What Are Three Main Elements That Affect Overall Financial Planning?

What Are Three Main Elements That Affect Overall Financial Planning?

Asset allocation, tax planning, and estate planning are three main elements that affect overall financial planning. In this post we’ll cover all three in brief, so you can make sure that your financial plan is complete and that you’re ready for your work-optional future! 

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

financial planning
Financial planning is important at every age. But as you get older, it becomes more important that you protect your assets and think about your work-optional future.

Please note that this overview isn’t a substitute for getting solid financial advice from a fiduciary financial advisor. The more complex your situation and the more assets you’ve built, the more critical these three elements will be. 

Asset Allocation

Asset allocation involves diversifying investments across various asset classes such as stocks, bonds, and real estate to optimize the balance between risk and return. For anyone with significant investable assets, tailored asset allocation is key. Remember that while maximizing growth potential may be important to you, managing risk is just as important.  

Depending on when you plan to retire or start living a work-optional lifestyle, your asset allocation will need to be more or less conservative. 

Your financial goals and your age inform your risk tolerance which informs your asset allocation. 

A fiduciary financial advisor must act in your best interest at all times and will create a diversified portfolio that is designed to help you pursue your goals. 

consider your risk tolerance when doing your financial planning

Tax Planning 

Understanding and strategically planning for tax time is crucial, especially if you have a high-net-worth. Effective tax planning can significantly impact investment growth and wealth preservation by minimizing tax liabilities.

The more you make, the more tax you potentially end up paying. 

However, there are strategies which can be used to ensure that you don’t overpay your taxes. For many people taxes are their biggest annual expense; so it pays to be smart with your tax planning.

Below are just some of the tax planning strategies that can be used to ensure you don’t overpay your taxes while still staying compliant with the IRS.

Please note that tax planning can be complicated and it’s important to speak with your accountant or CPA as well as your financial financial advisor to create a tax strategy that works for your situation.

Woman doing her taxes and reviewing invoices and expenses.

Investment in Tax-Efficient Assets 

In the U.S., investing in municipal bonds is a popular tax-efficient strategy. 

The interest from these bonds is often exempt from federal income taxes, and if the bonds are issued by the state in which the taxpayer lives, they can also be exempt from state and local taxes.

Utilizing Retirement Accounts

Contributing to retirement accounts like 401(k)s and IRAs, can lower your taxable income. 

For 2023, the contribution limit for a 401(k) is $20,500 or $27,000 for those aged 50 or over. For IRAs, the contribution limit is $6,000 or $7,000 for those 50 or over. 

Contributions to a traditional IRA may be tax-deductible depending on income levels and participation in employer-sponsored plans. Roth IRA contributions are made with after-tax dollars but allow for tax-free growth and withdrawals. Your  investment will likely grow over time, and when you take money out, you don’t pay tax on the growth. 

401(k) retirement planning is a critical part of tax planning and financial planning for most Americans.

Charitable Giving

Charitable contributions can often be deducted on U.S. tax returns.

As long as your charitable contributions are made to qualified organizations and itemized on the taxpayer’s return, you should be able to get a tax deduction.

Donating appreciated assets like stocks can be particularly beneficial, as this allows you to avoid paying capital gains taxes on the appreciation while still getting a deduction for the full market value of the asset.

In simpler terms:

If you have stocks or similar investments that have increased in value since you bought them, you can donate them to charity. 

This is a smart move because:

  1. You don’t have to pay taxes on the profit you made from the stocks going up in value.
  2. You can still reduce your taxes by the full value of the stocks at the time you give them away.
  3. So, you can save on taxes and help a charity at the same time!
Using trusts and other estate planning tools can help manage estate taxes. 

Estate Planning and Trusts

Using trusts and other estate planning tools can help manage estate taxes. 

Trusts can be used to transfer wealth while minimizing estate and gift taxes. The current estate tax exemption in the U.S. is quite high, but it’s still important for high net worth individuals to plan for potential future changes in the law.

The federal estate tax exemption for 2024 in the U.S. will be $13.61 million, increased from $12.92 million in 2023. The good news for those with a high net worth is that only the portion of an estate’s value that exceeds these amounts is subject to estate tax. 

The estate tax exemption adjusts every year to account for inflation. While the exemption amount significantly increased due to the Tax Cuts and Jobs Act (TCJA), this increase will expire after 2025 unless new laws are passed.

Tax Loss Harvesting

Tax loss harvesting involves selling investments at a loss to offset capital gains in other parts of the portfolio. 

In the U.S., taxpayers can use capital losses to offset capital gains and up to $3,000 of ordinary income per year, with additional losses carried forward to future years.

Having a food financial advisor and wealth management team who is there to help with your tax planning and asset allocation is critical. Tax loss harvesting is probably not something most DIY investors are going to do. But when you have a team to help you, it’s something you can do to minimize your taxes.

Investing in designated Opportunity Zones can defer and potentially reduce capital gains taxes. 

Investing in Opportunity Zones

Investing in designated Opportunity Zones can defer and potentially reduce capital gains taxes. 

A Designated Opportunity Zone in the United States is a community or area that has been officially recognized as economically distressed. These zones were created as part of the Tax Cuts and Jobs Act of 2017 to encourage investment and economic growth in these areas.

Gains invested in Opportunity Zones funds can be deferred, and if the investment is held for at least 10 years, any appreciation on the Opportunity Zone investment can be tax-free.

There are several tax advantages for investing in an Opportunity Zone:

Deferral of Capital Gains: Investors can defer taxes on any prior gains invested in an Opportunity Fund until the earlier of the date on which the investment is sold or exchanged, or December 31, 2026.

Reduction of Capital Gains: If the investment in the Opportunity Fund is held for longer than 5 years, there’s a 10% exclusion of the deferred gain. If held for more than 7 years, the exclusion rises to 15%.

Exemption of New Gains: If an investor holds the investment in the Opportunity Fund for at least 10 years, they are eligible for an increase in basis of the investment to its fair market value on the date that the investment is sold or exchanged, effectively making any post-investment gains tax-free.

Please note that this article is not a substitute for speaking to a tax advisor or CPA

Utilizing Family Limited Partnerships (FLPs)

FLPs can be used to manage family assets while providing some tax benefits. 

They allow for the transfer of assets like a family business or real estate to family members at reduced tax rates.

Each of these strategies has specific rules and considerations, and it’s crucial for individuals to consult with a CPA or other tax professional to understand how these strategies might work for their unique circumstances and to ensure compliance with U.S. tax laws.

estate planning is an important part of financial planning
Estate planning ensures that your loved ones are taking care of while also preventing excess taxation.

Estate Planning

Estate planning is the process of arranging the management and disposal of a your estate, ensuring wealth is transferred according to your wishes and with tax efficiency. It’s essential for preserving assets and securing a financial legacy for your family and loved ones.

These are the main elements of estate planning that everyone should consider:

  • Will and Testament: Outlines how assets should be distributed after death.
  • Trusts: Legal arrangements for managing assets, often used for tax benefits and controlling asset distribution.
  • Beneficiary Designations: Specifies who will receive benefits from accounts like life insurance, IRAs, and 401(k)s.
  • Power of Attorney: Appoints someone to manage financial and legal affairs if incapacitated.
  • Healthcare Directives: Specifies preferences for medical care and appoints someone to make healthcare decisions if unable to do so.
  • Guardianship Designations: Specifies guardians for minor children or dependents.
  • Property Ownership: Determines how property is titled and how it will pass upon death.
  • Business Succession Planning: For business owners, plans for the transfer or sale of the business.
  • Tax Planning: Strategies to minimize estate and inheritance taxes.
  • Funeral Arrangements: Pre-planning for funeral expenses and preferences.
  • Digital Asset Management: Plans for digital accounts and assets after death.
it may be a good idea to work with a fiduciary financial advisor
Make sure you’re working with a fiduciary financial advisor because they are legally obligated to ensure you have the best asset allocation for your exact situation and risk tolerance profile.

Common Questions about Financial Planning

What are three key factors that influence financial planning?

The three key factors that influence financial planning are asset allocation, tax planning, and estate planning. These factors are critical in optimizing investment growth, minimizing tax liabilities, and ensuring wealth is managed and transferred efficiently according to the individual’s wishes.

How do income, expenses, and financial goals impact financial planning?

Income, expenses, and financial goals impact financial planning. If you look at these three areas, you can determine how you should allocate your resources, build up your savings, and meet your long-term goals. Your income sets the foundation for budgeting. Meanwhile expenses dictate spending patterns. But watch out if you’re overspending on thing that don’t matter to you while underspending on that which you most value.

Most importantly, your goals drive the overall strategy and allocation of financial resources.

What steps can I take to achieve better financial stability?

You can create a detailed budget, set clear and achievable financial goals, and regularly review and adjust your financial plans to align income, expenses, and financial goals. Make sure you’re not overspending. But also ensure that you’re saving and investing enough to achieve your short-term, medium-term, and long-term goals.

If you have kids, it would be wise to start putting away money for their college tuition when they’re young so you can take advantage of compound interest. If you start saving for their education, when they’re born, you could have 18 to 20 years to build up their education nest egg.

Setting goals and living below your means while investing prudently are important steps in effectively managing your finances. If you’re already earning well and have a nest egg of $500,000 or more, it may be wise to seek the guidance of a fiduciary financial advisor and wealth management team.

Preventing catastrophic once-in-a-lifetime money mistakes is just part of what your financial advisor will do. All it takes is one overly optimistic bet for your entire nest egg to disappear. In addition, your financial advisor will guide you towards the right tax planning and estate planning decisions so you don’t end up gifting the government more tax dollars than necessary.

When you’ve worked hard and made sacrifices, you shouldn’t have to worry about your financial future.

Connect with a Fiduciary Financial Advisor

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you pursue your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years experience. We work with clients in Minnesota and across the U.S. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

Simple Financial Planning Guide

Financial Planning for Business Owners

Financial Planning for Retirement

Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Asset allocation does not ensure a profit or protect against loss

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 Ł may result in a 10% IRS penalty
tax in addition to current income tax.

Why Is Insurance Important in Financial Planning?

Why Is Insurance Important in Financial Planning?

Why is insurance important in financial planning? Insurance plays a critical role in financial planning by providing a safety net for unexpected events. Having insurance means that your financial goals remain on track even if things go sideways and life throws you the unexpected.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

What’s the Importance of Insurance in Financial Planning?

In life, we should all expect the unexpected!

That’s where insurance comes in.

Depending on the insurance, it can protect your assets and income, and lower the risk of large financial losses. If you or someone in your family gets into an accident, falls ill or experiences a natural disaster, you’ll want to be covered.

Life insurance can offer financial security to your loved ones, ensuring they can still pay the mortgage and other bills if you pass unexpectedly. Ultimately, integrating insurance into your financial plan gives you peace of mind because now you know that you’ve proactively protected your family.

insurance is a safety net

Budgeting for Insurance

Budgeting for insurance is critical.

Insurance is an important part of your financial plan, which is why you’ll need to make sure it fits into your budget. Depending on how much you earn, you may be able to have more or less coverage. While you don’t want to be overpaying for insurance, you also want to make sure you’ve got a reasonable amount of coverage. 

That’s why working with an insurance broker that you trust is so important.

make sure you trust your insurance provider

Speak with an Insurance Expert You Trust

It’s important that you speak with an insurance broker that you trust.

You want to be able to relax knowing that you’ve got your family covered. But you also don’t want to be overpaying for insurance. Make sure you speak with someone who is reliable and trustworthy.

Some financial advisors are also able to help you with insurance. This can be a good route to go if your advisor works in a fiduciary environment. Then they’re obligated to provide you with the best possible advice rather than just selling you the highest cost product.

insurance protects your family
If you have a family, you’ll want to make sure you have the insurance you need for your family’s home and health as well as basic life insurance to cover a loss of income due to illness or death.

Common Questions about Insurance and Financial Planning

Why is life insurance important in financial planning? 

Life insurance is important in financial planning because it provides financial protection to beneficiaries (the people who inherit your money and other assets) in the event of the policyholder’s death (i.e. you). This ensures that your family can meet financial obligations and maintain their standard of living should the unthinkable occur.

This is particularly important for families where one member of the family is the main breadwinner. It may be important to you if you have a mortgage or other payments that would be impossible for one partner to cover should the other pass. 

Furthermore, life insurance can serve as a wealth transfer tool, enabling policyholders to leave a legacy for their loved ones or charitable causes. 

It’s not uncommon to hear of people losing their home when a spouse dies unexpectedly and they can’t afford to keep it. This is something that can be an added trauma on top of the death of their loved one. Ideally, life insurance will prevent this from happening.

How can insurance protect you from financial loss? 

Insurance can protect you from financial loss by covering specified risks, such as damages from accidents, illnesses, or natural disasters, ensuring that you’re not left to bear the entire financial burden of these unexpected events on your own.

Just make sure that you can afford the insurance and that you’re aware of the deductible on all your insurance policies. The deductible is the amount that you must spend out of pocket before the insurance policy pays for some or all of your claim. In addition, read the fine print to make sure you’re covered for the events that you’re most concerned about.

Can life insurance be used for financial planning? 

Yes, life insurance can be used in financial planning, not only as a means to provide for beneficiaries after the policyholder’s death.

What is the main financial goal of life insurance? 

The main financial goal of life insurance is to provide monetary security and support to beneficiaries in the event of the policyholder’s death, ensuring they can cover expenses, debts, and maintain their lifestyle without the policyholder’s income.

Essentially, with life insurance, you’re paying to prevent possible future financial difficulties for your loved ones when you pass. If your current assets would not be enough to ensure your loved ones are taken care of, or if you have substantial liabilities like a large mortgage, then life insurance may be something for you to consider. 

And if you’re a bit of a worrywart, having life insurance means you’ll probably sleep much better at night. Finally, if you work in a high-risk profession and have dependents, then life insurance is likely the only way you can be sure your family will be taken care of should something happen to you on the job. 

Why is insurance planning and risk management important? 

Insurance planning and risk management are important because they are a proactive way to mitigate potential financial losses from unforeseen events. They ensure stability and peace of mind for policyholders and their families.

While you can’t get insurance to cover ever single potential future problem, you can cover the basics.

Life insurance and health insurance are common tools that allow you to protect your family and ensure they’re taken care of no matter what life throws at you.

Connect with a Financial Advisor Online or In Person

speak with an advisor

If you need a wealth management team to help you pursue your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

How Many Steps Are in the Financial Planning Process?

Retirement Planning for Self-Employed People

Financial Planning for Business Owners

Financial Planning for Retirement

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state%u2019s insurance department for more information.

403(b) Minnesota: A Simple Guide to Investments, Tax, and Withdrawal Rules

403(b) Minnesota: A Guide to Investments, Tax, and Withdrawal Rules

Do you have a 403(b) in Minnesota? The 403(b) is your financial ally in the land of retirement savings. However, there are some complexities that come with having a 403(b). This is a general overview of the topic. But we recommend you seek the advice of a fiduciary financial advisor and a tax professional when doing your retirement planning and tax planning.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

403(b) Basics for Minnesotans

Think of your 403(b) as a cozy savings nest, specific to certain employees of public schools, tax-exempt organizations, and some ministers. A 403(b) plan allows you to tuck away money from your salary before taxes. This means you don’t pay Uncle Sam on that money… yet.

Now, think of your paycheck as a pie. 

By contributing to a 403(b), you’re essentially choosing to eat a slightly smaller piece of pie now to ensure you have pie slices waiting for you in your golden years. 

And who doesn’t like future pie? 

But there are some complexities to having a 403(b) in Minnesota and elsewhere in the US. In this post, we’ll cover 403(b) benefits, limitations, and rules so that you can manage your money wisely.

If you need help with your 403(b), please reach out to a fiduciary financial advisor who can guide you through the process of ensuring your investments are optimized. 

Table of Contents

  1. 403(b) Basics
  2. What is a 403(b)?
  3. What are the benefits of a 403(b) for Minnesotans?
  4. Minnesota 403(b) Limitations and Plans
  5. Tax Planning and Your 403(b) in Minnesota
  6. What to Do With Your 403(b) When You Retire
  7. 403(b) Example Case Study: Successful Rollover and Pitfall Avoidance
  8. Common Questions about 403(b) Plans in Minnesota
  9. Summary of Key Points

What is a 403(b)?

A 403(b) plan is a retirement savings tool available for certain employees, including those in public education, hospitals, colleges, school districts, and some non-profit organizations, and certain ministers. 

A 403(b) is similar to a 401(k) but tailored for specific sectors. When you contribute to a 403(b), you’re allocating a portion of your income into this plan before taxes are applied. This pre-tax contribution reduces your current taxable income, providing an immediate tax benefit.

Over time, the money in your 403(b) account grows tax-deferred. This means you won’t pay taxes on the earnings as they accrue. Taxes are only paid when you withdraw funds, typically during retirement. 

A 403(b) is an effective way to save for the future, as it not only allows you to grow your retirement savings but also provides potential tax advantages in the present. Understanding and using a 403(b) can be a key component in your overall retirement strategy.

What Are the Benefits of a 403(b) for Minnesotans?

Pre-tax Contributions

The first perk of a 403(b) for those living in the Land of 10,000 Lakes is the pre-tax contributions. By contributing to your 403(b), you’re reducing your taxable income for the year. Think of it as a financial magic trick: by saving for your future self, you’re lowering today’s tax bill. This can be especially beneficial in Minnesota, where state income tax rates are noteworthy.

Employer Matching

Next up is the potential for employer matching. Some employers will match your contributions to a certain percentage. This is essentially free money towards your retirement, boosting your savings without extra effort on your part. It’s like getting a bonus for being smart with your finances! 

Investment Choices

403(b) plans typically offer a range of investment options that cater to different risk tolerances and investment goals. This means you can tailor your retirement savings to suit your personal financial situation and future aspirations.

Long-term Savings Potential

Finally, the long-term savings potential of a 403(b) cannot be understated. Thanks to the power of compound interest, your savings can grow significantly over time. The earlier you start, the more you benefit from this compounding effect, making a 403(b) a smart move for those thinking ahead about their retirement years in Minnesota.

Minnesota 403(b) Limitations and Plans

Like any investment tool designed for retirement, the 403(b) does have some limitations that are important to consider. 

Limited Withdrawal Options

One of the limitations of a 403(b) plan in Minnesota, as with most retirement plans, is the restricted access to funds before retirement age. Early withdrawals can result in penalties and taxes, reducing the overall benefit of the plan. This is designed to encourage long-term saving, but it means you need to consider other options for liquidity in case of emergencies.

Most financial advisors and personal finance experts will recommend that you have a cash cushion or emergency fund to ensure that when you have unexpected expenses, you can easily cover those costs without dipping into your investments. The size of your cash cushion or emergency fund will depend on your lifestyle and family circumstances. But please keep this in mind when contributing to your 403(b).

Potential for Fees

Another point to consider is the potential for fees associated with 403(b) plans. These can include administrative fees, investment management fees, and sometimes, surrender charges if you decide to transfer funds. It’s important to understand the fee structure of your specific plan, as these fees can impact the overall growth of your retirement savings.

Investment Risks

Lastly, all investments carry some degree of risk, and the options within a 403(b) plan are no exception. The risk level depends on the types of investments you choose within your plan. While some options like government securities might be lower risk, others, such as stock-based mutual funds, can be more volatile. It’s crucial to balance your investment choices with your risk tolerance and retirement timeline, possibly consulting with a financial advisor to align your strategy with your long-term goals.

Specific Rules and Guidelines Pertaining to 403(b) in Minnesota

In Minnesota, the rules and guidelines for 403(b) plans are largely consistent with federal regulations, but there are some state-specific nuances. For instance, Minnesota public school districts often have specific rules about the vendors they use for their 403(b) plans. Additionally, state law mandates that public school employees be given the opportunity to participate in a 403(b) plan. It’s important for participants to be aware of the specific rules and guidelines set by their employer, as these can vary.

Employers in Minnesota who Commonly Offer 403(b) Plans

In Minnesota, 403(b) plans are predominantly offered by public education institutions, non-profit organizations, and certain religious institutions. This includes public schools, universities, charities, and certain hospitals. These employers often provide these plans as part of a comprehensive benefits package to attract and retain quality employees in these crucial sectors.

Who Is Eligible for a 403(b) Plan in Minnesota?

Eligibility for a 403(b) plan in Minnesota is generally determined by the type of employer. Employees of public schools, employees of certain tax-exempt organizations and certain ministers are eligible. Part-time and full-time employees may be eligible, but specific eligibility criteria, such as minimum hours worked or length of service, can vary by employer.

How Does a 403(b) Differ from a 401(k)?

While both 403(b) and 401(k) plans are tax-advantaged retirement savings plans, they cater to different types of employees. A 403(b) is primarily for employees of public schools, non-profits, and certain ministers, while a 401(k) is offered by private-sector employers. 

The investment options in a 403(b) are often more limited, typically focusing on annuities and mutual funds, whereas 401(k) plans often have a broader range of investment options. Additionally, the fee structures and employer matching contributions can vary significantly between the two types of plans.

Tax Planning and Your 403(b) in Minnesota

Federal Tax Planning

When it comes to federal tax planning with a 403(b), the primary advantage lies in its tax-deferred nature. Your contributions reduce your taxable income, potentially lowering your tax bracket. 

This tax break can be a significant benefit, especially if you expect to be in a lower tax bracket at retirement. However, it’s important to plan for the taxes you’ll owe upon withdrawal. Since distributions are taxed as ordinary income, understanding your future tax liability is crucial for effective long-term planning.

In other words, it’s important to work with a tax professional or financial advisor who can help ensure that you’re prepared for the taxes you’ll need to pay when withdrawing from your 403(b) in retirement. Tax planning is a critical part of retirement planning. 

State Tax Considerations for Minnesotans

In Minnesota, state tax considerations also play a role. The state follows federal guidelines in terms of tax-deferred status of contributions. However, Minnesota’s progressive tax rates mean that reducing your taxable income now could have more pronounced benefits. It’s wise to consider how your current tax rate compares to what you anticipate it will be at retirement, keeping in mind potential changes in state tax laws.

We recommend that you speak with your tax professional as well as a fiduciary financial advisor about your specific situation. 

Withdrawal Penalties and Rules

Regarding withdrawals, the rules for a 403(b) in Minnesota are aligned with federal standards. Withdrawals before age 59½ typically incur a 10% early withdrawal penalty, in addition to being taxed as income. 

Certain exceptions apply, such as disability or qualifying hardships, but these should be carefully considered. It’s also important to note that starting at age 72, you must take Required Minimum Distributions (RMDs), as dictated by the IRS. 

Planning for these withdrawals is a key part of managing your 403(b) effectively and avoiding unnecessary penalties.

What to Do With Your 403(b) When You Retire?

403(b) to IRA Rollovers

One of the options you have upon retiring is rolling over your 403(b) into an Individual Retirement Account (IRA). This move may offer several advantages. First, it potentially opens up a wider range of investment options compared to what’s typically available in a 403(b) plan. Additionally, IRAs often have more flexible withdrawal rules and can provide more estate planning benefits. However, it’s important to consider factors like the differing fee structures and protection from creditors offered by 403(b) plans and IRAs. Consulting with a fiduciary financial advisor is advisable to ensure this move aligns with your overall retirement strategy.

Benefits of 403(b) to IRA Rollover:

  • Wider range of investments
  • More flexible withdrawal rules
  • Greater estate planning benefits

Minnesota State Tax on 403(b) Retirement Withdrawals

In Minnesota, withdrawals from a 403(b) plan in retirement are subject to state income tax. Since these withdrawals are considered income, they’re taxed at Minnesota’s current income tax rates, which are progressive. 

Planning for these state income taxes is an essential part of your retirement strategy. It’s important to consider how these taxes will impact your retirement income, especially if you have other sources of income that could push you into a higher tax bracket. 

Proper tax planning can ensure you have the income you need in retirement and aren’t paying excessive taxes.

403(b) Example Case Study: Successful Rollover and Pitfall Avoidance

Let’s consider the case of Sarah, a retired school teacher from Minnesota.

After a fulfilling 30-year career, Sarah decides it’s time to retire. She has diligently contributed to her 403(b) plan throughout her career, accumulating a substantial nest egg. As she approaches retirement, Sarah faces the crucial decision of how to manage these funds.

Rollover Decision:

Sarah decides to roll over her 403(b) into an IRA. This decision is driven by her desire for more investment options and flexibility in withdrawals. The rollover process is straightforward, and she makes sure to execute a direct rollover to avoid any tax withholdings and penalties.

Pitfall Avoidance:

One potential pitfall Sarah avoids is acting hastily. She consults with a fiduciary financial advisor to understand the implications of the rollover, particularly regarding tax consequences. The advisor helps her understand that by rolling over to an IRA, she could better control her tax situation, especially with Minnesota’s progressive tax rates. The advisor walks her through all the possible options so that she can make an informed decision.

Since she seeks advice from a fiduciary, she knows that her advisor is legally bound work in her absolute best interest at all times. So she’s not worried about whether she’s getting good advice. She knows that she can trust her advisor. 

Outcome:

Post-rollover, Sarah has a diversified portfolio tailored to her risk tolerance and retirement goals. She is able to plan her withdrawals more strategically, taking into account her other income sources which include Social Security and a small rental property. Working with her advisor and accountant, she has a plan which allows her to minimize her tax liability.

Key Takeaway:

Sarah’s example highlights the importance of careful planning and seeking professional advice when dealing with 403(b) rollovers. By getting advice, planning ahead, and considering taxation and retirement goals, Sarah can make an informed decision that optimizes her retirement savings and minimizes potential pitfalls.

403(b) Options When Leaving an Employer

A plan participant leaving an employer typically has four options. If you have a 403(b) and you’re leaving an employer, you may engage in a combination of these options. Each choice has advantages and disadvantages which you should discuss with your financial advisor and financial planner.

Any of these options might be right for you. So we strongly recommend that you speak with a financial advisor to get advice on what will be best for you based the particulars of your situation.

4 Main Options for Plan Participants Leaving an Employer:

• Leave the money in your former employer’s plan, if permitted.

• Roll over the assets to your new employer’s plan, if one is available and rollovers are permitted.

• Do a rollover to an IRA.

• Cash out the account value.

Common Questions about 403(b) Plans in Minnesota

What are the disadvantages of a 403(b)?

403(b) plans often have limited investment options and can come with higher fees. Early withdrawal penalties and restrictive access to funds before retirement age are also something to consider.

Can you do a 403(b) and a state of Minnesota retirement?

Yes, you can participate in both a 403(b) and a Minnesota state retirement plan, which can enhance your overall retirement savings strategy.

How can I find out if my employer matches my 403(b) in Minnesota?

Check with your HR department or plan administrator. Employer contribution details are outlined in your plan’s summary description.

What is Minnesota state tax on 403(b) retirement withdrawals?

In Minnesota, 403(b) withdrawals are taxed as income at the state’s current income tax rates, which are progressive.

What are Minnesota 403(b) investment limitations?

Investment choices in 403(b) plans are often limited to mutual funds and annuities, with fewer options compared to other retirement accounts like 401(k)s or IRAs.

How much should I contribute to my 403(b)?

Aim to contribute enough to get any employer match, then consider your retirement goals, current financial situation, and tax implications to decide your optimal contribution level.

Summary of Key Points

  • 403(b) plans are for public education, non-profit employees, offering pre-tax contributions and tax-deferred growth.
  • Benefits include pre-tax contributions, employer matching, diverse investments, and long-term savings potential.
  • Limitations include restricted withdrawals, potential fees, and investment risks.
  • Specific eligibility and rules apply in Minnesota, mainly for public sector and non-profit employees.
  • Contributions reduce taxable income, affecting federal and state taxes; withdrawals are taxed as income.
  • Retirement options include 403(b) to IRA rollovers; understanding state tax implications and investment limits is crucial.

Connect with a Fiduciary Financial Advisor

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

How to Tell if a Financial Advisor Is a Fiduciary

Why Is It Important to Have a Fiduciary as Your Financial Advisor

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 Ł may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 Ł or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

How To Tell If a Financial Advisor Is a Fiduciary

How To Tell If a Financial Advisor Is a Fiduciary

If you’re wondering how to tell if a financial advisor is a fiduciary these five steps will help.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

5 Ways to Tell If Your Financial Advisor Is a Fiduciary

1 – Ask them directly: A genuine fiduciary will straightforwardly affirm their role and commitment to act in your best interests.

2 – Review the advisor’s credentials: Certifications such as CFP® (Certified Financial Planner) or AIF® (Accredited Investment Fiduciary) often indicate a fiduciary standard.

3 – Examine their fee structure: Fiduciaries typically operate on a fee-only or fee-based structure, avoiding commission-based payments that could influence product recommendations.

4 – Research their registration: Check if they are registered with the SEC (Securities and Exchange Commission) or state regulators, as Registered Investment Advisors (RIAs) are held to a fiduciary standard.

5 – Request a written commitment: A fiduciary should be willing to provide a signed document that attests to their obligation to act in your best interests at all times.

Common Questions About Fiduciaries

How do I know if a financial advisor is a fiduciary?

To determine if a financial advisor is a fiduciary, you can directly ask them and also verify their status by checking their credentials and registration with regulatory bodies like the SEC.

Do all financial advisors have a fiduciary duty?

No, not all financial advisors have a fiduciary duty. Only those who are registered as such and commit to acting in the best interests of their clients carry this responsibility.

Why is it important to work with a fiduciary advisor?

It’s important to work with a fiduciary financial advisor because they are ethically and legally bound to act in your best interests, ensuring you receive objective advice and minimizing conflicts of interest. While there are great advisors out there who are not fiduciaries, you may wish to check if the advisory firm you’re working with has a fiduciary environment. 

Some firms will have CFPs and AIFs who are fiduciary advisors. They may have other advisors who are not fiduciaries but are guided by the firms policy to always act in a client’s best interest. 

The main reason people choose to work with fiduciaries is because then they can be sure they’re not being sold packaged products such as mutual funds that have excessive fees.

What is the difference between a fiduciary and a non-fiduciary advisor?

The difference between a fiduciary and a non-fiduciary advisor is that a fiduciary advisor is legally obligated to act in the client’s best interests, while a non-fiduciary advisor might prioritize their own interests or those of the institution they represent over the client’s. They do not have a fiduciary duty to their client. 

Are there any red flags to watch out for when assessing an advisor’s fiduciary status?

Yes, when assessing an advisor’s fiduciary status, red flags to watch out for include vague fee structures, reluctance to provide a written fiduciary commitment, or promoting products that offer them high commissions without clear benefits to the client.

What questions should I ask my financial advisor to confirm their fiduciary duty?

To confirm their fiduciary duty, you should ask your financial advisor if they are a fiduciary, inquire about their fee structure, and request a written statement affirming their commitment to act in your best interests.

Are there regulatory bodies or organizations that oversee fiduciary standards?

Yes, there are regulatory bodies that oversee fiduciary standards. In the U.S., the Securities and Exchange Commission (SEC) and state regulatory bodies supervise fiduciary standards, and professional organizations like the CFP Board set standards for certified professionals.

What legal obligations do fiduciary advisors have towards their clients?

Fiduciary advisors have the legal obligation to act in the best interests of their clients, disclose any potential conflicts of interest, and provide advice that aligns with the client’s goals and financial situation.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

Online Advisor: Robo Advisors vs. Human Advisors

How Many Steps Are in the Financial Planning Process?

Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Online Financial Advisors – Is a Robo-Advisor or Human Advisor Right for You?

Online Financial Advisors: Is a Robo Advisor or Human Advisor Right for You?

Should you be working with an online financial advisor aka. robo advisor? Or do you need the help of a qualified professional and fiduciary? Human vs. robot, let’s dig in.

By Michael Urch, CFP® of 360 Financial, Senior Wealth Manager

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products.

 

What Is a Digital Financial Advisor?

Before everyone started meeting in Zoom rooms, the term “online financial advisor” was coined to refer to an online platform that allows you to manage your investments. You’re not actually working with an advisor, you’re doing DIY investing through a platform that simplifies the process.

But is this the best choice?
And what are your other options?

In this article, we’ll go into the pros and cons of both traditional fiduciary financial advisors and online financial advisors.

a traditional financial advisor has a legal obligation to act in your best interest

The Benefit of Financial Advisors Who Work with You Online

Not all financial advisors have pivoted to keep up with the demands of 21st Century investors. But if you can find a financial advisory firm with fiduciary advisors who will work with you online, this may be the best option for you.

Why?

Because when you work with a fiduciary, they have a legal obligation to act in your best interest at all times. A fiduciary can’t sell you packaged investment products with excessive fees, so you can know that you have a customized portfolio for your risk tolerance and goals. 

While a robo-advisor (aka. algorithmic investment management) may provide some benefits and is certainly an improvement upon just keeping your money in your mattress, you won’t get help that’s specific to your needs and goals. You also won’t have anyone to talk you off the ledge when you go to sell all your investments when the market takes a turn for the worse.

For some people with nerves of steel who are in the very early years of investing a robo-advisor may be a good fit. But for anyone who wants guidance and is moving closer to their retirement date, working with an experienced professional who can meet online via Zoom is certainly preferable.

 

Should You Work with a Financial Advisor Online?

It used to be that you had to work with a financial advisor in your local area. But that’s no longer the case. At 360 Financial, we work with clients all across the US as well as within our home state of Minnesota. We’re able to give our clients full-service wealth management that rivals the big investment firms no matter where they live. If you’re an American who lives abroad for some of the year, this might be even more critical to you.

Digital nomads often earn well but don’t have their investments managed effectively.

Likewise, entrepreneurs and business owners often have all or most of their wealth tied up in their businesses. This can be risky. It’s important to have your assets diversified because then you don’t have to spend sleepless nights worrying about whether everything you’ve built might disappear with one bad move.

What Is a Robo-Advisor?

A Robo-Advisor relies on algorithms to help individuals manage their investments. The scope of advice provided is generally limited to investment advice. Many rely on their own proprietary tools to help customers rebalance their portfolios, tax loss harvest and automate other investing decisions.

What Is a Fiduciary Financial Planner?

A Fiduciary financial advisor is an advisor that has a legal obligation to make recommendations that are in the best interest of their clients. CERTIFIED FINANCIAL PLANNER™ professionals are held to this fiduciary standard in all of the recommendations that they make, not just in regard to investment decisions, but also in all other addressed during the financial planning process.

 

What Are the Best Digital Financial Advisors?

Betterment is one of the best known digital financial advisors. Bloom Retirement Alternative is another popular option, and Vanguard also has a robo advisor offering. All of these Robo Advisors help individuals to manage their investment portfolio.

a robo advisor relies on algorithms

 

5 Benefits of Working with a Financial Advisor Rather than a Robo-Advisor

1. Traditional Financial Advisors Help with Tax Planning and Estate Planning

Have a CFP® professional review your tax return for tax planning, assess whether your savings rate will help you accomplish your retirement goal, and help guide you through a conversation about your legacy planning. This is something your robo-advisor can’t do for you. And it’s just part of the reason why for anyone with substantial assets, a complex tax situation, or who plans on growing their wealth, a robo-advisor might not be the best fit.

2. Financial Advisors Prevent You from Making Massive Investment Errors

A financial advisor provides an extra barrier between you and your investment decisions. Rather than allowing our clients to quickly buy-and-sell their investments based on what they are thinking or feeling at any given moment, we provide due process. Each client gets an investment policy statement and our advisors meet as an investment committee every two weeks to review our portfolios. We do not make hasty decisions, and we stay committed to a disciplined process. This prevents clients from making catastrophic investment decisions that could affect their net worth for years to come.

3. Financial Advisors Know What Is Important to You

Everyone has their own priorities, preferences and goals in life. A good advisor is going to spend time understanding what is really important to you. Then they will create a plan that will make progress toward your goals. An algorithm can only go so far, and it does not deliver customized advice.

4. A Robo-Advisor Is No Match for a CERTIFIED FINANCIAL PLANNER™ Professional 

A certified financial planner helps in all of the realms of financial planning. Investments are only one element of a financial plan. Working with a CFP® professional will help you to view your entire financial picture and provide recommendations for far more than investments, which also often leads to a more successful investing experience.

5. The Cost of an Advisor Is Often Offset

A good financial advisor will provide their clients with multiples of their fee in value. In other words, the cost of working with a good financial advisor is worth it. But why? A financial advisor who is great at what they do will coach clients in wealth building strategies, show clients how well they are moving toward their goals, and stand between clients and bad investment decisions. They will be there for you at every important financial milestone ensuring that you make the best possible financial and wealth-building decisions.

advisor question and answer

Common Questions about Financial Advisors and Planners

Is it worth paying for a financial advisor?

Yes, especially if you do not have the time or temperament to successfully invest and create a financial plan on your own.

How much money do you need to talk to a financial advisor?

Generally, I recommend talking with a financial advisor after your net worth is more than $500,000.

Is it smart to invest with a financial advisor?

Yes, especially if you do not have the time or temperament to successfully invest on your own.

What is the difference between a financial advisor and a financial planner?

A financial planner is going to focus on all the areas of financial planning, where some financial advisors are focused on investment management. Titles are not standardized across the industry, so sometimes it can be difficult to tell whether someone is really able to offer financial planning. As a good rule of thumb, if you are working with a CFP® professional they are able to provide financial planning for you.

What is the difference between a financial advisor and an investment advisor?

An investment advisor or a registered investment advisor is not an individual. An RIA is an entity (or a company) that provides investment advice per the 1940 Investment Company Act. RIAs are held to a fiduciary standard. Many financial advisors are investment advisor representatives. 360 Financial is an RIA and I am a wealth manager, a CFP® professional and an investment advisor representative. I am held to a fiduciary standard both as an investment advisor representative and a CFP® professional.

How do I find a legitimate financial advisor?

I recommend working with a CFP® professional who works at an RIA. You can research at Adviser Info for information on financial advisors or registered investment advisors.

What is the average cost of a financial advisor?

Each advisor has their own fee structure. It is fairly common for advisors to charge a fee based on the investments that they are managing for you. The industry average tends to be between 1 and 1.5%. Some firms charge an additional fee for financial planning services, and some firms include financial planning in the single asset under management fee.

Are robo-advisors good for beginners?

If you are in the early years of wealth accumulation, a robo advisor can be a great place to gain some investment experience. Once you are above $500,000 in net worth, you likely would benefit more from a stronger offering.

How much is a personal financial planner fee?

Financial planners can charge hourly, on a project basis, a monthly retainer, or include planning as part of their asset under management fee. If you are paying for a stand-alone financial plan, it is not uncommon to see a charge of $3,000 – $10,000 (depending on the complexity of your situation).

Are financial planner fees worth it?

If you are in need of a financial planner, can you really afford not to work with one? In some cases, I have seen clients come out ahead financially after working with a financial planner, and I always see someone have increased confidence after having a professional create a financial plan for them.

Work with a Financial Advisor Online or In Person

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

Read More:

How to Choose a Good Financial Advisor

About the Author: Michael Urch

Michael Urch Senior Wealth Manager and CFP

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products. This is one of the reasons he was attracted to 360 Financial’s client-focused culture. Michael likes to start with each client’s “why.” By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom designed to support their long-term ambitions.

Prior to joining 360, he spent nine years honing his skills first at a Fortune 100 Financial Services Company and then at independent, planning-centric firms. He graduated magna cum laude from Bethel University with a BA in economics and finance, as well as a minor in mathematics.

Michael lives in Golden Valley, Minnesota with his wife, Bri and their three children. When he is not working, he enjoys exploring parks and reading books as a family, hiking, and playing guitar.

Schedule a 15-minute Call with Michael

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

401(k) Retirement Planning Essentials

401(k) Retirement Planning Essentials

401(k) retirement planning is essential for most Americans who want to retire with a comfortable and sustainable lifestyle.

By Will Grant, CFP® CPWA® of 360 Financial

As a CERTIFIED FINANCIAL PLANNER™ and Certified Private Wealth Advisor®, Will helps clients create their ideal life through values-based financial planning. His process is designed to pursue each client’s objective, whether it’s preparing for retirement, ensuring smooth business succession, funding for education, implementing wealth transfer strategies, or navigating other impactful financial events.

Retirement Planning and Your 401(k) Plan

Retirement planning is an essential step to ensure financial security later in life. The 401(k) plan is one of the most popular tools used by Americans for retirement. 

By setting aside a portion of their income, employees can build a nest egg and start building wealth and preparing for retirement. Additionally, many employers offer matching contributions, further boosting the potential savings. Understanding the ins and outs of a 401(k) is vital for maximizing its benefits.

Let’s go over the benefits of using your 401(k) as part of your retirement plan. 

Table of Contents

  1. What is a 401(k) Plan?
  2. How does a 401(k) retirement plan work?
  3. Traditional 401(k)
  4. Roth 401(k)
  5. How to Contribute to Your 401(k) Plan for Retirement
  6. Pros of a 401(k) for Retirement Planning
  7. Cons of a 401(k) for Retirement Planning
  8. Contribution Limits of a 401(k) Plan
  9. 401(k) vs IRA for Retirement Planning 
  10. 401(k) Updates for 2023
  11. Required Minimum Distributions i.e. What You Have to Withdraw at Retirement
  12. What to Do with Your 401(k) When You Switch Employers
  13. Common Questions about Retirement Planning and 401(k) Plans
  14. Work with a Financial Advisor Online or In Person

What is a 401(k) Plan?

A 401(k) is a retirement savings plan sponsored by employers for their employees. It allows you to save a portion of your paycheck before taxes are taken out. These funds are then invested in a variety of options, including stocks, bonds, and mutual funds. 

Over time, these investments can grow tax-deferred until withdrawals are made in retirement. The name “401(k)” comes from the section of the U.S. tax code that outlines its provisions.

How does a 401(k) retirement plan work?

As an employee, you decide how much of your paycheck you want to contribute to your 401(k) plan. This money is then deducted from your wages or salary before taxes, reducing your taxable income. 

Employers can also contribute to the plan, often through matching your contributions up to a certain percentage. Investments in the 401(k) grow tax-free until they are withdrawn. Once you reaches retirement age, you can start withdrawing from your 401(k), at which point the distributions (i.e. withdrawals) are typically taxed.

How does a 401(k) retirement plan work?

Traditional 401(k)

In a traditional 401(k), contributions are made pre-tax, which means taxes are deferred until funds are withdrawn. This allows employees to reduce their current taxable income, potentially placing them in a lower tax bracket. 

The investments grow tax-deferred, compounding over time. Withdrawals made in retirement are taxed as ordinary income.* 

Penalties usually apply if funds are withdrawn before age 59½, with certain exceptions.

*Ordinary income refers to the regular income an individual receives that is subject to standard tax rates, as opposed to preferential tax rates. It encompasses income generated from typical sources like wages, salaries, commissions, and rental income, among others. 

Roth 401(k)

The Roth 401(k) option allows participants to contribute post-tax dollars. Unlike the traditional 401(k), withdrawals in retirement are generally tax-free, assuming certain conditions are met. This can be a beneficial choice for those who anticipate being in a higher tax bracket during retirement. 

Contributions to a Roth 401(k) don’t reduce your taxable income for the year. However, the trade-off is the potential for tax-free withdrawals later on.

Determining which 401(k) plan makes sense is an important decision that will depend on your specific situation. Click here to schedule a time consult with one of our 360 Financial Wealth Managers. 

Roth 401(k)

How to Contribute to Your 401(k) Plan for Retirement

To start contributing, employees typically select a percentage or fixed amount of their paycheck to allocate towards their 401(k). It’s crucial to review and potentially increase contributions annually to account for salary increases or changing retirement goals. 

Taking advantage of employer match programs is essential, as it’s basically “free money” for retirement. Regularly reviewing the investment options within the plan can help ensure alignment with your financial goals.

EXAMPLE:

It’s important to continuously review your 401(k) contributions and increase when appropriate. The difference can be significant. For instance, if a 25-year-old with a $100,000 income contributes 3% of their salary to their 401(k) annually and receives a 3% employer match, they would be saving $6,000 per year.

Assuming an average annual return of 7% on their investments, by the time they reach 65, their 401(k) balance would be approximately $1.2 million.

However, if they were to increase their contribution rate to 10%, the annual savings would amount to $13,000 including the 3% employer match, resulting in a substantially larger retirement fund. With the higher contribution rate of 10%, the 25-year-old would have amassed a retirement fund of around $2.6 million by age 65, assuming the same 7% average annual return.

This substantial difference showcases the power of higher contributions, allowing the individual to retire with financial security and the ability to enjoy a comfortable lifestyle.

How to Contribute to Your 401(k) Plan for Retirement

Pros of a 401(k) for Retirement Planning

401(k) plans come with the significant benefit of tax-deferred growth.

Tax-deferred growth refers to the increase in value of an investment in which the taxes on the investment’s earnings are not paid until a later date, typically upon withdrawal. In other words, while the investment grows and earns interest, dividends, or capital gains, no taxes are due on those earnings until they are withdrawn or distributed. 

The primary advantage of tax-deferred growth is the compounding effect. Because taxes aren’t taken out annually, the entire amount of earnings is reinvested and can earn even more. Over time, this can lead to significantly more growth compared to an account that’s taxed annually.

Many employers provide matching contributions, amplifying the amount saved. The array of investment options within a 401(k) can cater to different risk tolerances and financial objectives. Employees have the option to borrow against their 401(k), though it’s generally not recommended. High contribution limits make 401(k)s ideal for those looking to save sizable amounts.

Pros of a 401(k) for Retirement Planning

Cons of a 401(k) for Retirement Planning

There are some cons to 401(k)s, so it’s important to review some of the downsides. Early withdrawals from a 401(k) can incur hefty penalties and taxes. Investment options can be limited compared to other retirement accounts, potentially hindering diversification. Some plans come with high fees that can eat into overall returns. 

Unlike Roth IRAs, traditional 401(k) distributions are taxable upon withdrawal. It might be complex for individuals to understand all plan details, potentially leading to sub-optimal choices. In fact, if you want to feel more confident in your future retirement, I recommend that you seek the advice of an experienced fiduciary Wealth Manager. 

Contribution Limits of a 401(k) Plan

Each year, the IRS sets limits on how much individuals can contribute to their 401(k) plans. For 2023, the contribution limit might be adjusted based on inflation and other economic factors. 

Catch-up contributions are allowed for those aged 50 and above, letting them save more as they near retirement. These limits do not include employer matches, which can further boost retirement savings. It’s essential to be aware of these limits to maximize contributions without incurring penalties.

The 401(k) contribution limit for 2023 is $22,500 for employee contributions. If you’re age 50 or older, you’re eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,000.

401(k) vs IRA for Retirement Planning 

Both 401(k)s and IRAs are powerful tools for retirement savings. While 401(k)s are employer-sponsored, IRAs are individual retirement accounts anyone can open. IRAs often offer a broader range of investment choices compared to 401(k)s. 

However, 401(k)s typically have higher contribution limits, especially when including employer matches. The choice between the two often depends on individual circumstances, financial goals, and the availability of employer-sponsored plans.

401(k) Updates for 2023

As financial landscapes evolve, so do regulations and provisions for retirement accounts. In 2023, there may be updates regarding contribution limits, withdrawal rules, or other plan features. 

It’s vital to stay informed about these changes to optimize retirement planning strategies. New legislation or economic shifts can impact how 401(k) plans operate. Regularly consulting with your Wealth Manager or HR departments can ensure individuals remain up-to-date.

Required Minimum Distributions i.e. What You Have to Withdraw at Retirement

Required Minimum Distributions (RMDs) are amounts that retirees must withdraw from their 401(k) plans starting at a certain age, currently 72. The amount is calculated based on life expectancy and the account balance. 

Failing to take RMDs can result in significant tax penalties. While RMDs apply to traditional 401(k)s, Roth 401(k)s also have RMD rules unless rolled into a Roth IRA. Planning withdrawals strategically can help manage tax implications during retirement.

What to Do with Your 401(k) When You Switch Employers

When changing jobs, individuals have several options for their 401(k) funds. They can leave the money in the old employer’s plan, though they may no longer be able to contribute. Another option is to roll the funds into a new employer’s 401(k) or into an IRA. Cashing out is another choice but comes with potential penalties and tax implications. It’s crucial to weigh the pros and cons of each option and possibly consult with a Wealth Manager.

Common Questions about Retirement Planning and 401(k) Plans:

Common Questions about Retirement Planning and 401(k) Plans:

What is a good 401(k) amount to retire?

A good 401(k) amount to retire largely depends on individual lifestyle and expenses, but many financial experts suggest having 8-10 times your final salary saved by retirement age. The goal is to have sufficient funds to cover 70-85% of your pre-retirement income annually during your retirement years.

A 401(k) represents just one avenue among various account types available for pursuing your financial objectives, including taxable accounts and Roth accounts. Seeking guidance from a Wealth Manager to comprehensively assess and monitor the diverse assets you’re accumulating by type can be a prudent approach, ensuring you stay on track towards your retirement goals.

How much should I have in my 401(k) if I want to retire at 55?

If you aim to retire at 55, you should consider having saved at least 10-12 times your annual salary in your 401(k) by that age, given the earlier retirement age and potential for a longer retirement period. Early withdrawals before age 59½ may also incur penalties unless specific criteria are met.

How much will a 401(k) grow in 20 years?

The growth of a 401(k) over 20 years depends on the contribution amount, employer match, investment choices, and annual returns. Assuming an average annual return of 6-8%, your 401(k) can potentially double roughly every 9-12 years, depending on compounding frequency and market performance.

Is a 401(k) better than an IRA?

Both 401(k)s and IRAs offer unique advantages. A 401(k) often includes employer matches, allowing for higher total contributions, while an IRA may provide more investment options and flexibility. The best choice depends on individual needs, access to employer-sponsored plans, and financial goals.

Does a 401(k) gain interest?

A 401(k) doesn’t typically earn “interest” in the traditional sense. Instead, it earns returns based on the investments selected, such as stocks, bonds, or mutual funds. The returns can be in the form of dividends, capital gains, or interest from fixed-income investments.

Can I pull money out of my 401(k)?

Yes, you can withdraw money from your 401(k), but doing so before age 59½ often incurs a 10% early withdrawal penalty and the amount is subject to taxes. There are exceptions for specific situations like financial hardships, buying a home, or medical emergencies, but it’s essential to understand the rules and potential implications.

How 360 Financial Can Help You Plan for Retirement 

Unlock the future you envision with 360 Financial. With expert insights, financial planning tailored to your needs and goals, and a big-picture approach, we turn your work-optional dreams into actionable plans. Begin your journey to a secured, fulfilling retirement with the guidance of 360 Financial.

Work with a Financial Advisor Online or In Person

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

About the Author

William Grant

Will Grant, CFP

Will Grant enjoys empowering people to make informed decisions and seeing the positive impact his guidance can have on their lives.

Prior to joining 360, he spent seven years serving hundreds of clients at a boutique RIA focused on healthcare executives with equity compensation and then at a large, independent RIA. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.

Will lives in Minneapolis with his fiancée, Melissa. In his free time, he enjoys competing in triathlons, golfing and is an active member of the Minnesota Leadership Council for the Chick Evans Scholarship Foundation, which he was a recipient of.

Schedule a 15-minute Call with Will

Other Articles and Guides 

Minnesota Financial Planners

Financial Planning vs. Financial Advisor – What’s the Difference?

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

Financial Planning and Estate Planning in Minnesota

If you need financial planning assistance and a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

What Does a Fiduciary Financial Advisor Do?

What Does a Fiduciary Financial Advisor Do?

What does a fiduciary financial advisor do? A fiduciary financial advisor helps you to navigate complex financial planning and wealth management strategies.

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

Your fiduciary financial advisor will consider your big-picture financial plan, retirement strategy, tax implications, charitable giving strategies, and multigenerational wealth transfer. They will ensure that all decisions made are beneficial to you. They will typically offer a range of services, from comprehensive financial planning to specific investment management, always with a duty of care that legally binds them to act in your best interests. 

A fiduciary financial advisor meticulously analyzes your entire financial situation and crafts strategies aligned with your long-term objectives and risk preferences. 

Legally, fiduciary financial advisors are obligated to disclose any potential conflicts of interest and are committed to transparent fee structures. Their legal obligation to act in your best interest prevents biased advice driven by commission motives. In fact, if something is not the absolute best option for you, they cannot recommend it.

By prioritizing your needs, your advisor will seek the most prudent path to safeguard and optimize your wealth.

woman doing her taxes

Common Questions About Fiduciary Financial Advisors

Is a fiduciary financial advisor better than a broker?

  • A fiduciary financial advisor is often considered better than a broker because they are legally required to act in your best interests, whereas brokers may promote investments that benefit them through commissions.

What is the primary role of a fiduciary financial advisor?

  • The primary role of a fiduciary financial advisor is to provide comprehensive financial guidance and investment advice that prioritizes the client’s needs and goals above all else. They operate under a strict standard of honesty and transparency.

How does a fiduciary financial advisor help with financial planning?

  • A fiduciary financial advisor helps with financial planning by offering unbiased, client-focused advice on wealth management strategies, savings, investments, and other financial matters. They ensure that their recommendations align with your long-term objectives and financial security.

Are fiduciary financial advisors only focused on investment management?

  • No, they are not only focused on investment management; they provide a range of services including financial planning, retirement strategies, tax advice, and estate planning.

How does a fiduciary financial advisor prioritize my financial interests?

  • They prioritize your financial interests by placing them above their own, offering advice and choosing products based on what’s best for you, not based on personal gain or commission.

Are fiduciary financial advisors legally bound to act in my best interest?

  • Yes, they are legally bound to act in your best interest, ensuring a standard of care in their advice and services that non-fiduciary professionals are not required to uphold.

Can a fiduciary financial advisor help with retirement planning and estate management?

  • Yes, they can help with retirement planning and estate management, offering expertise on creating sustainable income streams post-retirement and effectively transferring wealth with minimized tax burdens.

Connect with an Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

How Fiduciary Financial Advisors in Minnesota Can Help

How to Choose a Good Financial Advisor

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

What Is the Difference Between a Financial Advisor and a Fiduciary?

What Is the Difference Between a Financial Advisor and a Fiduciary?

A financial advisor can be anyone who gives financial advice, while a fiduciary is a type of financial advisor who is legally and ethically required to put your interests above their own. 

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

Non-fiduciary advisors may recommend suitable products, even if they aren’t the lowest-cost or most beneficial to you, potentially earning commissions on those products. In contrast, fiduciary advisors must recommend investment products that best suit your needs and are usually compensated by a flat fee or a percentage of assets managed, avoiding conflicts of interest common in commission structures. 

This fundamental difference in obligation can impact the advice you receive. Fiduciaries may provide more impartial guidance than advisors who are not fiduciaries. This is crucial for anyone with substantial assets to consider. 

When selecting an advisor, understanding this distinction is key to ensuring your wealth is managed with transparency and your financial goals are prioritized.

Common Questions About the Difference Between a Financial Advisor and a Fiduciary

Should I use a fiduciary or regular financial advisor?

  • You should work with the financial advisor who is most qualified and with whom you feel comfortable. In many cases a fiduciary may be a better fit for you as fiduciaries are ethically bound to act in your best interests, providing more assurance that your financial plans align with your goals and needs. However, there are also regular financial advisors who are also excellent. Ensure that you feel comfortable with whomever is managing your investments. 

How do you determine if a financial advisor is a fiduciary?

  • You can determine if a financial advisor is a fiduciary by asking them directly, checking for relevant certifications like CFP® or CFA, or verifying their status on regulatory websites like the SEC’s Investment Adviser Public Disclosure (IAPD).

What are the disadvantages of a fiduciary?

  • The disadvantages of a fiduciary may include potentially higher fees due to their in-depth service and a limitation to products they believe are in your best interest, which might restrict a broader market view. For most investors, this is not a problem. 

What are the potential benefits of working with a fiduciary over a regular financial advisor?

  • The potential benefits of working with a fiduciary over a regular financial advisor include receiving unbiased advice, more transparent fee structures, and the assurance that your advisor is held to the highest ethical and professional standards.

How do financial advisors and fiduciaries differ in their responsibilities?

  • Financial advisors and fiduciaries differ in their responsibilities in that fiduciaries must legally prioritize their client’s best interests above their own, while non-fiduciary advisors are only required to recommend products that are suitable — not necessarily best — for clients.

Are all financial advisors fiduciaries?

  • No, not all financial advisors are fiduciaries; the fiduciary status of an advisor depends on their certifications, the nature of the advice they provide, and their registration with regulatory bodies.

Do fiduciaries have different legal obligations towards their clients?

  • Yes, fiduciaries have different legal obligations towards their clients, as they are required by law to act solely in their clients’ best interest, a standard that surpasses the “suitability” requirement of non-fiduciary advisors.

Are there specific situations where one might be more suitable than the other?

  • Yes, specific situations where one might be more suitable than the other include complex financial planning or significant investment decisions, where a fiduciary’s higher standard of care is beneficial, whereas basic investment guidance or one-time financial advice might be suitably handled by a non-fiduciary advisor.

Connect with a Fiduciary Financial Advisor

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

How To Tell If a Financial Advisor Is a Fiduciary

Online Financial Advisor vs Human Advisor

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

403b Rollover to IRA: Tax Treatment and Steps When Doing Rollovers

403(b) Rollover to IRA: Tax Treatment and Steps When Doing Rollovers

Considering Doing a 403(b) to IRA Rollover?

Rolling over your 403(b) to an IRA can be like upgrading from a trusty old bike to a sleek new car. But before we go into the details, please know that this post is not meant to replace advice from a fiduciary financial advisor or financial planner. 

By Written by Will Grant, CFP®, CPWA®, 360 Financial

Will helps clients create their ideal life through values-based financial planning. His process is designed to pursue each client’s objective, whether it’s preparing for retirement, ensuring smooth business succession, funding for education, implementing wealth transfer strategies, and navigating other impactful financial events.

What is a 403(b) Rollover?

What is a 403(b) Rollover?

When thinking of a 403(b) rollover, imagine you’re re-potting a plant into a bigger pot for more room to grow.

That’s kind of what a 403(b) rollover is for your retirement savings. A 403(b) rollover involves moving funds from a 403(b) plan, typically offered by non-profit organizations, schools, and hospitals, into an Individual Retirement Account (IRA) or another retirement plan.

Why do this?

It’s all about growth and flexibility.

Rolling over to an IRA often gives you access to a wider range of investment options compared to a typical 403(b) plan. This means more opportunities for your investments to grow. It’s likely that you’ll be able to get a more optimized investment strategy based on your risk tolerance and financial goals.

Additionally, if you’re changing jobs or retiring, a rollover can help keep your retirement savings consolidated and manageable, rather than scattered across different accounts. Think of this as keeping all your plants in one garden rather than having them scattered randomly across the county. When you keep all your investments in one retirement account, you can have them optimized for your goals. Whereas if they are all over the place, it will be hard for you to ensure that you’re not overexposed and at risk.

Table of Contents

  1. What is a 403(b) Rollover?
  2. 403(b) Rollover Tax Treatment
  3. Potential Reasons for a Rollover
  4. How Does a 403(b) Rollover Affect Income Taxes?
  5. The Difference Between a Direct Transfer and an Indirect Transfer
  6. 403(b) Rollover Alternatives
  7. How to Rollover a 403(b) to an Individual Retirement Account
  8. Steps to Set Up an IRA Account for Your 403(b) Rollover
  9. 403(b) vs. IRA: What Can You Invest In?
  10. Evaluating Retirement Savings Options: 403(b) vs. IRA Account
  11. Traditional IRA vs Roth IRA
  12. 403(b) Required Minimum Distributions
  13. 403(b) Rollover Considerations for Investors in Higher Tax Brackets
  14. Basic IRS Guidelines for Eligible Retirement Account Transfers
  15. The Role of a Financial Advisor in Retirement Planning
  16. Common Questions about 403(b) Rollovers

403(b) Rollover Tax Treatment

First, let’s talk tax treatment. Good news – if done correctly, a 403(b) rollover can be a tax-free event. However, if it is mishandled, you could be paying more in tax than is needed. This is where our team comes into play to help you facilitate a successful rollover. 

Here’s how to avoid that:

1. Direct Rollover: Ask your 403(b) provider to directly transfer your funds to the IRA which is often called a “trustee-to-trustee” transfer. The rollover check would be made payable to the custodian of where your account and for the benefit of you with your account number listed on the memo line of the check. This way, you never touch the money, sidestepping the risk of triggering taxes.

2. 60-Day Rule: If you receive the funds, you have 60 days to deposit them into your IRA and the rollover check would be made payable to your name.  Miss this deadline, and Uncle Sam might expect a cut as taxes.

Remember, this isn’t a race. Take your time to understand each step, ensuring a smooth, tax-efficient transition. Ready to roll? Let’s dive deeper! 

403(b) Rollover Tax Treatment

Potential Reasons for a Rollover

Limited Investment Options in a 403(b) May Motivate You to Do a Rollover

Rolling over your 403(b) isn’t just about shuffling money around. It’s a strategic move with specific goals in mind.

Here are a few reasons why you might consider this financial move:

1. Broader Investment Choices: Your 403(b) might feel like a small pond. An IRA is like an ocean, offering a wider variety of investment options. More choices can lead to a more tailored investment strategy.

2. Financial Planning and Wealth Management: Rolling over to an IRA would allows us to provide professional portfolio management and align this account with your overall LifeWealth Plan.

3. Consolidation: If you’re a professional job-hopper, you might have accumulated multiple retirement accounts. Rolling them into one IRA can make managing your retirement savings easier, more efficient, and allow for better asset allocation aligned with your risk tolerance.

4. Estate Planning Benefits: IRAs often provide more flexibility for estate planning purposes. This can be crucial in ensuring your legacy is managed as you wish. For high income earners this is critical.

Remember, a rollover isn’t a one-size-fits-all solution. It’s about finding the right fit for your specific needs and goals. In fact, a rollover may not be the right more for you. Keep reading to learn more, or schedule a call with a 360 fiduciary financial advisor to get help with your specific situation.

Estate Planning Benefits

How Does a 403(b) Rollover Affect Income Taxes?

How a 403(b) rollover affects your taxable income and thus your income taxes is crucial to understand to avoid any unwanted surprises.

1. Direct Rollover: By directly rolling over your 403(b) to an IRA, you typically don’t touch the funds, and therefore, it doesn’t count as income. No income, no tax – simple as that!

2. Indirect Rollover: Here’s where it gets tricky. If you receive the funds directly and then deposit them into an IRA, you could run into trouble. The fund could be treated as taxable income if they are not deposited within 60 days. And if you’re under 59½, brace yourself for a potential 10% early withdrawal penalty if that happens. If 20% of your rollover was withheld for taxes, you’ll need to cover that to avoid it being counted as income.

3. The Fine Print: Always check for nuances. For example, if you have after-tax contributions in your 403(b), these don’t count as taxable income when rolled over.

So, while a rollover can be a smart move, it’s important to understand its tax implications. I recommend you speak with a CPA or other tax professional as well as your fiduciary financial advisor.

How Does a 403(b) Rollover Affect Income Taxes?

Indirect Rollover Tax Penalties and Risks

While we’ve already covered the risks of indirect rollovers, here’s a more detailed breakdown. Indirect rollovers are little bit risky. Here’s why:

1. Taxes on Distribution: If you opt for an indirect rollover, the amount you withdraw from your 403(b) can be considered taxable income. This could bump you into a higher tax bracket for the year.

2. Mandatory Withholding: Often, 403(b) plans withhold 20% for taxes on distributions. If you don’t replenish this amount in your IRA rollover, it’s considered a distribution and will be taxed.

3. The 60-Day Rule: You have 60 days to complete the rollover. Miss this deadline, and you have triggered a taxable event.

4. Early Withdrawal Penalty: Under 59½? You might face a 10% early withdrawal penalty on the distributed (withdrawn) amount.

Indirect Rollover Tax Penalties and Risks

The Difference Between a Direct Transfer and an Indirect Transfer

Deciding between a direct and indirect transfer is like choosing between a direct flight and a layover. Both get you to your destination, but the journey and convenience vary greatly.

1. Direct Transfer: This is the non-stop flight of retirement rollovers. Your funds travel directly from your 403(b) to your IRA without ever landing in your personal account. It’s smooth, efficient, and there’s no tax turbulence because the IRS doesn’t view it as a distribution.

2. Indirect Transfer: Here’s your flight with a layover. You receive the funds from your 403(b), and then you have 60 days to deposit them into your IRA. But be cautious – if you don’t re-deposit the funds within 60 days, or if you miss redepositing any part of the distribution, it’s considered taxable income. And, if you’re under 59½, you might face early withdrawal penalties.

A direct transfer is typically the smoother, safer route, while an indirect transfer requires more attention to avoid potential pitfalls.

The Difference Between a Direct Transfer and an Indirect Transfer

403(b) Rollover Alternatives

While a 403(b) rollover might be the best option, it’s important to consider the alternatives as well. You should make the best choice for you and your financial situation. Take your time and speak with a financial professional about your situation.

Here are four options you may consider as alternatives to a 403(b) rollover:

1. Stay Put: Sometimes the best move is no move. Keeping your savings in your current 403(b) might make sense if you’re happy with your investment choices and the fees are reasonable.

2. Rollover to a New Employer’s 401(k): Got a new job with a 401(k) plan? You might be able to roll your 403(b) into this new plan.

3. Cash Out: This is typically not the most recommended route, but it is an option. Cashing out means paying income taxes and potentially a 10% penalty if you’re under 59½.

4. Annuities: For those seeking steady income, converting to an annuity could be an option. However, tread carefully – annuities can be complex and often come with higher fees.

403(b) Rollover Alternatives

How to Rollover a 403(b) to an Individual Retirement Account

Rolling over a 403(b) to an IRA requires careful planning. It’s important to follow the steps correctly if you want to ensure that you don’t end up with a tax hit.

Below is a simple guide to doing a rollover. However, if you have access to a fiduciary financial advisor, we recommend seeking professional advice before taking action.

1. Consult a Professional: If you feel like you’re trying to read a map in a foreign language, don’t hesitate to reach out to a financial advisor.

2. Choose Your IRA: First, decide where your retirement savings will call home. This could be a traditional IRA or a Roth IRA, depending on your financial goals.

3. Contact Your 403(b) Plan Administrator: Inform them of your decision to rollover into an IRA. They’ll guide you through their process and provide necessary forms.

4. Determine the balances in your Pre-Tax (Traditional) vs. Post-Tax (Roth) 403(b): It is often misunderstood that employer contributions to your 403(b) are often pre-tax contributions. Therefore, if you make Roth 403(b) contributions as an employee, you may have pre-tax and post-tax account balances. If so, you would need to open an IRA and Roth IRA with the rollover.

5. Direct vs. Indirect Rollover: Decide if you want a direct transfer (where funds go straight from 403(b) to IRA) or an indirect transfer (where you receive the funds and then deposit into IRA within 60 days). Remember, direct is usually simpler and avoids tax complications.

6. Complete the Paperwork: Fill out all the required forms. Double-check details like account numbers – a simple typo can lead to a game of financial hide and seek.

7. Follow Up: After initiating the rollover, keep an eye on both accounts to ensure everything transfers smoothly.

How to Rollover a 403(b) to an Individual Retirement Account

Steps to Set Up an IRA Account for Your 403(b) Rollover

Before you do a rollover, you need to set up your IRA account. Here’s what to do:

1. Choose the Right IRA: Decide between a Traditional IRA and a Roth IRA.

2. Select a Financial Institution: Look for a reputable bank, brokerage, or financial services company. Consider factors like investment options, fees, customer service, and ease of account management.

3. Open Your IRA Account: Complete the application process. This will typically involve providing personal information, setting up funding options, and agreeing to the account terms.

4. Understand the Investment Options: Each IRA comes with different investment choices, like stocks, bonds, mutual funds, and ETFs. Choose based on your risk tolerance and retirement timeline.

5. Fund Your IRA: Once your IRA is open, you’re ready to roll over your 403(b). If you’re worried about taxes and penalties, initiate a direct rollover.

6. Set Up Beneficiaries: Don’t forget to designate beneficiaries for your IRA. This step is crucial for estate planning purposes.

7. Regular Review and Adjustments: Once your IRA is set up and funded, review it periodically to ensure it aligns with your changing financial goals.

Steps to Set Up an IRA Account for Your 403(b) Rollover

403(b) vs. IRA: What Can You Invest In?

When diving into the investment pools of 403(b)s and IRAs, it’s essential to know what swim lanes are available. Each offers unique investment options:

1. Mutual Funds: Common in both 403(b) and IRA plans. 403(b)s often focus on mutual funds, particularly those managed by insurance companies. IRAs offer a broader selection of mutual funds from various fund families. Make sure you know what kind of management fees or other costs you’re paying when invested in mutual funds.

2. Exchange-Traded Funds (ETFs): Mainly available in IRAs. These are popular for their low costs and flexibility.

3. Bonds: Both plans allow investments in bonds. However, IRAs provide access to a wider range of individual bonds and bond funds.

4. Stocks: Here, IRAs take the lead. They allow for investment in individual stocks, offering more control and customization of your investment strategy. You can have a more diversified portfolio without high management fees when you work with a fiduciary financial advisor who is able to build your portfolio without relying on high-cost packaged products.

5. Certificates of Deposit (CDs): Generally an option in IRAs, offering a low-risk investment choice with fixed interest rates.

6. Annuities: More common in 403(b)s, especially those offered by insurance companies. They provide a stream of income in retirement.

7. Real Estate and Alternative Investments: Some IRAs, particularly self-directed IRAs, allow investments in real estate, precious metals, and other alternative assets. This option is not typically available in 403(b) plans. Due to the risk and illiquidity it is common that you need to meet accredited investor requirements to be eligible for these types of investments.

As you can see there are more investment options when your money is in an IRA as compared to a 403(b). That doesn’t mean you should necessarily do a rollover. But it is something to consider as you create your retirement plan.

403(b) vs. IRA: What Can You Invest In?

Evaluating Retirement Savings Options: 403(b) vs. IRA Account

When it comes to retirement savings, it’s not just about saving money; it’s about choosing the right vessel for your money. Let’s compare the 403(b) and IRA accounts:

Benefits of an IRA Account:

  1. Wider Investment Choices: IRAs often offer a broader range of investment options than 403(b) plans.
  2. Tax Diversification: You can choose between traditional (pre-tax) or Roth (post-tax) contributions, offering flexibility for managing future tax liabilities.
  3. Accessibility: Anyone with earned income can open and contribute to an IRA, regardless of their employer.

Pitfalls of an IRA Account:

  1. Lower Contribution Limits: IRAs have lower annual contribution limits compared to 403(b)s.
  2. No Employer Match: Unlike many 403(b) plans, IRAs don’t offer employer matching contributions.
  3. Income Limits for Roth IRA: High earners may be limited or ineligible to contribute to a Roth IRA.

Benefits of a 403(b) Account:

  1. Employer Match: Many employers offer matching contributions in a 403(b), which is like getting free money towards your retirement.
  2. Higher Contribution Limits: Generally, 403(b)s have higher contribution limits than IRAs, allowing you to save more each year.
  3. Loan Options: Some 403(b) plans allow you to take loans against your savings, which can be a useful option in financial emergencies. That said, it’s advisable to have an emergency fund or cash cushion rather than being reliant on loans.
  4. Pre-Tax Contributions: Contributions to your 403(b) lower your taxable income, providing tax benefits now.

Pitfalls of a 403(b) Account:

  1. Limited Investment Options: 403(b)s often have fewer investment choices, which may limit diversification and growth potential.
  2. Potentially Higher Fees: Some 403(b) plans, particularly those with insurance products, have higher fees.
  3. Early Withdrawal Penalties: Withdrawing funds before age 59½ can lead to penalties and taxes.

In summary, both 403(b)s and IRAs have their unique advantages and drawbacks. It’s like choosing between a sedan and an SUV – each has its purpose, and the best choice depends on your exact needs and your financial situation.

Traditional IRA vs Roth IRA

If you’ve decided that want to do a 403(b) rollover, you’ll need to decide whether to rollover to a traditional IRS or a Roth IRA. Here, you can consider the differences:

Traditional IRA:

  1. Tax-Deferred Growth: Contributions are typically made with pre-tax dollars, reducing your taxable income now. Taxes are paid when you withdraw in retirement.
  2. Upfront Tax Break: If eligible, contributions can be tax-deductible, giving you an immediate tax benefit.
  3. Required Minimum Distributions (RMDs): You must start taking distributions at age 72, which can affect your tax situation in retirement.
  4. Income Limits: No income limits for contributions, but there are limits for tax-deductibility if you or your spouse have a retirement plan at work.

Roth IRA:

  1. Tax-Free Growth: Contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.
  2. No RMDs: There are no required minimum distributions, allowing your money to grow tax-free for longer. You won’t be forced to start withdrawing funds.
  3. Income Limits: Eligibility to contribute phases out at higher income levels.
  4. More Flexibility: Contributions (but not earnings) can be withdrawn at any time without penalty, offering more liquidity.
Traditional IRA vs Roth IRA

403(b) Required Minimum Distributions

What are RMDs?

RMDs are the minimum amounts you must withdraw from your 403(b) account annually, starting at age 72 (as per the current rules). Think of it as the government’s way of saying that it’s time to start using your retirement savings!

In the words of the IRS: “You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).”

Calculating RMDs:

The amount is calculated based on your account balance and life expectancy. There are IRS tables to help you determine this.

1) RMD Worksheets to calculate the amount.

2) Uniform Lifetime Table – for IRA owners who are not married, IRA owners whose spouses are not more than 10 years younger, and married IRA owners whose spouses aren’t the sole beneficiaries of their IRAs.

3) Single Life Expectancy is used when the beneficiaries are not the IRA owner’s spouse.

4) Joint Life and Last Survivor Expectancy is for IRA owners when their spouse is more than 10 years younger AND are the IRA’s sole beneficiary.

When to Start:

Keep in mind that these dates may change. Currently, you must take your first RMD by April 1 of the year following the year you turn 72. But, be strategic! Taking two distributions in one year (your first and second RMDs) could push you into a higher tax bracket.

Subsequent RMDs:

After the first RMD, you must take them annually by December 31. Missing an RMD may result in hefty penalties of 50% of the amount that should have been withdrawn. Yes, you read that right, 50%!

Notes From the IRS:

“If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year in which the full amount of the RMD was required, but not taken.”

Multiple Accounts:

If you have more than one 403(b) account, you must calculate and withdraw RMDs from each account separately. It’s not a mix-and-match situation.

403(b) Required Minimum Distributions

403(b) Rollover Considerations for Investors in Higher Tax Brackets

A rollover to a Traditional IRA might maintain the tax-deferred status of your savings. But remember, the funds will be taxed as ordinary income upon withdrawal, possibly at a high rate if you remain in a high tax bracket in retirement.

Alternatively, converting to a Roth IRA could offer tax-free growth and withdrawals, but this requires paying taxes upfront. This conversion can be significant for those in higher brackets, akin to paying a steeper entry fee for a potentially tax-free financial journey later on.

It’s also important to consider the timing of a rollover in relation to your overall income for the year, as the added income from a rollover could push you into an even higher tax bracket. Strategic planning with a tax advisor would be a good idea. You’ll want to ensure that your rollover decision aligns with your long-term financial goals and tax planning strategies.

403(b) Rollover Considerations for Investors in Higher Tax Brackets

Basic IRS Guidelines for Eligible Retirement Account Transfers

1. One-Year Waiting Rule: The IRS limits you to one tax-free indirect rollover from an IRA to another (or the same) IRA in any 12-month period. However, this doesn’t apply to rollovers from other types of retirement plans, such as a 403(b), into an IRA.

2. Mandatory Withholding in Indirect Rollovers: For indirect rollovers from a 403(b) or a 401(k) to an IRA, the plan administrator may withhold 20% for taxes. To complete a tax-free rollover, you’ll need to add funds from other sources to make up the 20% withheld.

3. No Age Restriction for Rollovers: Unlike contributions, there’s no age limit for rolling over funds into an IRA.

4. Rollovers to and from Roth Accounts: Rollovers from a traditional retirement account to a Roth IRA (Roth conversions) are taxable events. Conversely, rollovers from a Roth 403(b) to a Roth IRA are not taxable.

5. Required Minimum Distributions (RMDs) Cannot be Rolled Over: If you’re at the age where RMDs are mandatory, you can’t roll over these amounts.

6. Direct Rollovers: The IRS allows for direct rollovers from one retirement account to another, like moving funds from a 403(b) to an IRA. This method is tax-free, as the money moves directly between accounts without you taking possession of the funds.

7. 60-Day Rule for Indirect Rollovers: If you receive the funds directly (indirect rollover), you have 60 days to deposit them into another eligible retirement account. Failing to meet this deadline can result in the funds being treated as a taxable distribution.

Basic IRS Guidelines for Eligible Retirement Account Transfers

The Role of a Financial Advisor in Retirement Planning

If you’re starting to feel overwhelmed by all the choices, you’re not alone.

While there’s nothing wrong with doing your retirement planning alone, if you prefer to have a guide who will help you plan for retirement and manage your investments, it would be wise to seek out a fiduciary financial advisor.

But what exactly is the role of a financial advisor in retirement planning?

Having a fiduciary financial advisor to help you with your financial planning and investing is no different than an elite athlete working with a performance coach. You’re doing the critical work of earning and saving your money. Meanwhile, your advisor will ensure that you’re invested in way that matches your risk tolerance and goals so that you don’t have to worry about retirement and future income streams.

Your advisor also helps you to prevent financial losses in two critical ways:

1) Your advisor helps ensure that you don’t lose money by triggering a taxable event (aka. a surprise tax hit) that costs you much more than you anticipated. In addition, your financial advisor optimizes your investments and retirement plan so you don’t overpay your taxes.

Most people’s biggest lifetime costs are actually taxes. Often your taxes cost you more than your mortgage. This is why tax planning is such a huge part of financial planning and retirement planning.

2) Your advisor is there to make sure you don’t take risks that could cause a catastrophic loss. Keeping money and making money are two different skills. Even the most conservative individuals have made errors with their money management when faced with what seems like the “deal of a lifetime.”

Your advisor is there to walk you through the risks and benefits of any big money decision you make so you can rest assured that you’ve invested wisely.

If you have a holistic wealth management team, your advisor will also help you with estate planning and insurance planning. They’ll make sure you don’t have too much or too little insurance. And they’ll ensure your estate plan is up to date.

The Role of a Financial Advisor in Retirement Planning

Common Questions about 403(b) Rollovers

Can you rollover a 403(b) to a Roth IRA?
Yes, you can rollover a 403(b) to a Roth IRA, but it will be treated as a taxable event.

What are the benefits of 403(b) plan in tax-exempt organizations?
The benefits of a 403(b) plan in tax-exempt organizations include pre-tax contributions and tax-deferred growth.

Is a Roth IRA conversion an alternative worth considering?
A Roth IRA conversion is worth considering for tax-free growth and withdrawals in retirement, despite the upfront tax payment.

Why should you consider multiple retirement accounts?
You should consider multiple retirement accounts for diversification of tax treatments and investment options.

When do you have to pay taxes during a 403(b) rollover?
You have to pay taxes during a 403(b) rollover if it’s an indirect rollover or when rolling over into a Roth IRA.

How can I judge if a traditional IRA is the right choice for me?
You can decide if a traditional IRA is right for you by considering your current tax bracket and expected tax rate in retirement.

How can I file a distribution request form for a 403(b) rollover?
You can file a distribution request form for a 403(b) rollover by contacting your 403(b) plan administrator for the appropriate paperwork.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

William Grant

Mike Rogers

Will Grant enjoys empowering people to make informed decisions and seeing the positive impact his guidance can have on their lives.

Prior to joining 360, he spent seven years serving hundreds of clients at a boutique RIA focused on healthcare executives with equity compensation and then at a large, independent RIA. He earned a Bachelor of Science degree in Finance from Miami University and holds his Series 7 and 63 licenses through LPL Financial and his 65 license through 360 Financial.

Will lives in Minneapolis with his fiancée, Melissa. In his free time, he enjoys competing in triathlons, golfing and is an active member of the Minnesota Leadership Council for the Chick Evans Scholarship Foundation, which he was a recipient of.

Schedule a 15-minute Call with Will

Other Articles and Guides 

403(b) Minnesota: A Guide to Investments, Tax, and Withdrawal Rules

Retirement Planning for Self-Employed People

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 Ł may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 Ł or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

What Is the First Step in the Financial Planning Process?

What Is the First Step in the Financial Planning Process?

By Mike Rogers, AIF®, Founder and President of 360 Financial

Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.

The First Step in the Financial Planning Process

The first step in the financial planning process is understanding and defining your financial goals.

Before any strategies can be formulated or investments chosen, it’s essential to clarify your goals, whether it’s early retirement, buying a home, or leaving a legacy for your children. 

This involves introspection and candid discussions with your financial advisor and family members about your dreams, priorities, and concerns for the future. By establishing clear objectives, you can create a roadmap that guides every financial decision that follows.

A well-defined goal serves as the foundation upon which a comprehensive financial plan is built.

Common Questions about the First Step in the Financial Planning Process

How many stages are there in financial planning? 

Typically, there are six stages in the financial planning process: 

  1. Initial assessment
  2. Goal setting
  3. Plan creation
  4. Plan implementation
  5. Monitoring
  6. Review and revision.

How do I assess my current financial situation? 

To assess your current financial situation, you should start by creating a detailed list of your assets and liabilities. Next, you should create a spreadsheet or other method for tracking your income and expenses. Following that, it’s important to review any outstanding debts and investments you have.

What information should I gather for financial planning? 

For financial planning, you should gather details the following information:

  • Income
  • Expenses
  • Assets
  • Liabilities
  • insurance policies
  • tax returns
  • any existing investment documents or retirement accounts

Can you provide examples of setting financial goals? 

Examples of setting financial goals include saving for a down payment on a house, accumulating a specific amount for retirement, funding a child’s college education, or reducing and eliminating debt within a certain timeframe.

What are the benefits of starting with a clear financial snapshot? 

Starting with a clear financial snapshot provides a solid foundation to set realistic and attainable financial goals, helping you make informed decisions and track progress over time.

Is professional help needed for the first step? 

Professional help is not strictly necessary for the first step of assessing your financial situation, but it can provide clarity, accuracy, and expert insight, especially if your finances are complex. If you have investable assets of $250,000 or more, it may be wise to get in touch with a financial advisor who can help you with financial planning and investment management. 

However if your assets are under $250,000, then it may be best to begin the financial planning and investing process on your own. You can use a robo advisor to get started with investing until you’re ready to start working with a financial advisor. When you do start searching for the right financial advisor, you’ll likely want to find a fiduciary financial advisor if possible. 

What’s the next step after completing the initial assessment? 

After completing the initial assessment, the next step in the financial planning process is to define and set your short-term and long-term financial goals.

Connect with a Financial Advisor Online or In Person

SPEAK WITH AN ADVISOR

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms with over 30 years of experience. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

About the Author

Mike Rogers

Mike Rogers

Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.

In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”

Other Articles and Guides 

3 Main Elements of the Financial Planning Process

Retirement Planning for Self-Employed People

Learn More About Financial Planning for Retirement

Schedule a Call

At 360 Financial, our clients come first. You deserve personalized attention. You’ll be happier and more confident in your financial future when you have an advisor who always puts your needs and best interest first. Schedule a 15-minute introductory call with a 360 financial advisor to see how we can help with your retirement, succession, tax, and estate planning.

Schedule a 15-minute Call

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.