accountants and
Business Administration and Green in Baltimore Gary lives in Columbia, MD for the Smith Business the Maryland Association
majoring in accounting while completing her with his wife Michelle. His School at the University of of Certified Public
from Georgetown University, degree. Her first job after son Marcel is attending Maryland. He and his wife Accountants. She currently
and a Master of Science in
Taxation and Certificate as a
graduation was in the tax
department of Deloitte
Let the professionals at BWFA college in Philadelphia, PA.
He enjoys reading, road
Terry like to travel, attend
concerts and sporting
lives in Baltimore, MD
and enjoys traveling and
Tax Specialist from Bentley & Touche LLP in their assist you with tax advice and tax cycling, ocean kayaking, events and spend time spending time with family
University. He is currently
licensed as a CPA and a
Baltimore office. Ann and
her husband reside in
planning so you can keep more downhill skiing, and
camping.
with family and friends. and friends.
Certified Financial Planner ®
and Certified Investment
Taylorsville, MD. of your hard-earned money.
Management Analyst ®.
20 21Tax Services
Investment Income Education Other Expenses/Deductions NOTES
Forms 1099-DIV, 1099-INT: Form 1098-E for student Medical and Dental expense records
statements of dividends loan interest Health Savings or Medical Savings
TAX PREPARATION and interest Form 1098-T for tuition paid Account contributions
CHECKLIST 2021 Forms 1099-B: proceeds from Contributions to 529 plans Adoption Expenses
broker transactions (include cost
Form 1099-Q for payments from Early withdrawal penalties on CDs
basis information for all non-
a qualified education program and other time deposits
MATTHEW SMILER | ChFC® covered stock sold)
and related expenses
Tax Advisor & Associate Financial Planner Schedules K-1: partnership, trust,
msmiler@bwfa.com
estate and S Corporation income Educators (Grades K-12) OTHER IMPORTANT
INFORMATION
Expenses paid for classroom
Foreign Bank Account Information
PERSONAL INFORMATION Self-Employment supplies (receipts, canceled checks)
Bank information – location Economic impact payments
Forms 1099-Misc, if applicable (foreign country address), Retirement Contributions received in the spring of 2021
Personal Data Your Business Records: name of institution (IRA & Roth IRA) Advanced child tax credit
Social Security Numbers and Income Statement (include Account Information (account Records of contributions made payments received between
birthdates for you, your spouse revenue and expense detail) numbers and maximum account for the current tax year completed July-December 2021
and children Detail of taxes paid values during the year) by 4/15/2022
Taxes You Paid
Driver’s license information for Home office expenses Miscellaneous Income Alimony Paid
taxpayer and spouse (license Federal and state estimated
Vehicle expenses or mileage log Form 1099-G for state/local tax Amount paid, former spouse’s
number, issuing state, expiration tax payments (include date
(records MUST be written) refunds or unemployment income name and social security number
date, issue date) & amount of each)
Listing of current year asset Form 1099-S for Income on and date of court ruling Real Estate Taxes Paid
Your Household acquisitions and dispositions Sale of Property
(include only those for whom you Mortgage Interest Personal Property Taxes Paid
Medical insurance premiums Settlement sheets for any sale,
provide >50% of their support) paid for you, your spouse, Forms 1098
purchase, or refinance of residence
Name, date of birth, social security and dependents and original basis of house sold Charitable Donations
number, and gross income of any Self-employed retirement Form 1099-C from Cancellation (NOTE: include charity’s written
adult who lived with you all year contributions (SEP, SIMPLE IRA, of Indebtedness Income statement for any single
Name, date of birth, social security 401(k) plans) donation >$250)
number, and gross income Alimony received and date of
Pension/Annuities court ruling Cash amounts, official charity
of any parent not living with you
Forms 1099-R or RRB-1099 receipts, canceled checks
Name, date of birth, social security Scholarships, fellowships
for distributions from IRAs Value of donated property
number of any new additions to Other:
or retirement plans Medical Savings Account Miles driven and out-of-
the family
Any nondeductible IRA/Roth jury duty pocket expenses
contributions or distributions thereof gambling/lottery winnings
INFORMATION ABOUT Casualty/Theft Losses
Qualified charitable distributions prizes/awards, etc.
YOUR INCOME Provide details of loss or
from IRAs
damages incurred and Extending Your Return Reasons for Extending
Rollovers ADJUSTMENTS, DEDUCTIONS, insurance reimbursements
Employment
AND CREDITS INFORMATION (only if in federally declared
All extensions must be filed by Some tax forms are released later
Forms W-2 for you and Social Security Income April 15, 2022 than others (Schedule K-1)
your spouse disaster areas)
Forms 1099-SA
Child Care Expenses It has not been proven that extending Increases time to contribute to a
Rental Income Gifts >$15,000
Name, address, tax ID or social increases audit risk SEP IRA
Forms 1099-Misc security number, and amount paid Any gifts given during the
(NOTE: include day camp year (description of gift An extension of time to file is not an A major life event, such as loss of
Income Statement (include revenue and amount)
expenses but not the cost of extension of time to pay a loved one, or new member of the
and expense detail and taxes paid)
summer school) family may cause a need for addi-
Listing of current year asset You can file your return at any time tional time to prioritize your taxes
acquisitions and dispositions before October 15, 2022
22 23Tax Services
TAKING ADVANTAGE OF EMPLOYER-
SPONSORED RETIREMENT PLANS
YUAN ZHANG | EA
Client Associate
yzhang@bwfa.com
Employer-sponsored • Your employer automatically • You may be able to borrow a Why put your retirement dollars in your employer’s plan instead of somewhere
deducts your contributions from portion of your vested balance
qualified retirement your paycheck. You may never (up to $50,000) at a reasonable else? One reason is that your pre-tax contributions to your employer’s plan lower
plans such as 401(k)s even miss the money — out of
sight, out of mind.
interest rate.
your taxable income for the year. This means you save money in taxes when
are some of the most • You decide what portion of your
• Your creditors cannot reach your
plan funds to satisfy your debts.
you contribute to the plan — a big advantage if you’re in a high tax bracket.
powerful retirement salary to contribute, up to the
savings tools available. legal limit. And you can usually
change your contribution amount
CONTRIBUTE AS MUCH
AS POSSIBLE
If your employer offers on certain dates during the year Another reason is the power of tax- CAPTURE THE FULL EVALUATE YOUR INVESTMENT
or as needed.
such a plan and you’re The more you can save for retirement,
deferred growth. Your investment
earnings compound year after year
EMPLOYER MATCH CHOICES CAREFULLY
• With 401(k), 403(b), 457(b),
not participating in it, SARSEPs, and SIMPLE plans,
the better your chances of retiring
comfortably. If you can, max out your
and aren’t taxable as long as they
If you can’t max out your 401(k) or Most employer-sponsored plans
you should be. Once you contribute to the plan on a contribution up to the legal limit (or
remain in the plan. Over the long term,
this gives you the opportunity to build
other plan, you should at least try give you a selection of mutual funds
pre-tax basis. Your contributions to contribute up to the limit your or other investments to choose
you’re participating in come off the top of your salary
plan limits, if lower). If you need to
free up money to do that, try to cut
an impressive sum in your employer’s
employer will match. Employer from. Make your choices carefully.
a plan, try to take full before your employer withholds certain expenses.
plan. You should end up with a much
larger balance than somebody who
contributions are basically free money The right investment mix for your
income taxes. once you’re vested in them (check employer’s plan could be one of your
advantage of it. Why put your retirement dollars invests the same amount in taxable
with your employer to find out when keys to a comfortable retirement.
• Your 401(k), 403(b), or 457(b) plan in your employer’s plan instead investments at the same rate of return.
vesting happens). By capturing the That’s because over the long term,
may let you make after-tax Roth
of somewhere else? One reason full benefit of your employer’s match, varying rates of return can make a big
contributions — there’s no up- For example, say you participate in
UNDERSTAND YOUR is that your pre-tax contributions you’ll be surprised how much faster difference in the size of your balance.
front tax benefit but qualified your employer’s tax-deferred plan
EMPLOYER-SPONSORED PLAN to your employer’s plan lower your balance grows. If you don’t
distributions are entirely tax free. (Account A). You also have a taxable
your taxable income for the year. take advantage of your employer’s NOTE: Before investing in a
investment account (Account B). Each
• Your employer may match all or This means you save money in taxes generosity, you could be passing up mutual fund, carefully consider
Before you can take advantage of account earns 6% per year. You’re in
part of your contribution up to a when you contribute to the plan — a a significant return on your money. the investment objectives, risks,
your employer’s plan, you need to the 24% tax bracket and contribute
certain level. You typically become big advantage if you’re in a high tax charges, and expenses of the fund.
understand how these plans work. $5,000 to each account at the end of
vested in these employer dollars bracket. For example, if you earn For example, you earn $30,000 a year This information can be found in the
Read everything you can about the every year. After 40 years, the money
through years of service with $100,000 a year and contribute and work for an employer that has a prospectus, which can be obtained
plan and talk to your employer’s placed in a taxable account would
the company. $10,000 to a 401(k) plan, you’ll pay matching 401(k) plan. The match is from the fund. Read it carefully
benefits officer. You can also talk to be worth $567,680. During the same
income taxes on $90,000 instead of 50 cents on the dollar up to 6% of before investing.
a financial planner, a tax advisor, and • Your funds grow tax deferred in period, the tax-deferred account
$100,000. (Roth contributions don’t your salary. Each year, you contribute
other professionals. Recognize the the plan. You don’t pay taxes on would grow to $820,238. Even after
lower your current taxable income 6% of your salary ($1,800) to the plan
key features that many employer- investment earnings until you with- taxes have been deducted from the
but qualified distributions of your and receive a matching contribution (CONTINUE READING ON PAGE 26)
sponsored plans share: draw your money from the plan. tax-deferred account, the investor
contributions and earnings — that is, of $900 from your employer.
would still receive $623,381.
• You’ll pay income taxes (and distributions made after you satisfy
possibly an early withdrawal a five-year holding period and reach NOTE: This example is for illustrative
penalty) if you withdraw your age 59½, become disabled, or die — purposes only and does not
money from the plan. are tax free.) represent a specific investment.
24 25You can also read
