The Questions that Clients are Asking Us
Are you curious about what’s being talked about inside our advisor/client meetings nowadays? Well, we’re going to give a few examples in this article. HighPoint Advisors, LLC provides a large range of advice and services to a large range of clients. Our advisors conduct hundreds of meetings each year, and our advice addresses both the many questions we’re asked as well as the feedback that we receive from our clients. Below is a sample of answers to some of the questions that our advisors are being asked.
Serving clients throughout Central New York, as well as communities across the country, HighPoint Advisors, LLC regularly hears questions about the financial issues that matter most to individuals, families, and business owners. Our advisors’ conversations with clients often center on topics such as retirement planning, investing, market conditions, taxes, estate planning, business finances, and preparing for the future. Because these questions can vary based on each client’s circumstances, goals, and stage of life, our team takes a personalized approach to providing answers and guidance. The questions we hear in our advisor/client meetings also give us valuable insight into the financial concerns and priorities of the clients we serve.
Question: A family member passed away recently, and I am a named beneficiary. What do I need to do, and can you help me?
Answer: As a named beneficiary, you are now going to receive money or property from the deceased. This can be a complicated situation and will vary greatly based on the circumstances of the deceased.
The process of inheriting financial assets can range from simply depositing a check into your bank account for your share of a cash asset, to having to open new accounts and complete complicated transfers and/or claims forms. If you are a beneficiary of a financial account, then the process may be a little more simple than if you are a beneficiary of a will. If the deceased had a valid will, then parts of the estate will need to go through the legal probate process. Sometimes that may include dealing with non-financial assets such as houses or boats that would need to be sold before any cash proceeds could be distributed.
Professionals that you will need throughout this entire (sometimes lengthy) process would be a lawyer, a financial advisor, and a tax professional. Lawyers can handle wills, trusts, and the probate process. Financial advisors can handle accounts, insurance claims, and investments. Tax professionals can handle filing tax returns, accounting, and tax advice. HighPoint Advisors, LLC can help not only act as your financial quarterback to coordinate the various tasks, but we can directly help you claim various accounts, complete transfers, and manage investments for you.
Question: I want to set up an investment account for one of my young children. I have some cash in the bank set aside. What do you recommend?
Answer: There are a few options, so this will depend on what you want to accomplish.
If your goal is future education funding, then a 529 Plan account is a great idea. 529 Plans are tax-advantaged accounts that grow tax-deferred over the years, and withdrawals are also tax-free if the money is used for qualified education expenses. These accounts are not owned by the child, so they are also a favorable asset for the purpose of FAFSA financial aid applications.
If the goal is general investing, then a custodial (UTMA) account could be a good option. A custodial account is an account in the child’s name but will be controlled by an adult as custodian until the child reaches the age of majority. These are not tax-advantaged accounts but can be a good option because they are flexible accounts with few rules. Once the child reaches the age of majority then he or she becomes the sole owner of the account.
If the goal is to get a head start on saving for retirement, then there are two options that are worth considering: a Roth IRA and the newly created Trump accounts. If the child is old enough to have a job, and has earned income, then a Roth IRA can be opened for them. Annual contributions are subject to both the yearly IRS contribution limits as well as the amount of earned income earned by the child. A Roth IRA is funded with after-tax dollars, increases tax deferred over the years, and all withdrawals for any purpose are tax-free after the age of 59.5 years old (inclusive of a 5-year holding period). If withdrawals are made prior to the age of 59.5 then taxation may apply to part or all of those withdrawals.
A newer option is a Trump account, which is essentially a starter Traditional IRA for young children under the age of 18. These accounts are somewhat tax-efficient investment accounts that convert into a Traditional IRA at the child’s age of 18. Contributions are limited to $5000 per year from all sources and can only be invested in U.S. stock index funds. Funded with after-tax dollars, these accounts also grow tax-deferred until age 18. At that time they convert to a Traditional IRA in the child’s name, and then all Traditional IRA rules apply going forward.
Question: I plan to buy a house in a year or two, and I'm saving money for that right now. Should that money be invested in the stock markets or not?
Answer: Financial markets can be volatile at times, and the value of accounts invested in the stock markets can fluctuate over short periods of time. Therefore, if your time horizon is short (which means you will need the money in the near future) then you probably should not put your needed money to risk in financial markets. You wouldn’t want to see your account value drop unexpectedly right before you need the money for a down payment, would you?
That doesn’t mean your cash has to sit in a checking account at the local bank paying 0% interest. There are some lower risk options that may at least provide a modest return without exposing your principal amount to much risk. Importantly, the following options are all very liquid, so you don’t have to worry about locking your money up for a long time. These options could include buying a bank certificate of deposit (CD), investing in a money market (sometimes also referred to as a high-yield savings account), or possibly putting some money into a short-term fund that buys fixed income investments such as bonds. Talk to your advisor about whether any of these various investment options include any insurance features or other guarantees. These options are all low risk, and all provide a different level of safety and return potential.
Bring your Questions to Us
If you have your own questions that aren’t addressed in this article or need help with your own planning, ask us. This article only scratches the surface of the topics that we routinely discuss with our clients. At HighPoint Advisors, LLC, our advisors are in the business of helping individuals, families, and small business owners with any aspect of their financial journey. We’re here to make sense of the noise and help clarify your next step in your plan.
Contact us today to ask your questions.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. They also have access to non-affiliated third parties that specialize in creating trusts and wills for use by LPL advisor’s clients.
HighPoint Advisors and LPL Financial do not provide legal or tax advice. Please consult with your tax or legal advisor regarding your personal situation.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Trump Accounts offer tax deferred growth on earnings and provide tax free withdrawals when distributions are qualified. Contributions may include after tax family contributions, pre tax employer contributions, and a one-time $1,000 federal contribution for eligible children born between 2025 and 2028. Parents or legal guardians can claim the $1,000 Treasury Department contribution by filing IRS Form 4547 or applying through the Trump Accounts Portal (https://trumpaccounts.gov/) Withdrawals prior to age 59½ may result in a 10% IRS penalty tax, in addition to current income tax, and may be restricted until the child reaches age 18. Annual contribution limits and other restrictions apply. Some Trump Account rules and regulations are still forthcoming from the U.S. Treasury and IRS.
Clients should consult with a qualified tax advisor or financial professional before making any decisions.
CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.