Nov 16

Making Sense of Exchange Traded Funds

By Chris Chen CFP |

Exchange Traded Funds (ETF) have taken the investment world by storm in the last few years. No longer do social climbers talk about their hot growth stock mutual fund (the ones only they have) but now all the rage is about getting more for less by picking ETF’s. What do you mean? Getting more is all about getting higher returns and the less part applies to the cost of such investments. More for less—I like it! Is it really this simple? How are ETF’s different from the mutual funds in my 401K? Are all ETF’s made the same? Should I just buy a bunch of these ETF’s and sock them away? We will share with you our enthusiasm for using exchange traded funds but we will also discuss potential pitfalls, issues to consider and most importantly how to navigate through the maze of available investment choices and find those EFT’s that suit your goals and expectations.

Nov 09

Making a Social Impact Through Your Investments

By Chris Chen CFP |

In the last few years investors both large and small have shown great interest in supporting socially impactful business that also exhibit sustainable financial performance. Many investors have added a series of environmental, societal and governance (ESG) criteria to the more traditional way they select investments. Often the goal is achieving a double bottom line—doing good for society while also enjoying a return on the investment. Is this all a fad? What exactly do we mean by ESG? How do we find these investments? Can anybody participate in this trend? Are there easy ways to invest? Will this approach subtract from portfolio returns? We will share industry leading research on this topic and answer these and other key questions on how to do good while also getting a return on your investment.

Oct 27

Mediation and Financial Planning

By Chris Chen CFP |

Chris will participate in a panel of mediators and financial planners to discuss how mediators and financial planners can work together for the best interest of clients. The panel will be at the annual meeting of the Association of Divorce Financial Planners in Chicago.

Sep 30

Retirement Investment Strategies

By Chris Chen CFP |

You’ve worked hard for years. But is you money growing at the right rate?: Have you saved enough to take into account the effects of inflation on your lifestyle, our increased longevity, the uncertainties of the economy and financial markets, and taxes?: Join us to better understand how to determine where you are and where you want to be in order to retire with financial confidence and peace of mind. Class is co-taught by Chris Chen and James Wood.

Sep 28

10 Important Divorce Considerations

By Chris Chen CFP |

As a divorce financial planner, Chris Chen  helps individuals and couples go through the process of divorce, together with their mediators and lawyers. This class represents some of what they have observed happens in real life, in particular with the financial issues of divorce. Although Chris is not a lawyer and does not provide legal or tax advice, they can provide some very helpful insight for those considering divorce or currently working through the process.

Sep 15

Overview of Divorce Financial Planning

By Chris Chen CFP |

This presentation for the Financial Planning Association will give an overview of divorce financial planning from the Certified Financial Planner’s viewpoint.  It will cover key considerations for clients, tools that can be used to help them, and common issues.  Divorce remains a common occurrence for many with a potentially devastating impact for many. Financial Planners are ideally positioned to help clients adjust to their new reality and help them plan for a financially successful future.

Sep 14

Massachusetts Child Support Guidelines

By Chris Chen CFP |

Massachusetts’ new child support guidelines go into effect on September 15, 2017.  This workshop for the monthly meeting of the Association of Divorce Financial Planners will review the changes compared to the previous guidelines from 2013.

Sep 03

Roth 401(k) or not Roth 401(k)?

By Chris Chen CFP | Financial Planning , Investment Planning , Retirement Planning , Tax Planning

Roth 401k or not Roth 401k?

Which is better, more money in your paycheck or more tax-free cash in your retirement? It’s an important question only you can answer. 

According to a 2017 research paper at Harvard Business School, employees who have the option to contribute to a Roth 401(k) instead of a traditional 401(k) tend to contribute the same amount to either account. Given that a Roth 401k tends to result in more money taken out of your paycheck every week or month than a traditional 401k, that’s unexpected!  

Traditional 401k contributions are made on a pre-tax basis while Roth 401k contributions are made post-tax . So, assuming a given level of cash flow available, most of the time contributions to a traditional 401k will be easier than contributions to a Roth 401k because traditional plans drive your annual taxable income lower. You’ll still have to pay taxes on the contributions later when you retire. but the “taxable event” is deferred.

Take the case of Priya, a 49-year-old single mom. She makes $135,000 a year and lives alone with her son.  Not counting her employer’s match, Priya saves $350 per pay period in her traditional 401k, totaling $9,100 a year.  Absent other considerations, her $9,100 contribution reduces her annual taxable income from $135,000 to $125,900.  As a result, since her taxable income is less, she will pay less income taxes.

Roth 401ks and Roth IRAs are not tax-free: they are merely taxed differently

What if Priya were to switch her contributions to her company’s Roth 401k? She is considering contributing the same amount: $9,100. However, because contributions to a Roth are post-tax , they would no longer reduce Priya’s taxable income.  Thus, she would pay taxes on $135,000 instead of $125,900.  Hence Priya would end up owing more taxes for the year.

No brainer for the traditional 401k, right? Wrong. Roth 401ks provide one major advantage. If Priva switched to the Roth and maintained her contribution level, she might end up with more income in retirement as Roth 401k distributions in retirement are tax-free , whereas traditional 401k distributions are taxed as income .  However, switching her contribution to the Roth would be at the expense of her current cash flow.  Can Priya afford it?

What if she would reduce her Roth contribution to keep her current cash flow constant? In that case, it is not clear that Priya’s after-tax income in retirement would be higher or lower with a Roth 401k than with a traditional 401k. Answers would require further analysis of her situation.

It’s important to remember that Roth 401ks and Roth IRAs are not tax-free: they are merely taxed differently . That makes the decision to invest in a Traditional or a Roth 401k is an important financial planning decision :  employees need to understand the benefits and drawbacks of both approaches to make an informed decision that balances current spending desires with future income needs.

According to John Beshears, the lead author of the Harvard study, one possible explanation for his finding is that people are confused about the tax properties of the Roth . Another possibility could be that people have greater budget flexibility than they give themselves credit for. Either way, employees should seek additional support before making this very important decision.

 

A prior version of this article appeared in Kiplinger and Nasdaq.com
 

Jun 24

Investing for Retirement

By Chris Chen CFP |

You’ve worked hard for years. But how can you be sure that you will be able to enjoy the comforts of life when it comes time to retire? Have you saved enough to take into account the effects of inflation on your lifestyle, our increased longevity, the uncertainties of the economy and financial markets, and taxes? Join us to better understand how to determine where you are and where you want to be in order to retire with financial confidence and peace of mind. Join Chris Chen, CFP® a wealth strategist at Insight Financial Strategists LLC for this educational workshop – as an investment professional he specializes in navigating clients through challenging life transitions such as retirement.

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