Bowers Private Wealth Management

We took on a new client a while back.

Solopreneur with a homemaker spouse. They’re incredibly savvy, but they were hesitant to work with us as they’ve always been DIYers.

They agreed to go through our proven planning process with us to make sure they weren’t overlooking anything as they prepare to retire in the next 5 years.

Here’s what we found:

Solopreneur making ~$300k/year was still set up as a sole proprietor with an effective tax rate above 22%.

Investments have been outperforming the market (S&P 500) for the past few years, but a few of the accounts were being neglected and putting a drag on the overall portfolio.

Basic estate planning documents were in place, but they were over a decade old.

Numerous insurance policies had them paying well over $1,000/month and left them over-insured with coverage not suitable for their situation.

Business expenses seemed very low for their level of income.

In our first two meetings, we:

Discussed switching to an S-Corp and ran some projections to estimate a roughly $20k tax savings per year.

Referred them to one of our CPA partners to further discuss the S-Corp election and to help ensure they’re claiming all the appropriate business expenses.

Provided recommendations to update their estate planning documents and advised a revocable trust for better protection and more control.

Provided a recommendation on a reasonable amount of insurance, along with new quotes (including termination fees), and highlighted the policies they should keep.

Provided recommendations for the underperforming investment accounts, and an asset relocation strategy to improve tax efficiency.

They weren’t doing anything wrong.

Actually, they were arguably doing much better than most.

But that doesn’t mean there wasn’t room for improvement. Sometimes, just a few little tweaks are all that’s needed. In this case, just a few tweaks ended up saving over $20k per year.

Disclosure:

These are generalized scenarios for educational purposes and are not intended to represent any specific individual or guarantee similar outcomes.

Happy Labor Day! We hope you're taking some time off to enjoy the day, spend time with friends and family, and enjoy life.

“Should I max my 401(k), do a backdoor Roth, fund an HSA, or invest in a brokerage account first?”

This is a great question because it means you have options.

There’s not one universally right answer. The best order depends on what your situation is and what your objectives are.

A “general” answer is:

Contribute to 401(k) to get the match
Max out HSA

Then:

Max out 401(k) if you’re in a high tax bracket
- Mega backdoor Roth if your plan allows it
Or contribute to taxable brokerage if more flexibility is desired
- Maybe combine this with a backdoor Roth IRA

We need to help determine your goals and objectives before we can lay out the plan that’s right for you.

The real win is not choosing the “best” account in isolation. It is building a system where each account has a job.

Most people think of retirement planning as a single number. But the number is really just a proxy for something else: whether your money can support the life you want, for as long as you need it to. That's a moving target. Your spending will look different in year one than it will in year fifteen. Health care costs shift. Tax law changes. Your own goals evolve as life does. That's why the more useful exercise isn't chasing a number, it's building a plan that gets revisited regularly: -

What Your Retirement Number Actually Needs to Do Retirement planning gets treated like a single number. Save enough, hit it, done. But the number is a proxy. What actually matters is whether your money supports the life you want, for as long as you need it to. That target moves. Spending changes over decades. Tax law changes. Your goals change too...

The tax code was written for the benefit of business owners.

Sure, there are benefits for employees, especially those with equity compensation and other exceptional benefits, but the bulk of the benefits are for business owners.

Here are some examples:

Establishing business retirement accounts can reduce taxable income or future taxes.

There are different entity tax elections for business owners to select the one that is most beneficial to them.

The qualified business income (QBI) deduction allows owners to reduce their taxable income.

Hiring your spouse and/or children allows you to lower taxable income and keep the money within your family.

You can partially dictate when income and expenses are realized, to have better control of your taxes.

This is just scratching the surface of various ways business owners can control and lower their tax bill.

SFA and Bowers Private Wealth Management do not offer tax or legal advice.

“Can we afford to help our parents without hurting our retirement?”

This is a great question to ask.

Many people instinctively help first and evaluate later. That comes from generosity and caring, but you still need to consider your future. Otherwise, you might end up putting your kids in the same situation later in life.

Helping parents may absolutely be the right move. The key is understanding whether the support is manageable, how long it may last, and what tradeoffs it creates.

We often model:

short and long-term scenarios
one-time lump sum help
impact on retirement timeline
tax consequences of withdrawals
what happens if care needs increase later
other ways you can help

It’s natural to want to take care of your parents, they took care of you after all. We help you think through the best ways you can support them without derailing your own future.

Should I hold my RSUs after they vest since the company has been performing well?

Your RSUs vest, your company stock has been on a nice run, so the instinct is to hold on and see where it goes. We get why. It's a fair question, and it's one we hear often from people in tech and biotech here in the Triangle.

The thing about RSUs is that once they vest, they're yours. They're already taxed as income at that point regardless of whether you sell or hold. Holding doesn't really "avoid" anything tax-wise. What it does mean is that you now own more shares of your company’s stock, and a growing chunk of your net worth is tied to a single company. On top of that, your paycheck and benefits already depend on that same company. You’ve already paid taxes and the money is yours, now it’s subject to market risk and potential taxes from a future sale to consider.

That's the concentration piece worth mulling over. A stock that's done well can keep doing well, or it can turn quickly, and there's no way to know which in advance. Yes, there’s the opportunity for long-term capital gains or tax-loss harvesting, but are those the opportunities you’re looking for?

Diversifying some of that position isn't a bet against your employer. It's just spreading your eggs across more than one basket. Ask yourself this: If your company paid out that amount in a cash bonus, would you take that money and reinvest it in your company’s stock?

If you've got a kid in college and a parent who might need help soon, you're carrying two financial responsibilities at once, and it can feel like you have to choose.

We wrote about how to approach that balance without losing sight of your own retirement, plus some practical options for college funding beyond a 529 plan and how to start the harder conversations about a parent's care before you're forced into them.

Take a look

Caught in the Middle: A Financial Game Plan for the Sandwich Generation | Bowers Private Wealth Management Being part of the sandwich generation isn’t just an emotional reality. It’s a financial one. If you’re helping pay for a child's education while also keeping an eye on an aging parent's finances, you already know the feeling.

"Should I use a 401(k) loan to pay off credit card debt?" is one of the more common debt questions we get, and it's a good one.

The math looks appealing at first glance.

You're borrowing from yourself.

The interest you pay goes back into your own account instead of to a bank. No credit check, no impact on your credit score. On the surface, it seems like an easy win.

Here's where it gets more complicated.

That borrowed money is out of the market while you're repaying it, so it isn't growing, outside of the small interest rate.

If you change jobs or get let go before the loan is repaid, the remaining balance is due much sooner than expected, sometimes within just a few weeks.

And if you can't repay it, it may be treated as a distribution, which can bring both taxes and penalties into the picture.

None of that means a 401(k) loan is always a bad idea. It can make sense in the right situations. However, it's a decision that deserves a real look at the numbers and the "what ifs," not just the appeal of a lower interest rate.

Ever wonder what a 529 plan can actually be used for beyond tuition?

Turns out quite a bit. Books, required equipment, certain certificate programs, even continuing education courses can qualify. And if you pay an expense with a credit card first and reimburse yourself from the 529 afterward, you can pick up some cash back or points along the way.

We also get a lot of questions about what happens when there's money left over. Good news: you're not stuck. Funds can move to a Roth IRA for the beneficiary, or the beneficiary can simply be changed to another family member.

We wrote up the details on all of this, including a few rules that are easy to miss.

Getting the Most Out of Your 529 Plan | Bowers Private Wealth Management A 529 plan can do more than you might think, from covering certificate programs to converting leftover funds into a Roth IRA. Here's what to know.