What are your thoughts on Roth conversions if you are in the highest tax bracket and plan to be there moving forward?
-Joel
If you ask some financial professionals, the answer to this question might be a resounding no, and the discussion would be over. But there are arguments for doing Roth conversions, even if you are in the highest tax bracket.
In fact, there are specific instances where converting at the highest tax rates makes sense. And they are worth considering. (If you need help managing your retirement accounts, consider working with a financial advisor.)
Advantages of Using Roth Conversions in the Highest Tax Bracket
Ask an Advisor: I’m in the Highest Tax Bracket, Should I Do a Roth Conversion?
Consider these three advantages of using a Roth conversion, even when you’re in the highest tax bracket.
Taking Advantage of Relatively Low-Income Tax Years
This is the most common focus of planning for Roth conversions. The idea is that relatively low-income years, often thought of as the years between retiring and taking Social Security or required minimum distributions (RMDs), generate an opportunity to intentionally pay taxes.
For younger earners, this could also be thought of as converting (or contributing) to Roth before your earnings increase as your career progresses.
Removing Tax Uncertainty
If a taxpayer is concerned that tax rates could go up in the future, converting to a Roth takes tax rate changes out of the equation. The tax code is written in pencil, and Congress has the power to change it at any time and in any way it decides.
Nobody knows what tax laws will be in place in a few years, especially with the expiration of provisions of the Tax Cuts and Jobs Act in 2025. So if your concern is that tax rates will go up, converting to Roth now, in some ways, protects you from those potential increases.
Creating Tax Flexibility
A Roth can give you the flexibility to have funds available when you need them without fretting over the tax consequences. (If you need help with the tax consequences of your investment decisions, consider working with a financial advisor.)
When Would It Make Sense for a Roth Conversion in the Highest Tax Bracket?
Ask an Advisor: I’m in the Highest Tax Bracket, Should I Do a Roth Conversion?
The most clear-cut instance of Roth conversions making sense in the highest bracket is for taxpayers at a level of income and wealth where they can reasonably expect to be in the highest tax brackets throughout their lives. Tax rates may rise in 2026 and are currently at historical lows. For taxpayers already in the highest bracket who expect to always be there, converting to a Roth is a way to pay the devil we know instead of waiting to find out what the devil we don’t know will look like in the future
The uncertainty of tax rates in the future may be more painful than the check you’d have to write today.
This comes down to personal preferences and expectations for the future. By converting to a Roth in anticipation of tax rates significantly rising in the future, you are taking a risk to remove the IRS as a debt holder on your wealth.
If rates don’t go up in your lifetime or even go down in the future (whether because Congress changes the rates or you end up with lower income in the future), you could certainly end up paying more in taxes than if you did not convert.
It is important to make these decisions with as much information and context as possible. No one can guarantee what tax rates will be in the future. (If you need help managing the tax implications of your retirement decisions, consider working with a financial advisor.)
Next Steps
Whether you are in the highest tax bracket or any other, tax planning is most effective when you are thinking about the long term. Converting to Roth always means paying more in tax this year than you otherwise would have. So for a conversion to make sense, it has to be part of a longer-term plan.
The benefits of a conversion are typically recognized over time, not in the year of the conversion. The most successful Roth conversion strategies are going to be ones that are intentional and focused on multi-year planning.
Tips
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
Whether you’ve just started your journey to financial health or have years of experience, you’ve probably heard how investing can play an important role in your overall finances. But you may be wondering how to approach creating your investment strategy and which investments should be a part of it.
There isn’t a one-size-fits-all answer when it comes to investing. Your investment choices should align with your unique financial goals, both in the short term and long term.
Here, J.P. Morgan Wealth Management Regional Director Mark Adams shares four key tips for building your investment strategy and how to get started:
1. Know your goals, timeline and risk tolerance
Before you get started on your investing journey, it’s important to understand what you hope to achieve with your wealth. Think about your objectives in both the short and long term. For example, maybe you want to go on a big vacation with your family next year, and you’re also saving for your children’s future college costs and your eventual retirement.
You should also think about your investing timeline, or when you need that money for your various goals. Your portfolio allocation should depend on the amount of time you plan to keep that money invested.
Remember, investing involves risk. You should ask yourself how much risk you’re comfortable taking on. How would you react if your portfolio saw a large decline? Would you be able to stomach this in the short term?
Everyone’s financial situation is unique. These factors will look different from person to person, and they’re important to consider as you create your personal investment strategy.
2. Have a plan
Once you’ve outlined your goals, you should figure out how you want to get there. Having a plan is key – and it’s proven to help improve outcomes. J.P. Morgan Wealth Management’s latest 2025 Investor Study found that a whopping 90% of respondents who have a plan for their financial goals feel confident they’re on track to meet them, compared to 49% of respondents who don’t have a plan in place.
A plan can provide a roadmap to help guide you throughout your financial journey. It can also help keep you on track along the way. That said, life is full of changes. It’s common for people’s priorities to evolve over time. Investors should regularly check in on their plan and adjust it as needed.
If you aren’t sure how to get started, there are professionals out there who can help. You may want to partner with a financial advisor, who can sit down with you to map out your goals and build a customized plan that is unique to your situation. An advisor can also regularly check in on your plan with you to see how you’re tracking towards your goals.
3. Diversification is key
You may have heard the saying, “don’t put all of your eggs in one basket.” This should apply with your investments, too. For example, concentrating all your investments in a single stock means that your entire portfolio is tied to the performance of that one company.
Diversification can help even out your portfolio’s returns during periods of volatility. Investors should also consider diversifying by asset class (for example, just stocks). Instead, it’s generally a good practice to spread your investments across different types of securities with different levels of risk.
4. Keep a long-term view
Investing is a marathon, not a sprint. It’s important to maintain a long-term view with your investments. Remember, it’s about time in the market, not timing the market. The amount of time you are invested in the market is one of the most important factors in growing your wealth.
Markets go up and down. During times of volatility, investors should avoid making an impulse reaction and stay focused on their long-term strategy. Over the last 20 years, seven of the 10 best days occurred within 15 days of the 10 worst days. Don’t let emotions derail your plan.
The bottom line
Money is personal, and your investment approach should be, too. When you’re ready to get started, consider these tips as you map out your long-term financial strategy. And if you’re looking for more resources to help you in your investing journey, check out our library of free educational content at chase.com/theknow.
The views, opinions, estimates and strategies expressed herein constitutes the author’s judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.
Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results.
Diversification and asset allocation does not ensure a profit or protect against loss.
J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.
Once you begin taking required minimum distributions (RMDs) at age 73, you must withdraw a set amount each year from your pre-tax retirement accounts. If you don’t need that money for living expenses, you can still use it productively. Many retirees choose to reinvest their RMDs in a taxable brokerage account, add to emergency savings, buy income-producing investments, pay down debt, or use part of the funds for qualified charitable distributions to reduce taxable income. A financial advisor can help you decide which option supports your overall retirement plan.
Once you take your RMD, the money becomes taxable income, but you can still put it to work. After paying the taxes owed, you can reinvest the remaining funds in a regular investment account. Common options include mutual funds, exchange-traded funds (ETFs), dividend-paying stocks, or high-yield savings products. The goal of this strategy is to keep your money growing, even though it has left your retirement account.
Before reinvesting, think about how soon you may need the money. If you expect to use it within a few years, you may want safer choices such as certificates of deposit (CDs), money market funds, or short-term Treasury bonds. If you can leave the funds invested for longer, a mix of stock and bond funds can offer both income and growth potential. It’s also important to review how new investments could affect your taxes, since earnings in a taxable account may be reported each year.
Reinvesting your RMD can make sense for retirees who already have steady income from Social Security, pensions, or annuities and who do not rely on RMDs to pay regular expenses. It can also work for retirees who want to grow their portfolios for future healthcare costs or leave more assets to heirs. Keeping this money invested can help preserve your purchasing power over time.
After paying the taxes owed on your RMD, you can move the remaining funds from your traditional IRA, SEP IRA, SIMPLE IRA, 401(k), or 403(b) into a regular investment account. This keeps your withdrawn money invested and gives it the potential to continue growing even after it leaves a tax-deferred account.
You can also transfer assets in kind from your retirement plan to a taxable account instead of selling them. This means you move the same investments, such as mutual funds, ETFs, or individual stocks, and the value of that transfer counts toward your RMD. The IRS only requires that you take the withdrawal and pay the tax on it. You are not required to sell or spend the money.
Taxable accounts can generate income and capital gains that you may have to report each year. A financial advisor or tax professional can help you review your reinvestment options, manage the tax effects, and make sure the plan fits your overall retirement goals.
Funding an annuity with RMDs can make sense for retirees who already have sufficient liquid assets for short-term needs and want to secure part of their future income. This strategy turns part of your retirement savings into predictable payments while keeping other assets available for growth or emergencies.
An annuity is a contract with an insurance company that exchanges an upfront payment for a guaranteed stream of income. Some retirees use annual RMD withdrawals to gradually fund an annuity that begins payments in their late 70s or early 80s, when other income sources may decline.
For example, a retiree who receives an annual RMD could use those withdrawals to buy portions of a deferred income annuity. And by age 80, those purchases might provide extra monthly income for life, depending on interest rates and contract terms.
Different types of annuities offer different features. Fixed annuities pay a set amount, while variable and indexed annuities link payments to investment performance or a market index. Some contracts include inflation riders that increase payments over time, though these usually reduce the initial payout. Because costs, surrender periods and guarantees vary, it’s important to compare options before committing funds.
A senior couple reviewing their savings to make sure they have enough cash set aside for unexpected expenses in retirement.
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An emergency fund gives you quick access to cash for unexpected costs such as home repairs, medical bills, or travel to assist family. Having this reserve can prevent you from selling long-term investments at the wrong time.
In retirement, market declines can have a bigger impact because you may rely on your portfolio for income. An emergency fund helps reduce that risk by providing a cushion during periods when markets fall. Instead of withdrawing from your investment accounts during a downturn, you can draw from your cash savings until markets stabilize.
You can keep your RMD funds in safe, interest-bearing accounts such as high-yield savings accounts, money market funds, or CDs. For example, if you receive a $10,000 RMD, placing it in an account that earns 4% annual interest adds both liquidity and modest growth. These accounts protect principal and allow easy access without market exposure.
Reinvesting your RMD in a qualified charitable distribution (QCD) can reduce taxable income and improve the efficiency of your retirement withdrawals. A QCD allows you to transfer up to $108,000 in 2025 from an IRA directly to an approved charity once you reach age 70½1. And if you are 73 or older, the amount transferred also counts toward your RMD, but is excluded from your adjusted gross income (AGI).
Because the QCD amount never enters taxable income, you receive a full benefit even if you use the standard deduction. For example, if your RMD totals $30,000 and you direct $12,000 to a charity through a QCD, only $18,000 appears as taxable income. The smaller income figure can help keep you in a lower tax bracket and reduce the impact of income-based phaseouts.
Lowering AGI can also help you reduce income taxes on Social Security benefits, limit exposure to Medicare income surcharges, and maintain eligibility for certain tax credits.
Even though you cannot use RMD withdrawals to complete Roth IRA conversions, you can use them to pay the taxes triggered by those conversions. So, for example, if your RMD is $40,000, you cannot satisfy that requirement by converting $40,000 to a Roth IRA. You must first withdraw the $40,000 and move it into cash or a taxable account. Once the withdrawal is complete, you can use part or all of that $40,000 to pay the income taxes due on a separate Roth conversion completed that same year.
When you move assets from a traditional IRA or 401(k) into a Roth IRA, the converted amount is treated as taxable income for that year. Using your RMD to cover the tax bill allows you to convert other funds without reducing the total amount added to your Roth account.
This approach can help you manage future tax exposure and reduce required withdrawals over time. Once assets are in a Roth IRA, they are no longer subject to annual RMDs, and qualified withdrawals are tax-free. By using RMDs to pay conversion taxes each year, you can gradually shift money out of taxable retirement accounts and create more flexibility for future income planning.
A retiree reviewing options for using RMD withdrawals, including investing, charitable giving, or building cash reserves for future needs.
Once you start taking RMDs at age 73, you have to withdraw money each year, but you can still use it wisely. After paying taxes, you can invest the rest, build extra income with an annuity, keep cash for emergencies, give through a QCD to lower taxes, or use it to pay taxes on a Roth conversion. Your choice will depend on your income, expenses and goals. A financial or tax professional can help you decide how to make the most of your RMDs.
A financial advisor can help you determine how much to keep in an emergency fund and where to hold it for safety, liquidity, and modest growth. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you want to build your savings up consistently, consider setting up automatic transfers from your checking to your savings accounts. This approach could help you make saving a routine part of your financial life.
“Give More, Tax-Free: Eligible IRA Owners Can Donate up to $105,000 to Charity in 2024 | Internal Revenue Service.” Home, https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024. Accessed Sept. 19, 2025.
Deciding when to take Social Security benefits is one of the most important questions to answer in planning your retirement strategy. Second to that is understanding what might increase—or reduce—your benefit amount. Does retirement income count as income for Social Security? No, but working while claiming benefits could shrink the amount that you’re able to collect. Talking to a financial advisor can help you to maximize Social Security benefits in retirement.
Understanding Social Security Benefits
Social Security retirement benefits are designed to provide a supplement source of income to eligible seniors. You can begin taking Social Security retirement benefits as early as 62, though doing so can reduce the amount you receive. Waiting until age 70 to begin taking benefits, meanwhile, can increase your benefit amount.
Benefits are calculated based on your earnings history. Specifically, Social Security considers earned income, wages and net income from self-employment. If any money is withheld from your wages for Social Security or FICA taxes, then your wages are covered by Social Security since you’re paying into the system.
When you apply for benefits, Social Security uses your average indexed monthly earnings to decide how much you qualify for. This average is based on up to 35 years of your indexed earnings and it’s used to calculate your primary insurance amount (PIA). The PIA determines the benefits that are paid out to you once you retire.
Does Retirement Income Count as Income for Social Security?
Retirement income does not count as income for Social Security and won’t affect your benefit amount. Specifically, the Social Security Administration excludes the following from income:
None of these are considered earnings for Social Security purposes. Again, Social Security only looks at money that you actually earn from working a job or being self-employed. That means that you could collect Social Security benefits while also taking withdrawals from a 401(k) or individual retirement account (IRA) or receiving payments from an annuity. Reverse mortgages won’t affect your Social Security benefits or eligibility for Medicare either.
With a reverse mortgage, you tap into your home equity but instead of making payments to a lender, the lender makes payments to you. You don’t have to pay anything back towards the reverse mortgage as long as you’re living in the home. Many retirees choose to supplement Social Security benefits with a reverse mortgage.
Does Working in Retirement Reduce Social Security Benefits?
Financial advisor explaining someone’s retirement social security tax obligation
Under Social Security rules, you’re considered to be retired once you begin receiving benefits. If you’re below full retirement age but still working, Social Security can deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2023, the limit is $21,240.
In the year you reach your full retirement age (FRA), the deduction changes to $1 for every $3 earned above a different annual limit. For 2023, the limit is $56,520. Once you reach your full retirement age, your benefits are no longer reduced regardless of how much you earn. Social Security will also recalculate your benefit amount so that you get credit for any months that your benefits were reduced because of your earnings.
Coordinating Retirement Withdrawals and Social Security
Deciding when to take Social Security benefits starts with considering your other sources of retirement income. For example, that might include:
You could also add a health savings account (HSA) here, though it’s technically not a retirement account. An HSA lets you save money on a tax-advantaged basis for healthcare expenses but once you turn 65, you can withdraw money from it for any reason without a tax penalty. You would, however, pay ordinary income tax on the distribution.
From a tax perspective, it usually makes sense to start with taxable accounts first, then tax-advantaged accounts for withdrawals, leaving Roth and Roth-designated accounts last. In doing so, you allow your Roth investments to continue growing tax-free until you need them.
In terms of when to take Social Security benefits, delaying usually makes sense if you’re hoping to get a larger payout or you have other sources of income to rely on. You might also consider putting off taking benefits if you plan to continue working up until your full retirement age, as that could allow you to claim a larger benefit amount.
Creating Multiple Streams of Income for Retirement Without Affecting Social Security
Since retirement income doesn’t count as income for Social Security, it could be to your advantage to have more than one source that you can rely on. You might already be contributing to your 401(k) at work but you could add an IRA into the mix for additional savings.
Whether it makes sense to choose a traditional or Roth IRA can depend on where you expect to be tax-wise once you retire. You might choose a traditional IRA if you expect to be in a lower tax bracket down the line but could benefit from claiming deductible contributions now. On the other hand, a Roth IRA might be preferable if you’d like to be able to withdraw money tax-free in retirement.
An annuity is another option if you’d like to invest money now to generate guaranteed income later. When considering an annuity, it’s important to learn how different types of annuities work and what they can cost.
Real estate might be another possibility if you’re looking for a passive income option that won’t affect your Social Security benefits. You could purchase a rental property or become a flipper, but owning property directly isn’t a requirement. You can also create passive investment income through real estate investment trusts (REITs), real estate crowdfunding platforms or real estate mutual funds.
Talking to a financial advisor can give you a better idea of how to create multiple streams of income for retirement, without affecting your Social Security benefits. An advisor should also be able to help you formulate a strategy for getting the most benefits possible for yourself and your spouse if you’re married.
Bottom Line
Man confused with his social security
Retirement income won’t affect your Social Security benefits, but income earned from working could. If you plan to draw Social Security while working, it’s helpful to know what that might mean for your benefits payout. Getting an early start with saving and investing for retirement could allow you to delay taking Social Security so that you’re able to claim a larger benefit.
Retirement Planning Tips
Working with a financial advisor can help you to fine-tune your retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Social Security benefits are taxable for retirees who have substantial income from wages, self-employment, interest and dividends. If you’re working while claiming benefits or earning interest and dividend income, you may have to pay taxes on some of your benefits, depending on how much income you have.
Check out our free retirement calculator for a quick estimate on what you can expect based on your age, expected retirement and sources of income.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
One’s home is often their biggest and most important asset in their life. But should they sell it once they retire to bolster their funds? ComparisonAdviser examines this important decision in its most recent study.
REDMOND, Wash., June 10, 2024 (Newswire.com)
– A home is one of the most valuable assets people own. As individuals transition from their working lives into retirement, a common consideration is determining whether to sell or keep the property they’ve owned throughout their adult life. In its most recent study, ComparisonAdviser examines the factors homeowners should consider when deciding what to do with their homes as they enter their post-working life, including specific reasons for and against selling and why it’s important to seek financial advice. Click this link to access the article: https://comparisonadviser.com/news-and-studies/selling-your-home-in-retirement.
The study begins by explaining why a home can be one of the most financially significant pieces of a household’s net worth. To demonstrate this, ComparisonAdviser uses data from a survey it conducted showing reported home ownership by age. It also uses outside data both from the U.S. Department of Health and Human Services and the Census Bureau to illustrate the weight of home equity in one’s portfolio, both for those with fewer assets in general and as one progresses in age.
As outlined in the study, there are various practical and financial reasons why someone might want to sell their house before entering retirement. For example, people may want to downsize and move somewhere with less upkeep and space to manage. Others might aim for a change of scenery and relocate to a new city or move closer to family members living elsewhere. The study also highlights that selling one’s house around retirement age can give individuals access to a large lump sum of cash that can aid other plans they may have in place, such as travel or estate planning.
Though there are several valid arguments for selling one’s house upon retiring, the study also lays out some reasons homeowners might want to keep their equity stake into their old age. One of the primary aspects it emphasizes is that owning a home can allow one to avoid high rent prices, rent out the home to tenants while living somewhere else or protect oneself against inflation. The article also points out that the sale and moving process can be hard, especially for those who aren’t as mobile.
Finally, the study ends by shedding light on the importance of discussing one’s decision with a skilled financial advisor with expertise in retirement or estate planning. These can offer detailed insight into how the sale of a home, or keeping it, can fit into a comprehensive retirement plan.
Among retirement rules of thumb, saving 10 times your salary by 67 reigns supreme. But workers should also have another way by planning for their savings to provide 45% of their pretax, preretirement income.
Financial services giant Fidelity has a rule for retirement savings you may have heard of: Have 10 times your annual salary saved for retirement by age 67. This oft-cited guideline can help you identify a retirement savings goal, but it doesn’t fully account for how much of those savings will cover in retirement.
Enter Fidelity’s 45% rule, which states that your retirement savings should generate about 45% of your pretax, pre-retirement income each year, with Social Security benefits covering the rest of your spending needs.
A financial advisor can analyze your income needs and help you plan for retirement. Find an advisor today.
The financial services firm analyzed spending data for working people between 50 and 65 years old and found that most retirees need to replace between 55% and 80% of their pre-retirement income in order to preserve their current lifestyle. Because retirees have lower day-to-day expenses and don’t typically contribute to retirement accounts, their income requirements are lower than people who are still working.
As a result, a retiree who was earning $100,000 a year would need between $55,000 and $80,000 per year in Social Security benefits and savings withdrawals (including pension benefits) to continue their current lifestyle.
Fidelity’s 45% guideline dictates that a retiree’s nest egg should be large enough to replace 45% of their pre-retirement, pretax income each year. Following this rule, the same retiree who was earning $100,000 per year would need enough saved up to spend $45,000 a year, in addition to his Social Security benefits, to fund his lifestyle. Assuming the person lives another 25 years after reaching retirement age, this person would need $1.125 million in savings.
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Pre-Retirement Income Plays an Important Role
Among retirement rules of thumb, saving 10 times your salary by 67 reigns supreme. But workers should also have another way by planning for their savings to provide 45% of their pretax, preretirement income.
But all retirement spending plans aren’t equal. Those who earned less money during their careers will have less saved than high earners, and as a result, will need to replace a larger proportion of their pre-retirement income.
“Your salary plays a big role in determining what percentage of your income you will need to replace in retirement,” Fidelity wrote in its most recent Viewpoints. “People with higher incomes tend to spend a small portion of their income during their working years, and that means a lower income replacement goal in percentage terms to maintain their lifestyle in retirement.”
According to Fidelity, a person who makes $50,000 per year would need savings and Social Security to replace approximately 80% of his income in retirement. An individual earning $200,000, however, could get by in retirement by replacing just 60%.
Social Security plays a less significant role in the retirement plans of higher-earning workers. Consider the table below:
Replacing Income Using Fidelity’s 45% Rule Pre-Retirement Income Replacement Rate From Savings Replacement Rate From Social Security Total Replacement Rate $50,000 45% 35% 80% $100,000 45% 27% 72% $200,000 45% 16% 61% $300,000 44% 11% 55%
According to Fidelity, a retiree who made $50,000 per year would receive 35% of that income via Social Security. But a high-earning individual who made $300,000 per year would only see 11% of his income replaced by Social Security benefits. While higher-earning individuals don’t need to replace as much of their pre-retirement income, retirement savings plays a more important role for these types of retirees.
Bottom Line
Among retirement rules of thumb, saving 10 times your salary by 67 reigns supreme. But workers should also have another way of figuring: planning for their savings to provide 45% of their pretax, preretirement income.
Fidelity’s 10x rule of thumb is a nifty guideline to follow as you save for retirement over the course of many decades. But when retirement arrives, Fidelity recommends that your savings should cover 45% of your income needs, with Social Security covering the rest. As a result, the average retiree will need to replace between 55% and 80% of his pre-retirement, pretax income to maintain his current lifestyle.
Tips for Retirement Planning
A financial advisor can be an invaluable resource when it comes to planning for retirement. Whether it’s saving in tax-advantaged accounts or mapping out your income needs, an advisor can help you with your retirement planning needs.
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While people can start collecting Social Security benefits at age 62, delaying collection will result in higher benefits. SmartAsset’s Social Security calculator can help you develop a collection plan that enables you to maximize your benefits and enjoy retirement.
Ask an Advisor: If I Have a Tax-Deferred 401(K). Can I Convert It to a Roth IRA Without Paying the Deferred Taxes When I Roll It Over?
If I have a tax-deferred 401(k). Can I convert it to a Roth IRA without paying the deferred taxes when I roll it over?
-Tommy
Generally, the answer here is no. There’s typically no method to totally dodge taxes on a Roth conversion. Eventually, Uncle Sam will come to collect on your tax-deferred retirement accounts – either when you execute a Roth conversion, withdraw funds or collect your required minimum distributions (RMDs).
That said, your inability to totally dodge taxes doesn’t translate to an inability to reduce them. Here are some savvy strategies to reduce your tax bill on a Roth conversion. (For more information on taxes and retirement, consider working with a financial advisor.)
Strategies to Reduce Your Tax Bill on a Roth Conversion
Ask an Advisor: If I Have a Tax-Deferred 401(K). Can I Convert It to a Roth IRA Without Paying the Deferred Taxes When I Roll It Over?
To reduce the tax consequences of rolling a tax-deferred account to a Roth, consider these methods:
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Roll Over Your Money in a Low-Tax Year
For many folks, a prime time for Roth conversions takes place during the years after retirement but before Social Security and RMDs kick in. Those can be relatively low-income years during which initiating a conversion can result in a triple benefit. Those benefits are: lower tax bills, reduced RMDs and future tax-free growth.
Speaking of timing, if you suspect tax rates will increase at the anticipated sunset of the Tax Cuts and Jobs Act or due to political machinations on Capitol Hill, making a Roth conversion now can be an option.
You’ll lock in your current tax rate and hopefully ride out any future increases. Keep in mind that nobody has a crystal ball, and this strategy involves making predictions about the future. (For more information on how tax policy may impact retirement planning, consider working with a financial advisor.)
Pay the Tax Wisely
Many experts recommend paying the tax on your Roth conversion with nonretirement assets. That’s opposed to withholding some of your retirement funds to pay the bill. This will allow you to move the greatest amount into your new Roth account and continue to watch it grow tax-free.
Work With a Financial Advisor
A financial advisor may be able to help you take a holistic look at your tax and retirement profile, identifying opportunities to minimize taxes while adhering to an investment philosophy that matches your life stage.
A good advisor can talk you through whether a Roth conversion makes sense right now. He or she can also discuss alternatives, such as converting your 401(k) into a traditional IRA, transitioning to a new employer’s 401(k) or making a partial conversion.
Tips for Handling Taxes in Retirement
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Susannah Snider, CFP® is SmartAsset’s financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Susannah is not a participant in the SmartAdvisor Match platform and is an employee of SmartAsset.
SmartAsset: Alarming number of working Americans cash out retirement accounts when changing jobs
The very essence of a retirement nest egg lies in the concept of patient growth and compounding of investments over time. Its purpose is to offer a bountiful reserve of funds when one bids farewell to the workforce, ensuring a comfortable retirement. However, a disconcerting trend has emerged, as a significant portion of younger workers succumb to the temptation of prematurely shattering their nest eggs.
The result is a tax bill, fines for early withdrawals, lost contributions and a diminished – or vanished – account balance likely to come up short at retirement time. We’ll discuss the details.
A financial advisor can help you organize your retirement savings and make sure you are set up to meet your financial goals.
Workers Are Cashing Out Their 401(k) When Leaving Their Jobs
According to a study from the UBC Sauder School of Business, more than 41% of workers who were leaving their jobs cashed out their employer-sponsored 401(k) retirement plans early. That’s up from the pre-pandemic level when about one of every three departing workers withdrew cash or completely emptied their accounts.
There are a number of financial problems with such a move. One of which is because contributions are tax-deferred, the withdrawals are treated as ordinary income, subject to the worker’s marginal tax rate.
In addition, the internal revenue service (IRS) takes a second cut, adding a 10% penalty for withdrawals made before age 59.5 (although there is an exception available to workers 55 and older).
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Other Financial Consequences
Workers may also sacrifice some of their 401(k) employer’s match if their account isn’t totally vested, which can take as long as four years. In addition, the worker loses out on the valuable long-term compounding for all of that untaxed money.
And workers who take loans against their 401(k) balances must repay the entire balance before the next federal tax filing deadline. If workers don’t repay the balance before then, the remaining loan balance is treated as a distribution and is treated as taxable income.
Cashing Out Depending On the Balance
SmartAsset: Alarming number of working Americans cash out retirement accounts when changing jobs
There also are situations where employers can choose to cash out your account when you leave the job, depending on the balance:
The accounts can be involuntarily rolled over to an individual retirement account (IRA) in your name. That IRA is at least tax-deferred, so you don’t take the tax hit. The bad news is that so-called “forced-placed” IRAs can hit you with big fees that can drain your account over several years.
More Than $5,000 Balance
The employer can’t force you out of the plan. You’re free to leave the money right where it is.
In all cases, your best bet as soon as you know you’re leaving is to contact your benefits department for instructions on having your money rolled over into an IRA at an institution you choose. Any financial institution offering IRAs can handle the rollover for you.
You also may be able to roll your money directly into your new employer’s 401(k) plan, if that’s allowed. If you have received a check, you have 60 days to deposit that money in an IRA along with enough cash to cover the 20% of the balance that was withheld.
Bottom Line
SmartAsset: Alarming number of working Americans cash out retirement accounts when changing jobs
Workers who cash out their 401(k) balances when they leave a job will be hit with taxes and penalties on the money immediately. And it may not have enough long-term investments to cover their retirement needs.
Tips for Getting Retirement Ready
Retirement planning is complex and can be stressful. If you’re not sure what your vision looks like, consider speaking with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Social Security is another source of income you can expect during your senior years. While you shouldn’t depend on it, it can help cover smaller expenses during retirement. Find out the amount you’ll receive with our free Social Security calculator.
At 67, you’re presumably at or near retirement. If you have $1 million in IRAs, it may be attractive to converting to a Roth because it can provide tax-free income in retirement.
It’s not too late from legal or regulatory perspectives. The IRS does not restrict Roth conversions on the basis of age or income. If you have existing traditional IRA assets, you can convert them. However, when making this decision at a later stage of life, noteworthy financial tradeoffs around taxes, healthcare costs, estate planning and more come into play. Ask a financial advisor if Roth IRA conversion makes sense for you.
Understanding Roth IRA Conversions
A Roth conversion involves moving retirement savings from a traditional IRA account into a Roth IRA account. Traditional IRA contributions provide tax deductions, lowering your taxable income each year you contribute. But traditional IRA withdrawals taken during retirement get taxed as ordinary income based on whatever tax bracket you fall into at that time.
Roth IRAs work in the opposite manner. Contributions are made using after-tax dollars, so you don’t lower your current taxable income with contributions. However, qualified withdrawals later in retirement are completely tax-free. The conversion catch is that when you do one you have to pay any taxes due now on the funds you convert. This is not an insignificant concern.
A 67-year-old couple converting their entire $1 million traditional IRA into a Roth version in a single year would owe income tax immediately on the entire converted balance. This lump of income would also put them into the highest income tax bracket. Tax rates could be as high as 37% federally, plus applicable state taxes of 5% to 13% depending on your location. Naturally, few people are eager to write a six-figure check to the IRS, although there are ways to make this less painful.
Let’s walk through what could happen if a retired 67-year old couple with $1 million in a traditional IRA and average combined annual Social Security benefits of about $44,000 decides to convert to a Roth IRA. There are two main ways of doing this, including all at once and over time.
If they opted to convert the entire $1 million IRA balance to a Roth IRA in a single tax year, they would incur federal and state income taxes that year on the full $1 million converted amount, placing them in the highest income tax bracket. Total ordinary tax rates could approach 40% to 45%, or $400,000 to $450,000 on a $1-million conversion.
That’s the all-at-once approach. By taking their time and spreading the $1 million conversion over 10 years at $100,000 converted per year, they would only owe income tax each year on $100,000. Assuming for this example that Social Security benefits and income tax brackets stay unchanged, they would be in the 22% federal tax bracket. They would owe $22,000 federal tax on each $100,000 conversion, a much more manageable bill. Plus, total tax over 10 years comes to $220,000 or about half as much as the all-at-once approach.
They would still owe taxes on their Social Security benefits as well in each of those 10 years. But diverting some savings into the Roth IRA provides some future tax-free income capacity that can be drawn on to balance out taxes owed later on traditional 401(k) or IRA withdrawals. Conversion diversification lets them prudently minimize their overall lifetime tax liability. It also creates a pool of tax-free legacy money if they eventually gift a portion of the Roth account to children or grandchildren.
You can review your options for minimizing taxes and maximizing retirement income with a financial advisor.
Additional Roth IRA Conversion Considerations
Other factors also may weigh on a sizable Roth IRA conversion decision. For instance, realizing the conversion income could impact taxation of Social Security benefits, Medicare premiums and eligibility for certain tax credits like the Premium Tax Credit. Any Required Minimum Distributions (RMDs) already taking place on the existing traditional IRA would need to be accounted for in multi-year projections also.
Estate plans should also be taken into account. For instance, if you plan to leave all your wealth to a charity, it likely makes sense to leave funds in the traditional IRA rather than converting to a Roth because the charity won’t owe taxes on the bequest. You’ll also need to ensure beneficiaries on the Roth are named correctly and evaluate the conversion’s impact on any trusts you have set up.
If you’re thinking about doing a large Roth conversion, consider this process:
First, clarify what should happen to the IRA assets upon death – if the goal is leaving an inheritance to heirs entirely tax-free, then doing calculated Roth conversions can guarantee that continued tax-free growth.
Next, assess current marginal and future effective tax rates in retirement. If rates seem likely to rise substantially due to tax code changes, paying taxes now through a conversion could save money later.
Finally, analyze existing income streams, multi-year tax scenarios, healthcare budget and estate plans.
In most cases, you’ll wind up choosing not to convert all at once. For those with large traditional IRAs, strategic partial conversions tailored to your needs often makes the most financial sense. A financial advisor can help you weigh your options.
Bottom Line
In summary, once you reach 67 years old and beyond, you still can convert all or part of your traditional IRA assets over to a Roth IRA. That doesn’t mean you should, however. To decide if this aligns with your, assess your multi-year tax picture, compare current and future tax brackets, understand total costs and implications involved, and pick a Roth conversion approach that works your particular financial situation. Converting everything in one year often won’t make as much sense as spreading conversions over time.
Tips
A financial advisor can explain how a Roth IRA conversion would impact tax bills, estate planning, healthcare costs and more. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A man considers delaying Social Security past his full retirement age to increase his eventual benefit.
If you have $1 million in a 401(k) and collect a pension, you may be in a position to delay Social Security until age 70. Doing so can boost your monthly benefit by up to 24%. However, delaying Social Security will mean you’ll have to rely more heavily on your savings for several years and potentially take a large bite out of your nest egg. So is the tradeoff worth it? A financial advisor can review income sources and expenses and help you budget for a comfortable retirement.
Basics of Paying for Retirement
Funding retirement is about having enough income to cover your expenses. You may be ready to retire when your retirement income matches or exceeds your anticipated expenses.
On the expense side, essentials include housing, food and healthcare. Most people also have discretionary expenditures like transportation, entertainment, recreation, education and travel.
People with enough savings can afford to delay Social Security and use their nest egg to cover living expenses and discretionary spending. While delaying Social Security can increase your eventual benefits, it also means depleting savings faster. Making this decision will require you to consider all of your sources of income as well as factors like taxes, market fluctuations and inflation.
Delaying Social Security: The 8% Annual Boost
Your benefit grows by about 8% annually each year you delay Social Security beyond your full retirement age – up until age 70. So, waiting provides a significantly higher income later. On the flip side, if you claim your benefits before reaching full retirement age, you’ll get less.
For instance, if your benefit is $2,000 per month at full retirement age, claiming at 62 would cut it by 30%, leaving you with just $1,400 per month. Waiting until age 70, on the other hand, would boost your monthly check to around $2,480 per month – a 24% increase.
Financial advisors say it likely makes sense for many retirees to similarly delay taking Social Security if they have other income sources.
“The longer you can defer Social Security, the better because your benefit will grow by 8% annually,” said Jeremy Suschak, a certified financial planner (CFP) and head of business development at DBR & Co. in Pittsburgh. “Delaying also makes sense if expenses are low, debts are paid and assets can reasonably cover expenses.”
In addition, there are multiple benefits to having assets in diversified retirement accounts, says Hao Dang, an accredited investment fiduciary (AIF) and investment strategist with Consilio Wealth Advisors in Seattle.
“The location of assets is important for tax, legal and diversification reasons,” Dang said.
“While most distributions from these accounts qualify as taxable income, the eligible age of penalty-free distributions may be different. The rule of 55 for 401(k)s allows for penalty-free withdrawals if you are no longer at your job. IRAs are limited to 59 ½ or older.”
Example: $1 Million Saver Who Delays Social Security for 8 Years
A woman reviews her 401(k) as she considers when the best time for claiming Social Security.
While claiming later increases Social Security significantly, deciding whether or not to delay claiming requires figuring out how you’ll pay your bills in the meantime. Consider a 62-year-old with anticipated retirement expenses of $5,000 per month. Like you, he has $1 million in retirement savings earning a 5% annual return.
He also has a pension that provides $700 monthly, or $8,400 annually. This is approximately the average pension benefit, according to a 2022 Census Bureau analysis of older household income sources.
If he takes Social Security at 62, his $1,400 monthly benefit plus his $700 in monthly pension income will add up to $2,100. With $5,000 in expenses every month, he’ll need to withdraw $2,900 a month from his retirement account. And with inflation, that withdrawal will increase over time to maintain the same lifestyle. With this route, he loses roughly $25,000 of his savings to waiting for Social Security – money that could have otherwise been generating investment returns for the long-term.
But if he delays Social Security until 70, he’ll need to withdraw $4,300 from his 401(k) for eight years, which would lower his balance to just over $800,000 by the time he turns 70. At that point, he’ll start collecting Social Security.
A financial advisor can help you understand the pros and cons of your options.
Limitations: Inflation, Market Returns and Longevity
Deciding when to claim Social Security involves contemplating uncertainty. One big risk is that your investment returns may fall short of your assumptions, which means you’ll either have to withdraw less or accept that your money won’t last as long as you anticipated.
Another possibility: Inflation could outpace long-term projections, requiring you to spend more money to maintain your standard of living. Living longer than expected meanwhile, carries its own set of risks. A longer lifespan means more years of retirement to fund.
Making the Call on Delaying Social Security
A woman weighs her options for claiming Social Security at age 62 or delaying them for several years.
If you have substantial retirement savings and a pension, delaying Social Security can pay off. But first, make sure you can afford to fund expenses from savings. Create a retirement budget accounting for all income sources. See if you can meet spending needs on savings alone for several years.
Next, calculate your increased Social Security benefit from delaying. Weigh if the boost is worth shrinking savings for a few years. Finally, consider other factors like spousal benefits, taxes and unknowns like inflation, market volatility and longevity. To make a plan to minimize your taxes and protect your estate, talk to a financial advisor today.
Social Security Planning Tips
If you’re unsure when the right time is to claim Social Security, start by estimating how much your benefits would be at different ages. SmartAsset’s Social Security calculator can help you project your benefits based on your income and age at which you plan to start collecting.
A financial advisor can help you plan for Social Security. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Individual Retirement Accounts (IRAs), 401(k)s and other workplace plans can help you build wealth for the future while enjoying some tax benefits.
There’s just one important thing you need to plan for: required minimum distributions (RMDs). The IRS requires you to begin taking distributions from certain retirement accounts in the year you turn 73.
If not properly planned for, these distributions could take a tax toll on your retirement nest egg. Applying some smart RMD strategies could help reduce distributions and potentially lower your tax bill.
Consulting a fiduciary financial advisor can be a great first step to factoring RMDs, and the potential tax repercussions, into your retirement plan. That’s why we created a free tool to help match you with up to three financial advisors.
Click here to take our quick retirement quiz and get matched with vetted advisors in just a few minutes, each obligated to work in your best interest.
Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.1
A 2022 Northwestern Mutual study found that 62% of U.S. adults admit their financial planning needs improvement. However, only 35% of Americans work with a financial advisor.2
What Are RMDs?
RMDs are amounts you’re obligated to withdraw from certain tax-advantaged retirement plans, including:
Roth IRAs don’t have RMDs, so you can leave money in those accounts as long as you live. While Roth IRAs do not have RMDs for the original account holder, beneficiaries who inherit a Roth account may be subject to RMDs.
When Do RMDs Kick In?
Generally, RMDs begin at age 72. More specifically, the IRS says you must start taking them by your required begin date (RBD). The required begin date is April 1 of the year following the year in which you turn 72. So if you turn 72 on Oct. 5, then your RMDs must begin starting on April 1 of the next calendar year.
The amount you’re required to withdraw is based on your account balance and life expectancy (according to IRS tables). Withdrawals are taxed at your ordinary income tax rate. Failing to take RMDs on schedule can result in a 50% tax penalty.
6 Strategies to Reduce RMD Taxes
Taking RMDs can be problematic from a tax perspective. If you have large balances in your IRAs or workplace retirement accounts, taking RMDs could inflate your tax bill. That’s where it can be helpful to have a few RMD strategies in your back pocket to try and reduce what you owe.
Here are six common ways to potentially shrink your RMDs in order to minimize taxes:
1. Draw Down Your Account Early
Once you turn 59 ½, you can begin taking money from retirement accounts without a tax penalty. Taking larger distributions in the early years of your retirement can reduce your overall account balance, lowering your RMDs later. This option could make sense if you expect to be in a lower tax bracket when you retire.
Drawing down your retirement accounts before age 72 can offer another benefit. You may be able to delay taking Social Security benefits. The longer you delay benefits beyond your full retirement age, the more your benefit amount increases. If you can wait until age 70, for example, you’ll receive 132% of your benefit amount.
2. Consider a Roth IRA Conversion
Roth IRAs offer the benefit of 100% tax-free qualified withdrawals – and they don’t have RMDs. If you’d like to avoid RMDs, you could convert your traditional retirement funds to a Roth account. You’ll have to pay tax on the conversion in the year it occurs. But it may be worth it to take a one-time tax bill hit in order to avoid RMDs and withdraw remaining retirement funds tax-free.
While converting traditional retirement funds to a Roth account may be an option to consider for avoiding RMDs, it is not guaranteed to be worth it for everyone. Tax implications should be carefully considered and consulted with a tax professional. A financial advisor could help determine if this could be a viable strategy for you. This free quiz can match you with up to three advisors who serve your area.
3. Work Longer
If you have some of your retirement funds in your current employer’s 401(k), you might consider working longer to avoid RMDs. As long as you’re still working in some capacity, you’re not required to take minimum distributions from a workplace plan where you’re still employed.
That exception doesn’t apply to retirement accounts you had with previous employers. You won’t get a pass on IRA RMDs either. But continuing to work could help to reduce the total amount of RMDs you need to take once you turn 72. And again, you can delay Social Security benefits as well.
4. Donate to Charity
One of the most popular RMD strategies for reducing taxes involves donating the amount to charity. The IRS allows you to donate up to $100,000 a year from an IRA without having to pay income tax. The money you withdraw will still count toward your RMD so you don’t have to worry about a 50% tax penalty for failing to take distributions.
There are a few rules for this strategy:
You can only donate up to $100,000 to a qualified charity
Your IRA custodian must arrange for the transfer of funds to an eligible charity
You’re not allowed to claim the donation as a charitable deduction your taxes
5. Consider a Qualified Longevity Annuity Contract
A qualified longevity annuity contract (QLAC) is a type of deferred annuity contract. You can use your retirement funds to purchase the annuity, then receive payments back at a later date. Payments are required beginning at age 85 and any money you put into the annuity does not factor into your RMD calculations.
However, you can only put so much money into a QLAC – up to $200,000. While you can defer taking payments until age 85, you can’t avoid them indefinitely.
6. Check Your Beneficiaries
If you’re at least 10 years older than your spouse and name them as the sole beneficiary of your retirement account, you can use the IRS Joint Life and Last Survivor Expectancy Table to calculate RMDs.
This strategy allows you to use your spouse’s longer life expectancy to determine how much to withdraw, which can lower the amount. Of course, if your spouse is closer to your own age or you have multiple beneficiaries, you wouldn’t be able to use this RMD strategy.
Where to Look for RMD Advice
Applying RMD strategies can be a simple way to reduce what you owe in taxes during retirement. You can use just one strategy or apply several in order to bring down your tax bill. While these strategies can help reduce RMDs, there’s no way to avoid RMDs indefinitely (unless you have a Roth IRA).
Consulting a fiduciary financial advisor could help you determine a plan that factors RMD taxes into your overall retirement goals. Fiduciaries are obligated by law to act in your best interest as they manage your assets or money, and any potential conflicts of interest must be disclosed.
Yet knowing how to find a vetted fiduciary advisor is, for many, the most confusing task of all. Common Google searches related to the topic reveal a desperate search for direction. “Fiduciary financial advisors near me,” “best fiduciary financial advisor,” and “financial investment advisors near me” are searched for hundreds of times per day.
Finding a fiduciary shouldn’t be that hard. Thankfully, now it isn’t.
Our free matching quiz helps Americans get matched with up to three fiduciary advisors who serve their area so they can compare and decide which advisor to work with. All advisors on the matching platform have been rigorously vetted through our proprietary due diligence process.
The quiz takes just a few minutes, and in many cases, you can be connected instantly with an advisor to interview.
Sources:
“Journal of Retirement Study Winter” (2020). The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of your future results. Please follow the link to see the methodologies employed in the Journal of Retirement study.
I am 48 years old. I made $310,000 last year and I currently have $546,000 in my retirement plan at work. My husband is on disability and doesn’t work and does not have a 401(k) plan. I wanted to open a Roth IRA but I read that I make too much money. What options do I have to save more money for retirement? I’m debt-free except for my mortgage, which I’m trying to get rid of in the next two years before my daughter goes to college. What would you advise?
– Nilda
Navigating retirement account rules can be confusing and frustrating, making it seem harder to save as much as you want to. You already have a solid foundation to build on, and more options than you might realize to beef up your savings.
Even though you have a workplace plan, you can still contribute to a traditional IRA, though your contribution would be non-deductible. You can also create and contribute to a spousal IRA for your husband. And while you make too much money to directly contribute to a Roth IRA, you may be able to contribute through a backdoor Roth IRA.
As for your mortgage, if your interest rate is lower than 4%, it might be worth not making extra payments and either saving or investing that money instead. High-yield savings accounts, for example, currently yield around 5%. One-year certificates of deposit (CDs) are even paying up to 5.5%, or more. Remember, just because savings or investments aren’t in an official tax-advantaged retirement account doesn’t mean you can’t use them to fund your retirement.
A woman reviews her IRA and workplace retirement plan balances.
Anyone can contribute to both a workplace plan and a traditional IRA, but your contribution may not be deductible, depending on your income.
You can contribute up to $6,500 ($7,500 if you’re 50 or older) to an IRA for 2023. If neither you nor your spouse are covered by a workplace retirement plan, your contributions will be deductible.
However, if you or your spouse has a workplace retirement plan like a 401(k), that contribution may be only partly deductible or completely non-deductible. Even if you can’t take a current tax deduction for your contribution, you’ll still get tax-deferred growth in the account. The growth and earnings will be taxed when you take withdrawals in retirement.
Another plus: Having money in the IRA gives you the option of converting it to a Roth IRA. (And if you need help planning out your Roth conversion, talk it over with a financial advisor.)
The deductibility you might have depends on your household income and filing status:
Single or Head of Household Covered by Workplace Plan
If you are single or the head of your household and have a workplace plan in 2023, IRA contributions are:
Married, Filing Jointly and You Have a Workplace Plan
If you are married, file jointly and have a workplace plan in 2023, IRA contributions are:
Married, Filing Jointly and Your Spouse Has a Workplace Plan, But You Don’t
If you are married, file jointly and have a spouse with a workplace plan in 2023 (but you do not), IRA contributions are:
Create and Fund a Spousal IRA
In general, you have to earn income in order to contribute to an IRA. The exception is if you have a spouse who works and earns enough to cover two IRA contributions. You can open a spousal IRA for the nonworking spouse. A spousal IRA gives your family a chance to double down on retirement savings.
Despite its name, a spousal IRA is no different than a regular IRA in how it’s set up or its tax benefits. It’s not a joint account, either. Only the nonworking spouse owns this IRA. To qualify for a spousal IRA, you have to use “married filing jointly” as your income tax filing status, though.
The same contribution limits for Roth IRAs and deductibility limits for traditional IRAs apply the same way they would for any retirement account. Traditional spousal IRAs are also eligible for Roth conversions. (And if you have more questions about spousal IRAs, consider matching with a financial advisor.)
Is a Backdoor Roth IRA Right for You?
A couple sets up a spousal IRA on a laptop.
Roth IRAs come with a few beneficial twists that make them desirable for many taxpayers. For one thing, as long as you follow the rules, all withdrawals – including growth and earnings – are completely tax-free. For another, you don’t have to take required minimum distributions (RMDs), so your money has more time to grow.
Unfortunately, Roth IRA contributions are subject to income limits, locking many people out of them. For 2023, single filers earning $153,000 or more and married filing jointly filers earning $228,000 or more can’t contribute to Roth IRAs.
That’s where the backdoor Roth comes into play. This conversion process allows higher earners the opportunity to move money sitting in their traditional IRAs into Roth IRAs. (And if you need help setting up a backdoor Roth, talk it over with a financial advisor.)
The process is pretty simple. If you don’t already have a Roth account set up, you’ll create one. You tell your IRA administrator that you want to convert all or a part of your traditional IRA to a Roth IRA. You fill out some paperwork, and the administrator handles the rest.
Some other caveats to keep in mind:
There’s a special pro rata tax rule requiring that you have to consider all of your traditional IRAs as a whole, both pre-tax and after-tax contributions, to determine how much tax you’ll owe on the conversion. You can’t pick and choose which IRA money you want to convert.
That said, the tax-free withdrawals in retirement may be well worth all the potential complications.
Bottom Line
You can increase your retirement savings by contributing to an IRA and a spousal IRA even if you have a workplace plan. You can also create tax-free retirement income streams by converting some of your retirement funds to Roth IRAs.
Tips for Finding a Financial Advisor
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Michele is not a participant in the SmartAdvisor Match platform, and she has been compensated for this article.
Dividends are the bread and butter of income investors. You don’t need to sell your assets or spend hours every day managing your accounts. Instead, dividend stocks simply generate income on their own. Putting together a portfolio that generates at least $1,000 in dividends each month takes some work, though. Here’s how to go about it.
For more help generating sufficient income through your investments, consider working with a financial advisor.
What Are Dividends?
Dividends are payments that a company makes to its shareholders. For example, say ABC Corp. issues a dividend of $0.50 per share. Someone who holds 1,000 shares of this stock would receive a check for $500.00.
Typically a company will issue these payments based on its profits. When it has made a lot of money, it will distribute some of that among its shareholders.
Companies do not have to pay dividends, although most do. Depending on the size of the firm, anywhere from 54% to 84% of companies issue dividend payments at least from time to time.
There is no legally mandated timetable for companies to make dividend payments. When a company does so is entirely at its own discretion, though members of a class of stocks known as “dividend aristocrats” tend to issue them on a regular schedule. Most payments are issued a quarterly basis.
Capital Needed for Dividend Investing
The No. 1 question people ask when it comes to income investing is, “How much will I need to meet my goals?” This is an excellent question. Unfortunately, the number can be pretty big.
Now, there’s no fixed amount of money you need to invest for dividends. It all depends on the yield of your investments, so understanding “yield” is pretty essential to understanding dividend investing. (Note that the definition below is how “yield” applies to stock dividends. In general, yield defines how much money an investment makes when you hold it rather than selling it.)
Yield is the amount that a stock pays in dividends per share based on that stock’s price per share. So, for example, say that ABC Corp. costs $100 per share. Let’s also say that the company pays an annual dividend of $5. This stock’s yield would be:
This is a 5% yield. If you invest $100 into this stock, you will make $5 each year in dividends. By market standards, that’s quite good.
At time of writing, the S&P 500 paid an average yield of 1.37%. This means that across the market, on average investors receive back dividend payments worth about 1.37% of their initial investments. Fortunately, that’s lower than historic standards. Ordinarily the S&P 500 tends to have an average yield of around 2%.
So where does that leave us?
Let’s return to our formula. We want to make $12,000 per year on average in a market that pays approximately 2% in yield each year. This gives us the following formula:
Solving for X, we get $600,000.
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments.
If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
Look for $12,000 Per Year in Dividends
To make $1,000 per month in dividends, it’s better to think in annual terms. Companies list their average yield on an annual basis, not based on monthly averages. So you can make much more sense of how much you might earn if you build your numbers around annual goals as well.
So that’s the place to start. You’re looking to make $12,000 per year in dividends.
Find Dividend-Paying Stocks
The next step is to look for stocks that reliably pay dividends. Not every company issues a dividend payment, and of those not all of them are consistent.
You’re not looking for an occasional windfall. You want to companies with a history of making regular payments on a regular schedule. To do this, research stocks that have a strong history of making payments. The more consistent a company has been with its dividends in the past, the more likely it will continue to be in the future.
Look for Strong but Sustainable Yields
Remember, yield is the ratio of dividend payment to share price for any given stock. When you look at a stock’s yield, you want to balance two concerns.
On the one hand, strong yields mean that the stock pays more money relative to its share price. This is generally a good thing. If one stock has a yield of 3% and another has a yield of 1.5%, you will make more money per dollar invested in the former than the latter.
However, when a stock’s yield is too strong, that can be a sign of trouble. An unusually high yield can indicate that the stock’s price has recently fallen. Investors aren’t getting more money; in fact, capital gains investors are losing money. It can also indicate that the company is spending its money poorly, blowing the operating budget on shareholder value. Either of these issues (or others) signal that this company’s dividend payments may not be sustainable.
A good rule of thumb is to look for dividend payments that are strong, but not abnormally strong relative to the market overall. In recent history, the market has averaged around 2% yield per year. If you see a yield of 3% or 3.5%, that might be a great investment. If you see a yield of 5%, you might want to dig a little deeper.
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Start With Large Companies and ETFs
Generally speaking you can expect the best yield from larger, older companies. Historically firms listed on the S&P 500 tend to be the most likely to issue regular dividend payments, and they also tend to issue the largest dividend payments per-share.
You can also start by investing in dividend-oriented exchange-traded funds (ETFs). This has become an increasingly popular area for ETFs, and you can find many that are organized entirely around investing in stocks that make dividend payments. Often you can save yourself a lot of trouble by seeking out one ETF with strong historic performance instead of a portfolio of different stocks.
Reinvest Your Payments
The truth is that most investors won’t have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.
And that’s okay. You don’t need to get there all at once. Instead, patiently reinvest your dividends as they come in the door. This will create compound returns, in which your payments then start generating their own payments. Over time you’ll find that your investment portfolio’s base capital can, indeed, grow to hit your target.
The Bottom Line
Making $1,000 per month in dividends will take patient investing – whether you’re buying stocks or funds – or a lot of up-front capital. But with the right mix of yield and patience, you can get there.
Dividend Investing Tips
You can never know too much about your investments. If you want to start pursuing dividend investing, take our crash course in how to calculate dividend yield. It’s an eye-opener.
A financial advisor will help you build a strong dividend portfolio. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
For community banks, marketing often points to finding ways to educate, support and grow community, as well as customer knowledge and awareness.
True relationships withstand the test of time, and such is the case with the community bank/customer connection. It’s not unusual to hear about a community bank having served a family or a business for generations, and that’s a testament to the strength of the relationship.
As we consider marketing in this month’s issue, I took time to reflect on exactly what differentiates the community banker and how marketing can help in growing and retaining business. I kept coming back to the fact that for community banks, marketing often points to finding ways to educate, support and grow community, as well as customer knowledge and awareness. By extension, these promotional efforts assume a natural role in a community bank’s journey, just enhancing what are already mission-critical initiatives.
Where I’ll be this month
I’ll be connecting with community bankers from around the country at ICBA LIVE in Honolulu, Hawaii, from March 12–16. I hope to see you there!
For example, consider ICBA chairman Brad Bolton’s Community Spirit Bank in Red Bay, Ala., and its work to share tips for financial resolutions in the local paper. Offering that information to the community helps individuals strengthen their financial savvy and supports a broader story of community bank leadership.
Or look to ICBA past chairman Bob Fisher’s bank, Tioga State Bank in Spencer, N.Y., and how it teams up with local television stations to support cause-related activities, like the No Shave November Cure the Blue 5K. Not only does this event help raise funds for an important program, it also demonstrates the bank’s commitment to its community.
These examples offer only a snapshot of what community banks all over the country do to support their communities from a mission-based approach. In many cases, the added promotion these efforts deliver is a side benefit to serving the community.
That’s precisely why these efforts are successful: They garner attention because they are the right things to do. These stories create a value proposition around why banking with a community bank is so vital, and the differentiation from megabanks and credit unions happens by leading with the community bank relationship model front and center.
So, as you think about your bank’s planned storytelling this year, know that ICBA is standing by to help. In fact, stay tuned for a very exciting announcement that we’ll be making during ICBA LIVE, which will shine a light on what differentiates community banking. And our work won’t stop there. We invite to you join us as we continue to tell the community banking story.
Because beyond marketing, what you do matters to the customers and communities you serve. You are and will remain a partner through your customers’ lives and financial journeys. From a marketing perspective, that’s an ideal place to be.
Rebeca Romero Rainey President and CEO, ICBA Connect with Rebeca @romerorainey
The time has come for the long-awaited FedNow launch. As community banks navigate this process, there are plenty of resources available to answer questions and provide guidance.
By Colleen Morrison
Between May and July of this year, non-pilot instant payment transactions will be live on FedNow, the first new Federal Reserve payment rail in more than 40 years. After much strategy, planning and discussion, the implementation phase has arrived.
“As we near launch, I’m reminded of where we started,” says Nick Stanescu, senior vice president and business executive of the FedNow Service. “The decision to build the FedNow Service was the result of a multiyear initiative of collaborating with the industry to explore ways to modernize the U.S. payment system.”
He notes that the launch of FedNow will represent a major landmark in modernizing and improving the U.S. payment system. “Importantly, this will level the playing field by allowing financial institutions of every size to benefit from safe and efficient instant payments,” he adds.
Three sources of information on FedNow
As community banks look to take advantage of this new opportunity, they seek resources to help them navigate the journey. With that in mind, industry experts agree there are three key sources of information to support banks in honing their instant payments plans.
1. FedNow Explorer
The Federal Reserve launched the FedNow Explorer to help financial institutions establish their individual evaluation and implementation needs. Offering a guided journey, a self-explore option and a quick link to resources, this site incorporates the latest news and information from the Fed about FedNow. In particular, the Service Readiness Guide and the Service Provider Showcase provide insights into preparation requirements and available solutions.
“You have to educate yourself; you have to educate your employees and your management team. So, starting off with the FedNow Explorer has a lot of great resources,” says Sherri Reagin, chief financial officer at FedNow pilot participant North Salem State Bank, a $590 million-asset community bank in North Salem, Ind. “We even showed one of the videos at our annual training to all of our employees. They’ve heard me talking about FedNow for a couple of years now, but they didn’t fully understand it until there was a visual. There are so many great resources on that website where people can really get started.”
2. Your Federal Reserve account executive
The Federal Reserve account executive stands as a valuable resource for asking bank-specific questions about the FedNow Service and can benefit community banks that want to be early adopters. For example, Stanescu points out that there are four core capabilities of instant payments readiness that a community bank’s Federal Reserve account representative can help evaluate:
Connectivity to FedNow
Real-time posting and immediate funds availability
Settlement through either a Fed master account or a correspondent’s
Send and receive functionality
Each area creates important decisions for the bank, and the Fed account executive can help financial institutions navigate the pros and cons.
“Your Fed account executives are great places to start, as well as your technology solution providers, based on the product lines you think are going to use FedNow,” says Kari Mitchum, vice president of payments policy at ICBA.
3. Core and third-party providers
To that point, solution providers will play a crucial role in implementation from the core system to downstream customer-facing applications. Community banks will need to decide their required functionality in receive-only or a send-and-receive scenarios and work with their providers accordingly. For most, that process starts with talking to their cores.
“My advice: Build a plan, understand what partners must be involved and do a lot of exploring with vendors,” says Debra Matthews, chief of deposit operations at $2.1 billion-asset Texas First Bank in Texas City, Texas, a FedNow pilot participant. “Explore what your core has available and plans to do in the future and determine if any additional third parties are needed for implementation.”
Reagin agrees, emphasizing the enhanced role that core providers will play to accommodate FedNow. “Everything we do, all the fintechs that we use—if you’re going to settle a payment, it has to go through your core provider to get through your system,” she says. “So, they’re going to have to be involved, regardless of who you use to interface between the Federal Reserve and your financial institution.”
Instant payments will soon be table stakes
While the FedNow Service will launch in just a few months, the wide-scale rollout will take some time, and customer adoption will follow suit. However, if market history bears any indication, instant payments will be a critical part of payment processes in the future.
“Keep in mind Apple Pay has been out for almost 14 years, and QR codes were created in 1994. FedNow coming out is not going to be some overnight change,” Mitchum says. “There’s that story from [FedEx founder] Fred Smith that he had the idea for FedEx in the 1960s, and the paper got a ‘C’ on it. They said, ‘Nobody wants stuff next day; there’s no need for this.’
“Now we’re in the time of Amazon same-day delivery, two-hour delivery. But that doesn’t mean that we got rid of USPS. It doesn’t mean we got rid of two-day shipping. There are multiple choices for moving goods; there’s going to be multiple choices for moving money.”
But with the rate of change in today’s digital space and this immediate gratification environment, it won’t take long for demand for instant payments to accelerate.
“I think FedNow is going to transform the way that we do business, and the way that businesses operate in the future.” —Sherri Reagin, North Salem State Bank
Use cases like early wage access, P2P payments and insurance disbursement have already emerged, and others will continue to develop. Community banks that don’t begin exploring instant payments may find themselves at a competitive disadvantage more quickly than they might think.
“Financial institutions need to really learn the benefits of FedNow to be able to accelerate the services that we can offer to our customers. I think FedNow is going to transform the way that we do business, and the way that businesses operate in the future,” Reagin says. “The sooner we can get our customers and our employees acclimated to it, it’s just going to skyrocket.”
FedNow resources from ICBA
Community bankers benefit from education tailored directly to their needs, so ICBA has developed customized education to complement available resources. For example, ICBA Bancard ran a five-part webinar series called Ramping Up for the FedNow Launch, which includes the following sessions:
Delay No More: Creating Your FedNow Plan
FedNow Features, A Deep Dive
Lessons Learned from Community Banks Implementing Instant Payments
Preparing for 2023 and Q&A with a Fed Expert
Exploring Instant Payments Use Cases
ICBA is planning more events as the FedNow go-live date nears.
“We’re looking to put together a robust 2023, and it’s going to be dynamic,” says Kari Mitchum, ICBA’s vice president of payments policy. “So, as we get closer to launch, make sure you’re always reading NewsWatch Today. We’re going to make sure there are frequent webinars and lots of education out there.”
What about RTP?
Currently, more than 180 financial institutions belong to The Clearing House’s Real Time Payments Network (RTP), and 80% of network participants are community institutions with less than $10 billion in assets. It became an attractive option for banks that wanted to get an early jump on instant payments.
“We do think that there’s value in being set up to receive on both the RTP Network and FedNow,” said Nick Denning, senior vice president of payments industry relations at ICBA Bancard. “For a bank that is still trying to figure out what its broad instant payments and FedNow strategy will be, getting set up on RTP to receive now is one thing it can do to get moving forward while they figure out the nuances of their plans and approach.”
Many third-party providers will use the same instant payments solution to hook into FedNow and RTP, so setting up to receive RTP transactions will help banks prepare for FedNow.
I am grateful to have had the opportunity to serve as chairman. I will continue to advocate for community banking, and for the rest of my career, stand side by side with you to fight our future battles.
Serving as ICBA chairman has been one of the highest honors of my life. It’s hard to put into words how special this experience is. The work you’re doing every day puts real faces and names to the communities we’re fighting for, and it has been a privilege to be your representative at the national level.
Yet, it takes the voices of many to make a true impact. That’s why I’ve asked community bankers to sacrifice a few minutes every day to advocate for our industry. We are what stands between our customers and an overreaching federal government and regulatory system. We hold the line for Main Street America, which needs us.
My top three
Reflections on community banking:
Never take our community bank mission for granted; advocate for it.
Keep innovating and implementing new technologies for your customers.
Someone at your bank wants to lead it for the next generation. Let them.
In today’s environment, that vigilance is critical to staying ahead of emerging threats. Each day brings forward new concerns, and we have to stay focused on who we are and who we represent. So, keep pressing forward in defending this great industry we get the opportunity to serve.
For example, every community banker has a primary focus on how they can better serve their customers. It isn’t about making more money, but how we respond to community needs. We should also remind policymakers that community bankers are small business owners, too. And even though we have fiduciary and regulatory responsibilities to remain profitable and provide a return to our shareholders, our focus always comes back to how we can serve our customers better. In maintaining that focus on our relationship-centric mission, we will continue to thrive.
That’s why it’s vital for community banks to remain independent, and a big theme for me has been encouraging bank executives to identify their next generation of leaders. There are those within your institution who share your vision and passion. Support their development and groom them to take the reins. Without your bank, your communities are at risk. So, make a succession plan to ensure your bank remains the lifeblood of the community.
With that in mind, I implore you to keep fighting for Main Street. Keep raising your voices to advocate for your customers. Keep engaging with innovative companies to grow, evolve and better serve. Keep identifying future leaders to ensure the longevity of your institution, because your communities need you in their corner.
I want to close by saying I am grateful to have had the opportunity to serve as chairman. I will continue to advocate for community banking, and for the rest of my career, stand side by side with you to fight our future battles. With that passion leading, I’m confident we’ll witness the continued growth and success of our beloved industry.
Brad Bolton, Chairman, ICBA Brad Bolton is president and CEO of Community Spirit Bank in Red Bay, Ala. Connect with Brad @BradMBolton
BankOnBuffalo president Michael Noah says the bank’s mobile branch will provide service to those who don’t have easy access to banks. Photos by Luke Copping Photography
BankOnBuffalo has hit the road with its new mobile bank, BankOnWheels, to meet the needs of underserved communities.
By William Atkinson
Name: BankOnBuffalo
Assets: $1.1 billion
Location: Buffalo, N.Y.
This past November, BankOnBuffalo, a division of $5.5 billion-asset CNB Bank headquartered in Clearfield, Penn., added a new branch to its preexisting lineup of 12 branches and offices in or around Buffalo, N.Y.
Where is this newest office located? Well, it depends on the day of the week. The $1.1 billion-asset community bank division based out of Buffalo built and outfitted a “rolling branch,” called BankOnWheels, an innovative banking experience that makes full-service banking accessible to more consumers and small businesses, particularly those in underserved communities, according to BankOnBuffalo president Michael Noah.
“We are providing banking options in areas that have been known as ‘bank deserts,’ which is very important to us as a community bank.” —Michael Noah, BankOnBuffalo
The first of its kind among financial institutions in western New York, BankOnWheels is a full-service bank branch within a 34-foot recreational vehicle. It enables the community bank to deliver essential banking services to communities that previously had little to no access to them. “We are providing banking options in areas that have been known as ‘bank deserts,’ which is very important to us as a community bank,” Noah says.
All the bells and whistles
The mobile branch has all the essentials to fill that void. BankOnWheels includes a walk-up ATM and two exterior teller windows where transactions can be performed and a platform desk is located for customers to speak with a bank associate.
“Anything you can do in one of our branch locations, you can do in the BankOnWheels.” —Michael Noah, BankOnBuffalo
Inside, it has most of the features of a traditional bank: a lobby, teller window and an office for private conversations with a BankOnBuffalo associate.
“We saw the need, and we were eager to get the BankOnWheels rolling across our community,” says Noah. “Even with the rapid rise of technology allowing so much banking to be done remotely, research told us that consumers and business owners still greatly value branches where they can have face-to-face conversations with bankers, get answers to their questions and receive the assistance they need with transactions, loan applications and account openings.”
BankOnWheels has all the technology and services that the community bank’s brick-and-mortar locations do, including wire transfers, an ATM, a teller cash recycler and an instant-issue debit card machine. “Anything you can do in one of our branch locations, you can do in the BankOnWheels,” Noah says.
BankOnWheels evolved over several years as bank executives spoke with and listened to community leaders.
“People didn’t ask for another bank location that the community couldn’t get to,” Noah says. “They wanted a way to bring the bank to the people and make it more accessible for the community. That really was the evolution of BankOnWheels: listening to and responding to the community.”
Building a branch
The planning process took more than two years. “We were involved in a ground-up planning process, similar to opening a new branch,” says Noah. “The project evolved over time, because we had to make sure that BankOnWheels had all the necessary capabilities of one of our branches.”
BankOnBuffalo worked with local vendors to build and outfit the inside of the RV. A firm called Mobile Facilities LLC built the mobile banking unit, and multiple vendors were engaged in wrapping and servicing BankOnWheels. “This was an extensive process undertaken to bring the final product to the community,” says Noah.
The community bank uses its existing branch staff to operate BankOnWheels, with four to five employees working on rotation, two at a time. “This creates a consistent client experience from a very well-trained and versatile team,” Noah says.
As for security, BankOnBuffalo vetted and selected a third-party security firm, based on the firm’s ability to manage the complete security process and protect the community bank’s employees.
“They work closely with local law enforcement and our corporate security team,” Noah explains. In addition, a professional security team from the security firm drives the RV and provides comprehensive security for BankOnWheels and its staff when they’re on the road.
Expanding its footprint
When the branch first became operational, it began serving three communities through its deployment in Niagara Falls and Buffalo.
Within weeks of opening, BankOnBuffalo gained new customers in these areas and began opening new accounts. Based on the results and additional input from the communities, the bank plans to add other sites to the list in the future and keep this show on the road.
The theme for ICBA LIVE 2023 is “Light the Fire. Light the Way.” As leaders, that’s a huge part of what we do: spark enthusiasm, encourage creativity and guide our teams on the paths to success. But inspiration doesn’t always happen spontaneously, or even daily, so it’s incumbent upon us to develop strategies and create environments that inspire and motivate our teams, all while making sure we stay inspired ourselves.
Here are some great tools for cultivating inspiration.
Remove limitations. Sometimes a project or task seems, on its face, to have restrictions. But we can often remove those perceived limitations, be experimental and think outside the box. Yes, this could result in a few errors, but it might also generate successful new ideas or strategies. Let your team know that it’s OK to fail.
Don’t forget to dream. This idea is inspired by the book The Dream Manager by Matthew Kelly, and it’s a powerful message to share with your team. Encourage everyone to start a dream book, to write down their dreams (both professional and personal), and to dream without limits. The book can serve as a resource to remind us of the dreams (big or small) that we have, and that reminder can jump-start the enthusiasm needed to begin or continue a task.
Focus on strengths. Lean into your employees’ strengths and talents, and they’ll feel naturally more authentic and empowered. Cultivating a strengths-based environment increases creativity and productivity.
Focus on team bonding. On average, a full-time employee spends 40 hours a week working with the same people. Don’t underestimate the value of team-building exercises to bring them together. If they’re in the thick of a project, invite them to take a break, pose a fun question to the group or play a quick game. Fostering camaraderie cultivates a stronger team. Colleagues who are invested in each other will look forward to working together.
Make motivation a topic. Adopt “Motivation Monday” and ask the team to talk about what motivates them. Ask them how they find inspiration personally. This can give leaders and fellow colleagues a beneficial understanding of what each employee values.
Let people do their jobs. No one wants to be micromanaged. Allow for autonomy where possible and be clear in your words so that employees know they are empowered to do their job. It shows a level of trust and respect, which generally leads to higher job satisfaction and greater productivity.
Show appreciation. We’ve said this before, but leaders must show appreciation for the work their team is doing. It goes a long way.
But above all, remember that employees are individuals. What inspires or motivates one may not be as powerful for another. So, tailor your tactics to suit both your team and the individuals within it.
Lindsay LaNore (lindsay.lanore@icba.org) is ICBA’s group executive vice president and chief learning and experience officer
Valley Bank offers financial literacy education to women through Hoving Home.
Valley Bank is working side by side with Walter Hoving Home, a place of refuge for women struggling with addiction and other personal challenges, to offer residents financial empowerment.
By Roshan McArthur
For Valley Bank in Wayne, N.J., success brings with it an obligation to help others succeed, too. The near century-old, $57 billion-asset community bank believes deeply in financial empowerment, not just for its customers but for the most vulnerable community members, too.
For more than five years, Valley Bank has worked with Walter Hoving Home, a community nonprofit organization in Oxford, N.J. Hoving Home is a faith-based facility that helps mostly low-income women recover from issues like drug addiction, alcoholism, abuse, prostitution and human trafficking. In the 56 years since it was founded, the nonprofit has grown from one home in Garrison, N.Y., to six branches throughout the U.S., helping more than a quarter of a million women find their feet again.
Valley Bank’s relationship with Walter Hoving Home began in 2018.
“Hoving Home has provided them a safe place to recover from these situations, to reestablish themselves so they can reenter society, gain custody of their children and be productive,” says Karen Austin, Valley Bank’s VP and market manager. Austin initiated the relationship in 2018 after a chance encounter with one of Hoving Home’s team members during a conference at a local university.
“Valley was able to enter into this relationship by providing financial empowerment to the women who are residents of Hoving Home,” she explains. Over the years, that empowerment has taken the form of grants, donations of equipment and volunteer hours. In June 2022, for example, the community bank’s team members took part in a beautification day with shovels, rakes and “a lot of sweat equity,” preparing for the nonprofit’s annual graduation ceremony at its Oxford site. Valley Bank also provided laptops and printers for a new computer lab, and its property management group donated desks and cubicles from branches and departments that were being renovated to a new learning center.
“Our opportunity is to reach those who need it the most and provide a service so that, when they are able to regain their lives, they’re going to be able to make informed decisions and know there’s advocacy available to them.” —Karen Austin, Valley Bank
“Having a local impact is something that’s very important for us,” says Bernadette Mueller, Valley Bank’s EVP for corporate social responsibility. “We want to be viewed as partners in our local communities, serving not only the people who live there but the people who work there, our whole constituency in that area, whether that be community groups or households.”
Creating a path forward
In addition to donations and volunteer hours, Valley Bank also provides financial literacy education as part of Hoving Home’s Career Readiness Program. Using a Consumer Financial Protection Bureau curriculum called “Your Money, Your Goals,” Austin teaches nine one-hour sessions to the women, covering saving, spending, budgeting, credit, debt management, managing financial setbacks and more. She also makes a point of keeping her students informed about current events that illustrate why financial literacy is so important.
These days, she is reaching more women than ever. “I used to do the sessions in person in Oxford, N.J.,” she recalls, “so I would drive on a weekly basis from an office in the Wayne area, an hour and a half up to Oxford, and then back another hour and a half home to my house. When COVID hit, that changed everything. And I became a little bit more effective at using Zoom. So, I conducted Zoom classes for the individuals in Oxford.”
At the beginning of 2022, the director of Hoving Home asked her if she could conduct classes for its other facilities as well: two in Garrison, N.Y., one in Pasadena, Calif., and another in Las Vegas. By teaching virtually, Austin has expanded Valley Bank’s reach nationwide.
“I feel that we as Valley have to support our local community, wherever and whoever that might be,” says Austin. “And our opportunity is to reach those who need it the most and provide a service so that, when they are able to regain their lives, they’re going to be able to make informed decisions and know there’s advocacy available to them. I feel Valley has played an extraordinary part in that, and I’m grateful to be part of that work.”
That gratitude runs deep, says Mueller. “Our people, across the board—from the facilities and the property management people loading desks, to the tech people setting up laptops—have been feeling the same way, just feeling so good about what they’re doing,” she says. “We’re getting much more than we’re giving.”
From left: Coastal Heritage Bank staff Pat Driscoll, Sondra Krieg, Lisa Levy, Janet Joyce, Diane Calabro and Scott Ambroceo. Photo by Mike Ritter
Spurred by social distancing and shutdowns during the pandemic, many community banks turned to virtual financial advisory services, and these new practices are expected to stick around.
By Katie Kuehner-Hebert
The pandemic shutdowns expedited community banks’ digital transformation journeys—including the adoption of virtual financial advisory services. More and more community banks offering wealth management now provide these services, not as a substitute for in-person meetings, but rather as a supplement.
They are following a trend across the wealth management sector. While most financial advisors still prefer in-person meetings with clients, a 2021 survey by SmartAsset Advisors LLC found that the pandemic spurred most to offer video calls, and more than a third said they expected to continue the practice post-pandemic, in addition to sending emails and texts to clients.
By offering virtual advisory services, community banks have the potential to significantly reduce the amount of time required from, and friction for, customers, says Ashish Garg, cofounder and CEO of Eltropy Inc. in Milpitas, Calif., a fintech that provides a digital communications platform for community financial institutions.
“Traditionally, customers preferred going to a branch for financial advisory services, because they were discussing large sums of money,” Garg says. “With the rise of virtual and video banking technologies, however, customers still have the reassurance of talking to someone face to face, but they can do so from the comfort of their home, their car or wherever they may be.”
Like telehealth and healthcare, virtual options make financial advisory services more accessible for many people—especially if the level of service online is on par with what they would experience in person, he says.
Going digital
Coastal Heritage Bank in Weymouth, Mass., recently adopted Eltropy’s digital communications platform and plans to roll out virtual capabilities across the institution, including for its wealth management arm, says Scott Ambroceo, senior vice president at the $910 million-asset community bank.
“While the bank is starting slow in its deployment to develop internal subject matter experts on the platform,” he says, “it can see opportunities in the near term to expand on what it’s doing today, in order to assist in attracting and retaining relationships through a secure and convenient digital banking platform.”
The virtual capabilities are built on the success of Coastal Heritage Bank’s earlier digital transformation moves, in part due to customer preferences during the pandemic, he says.
“As we were seeing high adoption rates of our digital platform by our customers, we were also seeing significant success in managing our business, many times remotely, through internal web-based collaboration software, due to the ongoing pandemic,” Ambroceo says. “Naturally, we began focusing on our options to expand our digital banking platform to include a face-to-face experience from the comfort of the customer’s home, business or wherever life placed them at the moment they needed their bank.”
Via an interactive widget on Coastal Heritage Bank’s website, customers will be able to initiate video calls to staff, aided by technology to authenticate the customer’s identity, he says. Joint-account owners can join the calls from two different areas of the world, if needed.
Moreover, staff will be able to help customers complete forms through video calls using eSign, Ambroceo says. eSign documents can be presented for signature and retained as part of the bank’s permanent records, eliminating the need for single or joint account owners from having to provide wet signatures either in-branch or through the mail.
In addition, customers can use the digital platform for 24/7 chatbox conversations with automated responses to more than 100 common questions received by the bank, as well as text-only conversations for quick questions and audio-only conversations depending on customers’ preferences, he says.
To be more user-friendly, digital communication platforms need to offer all these capabilities in addition to video calls, Garg says.
“The fact that consumers have become used to so many different channels of communication—and prefer different kinds of communication for different situations—creates a challenge for community banks,” he says. “They need to offer the full suite of communications options that their consumers may want.”
Other needs for virtual advisory services
Integrations are another important consideration for community banks, because they navigate so many IT systems—a lending system, a CRM, and an e-signature system like DocuSign, among others, Garg says. Institutions need a solution that can automate the flow of information from one system to another.
Data security is also critical—digital communication platforms need to encrypt both stored data and data that is captured during a voice call, he says.
Offering virtual advisory services not only supplements in-person meetings; it can also help ensure that staffing levels are maintained—something particularly important in this era of the Great Resignation, Garg says.
“With ongoing labor shortages, this is a big challenge for community financial institutions, especially as they expand into new markets,” he says. “This kind of technology ensures that banks can address the concerns of customers no matter where they live.”
