Is the 401(k) Finished?

Why some of the earliest proponents of the 401(k) regret their support…and why you need to build your financial ark today

"We weren't social visionaries."

Those are the words of Herbert Whitehouse, a former human resources executive at Johnson & Johnson who was one of the first to usher in the 401(k).

"It was oversold."

Those are the words of Gerald Facciani, the former head of the American Society of Pension Actuaries. He helped defeat an effort by the Reagan administration to kill the 401(k) in 1986.

The misgivings of the early proponents of the 401(k) are chronicled in a bombshell article from the "Wall Street Journal", "The Champions of the 401(k) Lament the Revolution They Started."

According to the article:

Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn't designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

Financial hindsight

As they say, hindsight is 20/20. And it's now clear that the 401(k) has helped usher in a retirement crisis in America. As the WSJ reports, "Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income," and "Roughly 45% of all households currently have zero saved for retirement…"

Still, there are defenders of the plan. If only people would actually save money at a healthy rate in the 401(k), it would provide all that was needed for retirement. A healthy rate was considered 3% of your income with an assumed 7% annual increase.

Proposed plans to dump the 401(k)

In fact, it's this ethos that is behind proposals to force contributions by employees to the plans or another government run plan. Again, as the WSJ reports:

Ms. Ghilarducci wants to ditch the 401(k) altogether. She and Blackstone Group President Tony James are recommending a mandated, government-run savings system that would be administered by the Social Security Administration and managed by investment professionals. While both are Democrats, they believe their solution has bipartisan appeal…

Others are calling for a national mandate on savings or requiring companies to automatically enroll participants at 6% of pay. Sen. Marco Rubio, the Florida Republican, has proposed opening up the federal government's Thrift Savings Plan, the 401(k)-style plan for federal employees, to private-sector workers.

This same Teresa Ghilarducci calling for a mandated government savings plan "offered assurances at union board meetings and congressional hearings that employees would have enough to retire if they set aside just 3% of their paychecks in a 401(k). That assumed investments would rise by 7% a year," according to the WSJ.

The 401(k) math simply doesn't work

Ghilarducci has since come to realize that the math doesn't work. Many thought it did due to bull markets in the 80's and 90's, but the downturns of the 2000's erased much of that wealth. Today, the market is raging again, especially since Trump's election to the presidency, but there are already rumblings that we are at the tail end of a bull run and getting ready for a major plunge into a bear market.

What does this mean? Those who are finally catching up from the losses to their 401(k)s from the last recessions could be in for yet another crash that could decimate their retirement savings yet again.

Is the biggest stock market crash in history coming?

Of course, I predicted this scenario in 2002 when I wrote "Rich Dad's Prophecy". In that book, I predicted the worst stock market crash in history. Why? Because starting in 2016, the first wave of Baby Boomers began retiring. And where is there money for surviving during retirement? In 401(k)s. By law, the 76 million Baby Boomers will have to take distributions from their 401(k)s as they retire.

Couple this pressure of mandatory withdrawals with the fact that China is slowing down considerably and in danger of a downturn, and you could see a major collapse in the stock market. The result would be catastrophic.

So what should you do?

Build your financial ark

My advice is to build your "financial ark". By this I mean to truly diversify your investments outside of just paper ones. Invest in commodities like gold and silver. Find investments that provide cash flow through rent or dividends rather than rely on appreciation. Invest you money in things that can hedge against inflation.

Most people will not have the financial intelligence to do this. Rather, they will continue to dump money into their 401(k)s, if they save anything at all, believing the old financial lie that saving enough for long enough will ensure a strong financial future. That's a lie that not even the earliest cheerleaders of the 401(k) believe any longer.

The rules of money have changed. It's time you changed with them. If you don't, you'll have only yourself to blame.

Five Ways to Always Be Learning

How to continue your education outside the classroom

The Rich Dad Company's mission is, "To elevate the financial well being of humanity." Robert and I have carried that mission with us from the moment we set out on our journey. We knew it was going to be a long road, but we truly believed that we could make a difference and help others achieve financial freedom.

There were many ways we could have gone about achieving our mission, but in the end it seemed clear to us that focusing our efforts on financial education was the best choice. After all, education is the first step to changing your life.

At Rich Dad, we believe you should always be learning. The world is always changing. New technology, new terminology, and changes in the political and economic arenas are always happening. In order to keep up, you have to always be learning. It doesn't matter what you're learning, as long as you are continually educating yourself and acquiring new knowledge and skills.

Why you should keep learning

Learning is a habit. Your brain is a muscle, and like any other muscle you have to work it out by continually learning new things.

But for many, it's hard to keep learning, especially when your days are eaten up by a 9-to-5 job. But if you're stuck on the left side of the Cashflow Quadrant, living life as an employee, continuing your education is especially important because it's the only way you can make the shift to the right side.

Oftentimes, employees get really good at one specific set of skills. They perform the same job every day, and develop an in-depth understanding of that one area. But over time, if they aren't learning and growing, they lose their ability to learn new things. And with it, they lose the chance to grow and make the shift to the right side of the quadrant.

The good news is there are multiple ways you can continue your education, and none of them involve shelling out a ton of money or going back to school.

1) Read

This might seem like a no brainer, but the sad fact is, a good number of adults don't finish a single book in a year. In fact, according to Pew Research, 27% of adults never read or even started reading a book in 2015.

Books are one of our greatest resources when it comes to continual learning. That's why Robert and I have published multiple books over the past several years. They're easier to access than ever with the advent of e-readers, and there's a book for every topic you might be interested in.

You can also find online blogs and articles that keep you informed. Just picking up the newspaper in the morning could teach you so much. A few weeks ago I wrote about a nun in Germany who studied investing just by reading the financial column of the newspaper every day. She didn't have any other formal education, but found a way to continue learning that paid off big in the end. If she can do it, so can you.

2) Listen to Podcasts

Don't have time to read? Try a podcast. The great thing about podcasts is that you can listen to them anywhere. On your morning commute to work, on an airplane, or even when you're doing chores around the house.

Robert and I started the Rich Dad Radio Show podcast a few years back once we saw how valuable podcasts were. In our show, we bring on guests with unique experiences, backgrounds, and opinions to discuss different financial topics. While our podcasts last an hour, you can find other podcasts that range from 10 minutes to half an hour.

You can browse through podcasts available through the iTunes store or other outlets. The best part? Most of the time, they're completely free! That's right, you get continuing education, anytime, anywhere, for free. Still think you can't continue to learn outside of school?

3) Sign up for a course

Like I said before, you don't have to go back to school to continue to learn. But if you find that you learn information better in a more formal environment, you might consider signing up for an educational course.

This could be an in-person course or an online course you can complete on your own time. For example, CodeAcademy is an online platform that lets you learn how to code on your own time. You can learn the basics for free at your own pace.

Many universities are starting to offer courses online as well, for lowered costs or even for free. Yale, for examples, offers a whole series of recorded lectures at Open Yale for free. You can choose from their offered topics and watch distinguished professors lecture from the comfort of your own couch. Their classes range from introductory psychology to politics to music.

At Rich Dad, we offer workshops across different platforms and cities to help bring the ideas we discuss every week directly to you. From online webinars to in-person workshops and one-on-one training, you can get the lessons of Rich Dad in whatever method you best learn.

Everyone has a different way of learning, so finding a workshop or course that meets your learning style is imperative.

4) Play games

I always laugh at people's reactions to this one. They often ask how playing a game could possibly teach you something new. I just point them to our CASHFLOW® board game.

Robert and I created CASHFLOW® as a way for people to practice what they'd learned about financial literacy without putting real money on the line. The best way to learn is by doing, so why not play games to practice your newfound knowledge.

Beyond the content of the games, every time you sit down to play a new game you exercise that part of your brain that helps you learn new things. Think about it! When you learn a new card game or board game, you have to learn the rules quickly and apply them in order to win. And since each game is different, you are always practicing learning.

Chess, for example, is all about strategy and predicting your opponent's next move. Even video games can teach you a thing or two about leadership and creativity, especially if you play with or against others.

Not to mention, playing a game is often far more fun that sitting down to read a textbook.

5) Build new relationships

The amount of information we learn from other people is astounding. You've learned all of life's most important lessons from other people. You learned how to walk and talk from your parents and you learned social skills on the playground as a child.

Every time you meet someone new you learn something. Everyone has their own wealth of knowledge gleaned from their own unique backgrounds and experiences. Sometimes, the greatest way to learn something new is by taking someone to lunch and just having a conversation.

That's why it's important to build new relationships with people who have different backgrounds and experiences than you. Whether it's a mentor, a friend, an acquaintance or even a family member with interesting experiences, learning from others is a great and engaging way to continue your education.

Cultivate the habit of learning

Even if it's something small, try learning at least one new thing a day. Be mindful in your continuing education. Go into the day having a specific goal in mind, or area in which you want to grow. Make continuing education one of your resolutions for 2017.

3 Things Rich Women Do Differently

A change in mindset can bring out the Rich Woman in you

When I wrote the book Rich Woman back in 2008, the world was very different. We were in the middle of the great recession, times were uncertain, and we faced a lot of economic turbulence. I wanted to write a book that spoke to women everywhere facing these financial difficulties, and give them the mindset and confidence to take control of their future.

Though it's been nearly a decade since then, that mission remains the same.

Women have come pretty far since 2008. There are a growing number of female entrepreneurs and women-owned businesses. In fact, the 2016 State of Women-Owned Businesses reports that in 2016 there were "11.3 million women-owned businesses in the United States, employing nearly 9 million people and generating over $1.6 trillion in revenues."

According to a recent article in the Wall Street Journal, several women are also making strides to earn top positions at several major U.S. companies, including Tupperware, Verizon, Abercrombie, and Kohl's, shattering the glass ceiling one pane at a time.

But there's still a lot of work to be done, and the Rich Woman message is more important than ever.

As I wrote in my book, I believe there is a Rich Woman in every woman. Being a Rich Woman has nothing to do with the amount of money in your bank account or your job title. Rich Woman is a mindset, a perspective that shapes your actions, a desire to be in control of your life and finances and not depend on anyone else to take care of you.

There's a Rich Woman inside you too, a woman who is rich in spirit and in all ways financial. All you have to do is find her.

It starts with a simple change in mindset. Below are three things Rich Women do differently that you can use to guide your own journey towards financial empowerment.

1) Rich Women Create Their Own Path

A Rich Woman doesn't follow the corporate ladder. She doesn't follow someone else's footsteps or take the path laid out for her. Instead, she forges a new trail to her own definition of success.

It's been proven time and time again that climbing the corporate ladder just doesn't work for women. Women win less promotions and fewer raises, they receive less feedback and have less access to mentors. At every turn of the corporate game, women are at a disadvantage. Following the traditional path doesn't work.

So instead of battling against the corporate ladder, Rich Women define and then create their own path.

We all have a different idea of what success looks like. It's not always a certain number in the bank or a specific job title. Sometimes being successful means having enough time to spend with our families, or enough money to retire by a certain age.

A Rich Woman starts by defining what success means for herself. She doesn't let others define success for her, but discovers her own vision of her future that will bring her a sense of accomplishment.

She also knows that it's foolish to try to follow anyone else's path to her unique definition of success. Instead, a Rich Woman lays the groundwork for her own path. She builds her own ladder to the top.

2) Rich Women Embrace Failure

What's the number one reason women don't take that first liberating step to financial freedom? Fear of failure.

So many women are too afraid to fail that they never even start. They shy away from risks, taking the cautious road and never finding the confidence they need to thrive.

But Rich Women embrace risk. They aren't afraid to fail, in fact they welcome failure because they know it will teach them a lesson that will help them grow.

When Robert and I quit our jobs to pursue building our company, we took a huge risk. For several months we were consider failures, living on other people's couches and unable to pay our bills. Every day I considered quitting, but I didn't. Each failure taught us something that allowed us to move forward, until we finally succeeded in our dreams.

Rich Women recognize that failure is a part of life. There's no avoiding it, so they take advantage of their mistakes and learn from them.

3) Rich Women Are Generous

Rich Women give back to others. They are charitable with their time and money and have a giving spirit that guides them in all they do.

You must give in order to receive. It's the law of the universe. I always sense hesitation when I talk about being generous on the path to becoming financially independent. It seems counterintuitive that to make money you have to give. But being charitable is a cornerstone to the Rich Woman mentality.

And Rich Women give back in multiple ways, not just financial. They are generous with others, especially other women. They aren't competitive and petty with other women in their industry. Instead they work to lift other women up and help them succeed.

According to a recent study , female executives in the film industry are more likely to hire women in each and every category. We see this trend happening across the board. Rich Women build companies and businesses that create opportunities for other women.

Rich Women also give generously with their time. It's been proven that women have less access to mentors. Rich Women recognize the importance of having a role model, so they become a role model for others. They give their time to mentoring others, and helping them discover the Rich Woman inside them.

Discover the Rich Woman in you

You have a Rich Woman inside you who is waiting to be free. A Rich Woman creates the life she wants and deserves, achieving freedom and confidence and enjoying all the things the world has to offer. Change your mindset, feed your spirit, and let your Rich Woman soar!

Are you Uninformed About Estate Planning?

Do you have a plan in place if you can’t make health and financial decisions for yourself? What about a plan to protect your loved ones in the event you become injured or die? If you don’t, you’re not alone. Many Americans don’t have proper estate plans in place.

It is absolutely necessary that everyone has the conversation and gets a plan in place. According to a study from the Boston College Center on Wealth and Philanthropy, an estimated $59 trillion in wealth will be transferred from 93.6 million American estates between 2007 and 2061. Yet less than half of American adults have a proper plan in place.

Many people don’t know what they actually need. They mistakenly think their spouse or loved one can simply “step in” and make health and financial decisions on their behalf. Another misconception is that a simple will is enough to properly transfer assets upon death and take care of loved ones. That’s not normally the case. Others think they don’t need to do anything at all because they aren’t “wealthy”. Additionally only 30 percent of those with a plan bother to update it to reflect changes in their lives (and the law). It’s why at AlerStallings, all our planning includes annual reviews!

Estate planning is not only for the wealthy – it is for everyone. A proper plan that stays updated as your life evolves will not only protect you, but also your loved ones. In Iowa an estate is established with more than $25,000 and in Wisconsin being $50,000. Don’t leave your loved ones with a burdensome mess. Take time to sit down with an experienced elder law attorney and have the conversation. At Hensley Capital Management we believe knowledge is power. If you haven’t started the conversation yet or would like to see if the tools you have in place are enough, please contact us today.

How a Roth IRA Conversion Can Help You Pass On More Wealth

Most people think of a Roth IRA conversion as a way to generate tax-free income for their retirement. But a recent Vanguard study shows that converting savings in a traditional IRA or 401(k) to a Roth IRA may also be able to help you leave a bigger legacy to your heirs.

 The rub: Determining the extent to which your beneficiaries will benefit from a conversion—or for that matter whether they'll be better off at all—may be trickier than you think.

At first glance, deciding whether to pass along assets to your heirs in a traditional tax-deferred IRA or convert the account to a Roth IRA may seem like a no-brainer. After all, if your beneficiaries inherit a traditional tax-deferred account, they'll owe income taxes when they pull the money out. Funds in a Roth IRA, by contrast, can be withdrawn tax free. So a Roth is the obvious winner, right?

Not necessarily. Whether your beneficiaries will come out ahead by inheriting money in tax-deferred or tax-free accounts depends on a number of factors, including your marginal tax rate when you convert savings to a Roth, your heirs' marginal tax rate when they withdraw the funds, how you pay the taxes on the conversion and how long the money remains in the Roth. Adding to the uncertainty now is the prospect of tax rates being lowered under President Donald Trump. That's a reason to think about waiting even if a conversion seems to be in your family's interest.

 To gauge whether converting assets held in a traditional IRA to a Roth IRA and then bequeathing the Roth can leave a beneficiary with more after-tax dollars, consider an example in the Vanguard study: a hypothetical 65-year-old in the 28% income tax bracket with $100,000 in a traditional IRA and $28,000 in a taxable account who would like to leave a legacy to a 40-year-old non-spouse beneficiary who is also in the 28% bracket.

 One option is for the 65-year-old to convert the traditional IRA to a Roth IRA and use the $28,000 from the taxable account to pay the income tax due from the conversion. He or she would thus bequeath the beneficiary $100,000 of tax-free funds in a Roth IRA. Another option is to skip the conversion and simply leave the beneficiary the $100,000 in the traditional IRA and the $28,000 in the taxable account. The assumption is that in both options all the money is invested in a 50-50 mix of stocks and bonds that earns 6% a year and that all gains are reinvested.

(The study also includes a third possibility, doing the conversion and paying taxes from the funds held in the traditional IRA. But I've excluded that option since less money makes its way into the Roth if taxes are paid with funds from the traditional IRA, making the conversion less effective.)

Vanguard calculated how much money the beneficiary would inherit after income taxes under the two options described above, assuming the account owner dies 20 years later at age 85, at which point the beneficiary would be 60 years old.

 So how does the beneficiary fare under each of the options? Well, if the account owner converts, Vanguard estimates that the beneficiary would inherit a Roth IRA at age 60 with a tax-free balance of roughly $340,000. If, on the other hand, the account owner forgoes the conversion, the beneficiary would inherit the traditional IRA and taxable account, which Vanguard estimates would have an after-tax value of approximately $323,000.

 Bottom line: By doing the conversion, the account owner would leave the beneficiary with about $17,000 extra after taxes, or about 5% more had the beneficiary inherited the traditional IRA and taxable account and paid any income taxes due on both accounts. In short, if the goal is to leave the beneficiary with more money, doing the conversion would appear to be the smarter move.

But just because converting to a Roth comes out ahead in this scenario doesn't mean it always will. To see how the outcome might change, I asked Vanguard to run a few scenarios where the account owner's tax rate and the beneficiary's aren't the same.

 So, for example, if you take the same scenario described above but assume the beneficiary is in a lower tax bracket—say, 15% for the beneficiary vs. 28% for the account owner—the traditional IRA plus taxable account comes out slightly ahead of the Roth. The margin is small, about 1%, or $344,000 vs. $340,000. The difference in favor of the traditional IRA plus taxable account grows, however, if the beneficiary is in much lower tax rate than the account owner. If you assume, for example, that the account owner faces a 35% marginal tax rate while the beneficiary pays tax at a 15% rate, then the traditional IRA plus taxable account beats the Roth by a somewhat wider margin of almost 3%, or $349,000 vs. $340,000.

 Of course, the pendulum swings the other way if the beneficiary's marginal rate is higher than the account owner's. If the account owner faces a marginal tax rate of 28% while the beneficiary is in the 35% bracket, the Roth conversion comes out much farther ahead: $340,000 vs. $312,000, or by about 9%. The conversion would do even better if the gap were larger, say, with the account owner facing a 15% marginal tax rate and the beneficiary in the 35% bracket.

These examples show that tax rates are a major consideration when deciding whether to convert. Generally, converting to a Roth makes more sense if your marginal tax rate is lower that what your beneficiary's rate will be later on. In effect, you're arbitraging tax rates to your benefit, paying the tax for the conversion when your rate is lower and avoiding what would be a tax hit at a higher rate when the funds are withdrawn later on.

 But tax rates aren't the only factor. If they were, then you would expect the outcome in Vanguard's original example where the account owner and beneficiary face the same marginal tax rate to be a toss-up, with the beneficiary faring as well whether the account owner converted to a Roth or not.

 In fact, two other issues come into play that can give a conversion an advantage. One is paying the conversion tax—$28,000 in Vanguard's original example—with funds from outside the traditional IRA account. By doing that the entire $100,000 in the traditional IRA gets to stay in the Roth after the conversion rather than just $72,000 if you had to pay the $28,000 conversion tax bill from the $100,000 in the traditional IRA. That effectively allows the $28,000 to rack-up a tax-free 6% return within the Roth instead of remaining in the taxable account where taxes on investment gains would result in a lower after-tax return.

 The second factor is that, starting at age 70 1/2, owners of traditional IRA accounts must begin making required minimum distributions (RMDs) and paying taxes on the withdrawals. Roth IRAs, by contrast, are not subject to required withdrawals until the non-spouse beneficiary inherits the account. That means that money can compound longer without the drag of taxes in the Roth IRA than in the traditional IRA.

 These two factors definitely work in the Roth's favor. But whether they can have a large enough impact to make a Roth conversion the better option in cases where the beneficiary is in a lower tax bracket depends on how long it is before the beneficiary inherits the accounts and withdraws the funds and how much lower the beneficiary's tax rate is than the rate at which the account owner did the conversion.

 So, for example, in the scenario I asked Vanguard to run with the account owner in the 28% tax bracket and the beneficiary in the 15% bracket, the Roth conversion was still slightly behind even after 20 years despite the advantages of paying the conversion tax with funds from outside the IRA account and the account owner having no RMDs.

If the drop in tax rates from the account owner to the beneficiary isn't as steep, however, then the dual advantages of no RMDs and paying the tax from funds outside the IRA are more easily able to turn things in the conversion's favor. For example, if the account owner is in the 35% tax bracket and the beneficiary is in the 28% bracket, those two advantages are enough to put the conversion ahead of the traditional IRA plus taxable account by nearly 4% after 20 years, $340,000 vs. $328,000.

 All of which is to say that converting to a Roth isn't automatically a slam-dunk winner. A bunch of variables, many of which can be hard to predict, can affect whether converting is the better option—the marginal tax rate you pay when you convert; whether the taxable income generated by the conversion itself pushes you into a higher tax bracket; the tax rate your beneficiary faces; how long the funds remain in the Roth before your beneficiary inherits the account and how quickly the beneficiary withdraws the funds; and whether converting might reduce any estate taxes due upon your death.

 So if you're considering a Roth conversion to benefit your heirs, run the numbers before making your decision, especially if you believe there's a chance your beneficiary may be in a lower tax bracket than you when you convert. Consider holding off on a conversion to see what Washington does with tax rates since a drop in your rate would lower the cost (although you’ll still have to factor into your decision the tax rate your beneficiary might face when withdrawing the funds). And while you're at it, consider whether you might need to dip into those assets for your own needs during retirement, in which case the tax rate you pay when the money is withdrawn (as opposed to your beneficiary's tax rate) also matters.

 Roth conversion calculators like those offered online by Fidelity and Vanguard may be able to provide some help with the number crunching, but as I'm sure you've guessed by now, this task can get pretty complicated. So if you're uncomfortable doing this sort of analysis on your own or you're dealing with substantial sums of money, you might consider hiring a pro who can run a variety of different scenarios and help you arrive at a decision that makes sense for your particular circumstances.

 Just don't make the mistake of assuming that a Roth conversion is the right choice for you or your heirs simply because withdrawals are tax-free.

How to avoid common estate planning missteps

Have you planned to leave money to heirs or charities that are important to you? Are you planning to leave your distributions on a percentage basis? Will you designate specific dollar figures?

As our clients get to the stage of life where they are ready to engage in serious financial planning and to look ahead to their future, they commonly take the first step: update or write an estate plan. Our estate planning attorney  will prepare a custom revocable living trust or irrevocable living trust document for your wishes for estate distribution, and when appropriate, to streamline or avoid the probate and distribution process.

Common designations for distribution include a share to adult children, a share to grandchildren, and a share to a charitable organization, whether that be the individual’s church or favorite charities.

Why We Procrastinate about Estate Planning

Unfortunately, a lot of people haven’t participated in any meaningful estate planning. Most will readily admit it is something they need to do, but they keep putting it off. Why? Here are some of the more common reasons why we procrastinate about estate planning—and some information that just might get you moving.

  • It’s expensive. Granted, a lot of people don’t have extra money lying around these days. But not doing anything can end up costing your loved ones much more than it would cost you to plan now. If you own assets in your name and you become incapacitated due to illness or injury, you (your assets and your care) will likely be placed in a court guardianship. This is not free. All costs (attorney fees, accounting fees, court costs, etc.) will be paid from your assets, and your family will probably have to ask the court for an allowance if they need money for living expenses.

    This process does not replace probate when you die; your family will have to go through the court system again, and that means more expenses and less for your family. Your assets will be distributed according to your state’s laws, which probably won’t be what you would have wanted.

    Estate planning does not have to be expensive. Find a reasonable attorney who can help you get started with some basic documents. Upgrade to a living trust later if you can’t afford it now. You may even be able to pay the attorney over time.

  • I don’t own enough. Estate planning is not just for the wealthy. In fact, costs for a court guardianship and probate usually take a higher percentage from smaller estates (which can least afford it) than from larger ones. Whatever you do own, you probably would rather see it go to your loved ones than to courts and attorneys.

  • I’m not old enough. Estate planning is not just for “old people.” For some reason, young people think they are going to live forever. The reality is that any of us, at any age, can become incapacitated or die due to an illness, injury, accident or random act of violence. Almost every day we read about someone whose life was cut short or changed dramatically in an instant.

  • It’s confusing; I don’t know what to do. Uncertainty and indecision can be paralyzing. Attorneys are called “counselors at law” for a reason. An experienced estate planning attorney knows what other families have been through, knows what has worked well and what hasn’t.  He or she can also help you understand the process and make challenging decisions easier.

Why do we need to do estate planning? To make sure our assets will go to the people we want to have them with the least amount of delay, hassle and expense; to keep our families from having to deal with the courts if we become incapacitated and when we die; to let our families know that we care about them, that we want to provide for them and protect them. Yes, we do it for those we love. But we get a huge benefit, too—and that’s peace of mind.

Inherited Retirement Accounts: 5 Things You Need to Know

Almost everyone has some kind of retirement account—whether a 401(k), IRA or pension—so proper estate planning for these funds is essential. From tax treatment to beneficiary designations, Matthew T. McClintock, J.D., VP of Education with WealthCounsel, answers your questions.
Will my beneficiaries owe taxes on the retirement accounts I pass down to them?
Probably. Assets like life insurance, real estate, vehicles and non-retirement investment accounts are not counted as income when they’re inherited. Retirement accounts, however? They’re “income in respect of a decedent,” and any amounts withdrawn from non-Roth accounts are subject to income tax at the beneficiary’s ordinary income tax rate.
Are all retirement accounts treated the same way? 
No. Beneficiaries who are left employer-sponsored plans, like 401(k)s and pensions, are often subject to more limitations and requirements than those who inherit IRAs.
Often, the employer-sponsored plan will require account withdrawal within five years of the account owner’s death, even if the beneficiary doesn’t need or want to withdraw money from the account. All withdrawals by the beneficiary are subject to income tax.
IRAs, by contrast, can almost always be stretched out over the life expectancy of the beneficiary, allowing continued tax-deferred growth in the account and reducing the beneficiary’s immediate tax liability. (Note that many employer-sponsored plans require the balance to be distributed to an inherited IRA when the account owner dies, effectively extending the “stretch out” treatment to those accounts.)
Who should I designate as my beneficiary?
Many people name their spouse as their primary beneficiary and then designate their children or other individuals as contingent beneficiaries. While this approach will usually avoid probate proceedings, it doesn’t provide any level of preservation or protection for the inherited accounts. It’s also essential to make sure that the beneficiary designations match the individual’s broader estate planning objectives.
The smarter approach? Often, it makes more sense to leave the retirement account to a carefully designed trust, which can provide ongoing benefits to spouses, children and other beneficiaries. Holding the account in a trust also provides protection against beneficiaries’ creditors.
Why should I use a trust? Is it risky?
In most cases, passing a retirement account to beneficiaries via a trust provides an increased level of protection and flexibility. A trust that is specifically designed to receive retirement account balances allows the account to continue growing, on a tax-deferred basis, for as long as possible. It also protects the inherited balance from the beneficiary’s creditors and allows for distribution in accordance with the deceased account holder’s wishes.
However, due to the income tax treatment of inherited retirement accounts, retirement trusts must be carefully drafted. If set up incorrectly, a trust could require the entire inherited account balance to be paid out within five years of the account owner’s death. In that case, long-term, tax-deferred growth of the funds would be lost, and beneficiaries would be faced with a substantial (and unexpected) income tax bill.
Additionally, the funds would be subject to the claims of any of the beneficiaries’ bankruptcy or judgment creditors.
How do I get started? 
Hensley Capital Management can review your retirement plan’s documentation and work with you to make sure the account is distributed in a way that’s consistent with your overall estate planning objectives. Our estate planning specialist can also help ensure that beneficiary designation forms are written correctly and, if needed, help to properly set up a retirement trust.

If you like to having control over your investments, turn to real estate

The Freedom of Choice in Real Estate

Real estate is my favorite investment vehicle for many reasons. It's fun, profitable, and it gives me the freedom to control my own investment.

Money is one of the most stressful parts of life. And the biggest reason why is that oftentimes, people feel like they don't have any control over their money. Everyone is clamoring for your money, whether its your utilities or insurance or mortgage or taxes. Many times, you don't have a say in where your money goes.

You also have limited control over the money you invest. You can choose where to invest, picking your preferred asset class. But even the savviest investors with tremendous financial knowledge are limited in their power to control how an investment performs.

Which is why real estate is so enticing. When you invest in real estate, you have 100% control over your investment. You do the research, you call the shots, and you profit from the results.

For many hard-working people, this is music to their ears.

Let's say you invest in a company, or buy a share of their stock. You can do your homework and study market trends, but at the end of the day companies are run by people who aren't you. They make decisions and moves that affect your money.

But if you put your money in a real estate investment you call the shots. The power is in your hands, and so are the profits.

Below are three things you get to control when you invest in real estate. All of these decisions are within your power, and the profits you make become extra cash that you can do whatever you want with.

1) How you profit

When investing in real estate there are two things you can invest for: cash flow and capital gains.

My preferred method of investing is for cash flow. When you invest for cash flow, you invest in properties that will provide a steady stream of income each month that you can pocket.

Investing for capital gains, on the other hand, involves buying a property and then selling it for a one-time payoff.

When you buy a real estate investment, this choice is yours to make. What will you invest for? Do you want to make a long-term investment, and profit off the steady flow of cash each month? Or do you want to flip the property quickly, and invest for a one-time sum?

Both strategies can be lucrative when executed correctly. And the great thing is, you have direct control over how you will receive your returns.

Many investment vehicles don't give you the choice in how you will profit. Or if they do, there are a lot of rules dictating when and how you will receive your returns.

But with real estate, you have more flexibility to earn the profits when and how you want to. You can set rent, and buy and sell properties when you want to, without anyone dictating how you profit.

2) Your investment's value

When you have the power to directly increase your investment's value.

Almost no other asset class lets you have this type of impact or control. You have no say in how stocks will perform or what commodities are worth. So many external factors, from politics to war to economy cycles, have sway of your other investments.

But in real estate, you can take action that will directly reflect in your profits. You can make improvements on the property, increase the square footage, get creative with the property lot, and increase the efficiency of the property's operations, all the increase your ROI.

How many other investments can say that? If you invest in a company, that doesn't mean you can start rearranging their business operations to make it more profitable. You have no power to increase or decrease the price of oil so that you get better returns.

But with real estate, the power is in your hands. And while it can be a hug responsibility, it also symbolizes sweet freedom.

3) Who you work with

If you invest in a business, or purchase a share of a company's stock, do they call you up every time they decide to hire a new employee? Of course not!

But when you invest in real estate, the choice of tenant is yours to make. You get to choose whether you rent your house to a group of rowdy college kids or a nice newly-wed couple.

You also control who you invest with. One of the best parts of real estate investing is getting to use other people's money (OPM) to purchase your investment. You don't have to fund the whole investment by yourself, but can approach other investors to help you purchase the property.

If you put together a strong deal, you will attract plenty of investors who want to give you their money. The best part is that you get to choose who you work with.

Finding and building the right team of investors is vital to your investment strategy. Which is why you need to work with people you trust. Not all investments allow you that choice. Other people's actions and choices affect your money all the time. Real estate investing is one area where you have some say in the people who surround your investment.

Be free

There aren't many things in life that we have a lot of control over. Money shouldn't be one of them. If you're looking to take back control of your investments, it might be time to turn to real estate.


Imagine never running out of money in retirement. What would that feel like?

When someone thinks of saving or investing money, they usually think of the stock market; and for most people they are investing in a 401(k), IRA, stocks, or mutual funds. The traditional ideas of saving and investing for retirement are ideas that are usually tied to the stock market. This is extremely prevalent in the financial planning world.

One pool of money – stock market money; 401(k)’s, IRA’s, mutual funds, stocks, and bonds

When someone is saving or investing in the stock market, and only in this one pool of money for their entire working life, even through retirement, every dollar going into this pool of money is subject to interest rates, or a rate of return. It doesn’t matter if it’s bonds or stocks or mutual funds, that pool of money is relegated to interest rates for a lifetime…and subject to volatility. There are no guarantees.

Now, think about that. When someone retires they have built up this net worth; this Nest Egg, this pool of money. They now start taking income from that pool of money in retirement.

What happens in a down year? What did people do in 2008 when the market crashed but they still needed income from their investments? They had to take money from that down account, adding insult to injury.

They are now taking income from an account that has lost value; and in some cases 30%, 40%, 50% value lost. They are taking income from that negative account.

So, it’s extremely painful and it erodes the account even further when you have to take income in a down year, or after a down year.

Here’s how cash value insurance comes into play. You are able to create a second pool of money through a whole life insurance policy that is not subject to loss. This pool of money is not tied to the stock market. It is based on actuarial science and cash value guarantees.

Your money is guaranteed to grow. There are no losses. There are no “down” years.

We only recommend mutual life insurance companies that have been around for over 130 years. They use what’s called actuarial science; they know when people are going to pass away and they use that knowledge and data to create guarantees and dividends. Because of that, they are profitable and those profits go back to policy holders, you and me, which is a good thing.

Because this second pool of money is not tied to what the stock market is doing, you have an opportunity for more certainty in your financial plan; for more predictability.

Imagine having this second pool of money in your financial portfolio and there is a stock market crash. You don’t have to take money from the stock market account that is down 30% or 40%. You can now take your income from the cash value of your whole life insurance policy. Imagine the peace of mind that that can bring; knowing that in a down market you don’t have to add “salt to the wound” by taking out income from a negative account. You can now shift over and take that income from the cash value whole life policy.