Broker Check

FEBRUARY 2024


I have always loved going to the movies. Growing up in the late 1980s and early 1990s I can vividly remember the sounds of the buzzing neon marquee emblazoned with films that are now considered classics. Opening the sizable metal doors to buy a ticket from a freshly starched uniformed employee. Stepping through the busy lobby engulfed with the warm savory smell of popcorn and liquid gold butter accented by the quarter clinks and dings of the arcade. But the one item I cherished more than anything, the one thing that seemed to always be tossed aside was the ticket stub.

That ticket stub was my tangible reminder of the experience, that film, that night…and I saved every single one. It became like second nature, I didn’t even think about it, I just did it. I would do my best to just show the ticket to the usher and not let them rip it or pull the perforated edge forever separating the ticket from the stub. This is what I chose to save. This was my habit. And, when I can, I still do it to this day.

This month’s topic is about the habit of saving. Webster's dictionary describes a habit as, “an acquired mode of behavior that has become nearly or completely involuntary.” I believe that we can all agree that ideally, we would like to be able to set aside funds for some item or event in the future. Buying a car, down payment for a home, funding retirement, or maybe an Apple Vision Pro. Whatever the “it” is, developing a habit of saving is at the core of what we do to achieve our savings goal.

This month’s Smart Strategies will examine two common savings goals: retirement and college.

Retirement Savings

Most employers today provide their employees with retirement benefits, commonly a 401(k) and 403(b). It allows you to save a percentage of your income that is automatically deducted from your salary and placed in an account that allows you to invest the money. While not required, most employers offer a company match to provide financial wellness and attract and keep talented workers. The match is then added to your portion allowing you to save more. You may have heard of the match referred to as “free money” and frankly, it is.

One of the key items I discuss with my clients is, if possible, contributing AT LEAST enough to take full advantage of the company match. Recently, SECURE Act 2.0 introduced several new provisions to help individuals more easily take advantage of their company’s plan. Starting in 2025 employers with new 401(k)/403(b) plans will be required to automatically enroll eligible employees in their plan with a minimum contribution of 3%, increasing each year until 10%, not to exceed 15%. Many current plans also offer this feature, and there is an ability to opt-out if desired. As a general planning assumption, saving at least 10% of your income is suggested, but many clients choose to do more.

In 2024, the total contribution amount that can be put into a company plan is $69,000, or for those over age 50, $76,500 with the catch-up contribution allowance.  Getting into the habit of consistently contributing and having the mindset to keep doing so, especially as your salary increases, can have a monumental impact on your lifestyle in retirement.

College Savings

There are several ways to save for college: 529 plans, Coverdell Education Savings Accounts, prepaid tuition plans, and taxable UGMA/UTMA accounts to name a few. Today I want to focus on the 529 account as this is typically where the discussion starts when it comes to college savings.

A 529 account is a savings vehicle where contributions are deposited after tax and commonly invested into a portfolio of mutual funds and other investments. The earnings on these contributions grow tax deferred. Additionally, many states offer tax incentives such as a state tax credit or deduction incentives that can vary based on your tax filing status.

Withdrawals made for qualified education expenses allow for the earnings portion to be considered tax-free. A qualified education expense is defined as items considered essential for education such as tuition, textbooks, and lab materials.

It should be noted that 529s are not just limited to “traditional” colleges. Institutions that are eligible for Title IV federal student aid generally qualify as a qualified education expense. While you should check with the institution this can include trade schools, culinary schools, and cosmetology schools.

Starting in 2024 the SECURE Act 2.0 granted the ability to rollover unused 529 funds to a Roth IRA in the name of the 529 beneficiary. It should be noted that there is a lifetime maximum of $35,000, the 529 must have been established for at least 15 years, and annual IRS annual contribution limits must be followed. Additionally, there is still some ambiguity if changing beneficiaries disrupts the holding period. 

Remember the definition of a habit? A behavior that we do that is essentially involuntary. There are many ways to save for retirement or college, but there is no one right way for us all. Make it a habit to speak with your advisor about what saving strategies you can do now and, in the future, to complete that bridge to your goal.

Oh…and if you wondering what stub is my favorite? Well…I think I leave you wondering….and that’s all I have to say about that.

Do you need help with your retirement or college savings?

Thank you!
Oops!

Did You Know?


Did you know?


After the end of each calendar quarter, Prosperity hosts a market update. Our Chief Investment Officer, Brett Jergens CFA®, CFP® hosts a webinar over the lunch hour to provide experienced market analysis which builds investment confidence.

Learn more here.


Tax documents are finding their way to your mailbox. It can be easy to overlook a document and file your return without all the proper information. Let’s discuss the timeline in which you should receive certain documents.

Mailed By January 31st ... Most documents should be mailed to you by January 31st. Below are some common documents for this deadline.

  • W-2 employee wages earned
  • 1099-NEC contractor wages earned
  • 1099-R pension or retirement distributions
  • 1099-INT interest earned
  • 1099-DIV dividends received
  • 1099-SA distributions from health savings accounts
  • 1099-Q distributions from a college savings plan (There may be additional documents to watch for if you paid college tuition.)

*If it’s past the first week of February and you haven’t received these yet, contact the appropriate party.


Mailed By March 15th ... Prosperity Advisors accounts held with Cetera will be mailed out in the intervals below.

  • Phase 1 (Jan 31st) - Accounts with holdings and income that typically do not require reclassification or additional information from users.
  • Phase 2 (Feb 15th) - Accounts holding mutual funds, certain unit investment trusts, REITS, and certain equities.
  • Phase 3 (Feb 28th) - Accounts with information from previously pending income reclassifications.
  • Phase 4 (Mar 15th) - All remaining accounts

If you have direct investment accounts, you will likely receive a 1099 or 1099-B that provides information about capital gain distributions, stock transactions, interest, dividends, etc. The document availability varies – some years it’s ready earlier in the year, other years it’s later.

Other Information May Be Needed 

You can have tax implications and not receive documents, but it is important to share with your tax preparer. For example, 529 plan contributions, IRA/Roth contributions, Roth conversions, back door Roth contributions and Qualified Charitable Distributions.

It’s always good to first check online as tax documents are often available electronically. Speaking of online availability, you can always check the Tax Docs section in your AdviceWorks account. Oftentimes, these documents are available on AdviceWorks a week or two before arriving in your mailbox. If you are not enrolled with AdviceWorks, learn more here.

Prosperity Tax Center 

We do taxes! Our tax team is available to prepare your tax return for you. Contact your advisor or analyst for more information or visit our website.


Questions?

Let us know if you have any questions! Or if you would like to schedule a time to meet and see how Prosperity Advisors can help you with your financial goals, let us know.

Learn more