Bautista Planning and Analytics, LLC – Registered Investment Advisor

Tag: Latino Finances

  • Tax Strategies That Latinos Should Know

    When it comes to taxes, we all lives by the same tax rules, but it’s up to us to decide if we take advantage of them, or they take advantage of us. This doesn’t mean we should break rules so that we pay less in taxes but to know the rules so that we can take advantage of them. This could give you more money in your pocket down the road to spend on vacations, family events, and other experiences that you enjoy.

    There are a lot of things you should do with your money before you start to file. I’ve seen people who made hundreds of thousands of dollars in tax mistakes because they took money from the wrong account or just didn’t do the right thing. 

    Here are five tax strategies that you should be thinking about.

    Becoming Tax-Efficient In Retirement

    When it comes to investing, there are three different places that you can put your money. You can put your money in a Tax-Deferred account, an After-Taxed account, or a Taxable account. 

    Each one of these accounts can use the same investment. For example, you can put an S&P 500 index fund in any one of those three buckets, but when you take the money out, it just gets taxed differently.

    Tax-Deferred Account

    With a Tax-Deferred account, you get a tax break now but then have to pay taxes on the money when you take the money out.

    For example, if you’re in the 22% federal tax bracket and have a state tax rate of 5.75%, for every dollar you put into this account, you would save $27.75 in taxes and this money would then grow tax-deferred until you take the money out. 

    Let’s say at retirement, the person falls into the 22% federal tax bracket and have a state tax rate of 5.75%, for every additional dollar you take out of your tax-deferred account, you would pay $27.75 in tax until you reach the next federal tax bracket of 24%. Tax rates could change in the future and the current federal rates are expected to go back to the previous rates in the year 2026. 

    If you’re closer to retirement, a tax-deferred account could make more sense since the account doesn’t have the time to grow to benefit from the Tax-Free bucket.

    Tax-Free Account

    With a tax-free account, you don’t get a tax break now but then you don’t have to pay taxes on when the money is taken out. For example, if a person is in the 22% federal tax bracket and has a state tax rate of 5.75%, for every dollar they put into a tax-free account, they would not save $27.75 in taxes, but then this money would then grow tax-free for as long it is in the account. 

    Let’s say at retirement, the person falls into the 22% federal tax bracket and has a state tax rate of 5.75%, for every additional dollar you take out of your tax-free account, you would pay $0.00 in taxes and all distributions don’t get counted toward Adjusted Gross Income which Medicare Part B premiums are calculated from.

    Taxable Account

    A taxable account is an account that is not designed for retirement but to have you’re money grow more than a checking account or a certificate of deposit. So there is no penalty for taking the money out of before 59 1/2. You just have to pay taxes on the growth if you make a certain amount.

    The tax implications on a taxable account fall into two categories:

    Short-Term Capital Gains: Are investments that are held less than 366 days. Any growth is then taxed at the highest tax bracket you’re in. So if your salary as a single filer is $50k, then you would most like have to pay 22% federal taxes on the growth.

    Long-Term Capital Gains: Are investments that are held for more than 366 days. If you fall into the 12% tax bracket or lower, you pay 0% in tax, if you are between the 22% and 35% tax bracket, you will pay 15%, and Latinos in the 37% tax bracket will pay 20%.

    The idea is that you want to have tax diversification among your investments and you want a certain amount in each pot. This is where tax planning is really helpful so that you can have the lowest effective tax rate and keep more of the money that you earned. 

    Not Rolling Over Your Employer’s Retirement Plan Into Another Account And Just Taking The Money Now

    No one is really staying at their current job until they retire in this new economy. And usually, their old company is telling them that they either need to take the money as a distribution, rollover the money into an IRA, or rollover the money into their new company’s retirement plan. 

    If you decide to take the money as cash, this is going to be considered a distribution, where if you’re under 59 1/2 years old, you then have to pay taxes and a 10% penalty on that distribution.

    If you live in Virginia and are in the 22% federal tax bracket, have a state tax rate of 5.75%, and have $10,000 in an 401k at your previous company and choose to take the money. You’re not going to get the $10,000, you’re going to get $6,225.

    You also lose out on all the future growth of that $10,000, which is supposed to help you with your retirement. 

    If you’re going to rollover the money into a different account. You can choose between your company plan or you can open an IRA. Here are some pros and cons between the two:

    Company Plan Pros:

    • Low Fees
    • Could have access to institutional shares that have low fees
    • Can avoid taking required minimum distributions at age 70 1/2 if you’re still working

    Company Plan Cons:

    • Limited investment choices
    • Can have overlapping investment if you have multiple accounts
    • Limited bond options
    • Less flexibility with withdrawals
    • Estate planning can be difficult to execute

    IRA Pros:

    • Can take advantage of Roth Conversions
    • More access to a vast array of investment choices
    • Estate planning is easy to do with an IRA

    IRA Cons:

    • Have to take an RMD at 70 1/2 for a Traditional IRA
    • Might not be protected in a lawsuit or bankruptcy
    • A broker could convince you to rollover your funds into an inappropriate financial product

    Not Taking Advantage Of A Taxable Account

    With inflation hovering around two percent, any money outside of your emergency fund and your short term goal fund is losing money to inflation. If it’s money that you don’t need for a while but still want to grab the money before retirement, a good option is to open a taxable account.

    These accounts are different from retirement accounts because there is no early withdrawal penalty and you can take advantage of long term capital gain taxes, which can be lower than the current rate you’re paying now. 

    This can be helpful if you expect to be in a higher tax bracket in the future. Plus if there is a loss with one of your investments, you’re able to write that loss off in your taxes while you can’t do that with a retirement account. 

    A taxable account is also very valuable when it comes to obtaining lower interest rates since you can use these accounts for collateral. I’ve seen interest rates cut in half because a taxable account was used collateral for a loan. You have to look at your current situation to see if a collateralized loan is right for you. This is just an option.

    Not taking advantage of Roth Conversions

    Right now with the current tax rates being at their all-time lowest until 2026, you might want to consider moving some of your tax-deferred money into the tax-free bucket.

    If you’re young enough or don’t plan to touch your tax-deferred accounts, plus have money to pay for the conversion, a Roth conversion is something to consider.

    A Roth conversion converts money that is tax-deferred to a tax-free account. The idea is that you have to pay taxes now on any amount that you converted. The mechanics of doing Roth Conversions can be tricky and you should consult a professional to help walk you through the process and to see if it’s the best option for yourself. 

    Taking Social Security Out At The Wrong Time

    When it comes to social security, anywhere from 50% to 85% of your benefit is taxed. If you’re doing something like Roth Conversions, then social security is something that you most likely want to hold off on.

    Most people want to take social security as fast as possible, but if you have other investments, you might want to dip into those accounts first so that you can have more guaranteed money in the future.

    With social security, every year you delay in taking your benefit, you get an 8% increase in your benefit. This is a pretty great return to get and not 100% of the benefit is taxed.

    There are a lot of factors to consider like health and other investments, which would determine the optimal time to start collecting. But if you collect too soon, then it can cost you money down the road. 

    Have A Plan

    One of my favorite lessons is that one minute of planning can save you ten minutes in execution time. This is like getting a 1000 percent return on your time.

    All these strategies require planning to fully maximize the benefits and some strategies you should focus more on than others. I’m so glad that I learned these lessons in my late 20s so that I can maximize my financial resources in the future.

    One of the things that you want to control, is taxes because when you’re retired and not working, an increase in taxes can have a significant impact on your standard of living. To give yourself more security and less uncertainty, have a plan for your tax situation in the future.

    Here are five strategies that you should be thinking about and hopefully they get you moving in the right direction. It is also wise to consult a professional if you’re going to implement any one of these tax strategies as well.

    “Grow With Joe, LLC is registered as an investment advisor in the state of Oregon and is licensed to do business in any state where registered or otherwise exempt from registration.”

  • My Origin Story Part 3

    Part 3 of 5 of my origin story.

    Get a Free copy of my book, “More You Know, More You Grow” at growwithjoe.me/book

     

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    Full Transcript

    Hi Everyone, welcome to the You’re Daily Cup of Joe Podcast, where my goal is to give you 10-minute lessons on how to grow yourself physically, mentally, emotionally, and spiritually so you can have better careers, better relationships, and better personal finances.
    I’m also the author of the book “More You Know, More You Grow: How to Get Better Every Day”. In this book, I wrote down over 30 tips to help you grow in those four cornerstones.
    Yesterday I talked about part two of my origin story. Here’s part three.
    In yesterday’s episode, I talked about going into the Marines to pay for my college. Now that I got out of the Marines, I had access to my GI bill. The GI Bill is an amazing benefit because, for most schools, it will pay for all of your tuition and give you a monthly housing allowance that is tax-free. When I was living in Portland it was about $1300/mo and in DC it was $2100/mo tax-free. I went to Portland State University to study Public Health. I thought I was going to become a physical therapist because in high school I tore my ACL and I enjoyed how my physical therapist helped me get better and I thought it would be cool to do the same for others. But when I was going to school, I knew I had to take chemistry but I sucked at it or I didn’t really pay attention in class and ended up getting Cs. So then I transitioned into thinking I could get into healthcare management. My advisor at school said I should take an economics class because it would be helpful and I did and I fell in love with the field. I wanted to switch majors and get into behavioral economics. By the time this happened, my previous spouse got a job in DC and we were separated for a year. I told her I wanted to stay in school for six more months but she said if that happened, we probably won’t stay together. So wanting to keep my marriage intact, I followed her to DC to start my new life. My goal was to get a job and take night classes so I could finish my economics degree.
    I graduate college in 2012 when the economy was still in bad shape and it took me a while to get a job. At first, I just spent my first couple of weeks unpacking and trying to find a job. I took a valet job for a month because I landed a job at the Pentagon as an office manager. While I was working, I had a lot of time to listen to podcasts and do homework while taking my night classes.
    One great thing that I picked up in school was that I was reading non-fiction books and I started to listen to podcasts. I read Outliers by Malcolm Gladwell to learn that it takes about 10,000 hours to become a master in your craft and I read Freakonomics by Stephen Dubner and Steven Levitt to learn that there can be hidden facts to explain the world today like how Sumo wrestlers cheat and help each other out so that they can stay a professional sumo wrestler. So then I just started to read more and more books. I got book ideas from the podcasts that I was listening to like This American Life, Radio Lab, Planet Money, and Freakonomics Radio. I just kept getting more and greater information.
    At first, I was grateful for having my job but after a couple of months, I was feeling miserable. I was feeling miserable because I feel like I wasn’t growing as fast as I wanted to be and I was doing things that were up to my values. I felt like I was just a cog in the machine where I was just going to work, waiting there for 8 hours, and then I would head home. There were a lot of other people that were miserable there too. I do not want to be in a situation where I feel miserable for too long. I think this has to go back to my Mom. My mom was a cashier in a job she hated. She dealt with rude customers and the work environment was stressful for little pay. She would come home upset and sit in front of the computer to eat ice cream and then go outside to smoke. I am so happy she is retired now because she stopped smoking and she eats better now. I know she did it for me and my sisters but I don’t want to be that miserable at work. After a couple of months at work, I had to take some mental health days because I did not want to go to work.
    The thing that pushes me to start thinking that I should leave is listening to this one episode of Freakonomics called the upside of quitting. This episode was all about the sunk cost fallacy which is an economic term where you should quit the thing you’re doing as soon as possible because you’ll never get back your time or money back. They had different people in the episode where they quitted the thing they were doing like their job and it was the best decision they made. I knew I had to make a change as soon as possible and I get a lot of my ideas from reading books.
    Looking back on life, I saw one of the best things that you can do for yourself is to give yourself options so you don’t become stuck in life because when you’re stuck, that’s when feelings of hopelessness creep in and stress starts to take over. Give you an option to pivot out of that situation. I had options because I saved some money from the Marines and I had my GI Bill so I didn’t have to worry about tuition or living expenses. I was able to pivot out of that situation. If I didn’t have these resources, I would have taken my time before I made the leap. It would have been rough but at least I wouldn’t have to worry about not eating. So give yourself some options by having friends to rely on, some money to help with expenses, and knowledge so you can make good decisions.
    Thinking about it now, I am so glad I’m not in the Marines or Federal government anymore because I’m working on what I want to in life.
    That’s it for today’s episode and we’ll discuss how the next part of my life prepared for becoming an entrepreneur.
    I want to thank you for listening to today’s episode.
    To get a free copy of my book “More You Know, More You Grow: How to get better every day” just go to my website growwithjoe.me/book and just pay for shipping and handling.
    I’m also on Instagram at Grow With Joe and Facebook just look up Grow With Joe
    Also, don’t forget to sign-up for my newsletter so you can read my weekly blog post.
    If you’re on iTunes, don’t forget to give me a five-star rating if you liked this episode.
    Thanks for joining me today and remember if you go with Joe, you can grow with Joe, cause Joe knows Dough.

  • Financial Questions Latinos Should Know About Their Parents

    Financial Questions Latinos Should Know About Their Parents

    I’ve been doing financial planning for the past four years, and one of the common concerns that Latinos have when they sit down with me is what they should do about their parent’s financial situation. This can be very stressful to deal with, but there are resources out there to help out.

    Below are some essential questions to get answers from your parents about. They might be uncomfortable to ask or know, but they can prevent more significant obstacles down the road.

    How Much Are You Expected To Support Your Parents?

    Photo by Pixabay

    For many of the Latinos that I work with, they have a strong urge to help out their parents. Their parents sacrificed so much to raise them, and now they want to pay it back. This could mean that a parent moves in with them, or it could mean financial support in some other way.

    Now, most of my clients don’t know the full extent of their parent’s financial situation, and this could be a ticking time bomb. If the parents are reluctant to ask for support, this could cause them to accumulate more debt and create a bigger problem. Now, most parents are fine, but I would take some time and talk to your parents and see if they need any assistance.

    For many Latinos born in the 70s, 80s, and 90s, they have the extra responsibility of having to take care of their parents and their children. Grandparents born in the 40s, 50s, and 60s are living longer than ever now due to medical advances, so having a retirement plan was never in really something they thought about. Plus, the financial services industry back then wasn’t tailored for Latinos, but the internet has reduced the difficulty tremendously for Latinos to start investing.

    If you never ask, then there might come a day where you might be dealing with more than you expected. Understanding the numbers and expectations will reduce a lot of that stress in the future.

    How Does Social Security Work?

    For a lot of Latinos, they might only have social security to rely on, and there are a bunch of different rules for how it works. Some could be divorced but still be able to apply for social security based on their ex-spouse’s social security if they meet specific criteria. The same thing applies to widows. There is also a spousal benefit that one can receive if they never worked, but their spouse did. 

    In most cases, folks can start taking social security at age 62 but can delay their benefit until the age of 70 to get a more significant benefit. It all depends on someone’s financial situation and health for when they should elect their benefit. Latinos also need to realize that once they take their benefit, that is the payment they will receive for the rest of their lives in most cases. Social Security can play a significant role in someone’s retirement, and by maximizing its position, it can provide a lot of relief. 

    A great place to start is knowing how much they’re social security benefit is going to be, which can be found at ssa.gov, and a useful calculator is at Bankrate.

    Do They Have a Will, Advance Medical Directive, and Power Of Attorney?

    Photo by Pixabay

    If your parents were to pass away or medically incapable of responding, would this cause financial issues? A Will, Advance Medical Directive, and Power of Attorney are all legal documents that are extremely helpful when something happens to our parents. A Will ensures that assets are passed to the right people without having to go through the courts to determine who gets what and saves people money and time.

    Let’s say one of your parents is medically unconscious and needs someone to pay their rent on their behalf and all of their other bills, then a Power Of Attorney can help. 

    An Advance Medical Directive allows someone to make medical decisions on the person’s behalf. It can be stressful when you have to overcome legal issues while also dealing with a family member’s health. 

    There have been countless cases where these documents were not in place, and it just causes issues for the people who have to deal with it. To make life easier for everyone, make sure your parents have these documents in place. I’m not a lawyer who can draft up these documents, and most financial planners are not capable as well, so make sure you see a legal professional who can help you out. 

    If you feel comfortable doing it yourself, you can also check out an online legal firm like rocketlawyer.com or legalzoom.com. 

    What Is Their Long Term Care Plan?

    When someone retires, there is going to be an 80% chance that they will need some long term care. There is private long term care, and then there is Medicaid, which is a state-run program. If you want more flexibility and control over where you stay, a private plan would be more suitable, but it is going to cost more. 

    To be eligible for Medicaid for long term care, it largely depends on what the state is offering. Some states are better than others, and some states provide different services than others. These services might not be enough for your parents, and it is something that needs to be discussed with your parents on what options they have. 

    A lot of long-term care is provided for free by friends and family and can cause stress since it is unpaid care that the friend or family member is providing. To make sure that long-term care is causing the least amount of friction in everyone’s life, have a plan.

    To get more information about Medicaid, you can visit here. 

    If you want more information on a private plan, you need to see a long term care broker. Now there are different types of financial products that can pay for long-term care, and they all come with their pros and cons. 

    (Grow With Joe, LLC does not participate in the selling of financial products)

    What Is Their Survivorship Plan?

    Is the surviving parent going to continue to live in their current home? If the deceased parent has a higher social security benefit than the surviving parent, did they go to the social security office to increase their benefit? Is the surviving parent’s income in jeopardy?

    To handle these concerns, it might require the parents in the meantime to get some more life insurance or to increase their savings rate if possible. Or it might mean that the surviving parent needs to downsize their home because they won’t be able to take care of it anymore.

    Dealing with a deceased parent can be one of the toughest things that we have to deal with in life, so we don’t want to make it any more complicated than it needs to be.

    By Failing To Prepare, You Are Preparing To Fail

    Photo by Pixabay.

    These questions and more are things we should know about our parents because if we do the work now, it will be a lot less stressful in the future. With the right preparation, you can turn a year-long problem into a five-minute problem, and this is what financial planning is about. The financial planning needs that we have today are way more advanced than it was 10, 20, 30, and 40 years ago. So let’s be better prepared for our parent’s future by making sure they have a plan and a strategy for the future.

    Even though these are questions that we should ask our parents, these are questions that we have answered for ourselves as well. Financial planning takes time and effort. If we wait until the last minute to do something, the number of options that we have gets smaller. With the right plan and execution, a lot of stress can be relieved and give people more peace of mind when things happen.

    If you do financial planning early in life, it also tends to be cheaper in the long run. It can be scary to talk about death, taxes, and financial projections, but a good financial planner will take the stress out of the situation and help coach you towards success.

    Financial planning has become a lot more complicated since we are living longer and have more responsibilities today. If we knew better, we would do better is something that I like to live by, and I hope you’re able to utilize this information to help your family out and live better.

    For More Information

    If you want to start working on these questions for yourself or your parents, schedule a complimentary phone call.

    Learn more about my services and rates.

    Grab a free copy of my self-development book, “More You Know, More You Grow: How To Get Better Every Day.”

    Don’t forget to check out my latest podcast episode of “Your Daily Cup of Joe”

    “Grow With Joe, LLC is registered as an investment adviser in the state of Oregon and is licensed to do business in any state where registered or otherwise exempt from registration. “