The Roth Advantage Part 2: First Time Homebuyer


March 16, 2018

Dan Kresh FPQP™


There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.

A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.

Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.

If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.

[i] IRS
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House

A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.

You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.

What is a Fiduciary?

 This question has gone on for a long time. Our industry is filled with words whose meanings have become misleading. Over the years stockbrokers, life insurance salesmen and others in this industry have used terms such as “Financial Advisor”, which sounds good but unfortunately has no true meaning. If a broker or insurance salesman, presents themselves as a “Financial Advisor” his or her obligation to you is no different than if he or she still used the old terms. Their obligation is to their company, and themselves, and they are compensated primarily by selling you something. They are not legally required to always put your interests first. Only a fiduciary has a legal obligation to put your best interests at the forefront.

To get an independent opinion on this click on the link below to an article in US News.

 http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/03/19/is-your-financial-advisor-a-fiduciary

Due to the long term confusion on this issue the Department of Labor passed regulations in an attempt to clarify who must act as a fiduciary. Last year the Department of Labor decided on new regulations regarding the fiduciary standard which are scheduled to become effective April 10, 2017.

It is important to note that my firm and I have been acting as fiduciaries for over 20 years, and will continue to do so whether required to or not. To make that even clearer I have officially obtained the designation of Registered Fiduciary™.

Below is the press release from Dalbar confirming my status. This will not indicate a change in how we work with our clients, but will clarify to you all that we have been and will continue to be FIDUCIARIES.

I will be writing about this more in the near future.

  

 

Lauren Forsberg

631-232-9170 This email address is being protected from spambots. You need JavaScript enabled to view it.

RF™ NEWS RELEASE

Michael D. Kresh CFP®Awarded Registered Fiduciary™ Certification

Islandia, NY 02/15/2017 Michael D. Kresh has successfully completed the training, validation and testing necessary to become a Registered Fiduciary™. The Registered Fiduciary™ (“RF™”) Certification identifies financial professionals and organizations as competent fiduciaries that have achieved pertinent educational qualifications and licenses, learned required skills, and have passed a background check.

The RF™ award to Michael Kresh recognizes particular skills in the area of Wealth Management.

In acting as a Registered Fiduciary™ Michael Kresh is committed to always acting in the best interest of clients, using the skills, ethics and focus on the client needs that the Certification represents.

“At a time when the public concern has been elevated by years of financial excesses and scandals, the RF™ validation process offers comfort in the knowledge that our firm has been found worthy of this distinction” said, Michael D. Kresh CFP RF adding “We have always been dedicated to our clients and this award gives us the independent confirmation of this policy.

 

Creative Wealth Management, LLC is a registered investment advisor and financial management planning firm led by Michael D. Kresh, CFP® RF™.   With a highly personalized approach, Michael Kresh and his team help clients with retirement income planning, asset management and a variety of personal finance services.

This is an important distinction that involves more than simply crunching numbers and creating an investment strategy.  With a raised awareness of what is needed, what is wanted, and what is realistically possible, clients are able to better focus on long-range planning for their lives, whether they are just starting out, preparing to send children to college or making plans to set a retirement date. 


 

For one client that goal may be a trip around the world , while for another it could mean the ability to devote time to community service, and yet another to begin a new business after retirement from a first career. Kresh and his team fully appreciate each client as individuals with their own unique goals, circumstances and timelines.

Creative Wealth Management, LLC helps clients reach goals with services that include

  • Investment management
  • Asset allocation
  • Integrated account aggregation   
  • Retirement planning
  • Retirement income
  • College savings  for children and grandchildren
  • Wealth preservation
  • Pension plans
  • Financial education for business owners and employees
  • Document protection and management

Clients appreciate the knowledge and care provided by Michael Kresh and his team.  An experienced and highly regarded advisor, Kresh understands the importance of his role for clients in the short and long term.  

Creative Wealth Management, LLC is dedicated to providing comprehensive, customized wealth managementservices with the highest level of personal attention. We offer the full spectrum of financial planning services, including retirement planning, wealth management, investment management, and special needs planning.

1377 Motor Pkwy, Suite 212  |  Islandia, NY 11749  |  P: 631-232-9170  |  800-639-0099  | F: 631- 232-9175

 

 

 

 

 

 

 

 

 © 2011 Creative Wealth Management, LLC

 







To learn more about the professional history of this financial advisor(s), please
visit FINRA’s  BrokerCheck.

 

 

The Registered Fiduciary Certification is based on the 2010 Fiduciary Standards of the Fiduciary Standards Board and validated by Dalbar, Inc., the independent expert.

The Fiduciary Standards Board is a not-for-profit (501(c)(3)) organization established in September of 2000 to develop and advance standards of care for investment fiduciaries, which includes trustees, investment committee members, brokers, bankers, investment advisers, money managers, etc. The Fiduciary Standards Board is independent of any ties to the investment community and therefore positioned to be a crucible for advancing fiduciary standards throughout the industry and to the public.

Dalbar, Inc. is the financial community’s leading independent expert for evaluating, auditing and rating business practices, customer performance, product quality and service. Launched in 1976, Dalbar has earned the recognition for consistent and unbiased evaluations of investment companies, registered investment advisers, insurance companies, broker/dealers, retirement plan providers and financial professionals. Dalbar awards are recognized as marks of excellence in the financial community.

 

 

 

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1377 Motor Parkway
Suite 212
Islandia, NY 11749
Phone: 631-232-9170
Fax: 631-232-9175
lforsberg@creativewealthllc.com

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