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In our 30-year firm history and experience working with clients, every person has unique planning opportunities to explore and consider throughout their lifespan. As a female-founded and majority owned firm, women have organically become a growing client group we service. In this blog post, we outline various investment and financial planning opportunities for women to consider, broken out over five life phases, with many strategies that can apply to all individuals.

Phase 1: Laying the Groundwork- Young Professional Phase

Make the most of your early career to earn what you are worth, establish good money habits and harness the power of compounding returns.

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The transition into the workforce marks a critical time for establishing financial independence. Healthy habit formation in these early years coupled with a few small strategic decisions, can have a significant long-term benefit. Some unique planning and investment opportunities to consider in this phase include:

Budgeting: the 50/30/20 rule serves as a basic, easy to remember tool- of your net income, budget 50% for essential living expenses/30% towards wants, or discretionary spending- such as gifts to philanthropy/ and 20% towards savings and debt repayment.
Pay yourself first: While you may be balancing student loans or other debt from pre-career, it is key to establish a 3–6-month emergency fund as early as possible. A separate account such as a High Yield Savings account for a portion of your paycheck to go into can be a simple solution to pay yourself first and start building your nest egg.
Retirement account contributions: Familiarize yourself with your employer’s retirement account options such as traditional 401Ks and Roth 401Ks. Often, employers will match contributions up to a certain percentage or dollar amount. Best practice is to at least contribute enough to get the company match. As you progress through the Young Professional Phase and debt balances are repaid, try to max out retirement plan contributions.
Roth IRAs and tax- deductible contributions to IRAs: Roth IRAs can also be ideal vehicles for those early in their career as they allow for tax-free growth over time and future withdrawals are typically tax free if certain criteria are met. There are some rules outlined in our Young Adult Checklist and income limitations outlined in our Keys to our Key Financial Data Chart that can impact eligibility for Roth IRAs contributions. For those who may be ineligible for Roth IRA contributions, tax deductible IRA contributions could also be an attractive option to explore.
Health Savings Accounts (HSAs): For those who have a High Deductible Health Insurance Plan, a Health Savings Account (HSA) can be a way to defer pre-tax dollars to be used on various future healthcare expenses.
Investing Funds: Once contributions are made to employer retirement accounts, Roths, IRAs, or HSA accounts, be sure to invest the monies for potential long-term growth. In the event you save additional money beyond your emergency fund, retirement assets and HSA account, consider taxable brokerage accounts to save and invest additional monies.

For women, this stage is also about understanding and negotiating for fair pay, reflecting their worth in the workplace, which is essential for setting a strong financial trajectory.

Phase 2: Career Advancement- Focus Phase

This period is crucial for establishing a strong financial foundation, assets are the key to building wealth over time, choose what you want to do and do it well.

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The second stage, or the “Focus” stage can be an ideal time for women to pursue entrepreneurial ventures or advance as an employee.

Women increasingly contribute to their growing economic influence- establishing successful businesses and acquiring stock options from publicly traded companies. Between 2020 and 2021, more than 49% of new businesses were started by women, up from 28% in 2019.

Some different opportunities for women in the Focus stage to consider, include:

Mentorship: Regardless of the path, business is about people and connections. Seek out other women mentors on a similar career trajectory or on a path that you admire. Learn to establish connections and ask for advice.
Entrepreneurs/Self Employed/Business Owners: For women who are self-employed or small business owners, decision making is limitless. We prioritize three key components to start on an entrepreneurial journey- business plans, business structure, and retirement accounts.
- Business Plan: an effective business plan can serve as a business roadmap and help with initial business funding. It can evolve overtime and drive your strategic planning, business growth, help manage finances, and strategize business exit or succession planning effectively.
- Business Structure: Sole-Proprietorships, Partnerships, S and C Corporations, and Limited Liability Companies (LLC) each have their own distinct tax implications, personal liability considerations, and operational complexities that we touch on in depth in the following blog post: From Start Up to Success: A Business Owners Journey
- Retirement Accounts: It is important to maximize after-tax income via retirement account. Some retirement plan vehicles to consider are Solo 401k, SIMPLE IRA, SEP IRA, Profit Sharing, or Defined Benefit Plans.

Working Women: For women who work for small businesses, large corporations, or anything in between- education and understanding is key. Take the time to understand your entire employee compensation package as there is often more value than your base salary. This can include your base income, employer portion retirement contributions, healthcare benefits and employer paid premiums, bonus compensation, time off policies, life insurance policies and stock options. If you are granted stock options as a part of your compensation, there can be some complexities and unique tax implications, so it is important to consult with financial professionals for personalized advice.

Phase 3: Peak Earning Years and Asset Accumulation Phase

There is no one size fits all approach- focus on communication, clarity, and stability.

Often, women in this phase are in their peak earning years while balancing several responsibilities, from personal to partnering or parenting, while accumulating assets and managing finances. As women navigate this phase, it is important to think about your personal, financial and career goals with intention.

Some strategies we like to leverage are broken out here-

Create an asset list: Create a list of your assets, which includes where they are held or custodied, the dollar amounts, title of each account, nature of the asset- community property or separate property, and key professionals to contact. In two party households, it is imperative for both partners to be engaged in financial decisions and knowledge transfer. This exercise not only helps educate both parties but can also serve as a resource in the event of an unexpected death or divorce. For two party or solo households, it can also be a starting point for planning opportunities, risk tolerance evaluation, and short- and long-term financial goals.
Create an estate plan: Typically, all adults in this phase should have four basic estate planning documents: a trust, a will, power of attorney for healthcare, and power of attorney for finance. The asset list can be used to evaluate the need for community property trusts versus separate property trusts and which assets need to be retitled. It also creates the opportunity for self-employed women to create a personalized estate plan that intertwines with their business plan.
Planning for Young Families: For women who have or plan to have families, there are some important steps to consider that we outline in our “Planning for Young Families” blog post.

For women or a partner who decides to no longer work or stay at home, a Spousal IRA can also allow for maximized asset accumulation and growth.

Phase 4: Preparing for Retirement Phase

Make the most of your accumulated wealth and life experience to invest with confidence and purpose.

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Approaching retirement, the focus shifts to maximizing employer benefits and solidifying income sources for a comfortable life post-career.

Maximize Employer Benefits: Pre-departure from your employer, confirm which benefits may continue or may be portable to you. Some key considerations:
- Healthcare Insurance: Confirm if your healthcare insurance will continue or if you are eligible for COBRA. This is especially key if you are pre-Medicare age or rely on your current employer’s healthcare insurance coverage.
- Life Insurance: some employer sponsored life insurance plans may be portable meaning, you take over the policy and pay the premiums out of your own pocket. This may be an attractive opportunity to continue coverage versus securing a new life insurance policy.
- Stock Options or Equity Ownership: confirm if all shares- vested and nonvested- will remain intact or if any shares/ownership will be forfeited.
- Employer Retirement Plans and Pensions: some employer plans allow assets to be held within the employer, while others may require the assets rollover to an IRA, or others may allow you to choose. Additionally, pension plans typically have a wide range of pension income payout options- such as single life, joint survivor 100%, 25% or 50%- or lump sum. Evaluating the different options is key to maximizing retirement income, flexibility, and potential future investment growth.

Roadmap to Retirement: Given women tend to our live men, it is prudent to understand the ins and outs of Social Security, Medicare, and other retirement income sources becomes crucial; benefit optimization is key. Drawing from your different buckets of assets, in tax efficient ways, can also help maximize assets and help address longevity. Our Roadmap to Retirement Blog highlight several of these considerations in greater detail.

Phase 5: Successful Wealth Transfer Phase

Balance any desire to leave a legacy with a realistic plan for converting your savings into income, make your intentions clear and organize your assets.

By the end of this decade, a 2020 study found, women are set to control much of the $30 trillion in financial assets that Baby Boomer’s currently possess. Whether due to asset accumulation in working years, inheritance due to death or divorce, or longevity- women are gaining more economic power than previous generations. These circumstances coupled with women longevity, necessitates careful guidance from your team of professionals to ensure proper estate administration in the event of death or divorce.

Planning for Successful Wealth Transfers: It is also key to revisit and keep estate plans and IRA beneficiaries up to date. A key question worth asking is what legacy do I want to leave behind for my family and/or to philanthropy? From there, there are some different strategies to consider such as annual tax-exempt gifting to individuals ($18K/person in 2024), and Donor Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs) for tax efficient philanthropic giving.

Conclusion

In recent years, an unmistakable shift in the landscape of wealth accumulation and transfer has occurred, with women emerging as key drivers and beneficiaries. Weatherly stands at the intersection of these life stages, offering tailored advice, educational resources, and a supportive community to navigate the financial nuances each phase presents.

If this guide resonates with you or reminds you of someone in your life who could benefit from our services, we invite you to reach out. Together, we can build a financial plan that not only meets but anticipates your needs through every phase of life, ensuring a future of independence, security, and peace of mind.

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

Many of Weatherly’s clients have generated their wealth through starting and growing businesses. Whether serial entrepreneurs or strategic purchasers of existing companies, there are few things more rewarding than seeing a company flourish under your stewardship. Planning for one’s own financial success often brings its own level of challenges; however, business owners must balance both the success of their personal and business simultaneously. Business owners often divert much of their attention and energy to running the business so that their personal financial situation can take a back seat. In this blog, we’ll focus on many of the topics we discuss with clients as they navigate the growth, maturity and exit stages of their business.

Business Structure

One of the most consequential aspects of starting a business is choosing the type of structure. There are five most common business structures including Sole-Proprietorships, Partnerships, S-Corporations, C-Corporations, and Limited Liability Companies (LLC). The choice of business structure dictates how you are taxed, personal liability of debts or negligence, ease of raising capital and adding new owners.

Sole-Proprietorships are single person businesses that do not form a separate business entity. This is the easiest, and cheapest, structure but has several drawbacks. First, because the business isn’t separate, you can be held liable for any debts or business issues you run into. It can also be more challenging raising outside money for your business because you can’t issue stock and banks may want a more formal business structure before lending money. It is common for thriving Sole-Proprietorship to change to a different structure as they mature. Sole-Proprietorship’s are taxed on the owner’s personal tax return.

Partnerships are businesses with 2 or more owners that are categorized as two different types. Limited Partnerships (LP) have one General Partner who takes on the liability, and one or more Limited Partners who are exempt from the liabilities. The second type is Limited Liability Partnerships (LLP) where each partner is responsible for certain liabilities but is not responsible for the actions of the other partners. Taxes for partnerships generally flow through to the Partners’ personal tax returns. LP’s may also be coupled with an S- Corp for additional asset protection.

S-Corporations are used to avoid corporate taxes and allow certain profits and losses to flow to the personal tax return of the owners. This structure requires filing approval with the IRS and state (note that some states don’t recognize S-Corps, so you’d be treated like a C-Corp). As such, Corporations are more expensive to operate than other businesses and require specific record-keeping and reporting. You can issue stock in your Corporation to attract employees or raise capital through outside investors. Corporations also provide more protection for owners because the entity itself is liable for debts and lawsuits.

Limited Liability Companies (LLC) allow you to separate your business from your personal assets and protect things like your house and savings from lawsuits or bankruptcy. LLC’s require formation in a specific state and sometimes have to be dissolved and reformed as the business changes. LLC members typically enjoy profits and losses flowing to their personal tax return but must file self-employment tax. People looking for tax advantages and significant personal liability protection often use LLCs before stepping up to the more complicated Corporation status.

C-Corporations have many of the same expenses, reporting requirements and S-Corps but differ in the way they are taxed. Corporation profits are taxed at special tax rates, and there can be instances of “double taxation” when profits are taxed and then dividends are issued and taxed at the investor or ownership level. C-Corps don’t have the specific eligibility requirements of S-Corps so are far more common. This type of business is best for larger or higher risk business with the goal of adding more shareholders or eventually filing a public offering.

Business Life Cycle

Once you define your business structure, operating the business can take many shapes. Managing of income, expenses and cash flow is paramount to the growth of your business and what you eventually expect to earn from your hard work. Early on in business, we see two typical scenarios. First, fledgling businesses aren’t generating enough cash flow to pay large salaries so an owner will keep their annual take-home pay low to reinvest into the business for growth. For younger entrepreneurs, this can be financially stressful so they often seek capital from outsiders by giving investors a minority stake in the business in return for capital to live and/or grow the business. The second scenario is when the owner(s) have ample personal liquidity so they make the deliberate decision to keep their take-home low to enhance the valuation of the company. Having the majority stake in any scenario can lead to large windfalls down the road when the business is sold in part or in whole.

After the business has demonstrated market relevancy and profitability, ownership has the luxury to strategize their take-home via salary, bonus, guaranteed partner pay, and distributing profits or dividends. It is important to work with your tax experts to find out what choice is the best for your personal tax situation and for the business. Finding a happy medium is where your business’ tax advisor and finance team earns their merit. This is a common stage for our existing clients as they are generating enough income to increase their savings in retirement accounts (Solo 401k, 401k, Defined Benefit Plans, Profit Sharing Plans) or simply adding money to their family trust account for a future goal like retirement.

Finally, after much of the hard work is done, the decision to exit the business can create a significant amount of angst for owners. How will I support my lifestyle? How will the sale be taxed? How many years is my payout? What if the new owner destroys what I’ve built? These are all valid questions, and our job is to work with your trusted advisors (CPAs and Attorneys) to quantify the payout and build a financial plan with the qualitative desires you envision for your retirement. Or in many cases, your retirement might be short-lived, and you end up consulting or building another business! Whatever path you choose, our planning exercises can give peace of mind and a framework for success.

Savings
As we mentioned at the beginning of this blog, business owners can become overtly focused on the success of their business that they can lose sight of their own retirement savings along with the opportunity to maximize their after tax income. Depending on the structure of the business, owners typically have a few different retirement vehicles they can employ to help save for their future retirement such as 401k, profit sharing, or defined benefit plans.

Self-employed 401k’s – also referred to as a Solo 401k, provide the opportunity to save via employee and employer contributions depending on the level of income generated each year. A SEP IRA is a similar vehicle that business owners often hear about but has slightly more restrictive contribution limits on the employer side.

While the Self-Employed 401k is a great place to start saving for many business owners, those with higher incomes may have the opportunity to save further by establishing a Profit-Sharing Plan and/or Defined Benefit Plan. While the plans can allow for additional savings, there are rules and requirements depending on the number and type of employees that make up the business. Profit Sharing plans allow the employer to make contributions at their discretion allowing for flexibility while also providing employees with a share of the company’s profits.

Defined Benefit Plans have annual contribution requirements and are more suited for mature businesses with steady profits. Weatherly works closely with both the client’s tax professional and Third-Party Administrators (TPA) to help establish and contribute to these plans on a yearly basis. You can find a link to our Key Data Chart for updated contribution limits.

Protection

All of the planning and energy that goes into running a business and saving for one’s retirement would be all for nothing if it wasn’t properly insured. It’s imperative that both the individual and business have adequate protection in the case of litigation or succession planning. While the structure of the business may provide a level of protection, it is not enough by itself to ensure a smooth transition and resolution should an event arise. We highly recommend that a client reviews their personal property and casualty and umbrella coverage on a yearly basis or anytime there is a material life change. Life insurance also plays a critical role to protect a family should something happen to an income earner and can also serve as a valuable vehicle in estate liquidity and help heirs avoid selling real assets to cover any estate tax liability.

On the business side the list is extensive and holding the proper type and level of insurance can vary from General Liability, Key Person, Errors and Omission, and Cyber insurance. There are numerous additional policies that may be needed depending on the type and structure of your business that should be carefully reviewed with an insurance professional.

Exit Strategies and Retirement Planning

The transition from running a business day in and day out towards retirement is often multi-faceted and often difficult for many business owners to adjust to. Including but not limited to a change of daily responsibilities, no longer receiving a paycheck, or structuring the sale of the business may be a multi-year endeavor. Weatherly helps guide clients through this transition by first taking inventory of the client’s personal situation and running a holistic retirement plan encompassing every aspect of their financial life. This is an ideal time to get a business valuation and sale projection to be paired with a review of the net worth.

This helps ensure that first and foremost the client is at a position where they can comfortably step away from the business and enjoy the lifestyle, they’ve often spent decades building towards. The intersection of a client’s retirement goals, cash flows, level and types of assets will provide various opportunities as we plan their next stage of life.

Given the uncertain nature of selling a business from timing to structure, Weatherly is often involved in conversations with the client’s other trusted professionals such as attorneys and tax professionals. There are many different paths a business owner may take such as an outright or partial interest sale, installment, transfer of ownership to family members, and any combination of the above. These pose numerous scenarios that will impact a client’s retirement, tax, and estate that need to be accounted for. This is an important time to ensure that both your business structure/succession plan aligns with your personal estate planning.

For these reasons Weatherly will model out various scenarios depending on the client’s ultimate goals to help allow the client to weigh the pros and cons of each scenario on their personal and financial situation. Sales of businesses often are accompanied by a significant tax burden to the owners and is often paired with philanthropic strategies that help support the causes closest to the client and the implied tax implications. Common approaches here are vehicles such as Donor Advised Funds (DAF) and Charitable Trusts.

Summary

As a fellow small business coming up on its 30^th year anniversary, Weatherly has helped guide clients and their businesses through all phases of the life cycle from structuring to the ultimate exit. Through continuous transparency and communication, we help provide business owners a unique insight of the intersection between their personal and professional lives and welcome the opportunity to help plan for your future success.

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

Members of Generation X, particularly those who are business executives or owners, face several challenges in today’s world. They often find themselves caught between the demands of growing their business, raising their children, caring for their aging parents, and preparing for their own retirement. In this blog post, we focus on those in their 40s and 50s, who are uniquely positioned at the crossroads of planning for retirement, establishing a comprehensive estate plan, and supporting their families. Below we’ll explore effective planning initiatives, identify common financial hurdles, and offer strategic solutions to empower Gen X with the knowledge to navigate these critical financial decisions confidently.

Planning Initiatives for Gen X:

For Gen X entrepreneurs and executives who are navigating business finances alongside multiple personal obligations, it can be hard to take a step back and focus on their own health and well-being. That is especially true when it comes to their financial well-being, and it can be difficult to know where to begin. Identifying current financial obligations, long-term goals, and the steps needed to accomplish them can serve as a starting point.

For many, some shorter-term goals include managing monthly financial obligations while also assisting their children with college expenses. While some longer-term goals could include preparing for a successful retirement and ensuring their families are taken care of with an adequate estate plan in place. Whatever those financial goals are, the very first step is to identify them and begin outlining the necessary steps to achieve those goals.

While identifying your financial goals may seem like a simple task, understanding how to achieve those goals can get complicated. Many questions can arise as you progress on your financial journey such as:

Am I saving in the most optimal way?
Are there any pitfalls that I am unaware of from an investing or tax perspective?
Do I need to make any changes now to ensure a successful retirement?
Is my estate plan in good order?
What if life or economic circumstances change and how will that affect my financial goals?

These questions coupled with the many obligations facing members of Gen X can be overwhelming. However, these questions can be addressed with comprehensive financial planning that considers both business and personal financial landscapes. For business leaders, this may include succession planning, and business valuation, alongside personal retirement planning and estate management. By engaging with a firm that is a fiduciary and has Certified Financial Planners (CFP) on staff, you can trust that you will receive non-biased financial advice that sets you up for success.

With a comprehensive financial plan, you can expect to engage with an advisor who will organize your finances in an easily digestible way. Through ongoing conversations, your planner learns more about your financial goals and values to model a roadmap for you and your family. Additionally, various scenarios can be implemented into your plan to account for the many dynamic factors that occur in one’s life. You can expect to receive personalized advice and concrete action items to ensure that you are on the path to achieving your financial goals. With the many obligations that members of Gen X face, delegating this aspect of their lives to a trusted financial planner can provide confidence and peace of mind.

Common Financial Challenges for Gen X:

Retirement Readiness:

A pressing concern for many in Gen X is the state of their retirement savings. According to a survey conducted by Bankrate 69% of Gen X workers feel they are behind on their retirement savings, and only 19% feel financially secure. Often caught between the needs of their children and aging parents, retirement planning can take a backseat. However, with retirement on the horizon, it’s imperative to take steps to bolster savings.

In general, the first step in achieving financial security is to ensure an adequate emergency fund. According to the CFP Board, it is recommended to have 3 – 6 months of liquid emergency funds on hand for unforeseen events. Once that has been fulfilled, the next step is to examine your cash flow needs to understand how much you can reasonably contribute to retirement accounts such as 401(k)s and IRAs. This exercise can assist you in identifying areas where you can cut expenses to maximize contributions to these accounts. When reviewing your retirement accounts there are some important factors to consider including but not limited to:

Does a Traditional or Roth account make sense for me?
Am I taking advantage of my employer match?
Am I eligible to increase my savings with additional “catch-up” contributions?

View our 2024 Key Financial Data Chart for additional information on retirement account contributions and catch-up amounts.

Utilizing retirement accounts to prepare for retirement is a great place to start on your path toward your financial goals. It is important to note that starting early is a key driver of success to take advantage of compounding returns over time. When considering your retirement account strategy, there can be several factors at play to determine the optimal way to save. By utilizing a professional financial planner, they can consider all the nuances of your financial situation to develop an optimal savings plan for you and your family.

Navigating Healthcare Before Medicare:

An often-overlooked aspect of mid-life financial planning is preparing for healthcare needs before becoming eligible for Medicare. For those in their 40s and 50s, especially business owners who might not have access to corporate health plans, this is a critical gap that requires strategic planning. The cost of healthcare can significantly impact financial well-being and retirement planning. It’s essential to explore health insurance options that bridge the gap until Medicare eligibility, such as private health insurance, health savings accounts (HSAs), or leveraging the health insurance marketplace for suitable coverage.

Investment Portfolio Considerations:

While building up retirement accounts is a primary driver of a successful retirement, it is also important to consider bolstering savings outside of these accounts. Building up taxable assets, such as a trust account or joint account, can provide many benefits as well. Unlike withdrawing from a retirement account where distributions are typically taxed as ordinary income, taxable assets are subject to capital gains rates which are usually taxed at a lower rate. By utilizing taxable accounts, you may be able to supplement retirement income in a tax-efficient way.

Moreover, for business executives and owners, equity compensation in the form of Restricted Stock Units (RSUs) or stock options represents a critical component of wealth. These instruments not only tie your financial success to the company’s performance but also introduce unique challenges and opportunities for tax planning and asset diversification. Effectively managing RSUs and stock options requires a nuanced understanding of vesting schedules, tax implications and the strategic timing of sales to align with your broader financial goals.

Another important consideration when discussing your investment portfolio is your time horizon and risk tolerance. These two factors are extremely important when considering the appropriate asset allocation within your portfolio. Time horizon refers to the amount of time that funds will be invested until ultimately needed for expenses. Said another way, time horizon refers to the amount of time you need your funds to last. Risk tolerance is a more subjective measure that refers to the individual’s comfort level with investment risk within their portfolio. These two factors together ultimately determine your portfolio’s asset allocation, which is the allocation to assets such as stocks, bonds, or other assets.

For members of Gen X, understanding their time horizon, risk tolerance, and existing asset allocation is a crucial step in the planning process. Depending on your specific situation it is important to consider your own financial goals and ensure that your portfolio is allocated accordingly.

To go one step further, it may be beneficial to understand each account’s individual asset allocation as well. For example, your taxable account may be invested more conservatively than your retirement accounts because withdrawals from your taxable accounts may begin sooner. Conversely, your retirement accounts may have a more aggressive allocation due to that account’s individual time horizon with required minimum distributions beginning at age 75 if you were born after 1960.

Lastly, as you move from your working years to your retirement years it is important to regularly assess your retirement needs and the asset allocation of your portfolio. Asset allocation decisions can change over time especially as you age. There can be many factors the influence a change to your investment portfolio, and with the help of an advisor you can trust that all the nuances of your life are taken into consideration.

Estate Planning for Gen X:

Estate planning is another area that can be often overlooked by members of Gen X. Without an adequate estate plan families can be left in difficult situations upon the death or incapacitation of a loved one. This is especially important for those families who have young children because a comprehensive estate plan can ensure their security if either parent were to experience an unexpected event. By having an estate plan in place, you can ensure that assets are distributed according to your wishes, ensure that your children are taken care of, and can significantly reduce the emotional and financial strain on a family during already challenging times.

In general, there are a few key documents that should be in place to establish an adequate estate plan:

Trust: A trust can be used to protect assets, provide for minor children, and manage assets in the event of incapacity or death. Also, assets listed within the trust will avoid probate court, which can be lengthy and expensive. There are several types of trusts that can be useful depending on your specific situation and wishes.

Will: A will is another important piece for an estate plan. With a will, you can designate beneficiaries, provide instructions for how and when beneficiaries receive assets, and name guardians for your minor children.

Power of Attorney (POA): Establishing a trusted individual as your POA allows them to make financial and legal decisions on your behalf if you were to become incapacitated. If you become incapacitated and do not have a POA, managing affairs can involve lengthy court proceedings and be expensive.

Health Care Power of Attorney (HCPOA): A HCPOA allows you to designate a trusted individual to make medical decisions on your behalf if you become incapacitated. This is a vital piece of an estate plan because it allows for your wishes to be followed in the case of a medical emergency, end-of-life care, or other healthcare decisions even if you cannot communicate them. This document can also provide clarity to family members regarding health care decisions to avoid any potential disputes.

The importance of estate planning cannot be overstated, especially for Gen X. Having a will or trust in place is critical for protecting one’s family and ensuring that assets are distributed as intended. Powers of attorney and healthcare directives are also essential, providing loved ones with the authority to make financial and medical decisions if one is unable to do so. Including aging parents in these conversations can also help ensure that their wishes are respected and that a plan is in place for their care and the transfer of their wealth. Our previous blog post includes helpful information on how to approach conversations around wealth transfer.

Supporting Your Children: Education Funding Strategies

With tuition costs these days, education funding is another planning opportunity for members of Gen X. It is important to consider starting early in the child’s life and exploring the various savings vehicles available. One of the most popular and widely used savings vehicles for education funding is the 529 account. There are two main types of 529 plans available for education funding:

Prepaid 529 Accounts: With a prepaid 529 account you can prepare for future college tuition by paying today’s rate. With this type of account, families can purchase tuition credits with participating institutions that are typically based on current tuition rates. However, this type of 529 account is not very flexible when it comes to school choices, as they are often limited to in-state institutions.

Education Savings Plan 529: With a standard 529 account families can open an investment account that can be used in the future for qualified education expenses. For example, items such as tuition, books, and room and board all qualify under this plan. Contributions are made to this account and grow tax-free and can be distributed tax-free for qualified education expenses.

Depending on your specific situation either account can provide an opportunity to set your child up for success when it comes to higher education. Also, family members such as grandparents can contribute to these accounts for your child’s benefit. There are several key items to note when discussing a 529 account:

What happens if my child does not go to college? If your child does not end up going to a college or university, the funds can also be used for apprenticeships/trade schools or transferred to another child. Additionally, as of the Secure Act 2.0 529 accounts can be rolled over into Roth IRAs for the 529 beneficiary if certain requirements are met.

Tax implications: 529 contributions occur after-taxes and are not federally deductible. However, depending on the state you live in, and if you use your state’s 529 plan, you may be eligible for state income tax deductions or state tax exemptions on withdrawals.

Financial Aid: A 529 account is typically held by a parent or other family member and is not considered the child’s asset. Therefore, only a small portion of the account is considered during the financial aid process. If another family member such as a grandparent is the owner of the account, the assets won’t factor into the federal financial aid calculations.

While this is not an exhaustive list of items to consider when looking into a 529 plan, it is important to remember that starting early will increase your family’s preparedness for education expenses. Additionally, by including your children in the conversation, it can serve as a good opportunity to foster financial literacy and independence by teaching them about budgeting, saving, and investing to prepare them for their own financial futures.

How WAM Can Help:

As Gen X moves through mid-life, the opportunity to secure a stable and prosperous financial future is within reach. By focusing on key areas such as proactive savings, understanding your asset allocation, estate planning, and education funding, you can take steps today to lay the groundwork for a comfortable retirement. Here at Weatherly, our core pillars of service revolve around comprehensive financial planning and investment management. We are here to work with members of Gen X to construct a financial roadmap to assist them in achieving their financial goals. Additionally, our team of experienced portfolio managers are here to help develop an investment strategy that is in line with your goals and aspirations.

By now, we have all likely heard several New Year’s Resolution enthusiasts say, “New Year, New Me!” Per Forbes, one of the most popular 2024 New Year resolutions is improving finances. Since we certainly don’t want to see this resolution drop off, we are sharing our updated 2024 Key Financial Data Sheet to assist you in your financial goals today and all year long.

The 2024 Key Financial Data Sheet is a useful tool that highlights tax brackets, contribution limits, deductions, credits, exclusions and more. In reviewing the history of US taxes, you’ll find how complex our tax code has become over time and the importance of staying up to date with current tax law. In this blog post, we outline the Keys to our Key Financial Data Sheet and potential strategies to help fulfill 2024 resolutions and beyond.

Personal Tax Brackets –

Federal Income Tax Brackets make up the bulk of the annual revenue collected by the IRS each year. Determining your filing status and marginal tax bracket is the first step in tax planning. The majority of US citizens file as Single or Married Filing Jointly (MFJ).

Source: Key Financial Data Sheet 2024

If you are single or considered unmarried, have a qualifying dependent and pay the bulk of the household bills then you may be a candidate for the Head of Household (HOH) filing status. These brackets and deductions are typically more favorable than the Single filing status.

Married Filing Separately (MFS) is also a filing status for married individuals. While some couples simply prefer to keep finances private, others choose to file separately for Federal and State tax benefits. While the tax code generally favors joint filers, in certain instances, it can behoove taxpayers to file separately such as to maximize deductions and/or limit certain liability risk.

Strategies to Consider –

Roth Conversion – In low taxable income years, consider a Roth conversion strategy to maximize the lower tax rates.
Engage a Tax Professional – they can help determine which filing status to use and can assist with various tax items.

Standard Deductions & Child Tax Credits –

A common exercise takes place during tax season to determine if someone should itemize deductions or take the standard deduction. With the Tax Cuts and Jobs Act of 2017, the standard deduction nearly doubled, so the number of people that itemize deductions significantly declined. However, planning can be done with charitable giving to maximize deductions in certain years.

Source: Key Financial Data Sheet 2024

Strategies to Consider-

Donor Advised Fund (DAF) – contributing to a DAF for individuals who itemize may provide a tax deduction as well as flexibility in granting to charities over time.
- Furthermore, a bunching strategy can be utilized or front loading a DAF in a high-income year can be even more effective.
Qualified Charitable Distribution (QCD) – individuals over the age of 70.5 have a unique opportunity to give directly to charity from an IRA while excluding the distribution from taxable income. With the recent passage of Secure Act 2.0, the 2024 QCD limit is indexed for inflation ($105k) and also allows for a one-time donation of up to $53k to a Charitable Remainder Trust (CRT) or Charitable Gift Annuity (CGA).
- This strategy can help fulfill Required Minimum Distributions (RMD) for taxpayers who are at least age 73 and is a tax efficient way to facilitate charitable giving for those who take the standard deduction.

Capital Gains on Long-Term Capital Gains and Qualified Dividends

Weatherly’s investment philosophy focuses on Long-Term Federal Capital Gains and Qualified Dividend tax rates, specifically within taxable account types.

Source: Key Financial Data Sheet 2024

Strategies to Consider –

Tax Loss Harvesting – this is part of Weatherly’s ongoing portfolio management services. As we review and rebalance portfolios throughout the year, we analyze prior year tax returns for loss carry forwards that may help reduce current year capital gains. When clients fall in the 15-20% Long Term Federal Capital Gains rate, our team attempts to offset realized gains with losses. This allows us to raise for cash flow needs and/or limit concentrated positions while limiting overall tax liability.
Tax Gain Harvesting – those with low taxable income may fall within the 0% category and additional gains can be realized without incurring any capital gains tax.

Retirement Contributions:

Source: Key Financial Data Sheet 2024

Taxpayers who are working and receive earned income may be able to contribute to an employer sponsored retirement plan like a 401K. They may also be eligible for a deductible IRA or Roth IRA contribution. Knowing the contribution limits above can allow an individual to maximize their retirement contributions which can reduce their overall taxable income for the year.

Strategies to Consider –

Traditional vs Roth Contributions – for high earners, contributing to a tax deferred retirement plan would allow more money saved given their current high tax bracket. For those in low tax brackets, contributing to a Roth account could limit higher taxes in the future.
Self-Employed 401K – can allow certain business owners to contribute as both an employee and employer to further maximize annual deferrals.

Estates, Trusts and Planning for the Future –

Estate planning has become a growing part of financial planning, due to the inevitable Great Wealth Transfer. Individuals and families often utilize trust documents to effectively transfer assets to their heirs. However, income tax rates on estates and certain trusts are the most dramatic as they reach the highest tax bracket the quickest.

Source: Key Financial Data Sheet 2024

While this is a major factor, it is not the only consideration when it comes to wealth transfer.

A question we get a lot is, what is the annual gift tax exclusion amount? For 2024, it is $18,000, which is an important figure as this is how much one person may gift to another person without needing to file a gift tax return (Form 709) and reduce their Estate Exclusion Amount.

Source: Key Financial Data Sheet 2024

Under current law, we are given a lifetime estate exclusion amount ($13.61M per person in 2024), which you can utilize while alive or at your time of death. For taxable estates/gifts over the exclusion amount would incur a 40% tax hit.

The tax Cuts and Jobs Act of 2017 made significant changes to the estate exclusion amount. This law more than doubled the exclusion amount until its sunsets January 1^st, 2026 and reverts back to prior amounts (after adjusting for inflation). Without an extension from Congress, most analysts are predicting the estate exclusion amount will drop to $6M – $7M per person.

Strategies to Consider –

Financial Plan – if gifting is of interest to you, it is important to first have a financial plan completed for your own financial situation. If your personal plan is successful, there are various estate planning/annual gifting opportunities to explore.
Annual Gifting – a gift up to the annual exclusion amount would sidestep the need to file tax form 709 and would not reduce your lifetime estate exclusion amount.
- Consider gifting appreciating assets or funding an investment account.A 529 college savings plan can be superfunded by forward gifting up to 5 years worth of the annual exclusion amount in the current year.
- Our 5 Estate Planning Strategies to Consider blogpost highlights a few different strategies to consider with your team of professionals.
Leverage the Current High Estate Exemption Amount – Gifting a high amount of assets to take advantage of the higher lifetime estate exclusion amount.
- Asset location and type of accounts should be considered to further enhance this strategy.

Engaging an estate planning attorney in tandem with your Weatherly advisor is vital to properly plan for your asset transfer.

How Weatherly Can Help-

Given the uniqueness of our tax code, Weatherly likes to gather your tax return to help identify planning opportunities. Based on our conversations with you and data we gather, we can then outline which strategies could be most impactful to you. With January 1^st, 2026 right around the corner, it is a great time to revisit your estate plan and gifting goals prior to the revision of the estate exclusion amount.

Please reach out to schedule a call with your advisor to see how the Key Financial Data Sheet may improve your finances this year and the decades to come.

As we entered 2023, economic uncertainties and raising concerns about market volatility extended into the New Year. However, as the year progressed, markets rebounded, and earnings reports showed strength and resilience quarter over quarter. While Weatherly cannot control the economy, markets, or future tax environments, we can focus on helping our clients build well-structured plans to achieve financial goals.

We think the new year is an opportune time to pause and take inventory of your overall financial health. To help guide our clients along that process, we’ve outlined a framework with 20 key, tangible steps to consider.

20231220_WAM_FINANCIAL_PLANNING_CHECKLIST

Using the new year as an excuse to pause and perform a personal financial planning assessment allows individuals to optimize tax strategies, align financial goals with current circumstances, review and adjust investment portfolios, manage debts effectively, ensure financial security, assess retirement plans, and stay informed about relevant financial changes.

By taking advantage of the year-end period for a comprehensive financial review, you position yourself to start the new year with a well-informed and adjusted financial plan. Consider consulting your Weatherly advisor if you believe you could benefit from any of the following strategies.

Thorough financial planning and a well-diversified portfolio provide some of the best resources to handle volatile interest rates and inflation. These rates affect everything from spending and borrowing costs to mortgage rates, making it relevant for every level of consumer. Throughout history, the Federal Reserve, the central bank of the United States, has used different tools and data points to foster the US economy and to mitigate financial crises. Used by the Federal Reserve, the federal funds rate is the interest rate that financial institutions use to make loans to one another. The federal funds rate is also the tool the Fed uses to maintain stability in inflation and unemployment, leaving inflation and interest rates tightly intertwined. The Federal Reserve will lower rates to spur the economy and raise them to keep an inflating economy in check.

The Federal Reserve also uses Consumer Price Index and Personal Consumption Expenditures data to gauge inflation. Core CPI is another useful gauge as it provides the same data as CPI, less food and energy, the prices that tend to be the most volatile. CPI data is categorized as a lagging indicator, meaning its data points are known after they have occurred. Additional lagging indicators such as unemployment and rent provide information on the direction of the economy.

Source: J.P. Morgan Economic & Market Update 4Q 2023

Understanding previous periods of volatility, and the goal of the Fed, provides groundwork for understanding the state of today’s current environment. The following will look at periods of times with high volatility in inflation and interest rates and how they coincided with periods of expansion and recession.

Great Depression (1929-Late 1930s)

After a long period of expansion, the stock market crashed in October of 1929 due to an overpricing of assets. After the crash, the United States economy saw a rapid economic decline across the board. The price of goods in the 1939 CPI were cheaper than the basket seen 20 years earlier, while people still struggled widely to afford them . From October 1929 to April 1933, the price of the CPI basket declined over 27%, leaving the Fed to navigate a deflationary period of the economy. Leading up to the crash, interest rates were around 6.25%, Interest rates were increased to 4% due to global macroeconomic factors such as the UK abandoning the gold standard, putting a deeper dampening on the US economy. The gold standard is a monetary system where a country bases the value of its currency in direct relation to the value of gold. Using the gold standard can curb the phenomena of inflation, but it comes with its challenges like supply and demand issues. The US, feeling the global pressure, moved to abandon the gold standard in 1933. Interest rates remained low until mass economic expansion post WWII, and the CPI basket did not reach pre-depression prices until 1943.

Source: U.S. Bureau of Labor Statistics

The Great Inflation (1965-1982)

The Fed spent the period between the Great Depression and the Great Inflation introducing policies and efforts that raised the money supply, stimulating the economy, while also creating record levels of inflation. The federal funds rate rose to its highest level in history during the 1980s. The United States was heading towards record levels of inflation with CPI being over 14% and core CPI being above 13%. To combat the rising interest rates, the Fed set their target rate to 14% in January of 1980. Shortly after, raising the target rate to the highest it has ever been, just under 20%. Due to the increase, the cost to borrow also went through the roof, as 30-year fixed-rate mortgages hit nearly 20% for a short period of time. There are similarities between The Great Inflation and now. In October 1981, there was a 5% increase on mortgage rates YoY, while November of 2022 saw a 4.1% increase YoY. Home sales dropped over 20% in 1980, not unlike the trend seen in 2022. Leading up to this inflationary period, the Fed held rates around 5%, the common target rate also seen today, while CPI hovered between 5-6.5%. Between 1978 and May 1980, there were several rate hikes put into effect by the Fed, raising rates from 6.5% to 20%. The quick and steady increase of rates was needed to reestablish price stability within the US economy with an inflation rate over 12%. From September 1981 to September 1983, inflation dropped 8% but bounced around throughout the rest of the decade. Interest rates were ultimately lowered to 3% in the early 90s through a long series of rate cuts by the Fed.

The Dot Com Bubble (Late 1990s-2002)

A period of long economic growth in the 90s followed the Great Inflation. The Fed was able to reduce interest rates and keep them stable to promote economic growth and create huge levels of growth in the stock market. The Dot Com bubble was an overvaluation of internet-based companies, causing a large influx of investments into lower quality companies. The economic loosening of the Fed mixed with the overpricing of these assets caused the Nasdaq 100 index to increase over 500% from 1995-2000. Interest rates rose slightly during this time from 5% to 6.5%. Following the bubble burst, the Fed dropped interest rates from 6% to 1% in hopes of stimulating a stock market that saw some of its indices lose over 70% of their value. CPI data rose slightly during the build-up of the bubble but declined steadily after, settling in around the Fed’s goal of 2%. The dot-com recession lasted from March to November 2001, but the Fed was initially worried that the economic recovery was lacking as measures of consumer confidence continued to drop till early 2003. The 9/11 terrorist attacks also added to the continued negative outlook, causing more rate cuts due to geopolitical tensions. By mid-2003, inflation was extremely low—core PCE was at 1.78% in January and bottomed out at 1.3% towards the end of 2003.

The Great Recession (2008-2015)

The mid-2000s were a recovery phase for the United States economy, the stock market slowly recovered, mortgage rates came down, and Core CPI remained between 2-3%. During this recovery period, the Fed systematically raised rates 17 times between 2004 and 2006, each time by 25 basis points, from 1.25% to 5.25%. The rate increases were designed to tame the bubbling housing market that ultimately came to a head at the end of 2007. The Fed quickly tried to cut rates in the last quarter of 2007, with the funds rate ultimately reaching near-0% in December 2008. The recession caused CPI data to experience a short deflation period as parts of the stock market lost over 50% of their value in the span of 18 months. Consumer sentiment in the middle of 2008 was extremely low and comparable to feelings had in mid-2022 during the bear market. Crude oil at the start of the recession cost over $140 a barrel, dropping to $70 by the end of the recession. This price movement is also very similar to what was experienced during the bear market, inflationary period in 2022. With low rates and disinflation periods, unemployment doubled to over 10% causing one of the most widely felt recessions in quite some time.

Source: FRED. Shaded in portion of the graph is designated as the Great Recession.

COVID Pandemic (2020-2022)

After leaving rates near-zero, the Fed slowly raised their target rate throughout the mid-to-late 2010s. Core PCE inflation was 1.1% in December 2015, well below the Fed’s target of 2%. It would slowly rise as the Fed raised rates, reaching its target level in March of 2018. Following conflicts stemming from a trade war with China, the Fed cut rates a total of 0.75% during the end of 2019 to mitigate any negative geopolitical catalysts. The COVID-19 pandemic struck early in 2020 and immediately shut down the globe. Production, trade, employment, and markets plummeted as public safety and recovery came to the forefront. The Federal Reserve dropped rates to zero and congress introduced stimulus packages to help a declining economy. The stock market and consumers responded well as the market climbed throughout the remainder of 2020 and into 2021. While the economy was growing again by May 2020, marking the shortest recession on record, the fallout from the economic measures to cope with the COVID pandemic are still being felt. Supply chain issues, a shortage of labor, and low rates with a large influx of cash being injected into the economy raised CPI to its highest levels since the Great Inflation in the 1980s . In turn with this the Fed began raising rates in March 2022, with the last raise coming in August 2023. These rate hikes have been able to wrangle inflation as the October 2023 CPI data came back at 3.2%, down from the almost 9% inflation seen in mid-2022. Consumer sentiment is slowly on the rise from its lowest level since 1980 as economic data continues to show recovery from the fallout of the COVID pandemic.

Post Pandemic and the Now

As we enter a period post pandemic, consumers and businesses budgets are feeling the heat of higher borrowing costs, easing but higher inflation, and resumption of student loans repayments. Each central bank around the world is continuing to evaluate data and current policies to define their policies moving forward. During the pandemic we saw globalization trends regress a bit with global supply chain issues coming to the forefront. While many of the world’s activities have resumed, such as travel and discretionary spending, we have seen dramatic volatility of demand worldwide impacted by inflation and interest rates. Moving forward, the economic outlook, spending and hiring will continue to ebb and flow with the variation of inflation and interest rates.

Inflation, Interest Rates and Your Individual Financial Plan

Having a successful financial plan, along with a well-diversified portfolio puts you in a better position to weather the storm in volatile environments. Long-term financial success is driven by an accurate financial evaluation that successfully manages cash flows and future expenses, accounting for inflation. Your advisory team is here to review and modify your financial plan to adjust for economic circumstances while offering you peace of mind. Continually reviewing items like your debt/interest rates, income projections and asset allocation are paramount to a successful long-term plan.

Why is Equity Compensation Used?

In today’s competitive landscape companies of all sizes, both private and public, look for innovative ways to attract top talent. One of the most common ways in which companies entice employees to join their teams is through a special form of payment called equity compensation, colloquially referred to as stock options or stock awards. Equity compensation is defined as a form of non-cash compensation that awards an employee with stock (equity) in their company allowing them to participate in the ownership of their firm.

From a company’s perspective, equity compensation can provide many benefits such as:

Attracting talent
Retaining employees
Performance motivations
Conserving cash

There are also many benefits that equity compensation packages can provide an employee:

Ownership Stake
Alignment of Interests
Potential wealth accumulation
Potential tax benefits

While there are many benefits to receiving an equity compensation package, they can often be very complex and affect an individual’s financial plan from many different angles. Below we highlight the main types of equity compensation packages, their nuances, and important considerations for each.

The Types of Equity Compensation

There are many forms that equity compensation packages can take. The most common forms of equity awards are stock options, which can take the form of incentive stock options (ISOs) and non-qualified stock options (NQSOs), and restricted stock units (RSUs). Each vehicle carries its own nuances and mechanics that are important to consider for anyone’s financial plan.

Stock Options

Whether you are granted ISOs or NQSOs it is important to understand the mechanics in which stock options operate. Stock options allow the recipient the right, but not the obligation, to purchase company shares at a pre-determined price often referred to as the grant price or strike price. Since there is a pre-determined price options will only have value if the value of the company is higher than the grant price. If that is the case, an employee has the option to purchase company stock at a discount which can potentially provide enormous financial benefits.

It is important to note that stock options are a formal contract between employer and employee with specific rules and stipulations. The contract will clearly define the vesting schedule, the grant date and price, rules surrounding when an employee can exercise the options, and more. Below is a general outline of the stock option lifecycle.

Sourced from: https://www.globalshares.com/academy/non-qualified-stock-options-nsos/

Also, within the contract the company will define which type of option they are granting the employee, an incentive stock option (ISO) or a non-qualified stock option (NQSO). The type of option offered to an employee can have a major impact on their overall financial plan and decision-making.

Incentive Stock Options (ISOs):

Incentive or Statutory Stock Options can provide the opportunity for preferential tax treatment if certain requirements are met. This benefit can potentially provide enormous savings as gains are taxed at capital gains rates rather than ordinary income tax rates. With an ISO package, there are items to consider before you exercise or sell the stock.

Important considerations with ISOs:

Holding Period Requirements & Taxation: To receive the preferred tax treatment with ISOs, an individual cannot sell their stock within 2 years of the grant date and the stock must be held for at least one year after exercise. If an individual sells their ISO shares before meeting the required holding period, this is referred to as a disqualifying disposition and any gains will be taxed as ordinary income rather than long-term capital gains. Visit Weatherly’s Key Financial Data Chart for 2023 for a more detailed breakdown of tax rates and capital gains rates.
Alternative Minimum Tax (AMT): Although ISOs offer preferential tax treatment, it is important to mention that an AMT adjustment may be necessary upon exercising options. With ISOs you may need to file an AMT adjustment on the “bargain element”, the difference between the fair market value of the options and what you paid for the stock (the grant price/strike price).
$100,000 Per Year Limitation: Per the Internal Revenue Code 422(d), the fair market value of stock exercised in any calendar year cannot exceed $100,000. Anything in excess of $100,000 will be treated as a non-qualified stock options (NQSOs).
Estate Planning: Generally, an individual is not allowed to transfer or gift ISOs during their lifetime, and if they do, that could potentially disqualify them as ISOs which forfeits the tax benefits. However, ISOs can be transferred upon an individual’s passing to their heirs or beneficiaries through their estate.

Non-Qualified Stock Options (NQSOs):

Non-Qualified Stock Options are the most common form of stock option offered in equity compensation packages. NQSOs are much simpler in nature relative to ISOs, they have straightforward tax events and are not subject to the same stringent rules. The major difference between NQSOs and ISOs revolves around taxation because gains from NQSOs are taxed as ordinary income rather than long-term capital gains rates.

Important considerations for NQSOs:

Tax Implications: When you exercise NQSOs the difference between the grant price and the fair market value of the stock is treated as ordinary income. With NQSOs, you will owe taxes in the year you decide to exercise your options.
Holding Period: Once exercised, depending on the length of time you hold onto your company stock you may be subject to either short-term or long-term capital gains rates.
Timing of Exercise: Since taxes are owed in the year you exercise your options, it is important to consider your entire financial situation in order to minimize your tax liabilities. Weatherly often works with our clients’ tax team in order to ensure that our clients are utilizing their stock options optimally.
Estate Planning: NQSOs are generally more flexible when it comes to gifting to heirs, family members, or other individuals than ISOs. During an individual’s lifetime, subject to rules from the employer, NQSOs can be easily gifted or transferred to family members, heirs, or beneficiaries.

How to Exercise Stock Options:

Both ISOs and NQSOs can potentially provide significant financial benefits to employees based on the ability to purchase company shares at a pre-determined price which would ideally be lower than the market value when exercised. When preparing to exercise options, it is important to keep in mind any specific blackout periods imposed by your company that dictate when and when you cannot exercise or trade company stock. Most importantly, with stock options, the employee is responsible for funding the purchase of their shares, and oftentimes this can mean a significant outlay of cash. Our team at Weatherly can assist you in navigating your choices when it comes to exercising your options. We can walk you through your options and tailor the advice to your specific situation considering cash flow needs, investment assets, and financial goals to ensure that you make a well-informed decision. Below we highlight the most common strategies when it comes to handling stock options:

Sourced from: https://www.morganstanley.com/cs/pdf/NQSO-Basics.pdf

Restricted Stock Units (RSUs):

Restricted stock units are another common form of equity compensation offered by companies. With this form of compensation, a company will provide an employee with a specified number of shares at a future date. Like stock options discussed above RSUs are granted under a vesting schedule for a specified period of time or can be tied to performance metrics. Unlike stock options, RSUs are delivered outright meaning that there is no choice granted to the employee with regards to receiving shares. RSUs are converted to stock and awarded on a set series of dates during a vesting period, and once delivered the employee can then decide whether to hold or sell the shares.

Important considerations for RSUs:

Taxation: With RSUs, you are taxed when the shares are delivered on the specified vesting date. Taxation is based on the market value of the shares received and is treated as ordinary income. Typically, a company will withhold a certain amount of shares for tax purposes, and you will receive the net amount of shares thereafter.
Holding Period: Once the shares are received the employee has the decision to either sell the shares immediately and receive cash or hold the shares as part of their investment portfolio. If shares are sold immediately there will likely be minimal to non-existent capital gain considerations. If shares are held then any increase in the fair market value from the time shares are received to when they are ultimately sold will be subject to either short or long-term capital gains taxes.
Estate Planning: While RSUs are subject to vesting, they cannot be transferred or gifted to heirs or beneficiaries. Once vested and shares are delivered to an individual, they can be included as part of an estate plan and pass through to heirs and beneficiaries according to an individual’s estate planning documents.

Important Considerations for Your Financial Plan:

At Weatherly we have a team of dedicated professionals with deep knowledge and experience in the world of equity compensation packages and how to utilize them optimally to accomplish a client’s financial goals. We often work with our clients outside financial team of tax advisors and estate planners to coordinate the various moving pieces when it comes to receiving RSUs or exercising and managing stock options. From a financial planning perspective there are several factors to consider if you have an equity compensation package.

What do I own?: Often times equity compensation packages may include a combination of ISOs, NQSOs, or RSUs. It is important to identify the various types of vehicles that are provided to you by your employer because there are various implications for your personal financial situation. Our team at Weatherly will request all the documentation associated with your equity compensation package to understand your benefits to begin implementing a plan appropriate for you.
When do I pay taxes?: With the various vehicles available in an equity compensation package it can be very confusing to keep track of all the various tax implications and the timing of when taxes are owed. Our team of financial advisors often consults with your tax professionals to ensure that all parties are on the same page. We want to ensure that you have a clear picture of how exercising your options or receiving your RSUs will affect your tax liability.

Sourced from: https://www.schwab.com/learn/story/including-equity-compensation-financial-plan

How does my equity compensation package affect my overall portfolio?: If you are receiving stock awards as part of your overall compensation, those awards need to be considered when it comes to your overall investment assets. Decisions regarding selling the shares and holding the shares, and the timing associated with that, can have major implications to your overall portfolio and asset allocation. There may come a point in time where you have been awarded a sizeable amount of company stock which could expose your portfolio to concentration risk and lack of diversification. Our portfolio managers at Weatherly have extensive experience and strategies for navigating your stock awards in the context of your overall financial situation.
How do my stock awards affect my overall financial plan?: Each client is unique with their own financial situation and goals. At Weatherly one of our core pillars is customized holistic financial planning. Our team of financial planners can incorporate your equity compensation package into your overall financial plan to understand how your stock awards can potentially impact your financial situation. Oftentimes times we run various scenarios providing our clients with different options they can take in order to ultimately achieve their goals and aspirations.

Our team of dedicated advisors at Weatherly are here to answer your questions and ensure that you are making informed decisions regarding your equity compensation package. We are here to understand your specific needs and circumstances to ensure that your financial goals and aspirations can become a reality.

For those in or approaching retirement, cash flow and healthcare planning remain a top priority, and understanding the resources available is essential to developing a successful financial plan. Social Security (SS) benefits help retirees supplement cash flows and in turn, the withdrawal rate on their portfolio. Social Security can also provide benefits for individuals that cannot work due to disability or injury. Individuals become eligible for SS benefits by having 10 years of work history in which payroll taxes are collected and may draw on their retirement benefits beginning at age 62. While this is the most common way to meet SS eligibility requirements, there are a few alternatives to obtain benefits that we’ll expand on later.

Medicare is another program offered by the federal government, providing healthcare coverage for those aged 65 or older and individuals with disabilities. The Medicare program features four parts, Part A-D, each providing a different aspect of coverage. Eligibility for Medicare coverage is determined by one’s eligibility for Social Security and enrolling in Medicare can begin three months prior to an individual turning 65 and will be automatically enrolled in Medicare Part A & B.

Social Security

Social Security benefits are primarily based upon the age at which benefits begin and the individual’s historical wages. Taxation of SS benefits can range between 0%- 85% and is based upon the individual/couple’s income each year. For those not yet receiving benefits you can look up projected benefits on SSA website here. Individuals that do not qualify for their own retirement benefit or have minimal earnings history may still be entitled to receive benefits.

Access to Benefits

A non-working spouse may be eligible for spousal benefits up to 50% of their partner’s full retirement age (FRA) if age requirements are met.
Divorced individuals may be entitled to 50% of their former partner’s benefit if married for at least 10 years, divorced for more than 2 years, and are unmarried.
Surviving spouses may receive reduced benefits beginning at age 60 while retaining the ability to claim their own benefit at a later date, if eligible. Surviving spouses are also entitled to receive their former spouses benefit if higher than their own.
Minor children may be entitled to a percentage of their parent’s benefits in certain circumstances.
Individuals may be eligible for Disability and Supplemental Social Security benefits depending on needs, income and resources.

Before filing for Social Security benefits, it’s important to take inventory of your cash flow and needs to supplement income. According to the Social Security Administration, Social Security makes up 33% of an individual’s post-retirement monthly income. One of the biggest questions with Social Security is when to take it, however, there is no one-size-fits-all answer and ultimately depends on each individual/couple’s financial situation. This highlights the need for proper planning that incorporates a cost-benefit analysis on the timing to collect benefits. Individuals are entitled to an 8% simple increase in benefits for each year benefits are delayed past their FRA up to age 70. Weatherly can help highlight the pros and cons as to whether claiming benefits prior to or after obtaining their FRA is beneficial.

SS benefits are funded through the Social Security Trust that is overseen by the federal government. The future of Social Security has been a contested topic as recent projections have the fund being depleted in 2033. To help address this shortfall it is likely that changes will need to be made with regards to taxation of earnings, extending the FRA or reduction in benefits. Weatherly understands the importance of Social Security, and our ultimate goal is to maximize benefits for you.

Medicare

Healthcare expenses during retirement can become one of the largest costs and highlights the need for proper planning. Medicare provides healthcare coverage for individuals starting at age 65 along with additional coverage for those with extenuating health circumstances. Medicare covers a variety of care needs such as prescription drugs, in-patient treatment, out-patient treatment, and various types of hospital care.

While employed an individuals’ healthcare coverage is often provided through their employer and retiring before age 65 can create a lapse in coverage if COBRA or alternative insurance is unavailable. Certain life events may qualify an individual for a Special Enrollment Period (SEP) such as losing health coverage, having a child and getting married to name a few. A lapse in healthcare coverage can be supplemented by public marketplace insurance, private insurance, COBRA, or spousal coverage.

Medicare coverage is broken up into four parts, A-D. Parts A & B cover hospital visits, routine check-ups, and medical equipment, among other things. You are not automatically enrolled in parts C & D which provide different types of coverage. Part D provides prescription drug coverage in addition to what is already provided. Part C, known as Medicare Advantage, is an additional option that can enhance your Medicare coverage. Medicare Advantage allows you to utilize a private company for health coverage and these plans usually come bundled with parts A, B and D.

Source: HiOscar.com

Premiums for the different parts of Medicare are based upon your taxable income and subject to a 2-year lookback.

Source: Medicare.gov

Important Considerations

Social Security and Medicare can be a confusing process to navigate. Weatherly is here to help guide you through your unique situation and we’ve outlined a few common considerations to be aware of.

Spousal Benefits: It is not uncommon to see spouses, especially ex-spouses, not realize the full benefit they are entitled to. As a spouse, you can claim a Social Security benefit based on your own earnings record or collect a spousal benefit in the amount up to 50% of your spouse’s Social Security benefit, but not both. You are automatically entitled to receive whichever amount is higher.

Windfall Elimination Period: The Windall Elimination Period can reduce Social Security benefits for individuals participating in pension that did not pay SS taxes. WEP can reduce benefits by up to 50%.

Registration Window: The registration window for Medicare begins three months leading up to your 65^th birthday and three months following. It is important to register in the window to avoid late penalties.

IRMAA Premiums: Single filers with income above $97,000 and joint filers with income above $194,000 are subject to increased premiums for Part B & D.

Returning to Work: A decision to return to work may not always be financially motivated. It is key to understand the implications of how returning to work can affect your Social Security benefits that are currently being received. For those individuals, they may experience a withholding of benefits prior to their FRA but will be recaptured once FRA is reached. Before returning to work, we recommend reaching out to SSA to understand the implications for your benefits.

Wrap Up

Social Security and Medicare are essential aspects of post-retirement income and healthcare coverage. Weatherly can help analyze the options available to you and ultimately what is most beneficial for your unique situation. This analysis expands beyond a breakeven analysis of total benefits received to include, but not limited to, cash flow needs, health history, family longevity, and type of portfolio assets available. Roth conversions during gap years may provide an opportunity to help reduce taxes over time and enhance legacy planning for those beneficiaries. Your trusted Weatherly advisors are here to educate and guide you through these complexities to help achieve the goals for you and your family.

The much anticipated “Great Wealth Transfer” is looming on the horizon. Over the next few decades, an estimated $30 to $68 trillion will be passed down from baby boomers to their Gen X and millennial children (source: Forbes). Additionally, the current federal estate tax exemption is $12.92 million per person, or just shy of $26 million per couple. However, this high exemption is set to sunset at the end of 2025, reverting to an estimated $7 million per person, or $14 million per couple, depending on inflation (source: Fidelity).

As the Great Wealth Transfer and the estate exemption change approach, now is the time to prepare. The best first step is to review your financial plan with your trusted advisors to ensure you have a nest egg to last your lifetime. It’s equally important to review your will, trusts, power of attorney designations, and beneficiary selections and initiate conversations with your successor trustee(s)/executors.

Planning early and having ongoing conversations with your financial professionals and successors can help ensure your assets and personal values are transferred smoothly. Here are some key conversation topics and steps to take when starting dialogues about money, estate planning, and your legacy.

Where to Begin?

Many individuals put off important money conversations with their successors because they aren’t sure where to start. Begin with the big picture—the Who, the Where, the What, and the How. This provides a good starting point to educate your successor trustee and/or your executor without divulging specific financial details or monetary values.

The Who?

Who Are Your Key Professionals: Share information about your team of professionals, such as your financial advisor, attorney, and accountant. Provide their contact information and explain how to access important documents if needed. This simple list can help your executor know who to reach out to for guidance and support. Our Weatherly Client Information Release Authorization Letter (CIRAL) can act as a template for this exercise.
Who Are Your Designated Beneficiaries: Review who the designated beneficiaries are on your accounts, insurance policies, and retirement plans. This information is crucial for the smooth transfer of assets after your passing. Make it a point to have an annual check-in with your key professionals, as we know beneficiaries and wishes can change along with updates to tax and estate law.
Who are your Executors/Successor Trustees: This role is crucial to the overall administration of your estate and may impact family dynamics. Explore options such as responsible individuals, family or friends, private fiduciaries, or corporate trustees to manage estate distributions down the road. Evaluate the pros and cons of a professional trustee to relieve family members or friends of distribution duties. Once this decision is made, make an effort to have a conversation with your chosen successor.

The Where?

Where Are Your Assets Custodied: Identify where your assets are currently held or custodied. If you have a safety deposit box, note its location and provide details about accessing it when necessary

The What?

What Are Your Assets and How Are They Titled: Without revealing specific market values, give an overview of your assets, including both liquid and non-liquid assets. Explain the nature of each asset and how they are titled (jointly owned, held in a trust, individually owned, retirement vs nonretirement assets, etc.).

And the How?

How to Have the Money Conversation: Lean into your team of professionals to help navigate the conversation. Weatherly often facilitates the initial conversation to introduce successors to big-picture concepts about your estate without divulging market values. We also act as a resource for ongoing money conversations as your needs and situation evolve.

Express Your Wishes, Family Values, and Charitable Intentions

Depending on your unique situation and desire to incorporate your next generation or heirs, some families hold meetings to discuss values around wealth and philanthropy and set shared goals for social impact and creating a legacy.

We often see charitably inclined individuals utilize Donor Advised Funds (DAF) to hone in on charitable values and build a legacy via grants to causes they care about. This process can be as formal as a meeting with all individuals to discuss charities they care about or as informal as giving each person a certain dollar amount to grant to a charity of their choosing year over year. The key is to find what works for you and make it your own.

Gifting to the Next Generation: Empowering the Future with Smart Choices

Another effective way to empower your successors with financial responsibility is through annual gifting. As of 2023, the annual gift exclusion amount is $17,000 per person- meaning you can gift up to $17,000 to each individual without incurring gift tax.

Weatherly is happy to review your own personal financial plan to help determine what gifting amount may be appropriate and subsequently help set up investment accounts for your heirs. By involving a financial advisor, the next generation gains access to valuable resources and professional guidance to make informed financial decisions.

For 5 additional Estate Planning Strategies to Consider, please read our past blog post on the subject.

How WAM Can help?

Starting these in-depth conversations now can help ensure you and your successors are unified in handling the complex transition of resources and responsibilities successfully. The Weatherly team is here to help start the conversation without overwhelming your successors with intricate financial information. We can further assist you by creating an open and supportive forum to discuss your estate, financial planning and focus conversations on how you can thoughtfully prepare for the future while making a positive impact together.

As always, we welcome your questions, calls and the opportunity to schedule a conversation with you and your next generation or beneficiaries.

Making decisions about your financial life can be daunting and difficult no matter the stage, but the choices you make now can have a major positive impact over time. Whether you are just thinking about getting started with professional financial advice, actively interviewing candidates or even heading into a quarterly review with your current advisor, discussing the right topics can offer you great peace of mind.

At Weatherly, we encourage open dialogues and value honest communication at every stage of our relationships with our current and prospective clients, their families, and their trusted professionals. We sat down and created a comprehensive list of questions that not only covered the basics, but also looked beyond at the relationships we build and the extent of the work we accomplish together. These questions are not only useful in the “due diligence” phase of interviewing, but impactful to review at least annually with your Weatherly advisor.

Are you a Fiduciary and what does that mean?

A Fiduciary is a term in the financial services industry that refers to a financial advisor that serves under fiduciary duty, meaning that the advisors have pledged to make recommendations or collaborate with you on solutions with your best interest in mind, not for their own personal gain or financial benefit. You can learn more about our commitment to our fiduciary duty and view our regulatory filings on our ADV, Compliance and Disclosures page.

Who is your custodian?

Weatherly primarily uses Fidelity Investments, but also works with Charles Schwab, and National Advisors Trust Company as custodians for client accounts. This separation of RIA (Registered Investment Advisor) and custodian is in place to protect the investor from loss or misuse of funds due to the Investment Advisers Act of 1940 as well as subsequent updates in 2009 by the Securities and Exchange Commission in the aftermath of Bernie Madoff’s Ponzi Scheme. A benefit of this distinction for clients is “side by side” reporting. As a client, you receive reporting directly from Weatherly focusing on investment performance and separate reports from your custodian, allowing you to cross-reference for additional transparency on account activity.

The importance of choosing the right custodian to work with is paramount to both your experience as a client and the safety of your assets. High quality custodians will be protected through SIPC insurance and even go above and beyond for investors by providing additional coverage, like the expanded comfort that Fidelity offers through Excess of SIPC insurance. In addition to annual reviews, Weatherly performs ongoing due diligence on third parties, including custodians, their insurance, and areas of potential risk. Weatherly prides itself on extensive vetting of our custodians to ensure the highest level of service for our clients.

How do you make money?

Our comprehensive list of services is extensive, but Weatherly’s two core competencies are investment management and financial planning. Using these two pillars as a foundation, our team works with you and your trusted team of professionals on all aspects of your financial life from customized portfolio management to business, estate, retirement, and tax planning. For this holistic service approach, Weatherly charges a fee based on Assets Under Management (AUM,) 1% for equities and .5% for fixed income. We do not charge hourly fees for planning or other advice; our services are covered by your quarterly fee. For more information on our services and fees, you can review our Firm’s Form CRS.

Who is your ideal client, do I fit in?

While we do not limit ourselves to these categories, organically over time our client base grew into three main groups with whom we feel we do our best work. Our three niches are Entrepreneurs and Small Business Owners, the Working Wealthy and Women. Each of these groups presents unique planning opportunities and their own unique complexities.

For an in-depth case study on the first of these groups, check out the first installment of our Weatherly Client Series.

How often will I hear from you if I become a client?

Weatherly aims to have full reviews with clients quarterly, though we do not limit conversations to this cadence. Our team-based approach ensures that you always have access to a professional familiar with your financial picture via phone, email or dropping by the office. Depending on each individual client’s situation, we may look to increase the frequency of communication beyond quarterly. New client relationships often require a higher volume of conversation as we get to know your full financial picture, align, and implement our efforts to achieve your goals through our core competencies of investments and financial planning.

Also, life changes such as job transitions, business succession and opportunities, new children, the loss of a family member, marriage or divorce are all catalysts for more frequent communication. These events are impactful in all facets of life, but our advisors are here to lean on throughout these changes and ensure your financial world evolves to support your current situation.

What are you and your team’s qualifications?

Under Carolyn’s leadership, Weatherly’s partners’ and team members’ commitment to education is top tier amongst local and national averages, enabling best-in-class continuity of client service. 100% of Weatherly’s staff has a minimum of a bachelor’s degree, with several team members holding post-graduate degrees. In addition, our team consists of multiple CFPs, a certified CPA, and multiple team members with industry-related subject matter specific credentials. All investment and planning-focused team members hold either a Series 65 or Series 7 license*. We lead by design in our industry for focusing on perpetual innovation, technology, mentoring, and human capital development.

Our team fosters a culture of education and evolution by prioritizing asking questions, sharing knowledge and ongoing collaboration with our clients, each other, and centers of influence in our professional community. You can read more about each team member, their background, and their qualifications on Our Team page.

What is your investment philosophy and how do you pick positions?

Weatherly’s investment strategy focuses primarily on individual equity and fixed income securities and may use ETFs (Exchange Traded Funds) or no-load mutual funds for diversification in select sectors. We take a thematic approach to security selection, first identifying areas of potential through ongoing research and collaboration of our investment committee, then drilling down to determine specific companies where we see opportunity or risk. Our focus on individual securities lends itself to reducing overall fees a client pays in the form of expense ratios. Client portfolios typically include a mix of growth and dividend paying stocks, both domestic and international. For fixed income, we monitor yield curves for areas of opportunity and will deploy capital to maximize after-tax return while managing duration and credit risk. Fixed income investments may include Treasuries, Agencies, CDs, investment grade municipal and corporate bonds. Each client portfolio is managed to target asset allocation guidelines with flexibility to deviate plus or minus 10%.

Beyond general asset allocation guidelines, our security selection for each individual account and family aims to incorporate factors like retirement time horizon, withdrawal needs, saving rate, tax implications and business and community goals. These variables, among others, work in conjunction with your financial plan, which is monitored and adjusted as your situation evolves. Our goal is to determine the most attractive after-tax, after-fee return for you and your family, and let that factor into security selection, achieving solid long-term returns while also adapting to your risk tolerance and ongoing needs.

How do you collaborate with my trusted professionals?

Weatherly works closely with a client’s team of professionals on all aspects of their financial life. Our team approaches planning and investment management with a broad and encompassing lens, considering estate, business, tax planning and much more. We view having a team of experts working on your behalf as essential. If you do not already have professionals in place, Weatherly taps into its network of highly qualified COIs to provide referrals that would be the best fit for your individual situation.

Given the breadth of information we gather and the intimate relationship we have with each client, our advisors are often the catalyst in development of specific strategies and can help further refine questions or simply talk through an issue before heading to your CPA (Certified Public Accountant) or attorney. We always recommend getting guidance from your trusted professionals, but it can be helpful to workshop scenarios with an advisor prior, to achieve total alignment as we work towards your goals.

How can you help me stay on track with my goals?

Our planning model begins with a Dialogue for Impact. We believe that the value of our advice is driven by the amount we can learn about your individual situation. We appreciate the interconnectedness of life and livelihood and the dynamic nature of planning beyond just your finances. We begin with a comprehensive financial plan, considering your current situation as well as your future goals and run through multiple scenarios to determine the best options. Through quarterly update conversations with you (along with your family, and your trusted professionals as needed) we adapt the plan, provide recommendations, and implement solutions to ensure the health of your plan.

In line with planning, our team provides best practices and works directly with you, often one-on-one, setting up and maintaining healthy cybersecurity habits. Protecting your personal data is our priority, and our team employs elevated technology like our secure Weatherly portal to ensure your privacy. Our client service team is skilled in both teaching and technology to guide you along this journey.

As with most aspects of our service, we favor a comprehensive approach to planning for impact. Incorporating the next generation into ongoing dialogues can set you up for success as you age and ensure your goals and wishes are met even after your passing.

How do you work with the next generation?

We consider working with the next generation to be a vital part of our long-term relationship and what we build together for clients as their advisor. Spanning our professional financial advice across generations can be one of the most impactful gifts you can give to both your loved ones, and your own peace of mind. Whether you are contributing to a 529 or UTMA account, helping a first-time home buyer or even ensuring clarity of your wishes in the event of a health crisis or your passing, our team is here to help.

To assist with this, as part of our onboarding, Weatherly has each client fill out what we call a CIRAL (Client Information Release Authorization Letter). This document helps our team support you and your loved ones in times of transition by indicating your team of trusted professionals, family members, and emergency contact and giving Weatherly permission to communicate with them on your behalf if it is in your best interest to do so.

Final Thoughts

Armed with these questions, you can enter a discussion with your advisor at Weatherly knowing that you will have all the answers you require on your side and the knowledge that you have us in your corner through all of life’s evolutions. Change is constant, but you can rest assured with Weatherly as a resource to help you outline optimal choices, detail benefits and drawbacks and help you make informed decisions as you enter new stages of life. Our team utilizes data, tax and legal guidance and innovative technology to ensure your path forward is the right one for you, your family, business, and community.

If you are still deciding to seek professional financial advice, it can feel like a big decision, yet considering these options can help ensure you are aligned with your chosen team. At Weatherly, we aim to inspire that confidence and foster transparency and alignment through the work we do with each of our clients so they may go on to achieve a positive impact on their families, businesses, and communities.

*updated 2024

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