College Savings is important, we discuss several burning issues about these popular college savings vehicles. Assets in 529 college savings plans more than doubled in ten years, topping $370 billion at the end of 2019 according to the Federal Reserve. Interest in 529 plans has grown as students and parents fret over rising tuition costs and increasing student debt loads. These accounts offer many advantages for saving for higher education expenses, but it’s also important to know the rules about how they work.

What’s the difference between the two types of 529’s?

A 529 plan can either be a savings program or a pre-paid tuition program. In a pre-paid tuition program, contributors purchase future tuition units at current prices, which can be used at a later date at eligible state colleges or universities. With savings programs, there’s more leeway in how the account owner chooses to invest contributions so they may potentially grow over time.

The one big difference between the two 529 programs is savings accounts can be used for room and board expenses, while pre-paid tuition programs only cover tuition costs. Besides that, choosing either program depends on the financial needs of the family and the student.

what is the most i can contribute to a 529?

There is no annual limit to how much you can contribute to a 529 plan, but the overall maximum contribution limit is $500,000. That doesn’t mean the account stops at that amount; earnings on all contributions can grow to boost the value of the account over $500,000.

what are the tax benefits?

The principal tax benefits are for the 529 beneficiary—earnings on investments inside a 529 account grow tax deferred, and withdrawals are tax-free when used for tuition and other higher education expenses. If withdrawals are used for non-qualified purposes, expect to pay taxes and a penalty on the earnings portion of the withdrawals. If you’re funding a 529 plan for a future collegian, contributions you make to the account are not tax deductible on your federal income tax return, but could be deducted from your state income taxes depending on where you live.

will a 529 plan account affect financial aid?

Money in a 529 account is deemed to belong to the account owner, not the beneficiary. In many cases, this could benefit the student’s financial aid application. If a parent owns the 529 account, 5.6 percent of the 529 account value will count toward the Expected Family Contribution (EFC) amount. With other types of accounts that are owned by the prospective student, 20 percent of the account value counts toward the EFC.

The potential need for financial aid shouldn’t deter parents, students or other interested parties from saving through 529 plans. Because most need-based financial aid comes in the form of loans, any savings that the student can tap to cover higher education costs will reduce the amount of debt they have to assume.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protections from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. This material was prepared by LPL Financial Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity. Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations May Lose Value Not Insured by FDIC/NCUA or Any Other Government Agency Tracking #1-05049260

When it comes to job searches and accepting offers, good employee candidates have options. It’s why employers must offer employee benefits that stand out in today’s market—and why a 4% 401(k) match may not cut it anymore.

When you consider that most applicants will review your retirement package and medical insurance coverage when considering a job, updating your benefits can make a significant and decisive difference. Do you want to update your employee benefits to be more competitive? We’ll share how one effective change to your retirement plan can help recruit and retain great employees while being advantageous to you, too.

Provide Retirement and Financial Guidance Beyond Open Enrollment

Open enrollment is generally the only time employers interact with their employees regarding their retirement benefits. To provide more value and incentive to your employees, offering guidance beyond open enrollment is essential. While giving financial advice requires partnering with a licensed professional, there are various benefits to you and your business. Retirement professionals can review your existing retirement program and provide a more comprehensive approach that meets the needs of you and your employees long term, such as:

  • Financial coaching beyond your 401(k) plan. Your employees need resources and access to information and advice to help them succeed before and after retirement. A financial professional can help provide those resources and education on other financial topics such as saving to buy a home or reducing credit card debt.

  • Medical plan savings when your employees retire on time. Employees who are educated about their retirement options and able to consult with a professional will likely make more informed decisions regarding their financial future. Investing early, saving enough, and making the maximum contributions are actions that will help your employees retire on time. When more of your employees retire between the ages of 62 and 65 or younger, the average age of your employees also decreases, which could help you save in medical plan expenses annually.

  • More productive and satisfied employees. Another key benefit of access to a financial advisor in your retirement program is that your employees will often feel more financial stability in other areas of their lives, which may result in more productivity and higher morale at work. Employees who feel supported and have financial confidence are usually less stressed and more loyal, which can mean less turnover and hiring costs for you.

What to Consider in a Retirement Professional

Before hiring a financial professional, ensure your employees and business are getting the most value, and you can avoid some common retirement plan mistakes. Begin by asking if they can meet the following responsibilities:

  • Will they be able to provide one-on-one financial guidance and electronic and in-person resources that meet your employees’ financial needs at work and home? At RWM, our clients can consult with live professionals to ask questions and are never routed through a call center.

  • Are they well-versed in the legal and compliance requirements according to your organization type? We’re skilled in several different organization types, including corporations, agricultural companies, and tribal groups, to help our clients maintain compliance and manage their risk.

  • Are they offering access to diversified investment options and other features that can help reduce your costs? We help our clients review their investment spread and make adjustments with cost-efficient options.

Learn more about how we help businesses implement updated employee benefits to create a more attractive and cost-effective retirement program.

As a business owner in the agricultural sector, you may be considering starting a retirement plan for your employees, or you may already have a plan in place that needs some updating. From technology to employee education, there are particular challenges agricultural companies face when designing and communicating a 401(k) plan. We’ll share our top five features to consider when creating or updating your retirement plan.

#1 Adopt a Safe Harbor Provision

If you already have a 401(k) and matching program or are designing your plan for the first time, adding a safe harbor provision may be a critical component.

Companies with a traditional 401(k) plan must perform annual nondiscrimination testing to remain compliant and ensure every employee can benefit from a plan fairly. These tests measure a plan’s participation, contributions, and other factors. For example, suppose more highly compensated employees participate in your plan than lower-paid employees. In that case, it can result in an imbalance in the plan’s assets or a “top-heavy” plan, which the IRS considers is favoring highly compensated employees.

However, the nondiscrimination calculations can also make it difficult for a highly compensated employee, such as an executive or owner, to max out their annual 401(k) contributions. This can quickly become a common scenario and challenge among small agricultural companies that consist of owners and a few farmworkers with significant differences in income.

If this is your situation, you can avoid a top-heavy plan and annual nondiscrimination testing by adopting a safe harbor provision in your 401(k) plan. In a safe harbor plan, employers contribute to an employee plan through matching or other contributions. Matches, in particular, incentivize more employees to participate and save for retirement, and the IRS offers the benefit of “safe harbor” from annual testing. Consult with a retirement plan professional to determine if this would be suitable for your company.

#2 Establish an Investment Committee

Managing a 401(k) program comes with specific requirements and rules from the IRS, Department of Labor, and Employee Retirement Income Security Act (ERISA). Plan administrators have the fiduciary responsibility to oversee a plan, review that investments are diversified and fees are reasonable, and share plan details with employees, among other duties.

It’s important to establish an investment committee so you can stay up-to-date with your plan and regulations and act in your employees’ best interests. A committee may look different from company to company, consisting of executives, HR representatives, a third-party retirement plan professional, or a combination of internal and external teams. If you’re a larger company with several different job levels, you may even consider appointing employee delegates representing the various employees you serve.

#3 Share Plan Information in Multiple Languages

To promote your plan’s success, your staff will need to understand its features and guidelines clearly. It can be challenging to do this if the information, disclosures, and jargon are not in your employees’ primary language.

To facilitate a comprehensive understanding, ensure you’re providing materials and communicating presentations in multiple languages, as applicable to your employees’ needs. While this may seem like an obvious detail, it’s a common mistake we see in the agricultural sector, which overlooks the diverse makeup of its farmworkers and their ability to make investment decisions and plan for retirement.

#4 Use Technology

Another typical detail that’s often missing from agricultural retirement planning for employees is the use of technology. It can be a challenge if most employees, including the owners and managers, work on a farm and do not require a computer to perform their daily tasks.

However, even small steps that leverage technology can be significant in your retirement plan’s effectiveness and ensure you’re meeting your requirements if you’re the plan administrator. For example, it’s harder to walk participants through the plan’s details, disclosures, and guidelines and offer to print essential documents without access to a computer.

At the minimum, we encourage you to set up a workstation where your employees can securely use a computer, view their statements, and print the resources they need.

#5 Provide Employee Education

When you’re managing day-to-day operations, a sprawling worksite, and several groups of employees, retirement plan education can quickly go on the back burner on your list of priorities. However, as a plan administrator, you’re required by law to meet specific compliance guidelines—one of which is providing employee education to help inform investment decisions.

The positive results of education can help increase your plan’s participation and employee loyalty for employees who feel supported, engaged, and secure with their retirement benefits. However, overlooking this key area can result in legal action by your employees, increased risk to your organization, and expensive plan corrections.

Train plan fiduciaries or work with a company specializing in retirement plans and administration to create an employee education campaign that fits your agricultural business and employee needs in an efficient and compliant way.

How RWM Financial Group Can Help

We’re aware of the challenges agricultural companies face daily and how operations could affect the effectiveness of an employee retirement plan.

At RWM, we help businesses like yours create well-managed retirement plans that benefit both your employees and you as an employer. Contact us to learn more about how we develop customized solutions to help you design a 401(k) program, maintain compliance, reduce your costs, and increase employee loyalty.

In the first part of this blog, we explained some of the standard HR and benefits challenges your tribal organization can avoid in your retirement plan efforts, including working with a financial advisor and tightening up your retirement loan policy. In part two, we explain how critical education is to the overall success of your plan and participants.

As a plan administrator, you have a fiduciary responsibility to provide adequate retirement plan education. In addition to the compliance risk a lack of education can pose, additional challenges arise when you don’t have a comprehensive education strategy. When overlooked, these challenges can cause issues for your participants and headaches for your HR and benefits team. Let’s discuss how you can improve your plan’s education to serve more people in your organization.

Challenge #1 A Lack of Plan Education Resources

When there is a lack of general plan education, employees will seek out assistance, generally from the HR and benefits team. This can put your team in a difficult position since they can’t offer thorough or professional advice regarding retirement planning. Organizations with successful retirement programs include essential information and guidance in retirement materials and sometimes even provide access to a third-party professional for additional help. When you’re building your retirement plan, education should be a critical step in your rollout. Consider what other resources, reminders, marketing materials, or access participants need to stay on track, enroll on time, and ultimately contribute toward their retirement success. Keep in mind, your education materials may shift depending on the employee’s position and salary.

Challenge #2 No Tracking System

Another common challenge is when tribal organizations have not established a tracking system for their retirement plan education. Perhaps you’ve provided resources to address the first challenge, but you don’t have a metric to measure their effectiveness. One way to measure is by looking at your plan’s participation and contribution rates. If they’re not performing as well as expected, you may consider what parts of your program materials or employee presentations need to be improved or offer more clarity to engage your employees.

Challenge #3 Missing Beneficiary Information

We often see tribal organization retirement plans with missing or partial beneficiary information. Many employees may feel pressured to choose an individual as a beneficiary when asked or may not know pertinent personal information and end up forgetting to designate one at a later time. However, with proper education, employees will better understand the ramifications of not listing a beneficiary. For example, upon their passing, an estate executor may distribute their savings against their desired wishes, or their surviving heirs may be subject to a lengthy and costly probate process. A regular review and additional marketing push around this critical step can also reduce the stress the HR team may experience when facilitating subsequent steps with an appropriate next of kin.

Challenge #4 Low Plan Participation Rate

A low plan participation rate is a clear indication that something is missing from your retirement plan execution. A lack of education, clarity, and resources can leave employees feeling confused or even uninterested in the valuable benefits available to them. We know you care about your employees, and clear and thorough education can help you guide them, with a focus on their retirement well-being and future confidence. Consider how you can engage your employees so they’re more inclined to participate and how you can encourage them to ask questions so you can identify gaps in their understanding.

Challenge #5 Contributions Below the Employer Match

An employer match is a valuable feature every eligible employee should know about in your retirement plan. It is why when we often see contributions lower than the employer match, it’s generally indicative of a lack of plan education. When employees understand the details of their plans and how contributing less than the employer match leaves free money on the table, an increase in contribution rates generally follows. When you see lower contribution elections, evaluate how you can emphasize this feature in your initial and ongoing presentations and marketing.

Many factors contribute to a successful retirement plan, but robust education can address several challenges you and your participants may encounter. Partnering with a specialized professional can help you identify the areas of your education strategy that need improvements, measure your plan’s success, and offer ongoing education resources to participants—in addition to reducing stress and frustration in your HR department. We’ve been helping North American tribes build effective education strategies into retirement plans for over 20 years. Contact us to learn how we can help you promote your plan’s success.

As a human resources representative or benefits coordinator for a tribal organization, the implementation and management of your retirement plan generally fall within your responsibility. However, if your retirement plan and employee participation rates aren’t performing the way you would have hoped—or if you’re swamped with more work than expected—there may be areas within your plan that require some attention. This two-part blog post will explain the typical HR and benefits challenges we’ve encountered when working with tribal organizations and how you and your team can avoid or overcome them.

Challenge #1 Not Having Two Independent Retirement Plans

When a tribe doesn’t have two independent retirement plans, one for government employees and another for commercial, or enterprise, employees, a few issues can arise for the HR team. Retirement plans for government and commercial employees are subject to different regulations, such as ERISA and IRS compliance. When these plans aren’t properly established, the HR department faces the challenges of managing compliance issues, inefficient processes and systems, and potential risks to the organization.

With two plans created from the onset, it’s much easier for HR to coordinate employment transfers between their government and commercial entities, which frequently occur in tribal organizations. Plan documents and policies will establish how to handle the transfers while addressing compliance requirements. We recommend consulting with a plan advisor who can review your current plans and determine how your plan may be improved and what options are available to you.

Challenge #2 Having a Poor Retirement Loan Policy

Borrowing against a retirement plan may be an option available to your employees. This benefit can be especially helpful when your employees need it most, with unexpected financial hardship or unanticipated expense. However, when employees don’t use the option as a last resort, it can quickly become detrimental to the HR team and employees. For example, when misused, an employee may have multiple small loans outstanding at the same time. Employees are often unaware of or disregard the high cost of processing these types of loans and the tax penalties that may arise if they don’t pay them back within the set terms.

While it may feel convenient to use the retirement account as a revolving ATM, the high administrative costs—and the additional paperwork for the HR team—may not benefit the employee in the long term. Communicating the fees to process these types of loans and providing education regarding how retirement plan savings grow over time may help employees avoid dipping into their funds for nominal withdrawals.

Challenge #3 Not Partnering with a Financial Advisor

Any organization, including tribes, look for ways to minimize operating costs. As a result, we often see tribal organizations take on the implementation and management of retirement plans independently without the help of a financial advisor and to the disadvantage of their employees and organization.

Internally managing your plan is commendable. However, keep in mind that you could overlook many regulations and requirements in your retirement plan if you’re not working with a professional specialized in tribal organizations. Additionally, a third-party professional can help you identify areas of your program at risk, resolve compliance issues, monitor your investments, act as a liaison with your plan provider, provide employee education, and more. This assistance and guidance have the potential to take these responsibilities off of your HR and benefits team so they may focus on other employee needs.

Challenge #4 Not Investing Sufficiently in a Retirement Plan

No one can argue that providing healthcare benefits to your employees is critical to their peace of mind and well-being. However, in tribal organizations, we often see how HR and benefit coordinators invest more into healthcare and leave little or no resources for their retirement programs. When allocating little time, effort, and funds to the financial well-being of employees, tribal organizations often experience a lack of retirement benefit awareness, and lower contribution and participation rates among employees. We suggest working with a specialized professional who can explain the potential long-term benefits and help avoid the risks of insufficiently investing in your retirement programs, such as how a successful plan can contribute to your employees’ financial future and overall well-being.

Challenge #5 A Lack of Plan Education

Proper plan education among employees is the foundation to any successful retirement plan that supports them in their financial goals and future. Insufficient education, however, is the primary reason for various challenges tribal organizations face within their retirement benefits efforts. In part two of this blog post, we explain the issues that could arise related to plan education and how to avoid them for your organization and employees.

Retirement plans can be complex within tribal organizations, and managing your program requires a level of seasoned experience to help ensure you’re addressing compliance requirements while supporting your employees and tribal organization. Learn how we’ve helped North American tribes build effective and cost-efficient retirement plans for over 20 years, or contact our team to discuss your plan’s details and how we may help you optimize your program. 

We are pleased to announce Desiree Jacobs as RWM Financial Group’s new executive assistant. Desiree has more than 21 years of professional experience in marketing and administrative support. Her background has broadened her exposure to various roles and responsibilities, giving her a diversified approach to problem-solving and marketing techniques.

Desiree joins us following a seven-year tenure at Harris Ranch Inn & Restaurant, as the director of sales and marketing and former executive assistant to the general manager. Desiree excelled in the high-pressure environment, managing staff, analyzing problems, and developing solutions. For example, when the hospitality sector severely suffered during the COVID-19 pandemic, Desiree developed a sales and marketing strategy that was overwhelmingly successful due to her out-of-the-box approach and solutions to numerous challenges. Her extensive experience has helped her to build flexibility, focus, and diplomacy.

At RWM Financial Group, we are confident Desiree will approach her new role with the same enthusiasm and professionalism. She has been training side by side with Ashley, our former executive assistant. These past few weeks have been significant in ensuring a solid understanding of our clients needs and objectives. Her unique individualized perspective will contribute to a valuable environment for all.

Finally, we would like to thank Ashley Silveira, for five years of incredible service. She will be missed, and we wish her all the best in her future endeavors in education.

Feel free to reach out to Desiree at She will be happy to answer any questions you might have.

As an employer, offering a retirement plan is one way to help your employees realize their post-career goals after their years of hard work. When you’re designing your retirement plan, there are key areas to be aware of based on your entity type, such as governmental agencies and non-governmental businesses in both non-tribal and tribal organizations. If you’re unaware of these various factors and differences, you could face administrative and legal challenges.

We’ll share the common—and sometimes costly—mistakes we’ve encountered working with these different types of businesses and explain how you can seek to avoid similar challenges.

Mistake # 1 Not Discussing Your Goals and Needs

Many businesses elect to work with a third-party professional who specializes in retirement plan design and administration. However, the partnership can pose problems when the third party offers a standard prototype design without fully understanding your business type and goals. It’s critical to interview potential third parties to ensure they are well-versed in tailoring a plan to your organization. Ask them questions and discuss which features or strategies are appropriate as you’re establishing your company’s retirement plan.

For example, we frequently come across businesses offering a 401(k) matching program that have not yet adopted a safe harbor provision. There are qualifying factors, but the safe harbor provision helps you maintain compliance and avoid the expense of annual nondiscrimination testing required by the IRS. Unfortunately, many businesses are not made aware of this option and the cost savings available.

Mistake # 2 Setting Up the Wrong Type of Plan for Your Business

Every entity that sponsors an employee retirement plan must follow specific guidelines under various governing boards such as the IRS and the Employee Retirement Income Security Act (ERISA). The type of retirement plan you establish is essential to remaining compliant while not taking on unnecessary risks or costs. However, if you are unaware of the key differences, you may find yourself in a plan that’s unsuitable or costly to your business. Let’s look at a couple of examples.

  • Non-ERISA Plans for Governmental Agencies. It’s critical to know that on the governmental side for non-tribal and tribal agencies, you may be eligible for a non-ERISA plan, excusing you from the requirements found in a traditional ERISA plan. However, once you have filed a standard ERISA plan with the IRS, you cannot reverse it. This can be a damaging revelation for an agency that has implemented a traditional plan and unnecessarily opened itself up to Department of Labor audits and ERISA requirements.

  • 457 Deferred Compensation Plans. The same situation occurs when assumptions are made and a tribal government establishes a 457 plan, committing to its guidelines and associated administrative costs. In traditional, non-tribal governments, a 457 may be appropriate; however, tribal governments, unrecognized under 457 regulations, are usually best suited with a non-ERISA 401(k). In this case, it’s challenging for a tribal government to terminate a 457 plan, which requires lengthy IRS approvals.

Mistake #3 Not Using Technology

Sometimes companies set up a retirement plan without a clear strategy for leveraging technology.

As a plan sponsor, you have a legal obligation to ensure your employees adequately understand the plan’s details. Technology can help to simplify this area. For example, if you have a payroll site where employees can view and print their statements, you may consider adding your retirement plan disclosures, forms, and other resources. This way, you’ll stay compliant and reduce your fiduciary risk while giving employees a central location for important retirement information.

When employees feel more informed and engaged in their retirement benefits, we’ve found they’re more inclined to participate and take an active role in their financial future. And technology and access can be significant factors in helping them pursue their goals.

Mistake #4 Not Providing Employee Education

It can be difficult to coordinate schedules and carve out an hour for your company’s retirement plan education. However, not providing employee education can have long-term consequences.

As we’ve mentioned, providing employee education is part of your fiduciary responsibility as a plan administrator. Employees should be aware of the plan’s details and have an opportunity to ask questions and learn about plan updates, economic and business news, and general investment planning. In extreme cases, you could violate your duties and be at risk for employee litigation in the future by not providing suitable educational opportunities.

Whether through technology or group meetings, we encourage you to establish a retirement plan strategy that consistently promotes employee education. You may also think about how your education needs to shift based on your audience—for example, when speaking to executives versus frontline employees.

We do this for companies by taking advantage of regularly scheduled team meetings or trainings and simply dedicating a few minutes to the retirement plan and employee questions.

Mistake #5 Not Establishing an Investment Committee

As you can see, you must stay up-to-date on the various administrative duties and evolving regulations regarding your company’s retirement plan—and establishing an investment committee can be the determining factor in meeting those needs.

Your investment committee will be the fiduciary body responsible for managing and updating your plan, ensuring investments are appropriately diversified and fund fees are reasonable, and ultimately acting in your employees’ best interests.

When forming a committee, consider who can effectively represent your employees and inform their needs. For example, you may find a group of executives, HR staff, and a third-party partner are sufficient for your company. In contrast, another company may also appoint employee delegates based on their various employee subsets for additional accountability.

Creating a Strong Foundation

There are many moving parts when designing, implementing, and administering a retirement plan. However, when you focus on the key areas in your initial design or partner with a professional specializing in retirement plans and administration, you can strive to avoid the common challenges and unnecessary costs while helping your employees succeed.

At RWM Financial Group, we help commercial businesses and governmental agencies design and oversee well-managed retirement plans in non-tribal and tribal organizations. Learn more about building a custom, cost-effective strategy that is compliant and promotes success for you and your employees.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does the advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

We’re happy to announce the rollout of our newly designed website, which provides you with a more efficient and convenient online experience. We’re committed to the modern, unique, and professional approach we extend to every client who walks through our doors—and we thought it was time our website reflected that same perspective.

We worked hard to implement changes that can better serve our existing and new clients. The new website will feature a fresh, clean, and intuitive layout. The user-friendly environment will make it easier to navigate and find the information most important to you, such as our videos, tutorials and calculator. We’ve also added a new blog to continue connecting with you and offering you the latest news and insights within financial planning, retirement programs, and wealth management.

image4.pngWe’re most looking forward to you getting to know our advisors and team culture a little better. The personalities, talent, and skills present in the team that serves you will always play a critical role in helping you achieve success and support your employees and business. We’re highlighting the team that makes it all happenimage3.pngYou can rest assured our website is the only thing that’s changing. You can still expect the same high quality of service, relationships, and retirement and wealth management guidance that have been at our core since we began. Thank you again for your trust and business. We hope you enjoy the updated look and feel. We look forward to bringing you along on our journey as we continue to refine and improve our systems to meet your needs in the best ways we can.

Did you recently receive an inheritance that included a retirement account, such as a 401(k) or IRA? You may wonder when you should and are required to take distributions and what investment strategy will be most effective for your financial situation.

The main characteristic of a retirement program inheritance is that most beneficiaries must deplete the account’s funds within 10 years of the original account holder’s passing. The 10-year rule, passed within the SECURE Act in December 2019, does not specify an amount you must distribute, just that you must withdraw all the funds within 10 years. There are a few exceptions to the 10-year timeframe you may qualify for if you’re the legal spouse not more than 10 years younger than the decedent, chronically ill, or disabled. Different rules apply to minor beneficiaries.

For the sake of this blog, we will focus on non-spouse recipients who do not meet any exceptions. When you decide to take your distributions will determine the type of investment strategy that will best fit your financial needs. Let’s discuss what you should consider when selecting your withdrawal strategy.

Choosing a Withdrawal Strategy

When you decide to start taking distributions may be different from someone else’s approach for several reasons. Below, we’ll outline what may help you determine your withdrawal schedule and how it will affect your investment strategy and planning.

  • Your current financial situation. If you need the additional cash flow now, taking a lump sum may be an effective path to explore with your inheritance. You should, however, consider how a lump sum will affect your taxes if the account is considerable. Immediate withdrawals could also affect your investment risk tolerance if you plan to rely on the distributions as an extra income stream. However, if you do not need additional income, you may consider how the funds can grow tax-free for a few years or the entire 10 years to take advantage of market fluctuations.

  • Your next life stage. Are you retiring soon? If you’re planning to retire within five years, your inheritance can be another form of retirement income. In this case, you’ll want to discuss with your financial advisor your options and how a little more risk could benefit your long-term savings. However, let’s say you have seven to 10 years or longer until your retirement. Then, you may benefit from a more aggressive investment strategy and possibly two market cycles to potentially add more value.

  • Your tax impact. Whenever you decide to start taking your distributions, you should consult with a tax professional about possible tax implications. Every type of retirement account has different taxation on distributions, so it’s helpful to evaluate how your taxes could be affected. If the account is significant, a lump sum may push you into a high tax bracket, and you may determine withdrawing a monthly amount may mitigate a higher tax burden. If the amount is smaller, perhaps a longer-term approach will produce higher, tax-free returns within the required timeframe.

While the 10-year rule may limit when and how to use or invest your money, you have several investment and planning options based on the type of retirement program you inherited, your current financial situation, and your future goals. Once you decide on your withdrawal strategy, it will better inform how to invest your funds to meet your needs. We can help you navigate the different scenarios to understand the short- and long-term financial implications of your withdrawal and investment approach. Contact our team to learn how we can guide you through the complex rules associated with your retirement program inheritance so you can plan for today and prepare for the future.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

We are excited to announce that Brahm Rossiter was recently named to LPL Financial Holdings’s Executive Chairman’s Club. This honor speaks to Brahm’s commitment to our clients and their unique financial needs. It is also a reflection of our clients’ loyalty in their relationship with us as a firm and their willingness to share their experience with others. They allow Brahm, and us, to continue to grow.

This award is given to the top 5% of LPL’s more than 17,000 financial advisors across the nation and is based on the annual production among them.

Rossiter Wealth Management is an affiliate of LPL Financial, one of the nation’s largest independent broker-dealers based on total revenues, according to Financial Planning magazine June 1996 – 2020. LPL equips its advisors with various tools and technologies that we use to better serve our clients and their financial needs.

Congratulations to Brahm on this recognition!