Due Diligence

It’s extremely important that we all take our retirement into our own hands. The concept of not preparing and relying on a government-sponsored retirement is not the best plan. Financial woes combined with the fact that the U.S. population is continuing to age, means that there are fewer working-aged people remaining to contribute to our social security systems. On a positive note, strong retirement savings can not only help you, but it could potentially help your family and loved ones. With today’s retirement challenges, more people are using retirement vehicles as a healthy way to help family members. As advisors, we get great satisfaction helping parents and grandparents contribute to their loved one lives by properly gifting funds to a retirement account (if the loved one has earned income and qualifies). Some experts agree that consistently funding your retirement plans is a healthy activity. Funding retirement accounts at younger ages many times leads to a better funded and more comfortable financial situation at your retirement.

You can still make 2018 IRA contributions until April 15, 2019. In 2019, the limit for contributing to an IRA increased from $5,500 to $6,000, the first increase since 2013. Now is a good time to consider making your 2019 retirement contributions. The chart in this article shows some IRS changes for 2019.

Traditional IRAs

A traditional IRA (Individual Retirement Account) is a way in which individuals can save for retirement and receive tax advantages. Traditional IRAs come in two varieties: deductible and nondeductible. The contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances (i.e. taxpayer’s income, tax-filing status and other factors) and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until they are distributed.

A clear advantage of traditional IRA accounts is that you can benefit from deferring taxes on all dividends, interest and capital gains earned inside the IRA account and they can potentially compound each year without being reduced by taxes. This may allow an IRA to have faster growth potential than a taxable account.

Roth IRA

A Roth IRA is an IRA that is subject to many of the same rules that apply to a Traditional IRA with some major exceptions. Unlike traditional IRAs which for some taxpayers can be tax deducted, you cannot deduct contributions to a Roth IRA. Some Roth IRA advantages include:

• If you satisfy the requirements, qualified distributions are tax-free.
• You can make contributions to your Roth IRA after you reach age 70 ½.
• You can leave funds in your Roth IRA for your entire lifetime, and
• Beneficiaries inherit your Roth IRAs tax-free, if account requirements have been satisfied.

Many investors know and understand that the largest benefit of the Roth IRA is its tax-free withdrawal of contributions, interest and earnings in retirement, but Roth IRAs can also help you leave a legacy to your heirs with proper estate planning.

Spousal IRA

If your spouse doesn’t work, they can still have a spousal traditional or Roth IRA. This allows non-wage-earning spouses to contribute to their own traditional or Roth IRA, provided the other spouse is working and the couple files a joint federal income tax return. If the working spouse is covered by a retirement plan at work, deductibility of contributions to a spousal traditional IRA would be phased out at higher incomes. Eligible married spouses can each contribute up to the contribution limit each year to their respective IRAs (spousal IRAs are also eligible for a $1,000 catch-up contribution for those 50 and older). To discuss spousal IRA strategies, call us.

Custodial Roth IRA

Starting retirement savings early can allow you the potential advantage of growing money in a tax efficient account over a long period of time. Many children work before they reach age 18. The income they earn makes them eligible to contribute to a Roth IRA, which can be an extremely smart move for teenagers. This can also provide an excellent opportunity for you to teach or reinforce with your children the importance of saving money.

Some of the rules regarding custodial Roth IRAs are:

• To be eligible to open a custodial Roth IRA, the child must meet all the same requirements as an adult. The minor must have earned income and contributions are limited to the lesser of total earned income for the year and the current maximum set by law, which for 2018 is $5,500 and 2019 is $6,000.

• Also, adjusted gross income for the child must be below the thresholds above which Roth IRAs aren’t allowed.

• Even though the custodian is the legal owner of the account, the Roth IRA must be managed for the benefit of the minor child.

• As the custodian, you make the decisions on investment choices—as well as decisions on if, why, and when the money might be withdrawn—until your child reaches “adulthood,” defined by age (usually between 18 and 21, depending on your state of residence). Once they reach that age, the account will then need to be re-registered in their name and it becomes an ordinary Roth IRA. 

If you’re the parent of a child who has earned income, a Custodial IRA can be a great way to teach the value of saving and investing. Besides getting a head start on saving, your child may be able to use the funds for college expenses—or even to buy a first home.

There are several ways to fund a Custodial Roth. For example, you can potentially use your annual ability to gift to children or grandchildren to make this happen. If your child or grandchild is earning money, call us and we can discuss your options for setting up a Custodial Roth.

“Back-door” Roth IRA

The traditional contribution (“front door”) for Roth IRAs is currently not available for higher income earners. Married couples earning $203,000 or more and singles earning $137,000 or more in 2019 are still fully excluded from contributing directly to Roth IRAs.

In 2010, Congress changed the rules and since then anyone can convert a traditional IRA to a Roth IRA. However, higher income earners are still ineligible to contribute to a Roth IRA. A Backdoor Roth IRA is a strategy for some higher income earners to participate in Roth IRAs. It is a way for higher income earners to put money into a traditional IRA and then roll that into a Roth IRA, getting all the benefits. While this strategy sounds simple, there are several rules that you must know and follow to make sure you do not incur unintended tax consequences. This is where working with a knowledgeable financial or tax professional can provide guidance and value.

How Does the Backdoor Roth IRA Conversion Work?

The Backdoor Roth conversion consists of two simple steps:
1)You make a nondeductible contribution to your traditional IRA.
2)Then after consulting with your financial advisor or tax professional, you convert this IRA into a Roth IRA.

There’s one big caveat: This strategy may work best tax-wise for people who don’t already have money in traditional IRAs. That’s because in conversions, earnings and previously untaxed contributions in traditional IRAs are taxed—and that tax is figured based on all your traditional IRAs, even ones you aren’t converting (Please read the section on the Pro Rata Rule).

What’s New for 2019
IRA maximums were raised from $5,500 to $6,000.

Modified AGI limit for traditional IRA contributions increased.
If you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

• More than $103,000 but less than $123,000 for a married couple filing a joint return or a qualifying widow(er),
• More than $64,000 but less than $74,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return.

Modified AGI limit for certain married individuals increased.

If you’re married and your spouse is covered by a retirement plan at work and you aren’t, and you live with your spouse or file a joint return, your deduction is phased out if your modified AGI is more than $193,000 (up from $189,000 for 2018) but less than $203,000 (up from $199,000 for 2018). If your modified AGI is $203,000 or more, you can’t take a deduction for contributions to a traditional IRA.

Modified AGI limit for Roth IRA contributions increased.

Your Roth IRA contribution limit is reduced (phased out) in the following situations.

• Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $193,000. You can’t make a Roth IRA contribution if your modified AGI is $203,000 or more.
• Your filing status is single, head of household, or married filing separately and you didn’t live with your spouse at any time in 2019 and your modified AGI is at least $122,000. You can’t make a Roth IRA contribution if your modified AGI is $137,000 or more.
• Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than zero. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more.

For an investor who doesn’t already hold any traditional IRAs, creating one and then quickly converting it into a Roth IRA may incur little or no tax, because after a short holding period there’s likely to be little or no appreciation or interest earned in the account. However, if you already have money in traditional deductible IRAs, you could face a far higher tax bill on the conversion (again, this is covered later in the section on the Pro Rata Rule).

If you choose to attempt a backdoor Roth IRA conversion, please consult a knowledgeable tax planner prior to doing so because the rules for Roth conversions can be complicated.

Example of a Backdoor Roth IRA

Bob, a high-income earner, decides on January 2nd to put $6,000 into a traditional IRA.  Bob’s income is too high to be able to deduct these contributions from his taxes. After consulting with his financial advisor or tax advisor, he then converts the traditional IRAs to Roth IRAs completely tax-free. His income is too high for him to make a direct contribution into a Roth IRA, but there’s no income limit on conversions. Since Bob couldn’t deduct the contribution anyway, he might as well get the advantage of never paying taxes on that money again available through the Roth IRA.

Beware of the Pro Rata Rule for Roth Conversions

The Pro Rata rule for Roth conversions states that if you have any other deductible IRAs (i.e. a previous 401k that you’ve rolled over), the conversion of any contributions becomes a taxable event that you’ll need to pay taxes on upfront.

The Pro Rata rule for Roth conversions determines whether your conversion will be taxable. For taxation purposes, the IRS will look at your entire IRA holdings (even if they are in different accounts), not just the traditional IRA you are converting to a Roth IRA and will determine what your tax bill will be based upon a ratio of IRA assets that have already been taxed to those IRA assets in total.

The IRS determines the tax on this conversion based on the value of all your IRA assets. For example, Peggy, a high-income earner, already has $94,000 in an IRA account, all of which has never been taxed. She decides on January 2nd to put $6,000 into a new traditional IRA. The next day she converts the new traditional non-deductible IRA to a Roth IRA.  Peggy’s income is too high for her to make a direct contribution into a Roth IRA, but there’s no income limit on conversions. She has $94,000 in other IRAs (previously non-taxed), so her total IRA assets are now $100,000. When she converts $6,000 to a Roth IRA, the IRS pro-rates her tax basis on the previous taxation of her total IRA assets, therefore making this conversion 94% taxable ($94,000/100,000 = 94%).

If you plan on using this backdoor IRA strategy, you want to be clear as to whether or not you have any other IRAs. As you can see, this can be a confusing area, and this is where we can help. If you are a high-income earner we would be happy to review your situation to determine if this strategy is in your best interest.

Also, please remember that your spouse’s IRA is separate from yours.

Am I a Candidate for a Backdoor Roth IRA?
Backdoor Roth IRAs can be appropriate for investors who:

• Only have retirement accounts through their jobs (i.e. 401k’s) and want to increase their retirement savings in tax-advantaged accounts, but whose income is too high to qualify for standard Roth IRA contributions
• Have the time and ability to wait for five years or until they are 59 ½, whichever is later, to avoid the 10% penalty on early withdrawals.

A Backdoor Roth IRA is probably not recommended if you:

• Are over the age of 70½ and can no longer contribute to a traditional IRA.
• Don’t want to contribute more than the maximum retirement limit through your workplace retirement account.
• Don’t want to contribute more than the maximum retirement limit through your workplace retirement account.
• Plan or expect to withdraw the funds in the Roth IRA within the first five years of opening it. A Backdoor Roth is considered a conversion and not a contribution. Therefore, the funds may incur a 10% penalty if withdrawn within five years no matter your age.
• Plan or expect to withdraw the funds in the Roth IRA within the first five years of opening it. A Backdoor Roth is considered a conversion and not a contribution. Therefore, the funds may incur a 10% penalty if withdrawn within five years no matter your age.
• Plan to relocate to a lower or no income tax state.

Note: While Backdoor Roth IRAs can be beneficial to many investors, they aren’t for everyone. They come with their limitations and complications. There are precautions that need to be taken to reap the full benefits of any financial decision. Please consult and review your situation with a qualified professional prior to choosing to use this strategy.

Conclusion

If you have an interest in further discussing funding your retirement plans, please call us. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. As with all tax sensitive decisions, you should always consult with your financial advisor and tax professional to help avoid tax ramifications.

As always, we are here to help and can look at your specific financial situation and chart the right path for you. We enjoy the opportunity to assist clients in addressing all financial matters.

Orange County, CA — April 10, 2018

Daniel Romero, CFP^®, an independent LPL Financial advisor at Romero & Levin Wealth Management, Inc. in Santa Ana, CA, today announced his inclusion in LPL’s Chairman’s Club. This premier award is presented to less than 5% of the firm’s approximately 15,000 advisors nationwide.

“On behalf of LPL, I congratulate Daniel,” said Andy Kalbaugh, LPL managing director and divisional president, National Sales and Consulting. “Daniel has demonstrated tremendous value to his clients with the service he provides to help them pursue their financial goals. We thank Daniel for the contributions he makes to his clients, his commitment to offering his clients independent financial advice and his ongoing relationship with support of LPL. We wish him continued success.”

Romero has been providing financial services to clients across the country for 19 years. Romero provides a full range of financial services, including retirement and financial planning, individual money management, individual stocks and bonds, mutual funds, annuities and more.

LPL is a leader in the retail financial advice market and the nation’s largest independent broker/dealer*, providing resources, tools and technology that support advisors in the delivery of personal, objective financial advice.

About LPL Financial

LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker/dealer*. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow thriving practices. LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.

LPL.com / NASDAQ: LPLA

*Based on total revenues, Financial Planning magazine June 1996-2017

*Received 2015 thru 2019 Membership in the 2019 LPL Financial Chairman’s Club and Patriots Club is based on year end production and is reserved for top achievers and represents less than 6% and 10% (respectively) of all LPL Financial Advisors.

The financial representatives of Romero & Levin Wealth Management are registered with and securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC.

###

Contact:

Daniel Romero, CFP®

(714) 547-8787 x 107

[email protected]
LPL Tracking #1-697905.

New York, NY — March 7, 2018 – Daniel Romero an independent financial advisor at Romero & Levin Wealth Management, Inc. in Santa Ana, CA was recently recognized by Forbes as one of the 2018 Best-In-State Wealth Advisors.

According to Forbes, advisors selected for the inaugural list were assessed on a variety of criteria, including years of experience, community involvement and client retention data*.

“This is a huge accomplishment,” said Andy Kalbaugh, LPL managing director and divisional president, National Sales and Consulting. “It takes a tremendous amount of dedication and experience to achieve this level in our industry. Dan has committed to his role in supporting his clients’ financial lives and is a great example of the value the independent model has to grow successful businesses. We are proud to be an enabling partner to Dan and wish his continued success.”

Mr. Romero has been providing financial services to more than 500 clients in Orange County for 19 years.  Mr. Romero provides access to a full range of financial services, including retirement and financial planning, 401(k) Plan management, individual money management, individual stocks and bonds, mutual funds, annuities and more.

Mr. Romero is an LPL Financial advisor. LPL is the nation’s largest independent broker-dealer** and a leader in the retail financial advice market, providing resources, tools and technology that support advisors in their work to enrich their clients’ financial lives.

*The Forbes Best-In-State Wealth Advisor ranking, developed by SHOOK Research, is based on in-person and telephone due diligence meetings and a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK Research receives a fee in exchange for rankings.

Contact:

Jason Martinez

714-547-8787

[email protected]

About LPL Financial

LPL Financial is a leader in the retail financial advice market and the nation’s largest independent broker/dealer**. We serve independent financial advisors and financial institutions, providing them with the technology, research, clearing and compliance services, and practice management programs they need to create and grow thriving practices. LPL enables them to provide objective guidance to millions of American families seeking wealth management, retirement planning, financial planning and asset management solutions.

LPL.com / NASDAQ: LPLA

 

**Based on total revenues, Financial Planning magazine, June 1996-2017

LPL Financial, Forbes magazine and SHOOK Research are separate entities.

Daniel Romero is a Registered Representative with, and securities are offered through, LPL Financial. Member FINRA / SIPC. CA Insurance Lic# 0C54180.

Los Angeles, CA – September 8, 2017

Jason Martinez, a Research Associate at Romero & Levin Wealth Management, Inc. in Santa Ana, CA, has earned the prestigious Chartered Financial Analyst^® (CFA^®) designation.

The CFA charter, one of the most respected and recognized investment credentials in the world, represents a tradition of upholding the highest standards of education and integrity in the investment profession. The charter is recognized globally by employers, investment professionals, and investors as a definitive standard by which to measure the competence, integrity, and dedication of serious investment professionals.

Recipients of the CFA charter have successfully completed the CFA Program, a graduate-level, self-study curriculum and a series of three intensive examinations taken sequentially, which, in total, takes most candidates between two and five years. Candidate surveys report that preparation for the three exams typically requires at least 900 combined hours of study.

The CFA Pro

gram, which is administered by CFA Institute, the global not-for-profit association of investment professionals, sets a standard that is acknowledged around the world for measuring the competence and integrity of financial analysts, portfolio managers, and investment advisers. Currently, more than 100,000 investment professionals in 135 countries and territories hold the CFA charter.

The first CFA exam was administered in 1963. Due to the rigor of the program, only around one in five candidates who enroll in the CFA Program pass all three exams and meet the professional and ethical requirements to earn the charter. Earning the designation demonstrates mastery of the skills most needed for investment analysis and decision making in today’s fast-evolving global financial industry.

Administered worldwide in English, the CFA Program is firmly grounded in the knowledge and skills required every day in the investment profession and covers ethical and professional standards, securities analysis and valuation, international financial statement analysis, quantitative methods, economics, corporate finance, portfolio management, and performance measurement.

Martinez has worked in the financial industry for five years. He earned his undergraduate degree at the University of California, San Diego and a Masters in Business Administration at California State University, Long Beach. Martinez began his financial career at Karl H. Romero & Associates, Inc. as the Director of Client Relations in 2013. He then joined Romero & Levin Wealth Management, Inc. in 2016 as a Research Associate.

“I am thrilled to finally receive my charter,” Martinez said. “It represents the successful culmination of hundreds of hours of study and a demonstrated commitment to professionalism and ethics.”

John Bowman, CFA, managing director, Americas at CFA Institute, explained what motivates candidates to make such a significant investment of their time and energy to seek to earn the CFA designation.

“For 50 years, candidates have sought to earn the CFA charter for two chief reasons,” Bowman said. “One, to expand and test their knowledge of current practice across a broad range of investment topics, and two, to demonstrate to clients, employers, and peers their mastery of a demanding body of knowledge.

“In the past

decade, as the CFA Program has been adopted as a worldwide standard, the charter also has become an ‘international passport’ to work in financial markets anywhere in the world,” Bowman concluded.

ENDS

Jason Martinez, CFA is a Registered Assistant with, and securities are offered through, LPL Financial. Member FINRA/SIPC.

Notes to Editors

About CFA Institute

CFA Institute is the global association for investment professionals. It administers the CFA and CIPM curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 115,000 members, who include the world’s more than 100,000 CFA charterholders, in 138 countries and territories, as well as 138 affiliated professional societies in 60 countries and territories. More information may be found at www.cfainstitute.org.

San Diego, CA – June 8, 2015—Daniel S. Romero of Romero & Levin Wealth Management, Inc., in Santa Ana, CA, was recently named to the 2015 Financial Times Top 401 Retirement Plan Advisors list. Mr. Romero is affiliated with LPL Financial LLC, the nation’s largest independent broker/dealer,* an RIA custodian, and a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ: LPLA).

The top advisors were chosen based on several criteria, including assets under management in defined contribution (DC) plans; degree of specialization in DC plan advising; growth in DC plan assets under management; growth in number of DC plans advised; average population rate in advised DC plans; years of experience as a DC planner; industry certifications; and compliance record.

“On behalf of LPL, we congratulate Daniel on being named to the Financial Times list,” said David Reich, executive vice president, head of Retirement Partners, LPL Financial. “We are proud to support Dan and his team with industry-leading resources, with the shared goal of helping his clients reach better retirement outcomes.”

*Based on total revenues, Financial Planning magazine, June 1996-2014

Click Here for list of professionals.

About LPL Financial

LPL Financial, a wholly owned subsidiary of LPL Financial Holdings Inc. (NASDAQ:LPLA), is a leader in the financial advice market and serves $485 billion in retail assets. The Company provides proprietary technology, comprehensive clearing and compliance services, practice management programs and training, and independent research to more than 14,000 independent financial advisors and more than 700 banks and credit unions. LPL Financial is the nation’s largest independent broker-dealer since 1996 (based on total revenues, Financial Planning magazine, June 1996-2014), is one of the fastest growing RIA custodians with $105 billion in retail assets served, and acts as an independent consultant to over an estimated 40,000 retirement plans with an estimated $120 billion in retirement plan assets served, as of March 31, 2015. In addition, LPL Financial supports approximately 4,300 financial advisors licensed with insurance companies by providing customized clearing, advisory platforms, and technology solutions. LPL Financial and its affiliates have 3,352 employees with primary offices in Boston, Charlotte, and San Diego. For more information, please visit www.lpl.com.

Received in 2015. The advisers were assessed according to quantifiable data, using the following methodology. The Financial Times and Ignites Research, the FT’s sister company, contacted large US brokerages, independent advisers and other wealth managers to identify qualified applicants. Our research partner, Broadridge Financial Solutions, provided data that helped to identify advisers specialising in serving companies sponsoring DC plans, including 401(k) plans and other DC accounts. Applicants for this listing were required to advise at least $75m in DC plan assets and have at least 20 per cent of their client assets in DC plans. The qualifying advisers completed a questionnaire about the details of their practice and we added that information to our own research. The formula the FT uses to grade advisers is based on six broad factors and calculates a numeric score for each adviser.

LPL Financial and Financial Times are not affiliated entities.

The Financial Times Top 401 Retirement Plan Advisors is an independent listing produced by the Financial Times (May, 2015). The FT 401 is based on data gathered from financial advisors, firms, regulatory disclosures, and the FT’s research. The listing reflects each advisor’s performance in eight primary areas, including: DC plan assets under management; DC plan assets as a percentage of overall AUM; growth in DC plan AUM; growth in DC plans advised; DC plan employee participation; professional designations; experience; and compliance record. Neither the brokerages nor the advisors pay a fee to The Financial Times in exchange for inclusion in the FT 401.

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