Confluence Financial Partners Wealth Manager, Mark Eckels, his family, friends and home office coworkers participated in the Tampa Bay Heart Walk alongside Raymond James Chairman and numerous other corporate sponsors to support this worthy cause.
Confluence Financial Partners recently participated in the Fit Company Challenge. Our associates had a great time encouraging one another to reach his/her individual fitness goals.
This past holiday season, Confluence helped spread the holiday cheer to two wonderful organizations, Auberle and the Light of Life Rescue Mission. Presents were donated to families in the area and winter survival kits were assembled for the homeless.
After a long hiatus, inflation has made quite a comeback in everyday lives of consumers around the world. Generally defined as the increase in the prices of goods and services in an economy, inflation had been below historical averages most of the past decade, with the backdrop of a longer-term decline since peaking in the early 1980’s. The COVID-19 pandemic was the catalyst for a revival, initially due to constraints on supply chains and global trade. However, as economies globally recovered from the pandemic, inflation readings continued to show signs of growth.
The phenomenon was initially described as “transitory” by economists and investors, believing that inflation would slow as supply chains and global trade healed. This assumption proved to be incorrect, with the “transitory” description has been dropped since mid-2021, as all major measures of inflation have continued to increase at a consistent and rapid pace. The most commonly referenced inflation measurement, the Consumer Price Index (CPI), is tracked including food and energy prices (headline CPI) and excluding food and energy prices (core CPI). The reading through February showed that compared to one-year ago, headline CPI rose +7.9% and core CPI rose +6.4%, the highest level in almost 40-year for both readings. Importantly, this reading does not account for the subsequent increase in energy and other commodities after the escalation in Ukraine.
Inflation is an impactful force to the global economy and therefore financial markets; the sharp increase certainly has the attention of policymakers. In the United States, the Federal Reserve operates under a “dual mandate” of “price stability and maximum sustainable employment”, with the former goal referencing inflation. Due to the improvement in the labor market, and consistently high inflation readings, the Federal Reserve is expected to raise interest rates starting in the March meeting. The first increase will mark the start of tighter monetary policy, which will influence equity and bond markets in the short-term. The additional unknown duration of the supply disruptions in the oil and gas market will also muddy the waters for policymakers over the coming months.
The long, secular decline in inflation readings is over in the short-term. With inflation readings already near 40-year highs prior to the conflict in Ukraine, the response by policymakers over the coming months will be widely followed by investors. As we transition to a rate hiking cycle and inflation stays firm, the environment will likely require investors to shift their approach. Looking back historically over periods of rising inflation, asset classes such as commodities, real estate, value equities, US small cap equities and international equities tended to do well. Within equities, dividend paying stocks may offer an attractive opportunity for investors seeking growth with income in an inflationary environment. One additional portfolio consideration for investors: inflationary periods have had implications for the relationship between stock and bond returns, with high and rising inflation historically reducing the diversification benefit from bonds (positive correlation between stocks and bonds). While the approach may be different than the past 20 years for investors, there are likely to be opportunities for long-term investors to take advantage of as we navigate the ever-changing investment environment.
Views and opinions expressed are current as of the date of this white paper and may be subject to change; they are for informational purposes only and should not be construed as investment advice. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. Although certain information has been obtained from sources considered to be reliable, we do not guarantee that it is accurate or complete.
Forecasts, projections, and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with such forward-looking statements, it is important to note that actual events or results may differ materially from those contemplated.
Confluence Wealth Services, Inc. d/b/a Confluence Financial Partners is an SEC-registered investment adviser. Registration of an investment adviser does not imply any level of skill or training. Please refer to our Form ADV Part 2A and Form CRS for further information regarding our investment services and their corresponding risks.
In late December, a $1.7T omnibus spending package was passed in Congress and subsequently signed into law by President Biden. This bill included some significant updates to the landmark 2019 SECURE Act, such that this portion of the legislation is being referred to as SECURE Act 2.0.
While there are many important updates in the law, I’d like to focus on two items that we believe are especially significant
This means that investors who will turn 72 in 2023 received a pass on what would have been their first RMD! It also means that the window of opportunity for income planning in retirement is extended.
Some of the most opportune years in terms of income planning are the years between retirement and when RMDs begin. In these years, individuals tend to be in a relatively low tax bracket, because they no longer have high employment income and they also don’t yet have required income coming from their retirement accounts.
If these retirees are able to live on Social Security and income from taxable brokerage accounts, they could end up in an unusually low tax bracket. These years can then be used to “harvest” capital gains at a 0% tax rate, or convert portions of a traditional IRA to a Roth IRA. The lower adjusted gross income can also help retirees save on things like Medicare and Social Security taxes.
The total amount allowed to be rolled over in aggregate is $35,000, and the rollovers must be done in accordance with the annual Roth contribution limits (currently $6,500 for those under age 50). In addition, the 529 must have been established for at least 15 years.
This change will help to alleviate investor fears of what may happen to 529 funds if the beneficiary chooses not to pursue higher education.
The change also allows for a strategy whereby investors begin planned rollovers to a Roth IRA once the beneficiary turns 16. At today’s limits (which will be adjusted up for inflation), a 529 beneficiary could have $35,000 plus earnings saved in a Roth IRA before graduating from college. That is a solid head start!
If you have questions about how these opportunities could affect your financial planning, please call one of our offices to speak with a wealth manager today.
See below for additional key provisions in SECURE Act 2.0:
Employers are increasingly offering stock benefits as part of their compensation packages to remain competitive in the job market. These benefits often come in the form of Incentive Stock Options (ISOs) and Restrictive Stock Units (RSUs) which can be powerful tools for building wealth if managed effectively. However, understanding the differences in these benefits is crucial to maximizing their potential and avoiding costly mistakes.
Incentive Stock Options (ISOs) give the employee the option to purchase company stock at a fixed price, known as the exercise price. If the company’s stock price increases, you can buy shares at the lower exercise price and potentially sell them at the higher market price, resulting in a profit. The key advantage of ISOs is the potential for favorable tax treatment, where upon a qualifying sale, gains could be taxed at the lower long-term capital gains rate rather than as ordinary income.
Restricted Stock Units (RSUs), on the other hand, are company shares granted to employees as part of their compensation. Unlike ISOs, RSUs are not options to buy stock; instead, they are actual shares that you receive usually after a certain vesting period. Once vested, RSUs are considered and taxed at their fair market value as ordinary income.
The Power of ISOs and How to Manage Them
ISOs can be an attractive benefit, especially in a growing company. However, their complexity means they require careful planning. Here are a few tips:
Avoid the Alternative Minimum Tax (AMT) Trap: Exercising ISOs can trigger the Alternative Minimum Tax (AMT), an additional tax that applies when certain tax preferences make your regular income tax too low. This can be a surprise come tax time, so it’s essential to plan your exercises carefully, possibly spreading them over multiple years and consulting with your financial advisor and tax advisor.
Know Your Timeline: ISOs typically have a vesting schedule, meaning you can only exercise a portion of your options each year. Additionally, once you leave your company, you usually have a limited time to exercise your vested options.
Understand the Tax Implications: ISOs offer a potential tax advantage, but they come with conditions. To qualify for long-term capital gains tax, you need to hold the shares for at least one year after exercising the option and two years after the grant date. Otherwise, your profits may be taxed as ordinary income.
Maximizing RSUs for Long-Term Wealth
RSUs, while more straightforward than ISOs, still require strategic thinking:
Final Thoughts
ISOs and RSUs are valuable components of a compensation package, offering the potential to build substantial wealth. However, understanding the details, planning for taxes, and integrating them into a broader financial strategy are essential steps to make the most of these benefits.
At Confluence Financial Partners, we specialize in helping individuals navigate these complexities, ensuring that your stock benefits work in concert with your overall financial plan. If you have ISOs or RSUs and are unsure how to manage them, let’s have a conversation.
Navigating a job change is a significant undertaking, especially for those with considerable assets and financial interests. This guide is designed for professionals, including executives, physicians, and business owners as they work through the intricacies of transitioning to new opportunities.
Understanding your compensation package is important, because compensation is usually a huge part of transition decision. Beyond salary, bonuses, and deferred compensation, it’s essential to assess the long-term value of your total package. For example, if you are re-locating, consider the impact of cost-of-living adjustments.
Don’t forget to evaluate non-monetary benefits such as professional development opportunities, wellness opportunities, and overall company culture. All of these can have a significant impact on your job satisfaction and overall well-being.
What do I do with my old retirement plan(s)?
Roll into an IRA: Working with a financial advisor can help you determine if rolling into an Individual Retirement Account makes sense. The benefits of this option include having more investment flexibility and control. Typically, you will have a broader range of investment options compared to an employer sponsored 401(k) plan. This allows you to diversify your portfolio while also consolidating accounts if you have multiple 401(k)s with previous employers. If you work with an advisor, you will have professional investment management as well as financial planning available. A good financial advisor will also be able to help with tax and estate planning matters, though he/she cannot replace your CPA or attorney.
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Move your old retirement plan to your new employer: Most employer sponsored retirement plans allow for assets from previous retirement plans to flow into the new plan. This is certainly better than leaving the assets with your old employer’s plan, but this option likely does not include the investment options and flexibility as well as professional management and planning found if you roll assets into a managed IRA. That said, it may be your lowest cost option.
Be aware if there is a waiting period for health insurance with your new employer. If that is the case, look into extending your previous employer’s coverage through COBRA if there is a gap.
Have a solid understanding of the different health insurance plans offered by your employer and consider factors such as the network of providers, deductibles, co-pays, coverage for prescription drugs and preventative care to name a few.
Take advantage of tax-advantaged accounts like Flexible Spending Accounts (FSA)s and Health Savings Accounts (HSA)s if your employer offers them. These accounts can help you save money on qualified medical expenses. Additionally, HSAs can serve as an additional retirement savings vehicle.
If your previous employer offered stock options or equity, be sure to understand the vesting schedules and the implications of leaving.
Equity compensation can significantly increase your wealth, but also add complexity to your financial and tax planning picture. For example, the decision to exercise stock options should be timed to optimize tax implications and align with your broader financial goals, risk tolerance, and time horizon. Working with a financial advisor can help you make an informed financial decision.
A job transition is an important time and opportunity to reassess your financial strategy. By taking a look at your compensation, retirement planning, healthcare options, and equity compensation, you position yourself for both peace of mind and long-term success.
If Confluence can be a resource to you during this transition, please reach out. We are happy to help!
When someone thinks about socking away money in a college fund for children or grandchildren, the first thing that comes to mind is a 529 plan – a savings plan for qualified educational expenses, which may include not only tuition, but also room and board, books, and other school supplies. But did you know that a 529 can also be an attractive consideration for transferring generational wealth?
The Basics:
The Advanced:
Whether you want to reap the ‘basic’ benefits of a 529 savings account, or want to discuss the ‘advanced’ benefits – the best approach is reaching out to your Confluence Wealth Manager or starting the conversation altogether. We look forward to helping you and your family with education planning in 2024.
Month in Review
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What’s on Deck for July?
The banking system recently became front-page news following the failure of two banks in March. The headlines related to bank failures can illicit very emotional responses about safety of deposit accounts and cash investment solutions.
Cash management fundamentally breaks down into two categories:
While the two have similarities, there are fundamental differences with structure and protection.
In addition to FDIC insurance and backing of the full faith and credit of the US government, most assets held at firms such as Raymond James are covered by the Securities Investor Protection Corporation (SIPC), to applicable limits. The SIPC was established in 1970 and protects client assets up to $500,000, including $250,000 of cash. SIPC account protection would apply in the event a firm fails financially and is unable to meet obligations to clients, not against a loss in market value.
Despite the negative and unsettling headlines, there are multiple robust cash management solutions available to clients, with multiple layers of risk mitigation. At Confluence Financial Partners, we believe in the soundness of our banking system and maintain complete confidence in our client cash management tools.
