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Is $5 million enough to retire at 55? Yes, $5 million can work for retirement at 55 based on our own internal research outlined below—but only if you withdraw about $166,000-$184,000 starting in year one and stay flexible when markets dip. The real challenge isn't the math; it's managing healthcare costs before Medicare kicks in and making smart tax moves. Media often takes a simple approach (“$5M = $100k for 50 years”) and stops there. That’s directionally useful but incomplete because it ignores sequence‑of‑returns risk , pre‑Medicare health costs, and taxes, which matter a lot  to early retirees.  We wrote this piece to go deeper than the typical “rule of thumb” article and to be more rigorous than the popular coverage you’ve likely seen, including SmartAsset’s take on this topic. Is $5 Million Enough to Retire … We’ll use current research on safe withdrawal rates , show practical spending guardrails, and map the health‑care and tax decisions that make $5M feel either abundant or tight.  Key Takeaways $5 Million can fund retirement at 55—if you manage it right.  A safe withdrawal range is $166,000–$184,000 in year one  (about 3.1%–3.5%), with adjustments for inflation and flexibility in down markets. The “4% rule” doesn’t fit a 40-year retirement.  Research from Morningstar shows 30-year plans support ~3.7%, but stretching to 40 years lowers the safe starting rate to ~3.32% based on our own research at Covenant Wealth Advisors. Healthcare is the wild card.  Retiring at 55 means 10 years of private insurance before Medicare. Expect to budget around $592,000  for lifetime healthcare costs (excluding long-term care), and watch for ACA subsidy changes after 2025. Taxes are your silent portfolio killer.  The years between 55 and 70 are your “golden window” for Roth conversions, harvesting gains, and managing MAGI for subsidies and IRMAA. Miss it, and you could pay hundreds of thousands more in lifetime taxes. Sequence of returns risk can sink you early.  Protect yourself by keeping 7–10 years of essential expenses  in bonds, T-bills, or TIPS, so you’re not forced to sell stocks in a downturn. Dynamic withdrawal “guardrails” work better than static rules.  They let you take raises when markets are strong and trim spending when markets fall—keeping you on track for 40 years. Delaying Social Security is powerful.  Waiting until 70 increases social security benefits by ~8% per year past full retirement age and strengthens survivor benefits. Yet only 8% of retirees do it. Long-term care and lifestyle spending matter.  Assisted living averages ~$70,800/year, and nursing homes exceed $127,000. Combine this with variable lifestyle goals (like travel) and your plan needs flexibility. The difference between success and failure isn’t $5M—it’s planning.  Most retirees who run into trouble don’t start with too little. They withdraw too much, too early, without adjusting for markets, taxes, and healthcare. Table of Contents Key Takeaways Here's What Most People Get Wrong Your Three Biggest Expenses (That Can Derail Everything) Is $5 Million Enough to Retire at 55? 4 Case Studies The Dynamic Spending Strategy That May Help Your $5 Million Portfolio Last The Social Security Power Move That Only 8.3% of Retirees Use How to Retire at 55 with Your $5 Million Portfolio: Your Action Plan Advanced Strategies for Retirees With $5 Million+ Important Limitations: What These Numbers Don't Tell You FAQs Conclusion Here's What Most People Get Wrong You've probably heard the "4% rule"—withdraw 4% of your portfolio each year and you'll never run out of money. We even wrote an article about it here . But that rule was designed for 30-year retirements, not the 40+ years you might need if you retire at 55. The latest research from Morningstar  shows that for a 40-year retirement, you should start with just 3.1% withdrawals. On $5 million, that's $155,000 in year one. Then you adjust for inflation each year. Think that sounds low? You're not alone. But here's why it matters. For context, Morningstar's research reveals an important distinction: while 30-year retirements can support a 3.7% starting withdrawal rate, extending your timeline by just 10 years drops that "safe" rate significantly.  For example, we ran our own projections, outlined below, which reveals that a 40-year retirement with a $5 million starting portfolio may support a 3.3% starting withdrawal rate with a 90% probability of success . (Source: Download full projections with disclosures ) Some retirees may consider a TIPS ladder approach, which could support 4.4% withdrawals for 30 years —but that strategy completely depletes your capital by year 30, leaving nothing for emergencies, legacy goals, or living past 85. However, we’ve never encountered anyone who uses a pure TIPS ladder strategy in practice. “Many people think a $5 million portfolio automatically guarantees financial freedom at 55, but the reality is more nuanced. The real key is matching withdrawals to your lifestyle while planning carefully for taxes and healthcare. The number itself matters less than how you manage it.”  — Brennan CFP, CFP® Your Three Biggest Expenses (That Can Derail Everything) It seems simple enough to identify your starting withdrawal rate and start your spending based on that. But, retirement cash flow needs are rarely constant. Healthcare costs, navigating different tax brackets, and lifestyle desires can drastically change how long your money lasts in retirement.  Here’s a deeper dive on how these three obstacles may impact your plan. 1. Healthcare: The $592,000 Question From age 55 to 65, you're on your own for health insurance. No Medicare yet. A couple can easily spend $20,000 or more per year on premiums and out of pocket expenses through the healthcare marketplace prior to Medicare.  Critical deadline alert:  The current Medicare enhanced premium tax credits expire after 2025. If Congress doesn't extend them, your costs could double overnight. The ACA currently caps benchmark premiums at about 8.5% of income for subsidy-eligible households through 2025. Without these subsidies, premiums for a couple in their late 50s can easily exceed $20,000 annually, depending on your state and plan choice. After 65? Your cost of healthcare will decline when you transition from private insurance to Medicare. But, plan on budgeting another $5,000 to $6,000 person for Medicare premiums and out-of-pocket costs through retirement. This figure covers Medicare Parts B and D premiums, Medigap or Advantage plan costs, and typical out-of-pocket expenses—but many retirees are shocked to learn Medicare only covers about 60% of healthcare costs. Based on our own research, a couple retiring at 55 needs to budget $592,000 just for healthcare—that covers insurance premiums for the decade before Medicare, plus Medicare premiums and out-of-pocket costs for the rest of retirement.  Oh, and don't forget about Medicare's enrollment rules. You can and should sign up for Medicare at 65 even if you're delaying Social Security. Missing your initial enrollment period triggers permanent premium penalties that compound over time. And here's the kicker: this doesn't include a single dollar for potential assisted living or nursing home care.  “Healthcare is the one expense that catches early retirees off guard. Between 55 and 65, premiums and out-of-pocket costs can run into the hundreds of thousands of dollars. Building a dedicated healthcare budget up front gives families confidence their retirement plan will actually work.”  — Megan Waters, CFP® 2. Taxes: The Silent Portfolio Killer Here's what your CPA might not tell you: The fifteen years from 55 to 70 is golden for tax planning.  Why? You're not collecting Social Security yet, and Required Minimum Distributions don't start until 73 (moving to 75 by 2033). This gives you a rare window to: Convert traditional IRA money to Roth accounts at lower tax rates Harvest capital gains while staying in lower brackets Avoid future Medicare premium surcharges (IRMAA) Manage your Modified Adjusted Gross Income (MAGI) for ACA subsidies Establish a tax-efficient giving strategy for charitable intents Miss this window, and you could pay hundreds of thousands or more in lifetime taxes. The SECURE 2.0 Act extended this opportunity even further. With RMDs now starting later, you have more years to execute strategic conversions. But don't convert blindly— watch for trigger points.  Converting too much in one year can push you into higher brackets, trigger the Net Investment Income Tax (NIIT), or cause you to lose valuable ACA subsidies. Virginia residents face additional considerations. While Virginia doesn't tax Social Security benefits, it does tax most other retirement income. Strategic planning around state taxes  may save thousands annually. 3. The First 10 Years Make or Break You If the market crashes in your first decade of retirement, you may be in trouble without the right portfolio. Why? You're selling investments at low prices to fund your lifestyle, leaving less money to recover when markets bounce back. This " sequence of returns risk " is the a huge killer of early retirement plans. The solution: Keep 7-10 years of essential expenses in bonds, Treasury bills, or TIPS. Yes, that's conservative. But it lets you avoid selling stocks during the next 2008 or 2020. Consider this practical approach: divide your portfolio into three buckets. Your "immediate" bucket holds 1-2 years of expenses in cash or money market funds. Your "intermediate" bucket contains 5-8 years of expenses in high-quality bonds or a TIPS ladder. Your "growth" bucket holds the remainder in diversified stocks for long-term growth. While this is a good rule of thumb, how much of your $5 million portfolio you allocated to each bucket will depend on your own spending needs and comfort level with how much your portfolio moves up and down over time. Is $5 Million Enough to Retire at 55? (4 Case Studies) To determine if $5 million is enough to retire at 55, we stress-tested four different withdrawal strategies using Monte Carlo analysis —running 1,000 market scenarios for each approach.  Our hypothetical case studies account for many variables including market crashes, inflation, extended bull runs, and the critical decision to delay Social Security until age 70.  The four case studies below reveal a clear line between sustainable retirement spending and dangerous territory. Here's what each withdrawal rate actually means for your lifestyle over a 40-year retirement: Annual Withdrawal Before Taxes Starting Rate Probability Analysis for 40 Years $166,000 3.32% High Confidence - 90% Success Rate $176,000 3.52% Moderately High Confidence - 85% Success Rate $184,000 3.68% Moderate Confidence - 80% Success Rate $200,000+ 4.0%+ Low Confidence - 70% Success Rate & Requires backup plan All figures are pre-tax and adjust annually for inflation. Source and full disclosures for case study . Pro Tip:  Remember, these are starting points. Your actual sustainable withdrawal depends on several factors: Expected returns & portfolio mix Sequence-of-returns risk Time horizon & longevity Inflation & spending growth Withdrawal policy and spending flexibility Tax planning strategies For example, your long-run return drives how much you can safely pull without depleting principal. Both starting bond yields and stock valuations set the forward return bar. Your stock/bond split and the quality of diversification in your portfolio matters greatly. Too little in stocks throttles returns; whereas too much in stocks raises failure risk. In our experience here at Covenant Wealth Advisors, many robust plans live in a ~40–70% stock range with truly diversified bond exposure to help smooth out the ups and downs. A Dynamic Spending Strategy That May Help Your $5 Million Portfolio Last Static rules (like “always take 4% plus inflation”) can leave money unspent when markets do well—and force cuts too late when they don’t. A better approach to optimizing your $5 million portfolio could be a dynamic “guardrails” plan that tells you when to give yourself a raise and when to trim, based on what your portfolio is doing. Here’s the simple idea: start with a reasonable withdrawal, then watch your withdrawal rate (this year’s spending ÷ your current portfolio). If markets are strong and your withdrawal rate drops below a lower guardrail, give yourself about a 10% raise. If markets fall and your rate climbs above an upper guardrail, cut about 10% to protect the plan. These pre-set rules take emotion out of decisions and help you adjust early, when small changes matter most. What does research say?  Studies on the Guyton-Klinger guardrails—widely discussed in financial planning—show that retirees who follow rules like these can often start a bit higher than a fixed rule and still keep strong success rates, because they agree to make small, timely adjustments after bad markets. In plain English: you may be able to start higher, but you must be willing to trim for a year or two after big declines to stay on track. Bottom line: guardrails trade a little year-to-year flexibility for a safer, smarter spending path over a long retirement. The Social Security Power Move That Only 8.3% of Retirees Use Delaying Social Security from 67 to 70 increases your benefit by 24%—that's a guaranteed, inflation-adjusted return of 8% for each year you wait. Yet only 8.3% of retirees take advantage of this opportunity . Why? In our experience, most retirees simply haven't created a plan to bridge the income gap between retirement and when they claim Social Security. Without an alternative income source for those crucial years, they feel forced to claim early. The good news? With proper planning, you can join the successful minority who maximize their benefits. Here's the strategy: Draw from your portfolio between ages 55 and 70, then reduce those withdrawals once your enhanced Social Security payments begin. This single move can add years to your portfolio's longevity. For married couples, the strategy becomes more nuanced. Consider having the higher earner delay until 70 while the lower earner claims earlier. This approach maximizes the survivor benefit—a critical consideration since one spouse typically outlives the other by several years. Every situation is unique, so it's essential to develop a personalized retirement strategy. If you'd like guidance determining your optimal approach, request a free retirement assessment from our firm here. How to Retire at 55 with Your $5 Million Portfolio: Your Action Plan Step 1: Build Your Spending Floor Start by calculating your absolute minimum expenses—what we call your "Needs." These include housing, food, insurance, and basic lifestyle costs. Add in property taxes, maintenance, utilities, and replacement reserves for cars and home systems. Your Annual Spending Breakdown: Needs (Must-Haves): Fixed expenses: $100,000 Healthcare expenses: $20,000 Total Needs: $120,000 Wants (Flexible Spending): Travel expenses: $25,000 Charitable giving: $10,000 Total Wants: $35,000 Total After-Tax Spending: $155,000 Important Tax Consideration:  The $155,000 represents what you'll actually spend (after-tax dollars). However, you'll need to withdraw more than this from your retirement accounts to cover taxes. In this example, if you need $176,000 in pre-tax income to net $155,000 after taxes, you'll pay approximately $21,000 in state and federal income taxes. The Safety Rule:  Keep your total pre-tax withdrawal needs below $176,000 to maintain a comfortable margin of safety in your retirement plan. Step 2: Create Flexibility Rules When markets drop 20%, cut discretionary spending (your “wants”) by 10%. When markets rise 20%, give yourself a 5% raise. These "guardrails" can boost the likelihood of your money lasting in retirement. Write these rules down now, while markets are calm and emotions aren't running high. Step 3: Lock In Healthcare Coverage Before retiring: Research ACA marketplace premiums in your state Calculate your Modified Adjusted Gross Income to maximize subsidies Budget for the worst-case scenario (no subsidies after 2025) Consider COBRA for 18 months if it's cheaper than marketplace options Explore health sharing ministries as alternatives (though these aren't insurance) Step 4: Optimize Your Investment Mix Forget the "age in bonds" rule which says you should keep a percentage of bonds in your portfolio that is equal to your age. Personally, I’ve never seen this used in practice and there are so many more factors to consider. Kick this “rule of thumb” to the curb.  Conversely, research shows 20-50% of a $5 million portfolio invested in stocks actually provides the most reliable income for long retirements. The key is having enough safe assets to weather any storm. An evidence supported allocation: Years 1-3:  Cash and money markets (immediate bucket) Years 4-10:  High-quality bonds and TIPS (intermediate bucket) Years 11+:  Globally diversified stocks (growth bucket) Don't overlook international bonds and stocks. Geographic diversification reduces risk and can boost returns. Consider holding 30-40% of your stock allocation in international markets. Step 5: Plan for the Expensive Surprises Long-term care costs average $70,800 yearly for assisted living and $127,750 for nursing homes nationally. But costs vary dramatically by location—urban Northeast facilities can cost twice the national average. Either buy insurance, earmark an additional $500,000, or accept the risk. Other overlooked expenses that derail retirements: Adult children needing financial support (increasingly common) Major home repairs or modifications for aging in place Divorce or separation (gray divorce rates have doubled since 1990) Extended family caregiving responsibilities Want Our Team to Just Do Your Retirement Planning for You? Schedule Your Strategy Session! Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Advanced Strategies for Retirees with $5 Million+ Partial Annuitization While not for everyone, consider using 10-20% of your portfolio to purchase an immediate or deferred income annuity after age 65. This creates a pension-like income floor, reducing pressure on your remaining portfolio. While you sacrifice liquidity and upside, you gain peace of mind and can invest the remainder more aggressively. Tax Loss Harvesting Continues Just because you've retired doesn't mean tax loss harvesting stops. In fact, it becomes more valuable when you're managing MAGI for ACA subsidies or avoiding IRMAA surcharges. Systematic harvesting can save $3,000-$5,000 annually. Order of Withdrawals Which account you tap first can make or break your retirement. Many retirees drain taxable accounts first, then IRAs, then Roth—triggering unnecessary taxes and Medicare surcharges. The smarter approach: strategically blend withdrawals from taxable accounts with Roth conversions during your low-income years (55-70), before Social Security and RMDs lock you into higher tax brackets. Asset Location Asset location is a tax optimization strategy  that places different types of investments in the most tax-efficient account types to maximize your after-tax returns. The basic principle is to hold tax-inefficient investments (like bonds that generate taxable interest, REITs, and actively managed funds that create frequent taxable events) in tax-sheltered accounts like IRAs and 401(k)s, while keeping tax-efficient investments (such as index funds, ETFs, and stocks you'll hold long-term for capital gains treatment) in taxable brokerage accounts.  For example, you might keep high-dividend stocks and corporate bonds in your IRA where they can grow tax-deferred, while holding tax-managed index funds in your taxable account where they generate minimal annual taxes and qualify for favorable capital gains rates when sold. This strategy can add meaningful value over time—studies suggest proper asset location can boost after-tax returns by 0.20% to 0.50% annually—without changing your overall portfolio risk or allocation. Important Limitations: What These Numbers Don't Tell You Before you commit to early retirement based on the analysis above, you need to understand what our models can—and can't—predict. Even the most rigorous planning has blind spots. Models Are Tools, Not Crystal Balls The withdrawal rates and success probabilities we've outlined come from Monte Carlo simulations—sophisticated models that run 1,000 different market scenarios to estimate outcomes. They're excellent planning tools, but they're not guarantees. What the models capture well:  Historical patterns of market returns, inflation cycles, and typical volatility. What they miss:  Policy shocks, extreme tail events (think 2008 but worse), personal health crises, family emergencies, or the kind of "black swan" events we can't predict. The 2020 pandemic, for example, created healthcare and economic disruptions that no pre-2020 model anticipated. Real life doesn't follow historical averages. You might face three bear markets in your first decade, or enjoy a 15-year bull run. Your actual experience will differ from the median scenario, sometimes dramatically. Your "Safe" Rate Depends on Shaky Assumptions Those withdrawal rates of 3.1%–3.5% rest on assumptions about future returns that may be too optimistic. Consider: If stock returns over the next 40 years average 7% instead of 10%, or if bond yields stay structurally lower than historical norms, today's "safe" rates become tomorrow's portfolio-killers. Current market valuations matter. When stocks trade at historically high price-to-earnings ratios (as they have in recent years), forward returns tend to be lower. The same applies to bonds—when you're locking in a 30-year Treasury at 4%, you're setting your fixed income return ceiling for decades. What this means for you:  Build in more cushion if you're retiring into elevated valuations. A 3.5% withdrawal rate based on historical returns might need to be 3.0% or lower when markets are expensive. Healthcare Costs Are More Variable Than Our Estimates Suggest We estimated $592,000 for lifetime healthcare costs, excluding long-term care. That's a reasonable middle-ground figure, but your actual costs could vary by hundreds of thousands of dollars. Geographic lottery:  Healthcare costs in Manhattan or San Francisco can run 40-50% higher than in smaller cities. The ACA marketplace premiums we discussed? They can swing wildly by state and even by county. Health status:  If you or your spouse develops a chronic condition in your 50s—diabetes, heart disease, autoimmune disorders—medication and treatment costs can explode. Some specialty drugs cost $5,000+ monthly even with insurance. Legislative risk:  Medicare and ACA subsidies exist at Congress's pleasure. Major reforms could increase your costs overnight or change eligibility rules. The enhanced ACA subsidies expire in 2025 unless extended—doubling premiums for some couples. The long-term care wildcard:  We mentioned that assisted living averages $70,800 annually and nursing homes exceed $127,000. But those are national averages. In high-cost areas, memory care facilities can exceed $200,000 per year. And if one spouse needs care for 5-7 years? You're looking at $350,000 to $1,000,000+ in additional costs that aren't built into our baseline models. The prudent approach: Add a 20-30% buffer to healthcare estimates, or dedicate separate funds specifically for long-term care scenarios. Life Doesn't Follow Your Spending Assumptions Our models assume a relatively stable lifestyle with predictable "needs" and adjustable "wants." Real life is messier. Major life transitions  can shatter carefully laid plans: Adult children who need financial support (job loss, divorce, medical issues) Elderly parents requiring care or financial assistance Divorce or separation in retirement (increasingly common—"gray divorce" rates have doubled since 1990) Relocations for health, family, or lifestyle reasons Career changes or unexpected business opportunities You might plan to spend $155,000 annually, but then your daughter goes through a difficult divorce and moves back home with two kids. Or your aging mother needs to move in, requiring home modifications. Or you discover a passion for extended international travel that doubles your original budget. The "wants" bucket that seems so flexible on paper? It's harder to cut than you think when those wants include seeing grandchildren, maintaining friendships, or pursuing passions you've deferred for decades. Behavioral Risk Is the Silent Plan-Killer The math is easy. The psychology is brutal. Sticking to guardrails sounds simple:  Take a 10% pay cut after your portfolio drops 20%. But when you're actually living through a bear market—watching CNBC report doom daily, seeing your friends panic, feeling your portfolio bleed—making rational decisions becomes exponentially harder. Human psychology sabotages plans through: Recency bias:  After years of gains, you convince yourself higher withdrawals are safe Loss aversion:  You refuse to cut spending after market drops, hoping for a quick recovery Lifestyle creep:  Spending gradually increases beyond plan guardrails Decision fatigue:  After years of active management, you stop rebalancing, skip Roth conversions, and let the plan drift Studies show that investors consistently underperform their own funds by 1-2% annually due to behavioral mistakes—buying high, selling low, abandoning strategy during volatility. The solution:  Automate as much as possible. Set up systematic rebalancing. Create trigger-based spending rules you commit to in advance. Better yet, work with an advisor who can be the rational voice when emotions run high. Tax and Policy Assumptions Can Change Overnight Much of our tax strategy—Roth conversions in low-income years, managing MAGI for subsidies, optimizing around IRMAA thresholds—assumes relatively stable tax law. But tax policy is political:  A new administration or Congress could: Raise or lower tax brackets Change Roth conversion rules or eliminate the "backdoor" Roth Modify IRMAA thresholds, increasing Medicare costs for higher earners Overhaul ACA subsidies (or eliminate them entirely) Change Social Security taxation or benefits Alter capital gains treatment or introduce wealth taxes We plan using today's rules, but you'll be retired for 40 years. Expecting zero major tax reforms over four decades isn't realistic. Social Security and Medicare face funding challenges:  The Social Security trust fund faces depletion in the 2030s without congressional action. Potential "fixes" include raising the retirement age, reducing benefits for higher earners, increasing payroll taxes, or means-testing benefits. Any of these changes could reshape your retirement income. Medicare faces similar pressures. Future reforms might increase premiums, raise eligibility ages, or expand means-testing beyond current IRMAA surcharges. What You Should Do With These Limitations Don't let these cautions paralyze you—they're meant to sharpen your planning, not discourage early retirement. Build in buffers:  If models suggest 3.3% is safe, start at 3.0%. If healthcare costs average $592,000, budget $750,000. Give yourself room for reality to deviate from assumptions. Stay flexible:  The greatest asset isn't your $5 million—it's your willingness to adjust. Keep skills sharp. Maintain relationships. Be ready to consult, work part-time, or defer expenses if needed. Review annually:  Meet with your financial advisor every year to stress-test assumptions against reality. Markets change. Your health changes. Tax law changes. Your plan must change too. Diversify your risks:  Don't let your entire retirement hinge on portfolio performance. Consider part-time work, rental income, annuities for a spending floor, or geographic arbitrage (moving to lower-cost areas). Accept uncertainty:  You'll never have perfect information. The goal isn't to eliminate all risk—it's to make smart decisions despite incomplete information and build a plan resilient enough to survive surprises. The difference between successful and failed retirements often isn't the starting portfolio size—it's the ability to adapt when reality diverges from the plan. FAQs Q: How does the balance of my tax-deferred, tax-free, or taxable accounts impact my withdraw rate? A: How your $5 million is split between tax-deferred (IRAs/401ks), tax-free (Roth), and taxable accounts directly affects your withdrawal rate because taxes change how much you actually keep. Two people with the same $5 million portfolio could have very different sustainable withdrawal rates depending on where the money is held. Q: What if I want to spend $250,000 per year from my $5 million portfolio? A:  That's 5% of $5 million—risky for 40 years. You'll need part-time income, aggressive investing, or the flexibility to cut spending dramatically in bad markets. Consider working part-time for 5 years to let your portfolio grow untouched. Q: Should I work part-time to make my $5 million last?   A: Even $30,000 in annual income lets you delay portfolio withdrawals and keep health insurance through an employer. Five years of part-time work could add years to your portfolio. Plus, staying professionally engaged provides purpose and social connection—both linked to longer, happier retirements. Q: Should I implement Roth conversions in retirement?   A: Whether or not you implement Roth conversions depends on your personal tax rates in retirement. Generally speaking, we find that Roth conversions can work well up to the 24% ordinary income tax rate for married couples. Every situation is different so be sure to build a personalized tax plan before you convert. Q: Should I pay off my mortgage? A:  If your mortgage rate is below 4%, keeping it might make sense—especially if you can earn more in bonds or stocks. But the psychological benefit of being debt-free in retirement is powerful. Run both scenarios and choose what helps you sleep better. Conclusion Is $5 million enough to retire at 55? Yes, your $5 million portfolio can be enough to retire at 55. But, the concept is easier than the actual implementation of actually making it happen in the first place. Here’s what you need to do to make it happen: Keep initial withdrawals near $155,000-$185,000 Stay flexible when markets struggle Plan meticulously for pre-Medicare healthcare Optimize taxes during your 55-70 window Delay Social Security to maximize benefits Build in buffers for healthcare inflation and long-term care The difference between success and failure isn't the amount—it's the planning. Most retirees with $5 million who run out of money didn't start with too little—they withdrew too much, too early, without adjusting for market conditions, taxes and quality of life desires like travel, giving and unexpected purchases. Don't have $5 million? Read our article: Is $2 Million Enough To Retire At 60? [5 Case Studies] Do you want my team to just do your retirement planning for you? Request a free Strategy Session , today! It could be the best step you take this year. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:   Download our full case study here. Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Jim and Carol Harrington had done everything right. Thirty years of saving. A $2.2 million portfolio. A plan to leave work at 57 — eight full years before Medicare kicked in. Their advisor told them they were "good to go." So they went. Disclosure: The following narrative regarding "the Harringtons" is a hypothetical illustration used to demonstrate planning concepts. It does not represent the experience of actual clients. Hypothetical financial planning illustrations have inherent limitations, including that they are prepared with the benefit of hindsight and do not reflect actual results of any specific client situation. What nobody modeled: Jim's $95,000 Roth conversion in year one pushed their household income above the ACA subsidy cliff — and just like that, their health insurance premiums jumped by roughly $23,000 a year. The Roth conversion was smart in isolation. But in the context of early retirement, it triggered a cascade nobody warned them about. That $23,000 annual hit, compounding over eight years before Medicare, adds up to roughly $185,000 in avoidable healthcare costs alone. And that's just one of five interconnected systems that make early retirement the most complex planning challenge in personal finance. Key Takeaways Early retirement creates a "five-system" problem — healthcare, account access, taxes, Social Security, and investment risk all interact. Optimizing one in isolation can damage the others. The ACA subsidy cliff returned in 2026. A couple earning just over $84,600 (2026) can lose all federal premium assistance — a swing of roughly $23,000 per year in healthcare costs. Accessing retirement funds before 59½ requires precision. The Rule of 55, 72(t) SEPP, and Roth conversion ladders each have traps that can lock you out of your own money or trigger penalties. A single Roth conversion can trigger both the ACA cliff and future IRMAA surcharges — two systems, one mistake, compounding costs for years. The cost of getting this wrong: $185,000+ over the pre-Medicare decade from healthcare costs alone, before accounting for tax inefficiency and suboptimal Social Security timing. A financial advisor for early retirement should model all five systems together — not hand you a withdrawal plan and wish you well. Why Early Retirement Creates a Five-System Problem A financial advisor for early retirement needs to solve five problems simultaneously — and the order matters as much as the solution. Traditional retirees at 65 face maybe two of these at once. Early retirees face all five from Day One. System 1 — Healthcare.  Without employer coverage, you're on the ACA marketplace until Medicare at 65. Managing your income to stay below the subsidy cliff is now a primary planning constraint. Only about 21% of large employers still offer retiree health benefits to pre-Medicare workers ( KFF ), so most early retirees are on their own. System 2 — Account access.  Most retirement savings are locked behind a 10% early withdrawal penalty until age 59½. Getting your money out without penalties requires knowing the Rule of 55, 72(t) SEPP rules, and Roth conversion ladders — each with different restrictions. System 3 — Tax optimization.  The years between retirement and age 73 or 75 (depending on your birth year) when Required Minimum Distributions start are a golden window for Roth conversions, tax-gain harvesting, and bracket management. For anyone born in 1960 or later, RMDs don't kick in until 75 — that's an even longer window to optimize. Miss this window, and you'll pay more in taxes for the rest of your life. Explore   strategies to lower taxable income once RMDs begin  and   RMD tax optimization approaches  to understand how this window works. System 4 — Social Security.  For someone born in 1960 or later, Full Retirement Age (FRA) is 67. Claiming at 62 permanently reduces benefits by roughly 30%. Delaying to 70 increases benefits by about 24% above your FRA amount ( SSA.gov ). Early retirees must decide whether to bridge from portfolio withdrawals — and that bridge strategy interacts with every other system. System 5 — Investment risk.   Sequence of returns risk hits hardest in the first five years of retirement . A 20% drop in Year One does far more damage to a portfolio you're withdrawing from than a 20% drop in Year 15. Early retirees face this risk across a potential 35–45 year retirement — not 25. The Harringtons' advisor solved System 3 while blowing up System 1 (healthcare costs). That's the five-system problem. And it's why a generalist financial advisor for early retirement often isn't enough. The 2026 Healthcare Cliff Many Advisors Overlook Here's a myth that's costing early retirees thousands: "ACA marketplace plans are affordable enough to bridge me to Medicare." That used to be true. From 2021 through 2025, enhanced ACA premium tax credits removed the income cap and made marketplace insurance surprisingly affordable — even for high earners. But those enhanced subsidies expired on December 31, 2025 ( KFF ). What returned in 2026 is the original subsidy cliff. Here's how it works. ACA premium tax credits are based on your Modified Adjusted Gross Income (MAGI). For 2026 coverage, the income cap is 400% of the Federal Poverty Level — roughly $62,600 for a single person and $84,600 for a couple ( IRS.gov ). Earn even $1 over that line, and you lose all federal premium assistance. For a 60-year-old couple, that cliff can mean roughly $23,000 per year in additional premiums. Per year. And you can't back up. This is the single most impactful financial change for pre-65 retirees in 2026. Yet most competitor guides on choosing a financial advisor for early retirement don't mention it. The trade-off is real: Roth conversions, capital gains, even part-time consulting income all count toward MAGI. Every dollar of income has a healthcare cost attached to it that most advisors don't model. The planning implication is clear — your withdrawal strategy, your Roth conversion plan, and your healthcare coverage are no longer separate decisions. They're the same decision. Covenant Wealth Advisors does not sell insurance products. We coordinate with licensed insurance professionals for plan-specific recommendations. How to Access Retirement Funds Before 59½ (Without the Penalty) If you retire before 59½, most of your savings are behind a locked door. The IRS charges a 10% early withdrawal penalty on distributions from traditional IRAs and 401(k)s before that age — on top of regular income tax. But there are three keys to that door. Each has different rules, and choosing wrong can cost you. The Rule of 55.  If you leave your employer in or after the year you turn 55, you can take penalty-free withdrawals from that employer's 401(k) or 403(b) plan. Not an old 401(k). Not an IRA. Only the plan at the company you just left. And the plan itself must allow early distributions. Roll that 401(k) into an IRA before using this rule, and you've locked yourself out ( IRS.gov ). 72(t) Substantially Equal Periodic Payments (SEPP).  This lets you take fixed withdrawals from an IRA or 401(k) before 59½ without the 10% penalty. The catch: you must continue those exact payments for five years or until you reach 59½ — whichever is longer. Change the payment amount, and the IRS retroactively applies the 10% penalty to every prior distribution ( IRS.gov ). That's not a slap on the wrist. It's a bill for years of penalties plus interest. The Roth Conversion Ladder.  This strategy involves converting traditional IRA funds to a Roth in low-income years, then withdrawing those converted amounts penalty-free after a five-year waiting period. It requires planning at least five years before you'll need the money. Each conversion starts its own five-year clock. And here's the interaction that trips people up: Roth conversions count as MAGI, which means they can push you over the ACA subsidy cliff. The Harringtons' advisor recommended the Roth conversion ladder — a solid early retirement planning strategy in theory. But without modeling the ACA interaction, a smart tax move became a $23,000-per-year healthcare mistake. What Your Roth Conversion Does to Your Healthcare Bill This is the section to forward to your CPA. Most articles about Roth conversions treat them as a tax decision. Convert when you're in a low bracket, pay the tax, enjoy tax-free growth. Simple. But for early retirees, a Roth conversion isn't just a tax event — it's a healthcare event. And, if you're within two years of Medicare eligibility, it's a Medicare event too. The ACA Interaction.  Every dollar you convert from a traditional IRA to a Roth counts as MAGI for ACA subsidy purposes. A couple with $60,000 in other income who converts $25,000 just vaulted over the $84,600 subsidy cliff — potentially adding $23,000 in annual premiums. The IRMAA interaction.  IRMAA — the Income-Related Monthly Adjustment Amount — is Medicare's surcharge for higher-income retirees. It uses a two-year lookback. So a large Roth conversion at age 63 shows up as higher income on your 2024 tax return, which triggers   Medicare IRMAA surcharges for higher-income retirees  when you enroll in Medicare at 65. The standard Part B premium in 2026 is $202.90 per month. At the highest IRMAA tier, it jumps to $689.90 ( CMS.gov ). That's an extra $11,688 per year for a couple at the top tier. Here's the math nobody shows you: A $100,000 Roth conversion in the wrong year could trigger the ACA cliff ($23,000 hit) and plant an IRMAA surcharge two years later : ~$2,300 per year for a couple at the first surcharge tier, or $4,800+ at the second tier. One decision. Two systems. Over $25,000 in costs that don't show up on any tax return — and potentially more if the conversion pushes you into a higher IRMAA bracket. The conversion itself might still be the right call. But the amount and timing need to account for healthcare costs — not just tax brackets. This is what separates early retirement planning strategies from standard retirement advice. What Your Advisor Isn't Telling You The five interactions that make early retirement the hardest planning challenge in personal finance: A Roth conversion that saves you $15,000 in future taxes can cost you $23,000 in lost ACA subsidies — this year. The Rule of 55 only works with your last employer's plan. Roll it to an IRA first, and you lose penalty-free access. IRMAA uses a two-year lookback. Your 2024 income determines your 2026 Medicare premiums. By the time you see the bill, it's too late to fix. Claiming Social Security at 62 with a $2M+ portfolio permanently reduces benefits by ~30% — and the earnings test claws back more if you're still working. Sequence of returns risk across a 40-year retirement is fundamentally different from a 25-year retirement. Your portfolio needs a different structure. What Makes a Financial Advisor for Early Retirement Different The Harringtons' original advisor wasn't bad. He was a generalist solving a specialist problem. He ran a Monte Carlo simulation, checked the portfolio balance, and said "you're good." He never modeled the healthcare interaction — the kind of gap thoughtful   questions to ask in your first advisor meeting  are designed to uncover. Here's what to look for when choosing a financial advisor for retirement — especially early retirement, and   key questions to ask a financial advisor about retirement : They model all five systems together.  Not a retirement projection. Not a tax return. A multi-year model that shows how a Roth conversion in Year 2 affects your ACA premiums in Year 2 and your IRMAA surcharges in Year 4. If your advisor can't show you this interaction on a single screen, they're not planning for early retirement. They understand the 2026 landscape.  The One Big Beautiful Bill Act made TCJA tax rates permanent ( IRS.gov ). That changes the Roth conversion calculus — low rates aren't temporary anymore. At the same time, the ACA subsidy cliff returned. An advisor who hasn't updated their models for both changes is working with last year's playbook. They're a fiduciary.  A fee-only fiduciary is legally required to act in your interest — not earn commissions on products. For a planning challenge this complex, you need advice that's conflict-free. They plan in decades, not quarters.  Early retirement at 55 could mean a 40-year retirement. That's not a portfolio problem — it's a cash flow, tax, and healthcare problem that spans four decades. The strategies differ at $1M vs. $3M vs. $5M+ because the interaction effects scale differently. The Harringtons, after a costly first year, found an advisor who modeled all five systems. The result: a Roth conversion strategy calibrated to stay just below the ACA subsidy cliff, a bridge withdrawal plan from their taxable account, and a Social Security delay strategy funded by their 401(k) under the Rule of 55. Same portfolio. Different outcome. Roughly $185,000 in healthcare savings over their pre-Medicare years. Check This Now: Your Early Retirement Readiness Here's what you can check right now — before your next advisor meeting. 1. Find your MAGI.  Pull your most recent tax return (Form 1040, Line 11). Compare it to the 2026 ACA subsidy cliff: $62,600 (single) or $84,600 (couple). If you're within $20,000 of either threshold, your withdrawal strategy needs precision MAGI management. 2. Check your 401(k) plan document.  Call your HR department and ask: "Does our plan allow early distributions under the Rule of 55?" Not all plans do. If yours doesn't, and you're planning to retire before 59½, you need an alternative access strategy before you leave. 3. Count your Roth conversion clocks.  If you've done Roth conversions in the past five years, each one has its own five-year waiting period before penalty-free withdrawal. Log into your custodian's website and note each conversion date and amount. If any clock hasn't hit five years, withdrawing those funds triggers a 10% penalty. 4. Run the Social Security bridge math.  Go to ssa.gov/myaccount  and pull your estimated benefit at 62, at FRA (67), and at 70. The 2026 maximum monthly benefit is $4,152 at FRA and $5,181 at 70 ( SSA.gov ). Calculate what it would cost to bridge from portfolio withdrawals while delaying — then compare that cost to the permanent benefit increase. 5. Check your 2024 MAGI against IRMAA thresholds.  If you're turning 65 in 2026, your 2024 tax return determines your Medicare premiums. IRMAA surcharges begin above $109,000 (single) or $218,000 (married filing jointly). If you're above those lines, you're already paying the surcharge. Next year's conversion plan needs to account for this. If more than one of these checks raised a question you couldn't answer — that's the complexity a financial advisor for early retirement is designed to solve. Forward this to your CPA and ask: "Are we modeling my Roth conversions against the ACA subsidy cliff and IRMAA thresholds together?"  For additional context, review   smart questions to ask your advisor about your tax plan  and   whether a Roth conversion makes sense for your situation . Want Our Team to Just Do Your Retirement Planning for You? Schedule Your Strategy Session! Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Frequently Asked Questions Do I Need a Financial Advisor for Early Retirement Planning, and What Should I Look for When Choosing One? If you have over $1 million in investable assets and plan to retire before 65, a specialist advisor can help you coordinate five interconnected systems — healthcare costs, account access, tax optimization, Social Security timing, and investment risk. Look for a fee-only fiduciary with experience modeling ACA subsidy management and Roth conversion interactions. A generalist who doesn't model healthcare costs alongside your tax plan may miss the most expensive blind spots. How can a Financial Advisor Help Me Retire Early in My 40s or 50s? An advisor builds a multi-decade cash flow plan covering how you'll access retirement funds before 59½ (Rule of 55, 72(t) SEPP, or Roth ladder),   when to withdraw 401(k) and IRA savings for retirement , how to manage income to preserve ACA subsidies, when to convert to Roth during low-income years, and when to claim Social Security. For a couple retiring at 55 with $2M+, these decisions interact — getting the sequence right can preserve $185,000 or more in healthcare costs alone over the pre-Medicare years. What Questions Should I Ask a Financial Advisor for Early Retirement About Withdrawal Strategies and Tax Planning ? Start with these three: (1) "Can you model how my Roth conversion affects my ACA premiums and future IRMAA surcharges in the same projection?" (2) "What's your plan for accessing my retirement funds penalty-free before 59 1⁄2?" and (3) "How does my Social Security claiming decision affect my tax bracket and healthcare costs each year?" If they can't answer all three with a specific, integrated model, they may not specialize in early retirement. How Much Does a Financial Advisor for Early Retirement Typically Cost, and is it Worth the Investment? Fee-only advisors typically charge 0.50%–1.00% of assets under management annually, or a flat fee per year depending on complexity. For early retirees, the value equation is straightforward: a single Roth conversion mistake can trigger $23,000+ in annual healthcare costs. IRMAA surcharges can add another $2,300+ per couple per year at the first tier — more at higher income levels. Advisory fees that prevent even one of these errors more than pay for themselves — often in the first year. What is the Rule of 55, and How Does it Help Early Retirees Access 401(k) Funds? The Rule of 55 allows penalty-free withdrawals from your current employer's 401(k) or 403(b) if you leave that job in or after the year you turn 55 (age 50 for qualified public safety employees). It does not apply to IRAs or to plans from previous employers. If you roll your 401(k) into an IRA before using this rule, you permanently lose eligibility. Check with your plan administrator — not all plans allow early distributions under this provision ( IRS.gov ). How Did the 2026 ACA Subsidy Changes Affect Early Retirement Planning? The enhanced ACA premium tax credits that were in place from 2021–2025 expired on December 31, 2025. This restored the original 400% Federal Poverty Level income cap. For 2026, a couple earning above approximately $84,600 loses all premium tax credit eligibility. This can increase annual healthcare costs by roughly $23,000 for older marketplace enrollees. Managing MAGI below this threshold is now a critical component of early retirement planning strategies. Ready to get your retirement portfolio on track? Contact us today for a Free Strategy Session. About the author: Scott Hurt, CFP®, CPA Senior Financial Advisor Scott is a Financial Advisor for Covenant Wealth Advisors , a CERTIFIED FINANCIAL PLANNER™ practitioner and a Certified Public Accountant (CPA). He has over 17 years of experience in the financial services industry in the areas of financial planning, tax planning, and investment management. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Introduction Frank and Diane Davila did everything right. Thirty-two years of saving. A $2.8 million portfolio. A comfortable retirement — until their CPA flagged a $4,500 annual tax leak they never saw coming. Their dividend-heavy index funds were throwing off $50,000 a year. Solid income. But every dollar was sitting inside a traditional IRA. And that single decision was converting what should have been a 15% tax rate into a 24% tax rate — on every dividend, every year. [Disclosure: The scenario regarding Frank and Diane Davila is a hypothetical illustration used to demonstrate planning concepts. It does not represent the experience of actual clients. Hypothetical financial planning illustrations have inherent limitations, including that they are prepared with the benefit of hindsight and do not reflect actual results of any specific client situation.] Over a 20-year retirement, that kind of mistake can cost as much as $170,000 in unnecessary taxes — depending on your bracket and whether the Medicare surtax applies. And the Davilas aren't unusual. Most retirees don't realize how dividends are taxed — or that the location  of their investments matters just as much as the investments themselves. Key Takeaways Qualified dividends are taxed at 0%, 15%, or 20%  — the same preferential rates as long-term capital gains. Ordinary dividends are taxed at your regular income tax rate, up to 37%. The holding period is the gatekeeper.  You must own the stock for more than 60 days in a specific 121-day window, or your dividend loses its "qualified" status. A 3.8% surtax applies above $250,000 (married filing jointly)  — the Net Investment Income Tax hits both qualified and ordinary dividends and is not indexed for inflation. Where you hold dividend stocks changes the tax rate.  Qualified dividends inside a traditional IRA lose their preferential rate entirely and come out as ordinary income — potentially doubling the tax. The cost of getting this wrong: up to $8,500 per year  on $50,000 in dividends, or roughly $170,000 over a 20-year retirement. Qualified vs. Ordinary Dividends: The Label That Sets Your Tax Rate Not all dividends are taxed the same. The IRS splits them into two categories — qualified and ordinary (also called nonqualified) — and the difference in tax rates can be enormous. Ordinary dividends  are the default. They're taxed at your regular federal income tax rate, which ranges from 10% to 37% under the rate structure made permanent by the One Big, Beautiful Bill Act (OBBBA), signed July 4, 2025 ( IRS Topic 404 ). If you're a retiree with $250,000 in taxable income, your ordinary dividends are taxed at 24% or higher. Qualified dividends  get a discount. They're taxed at the same preferential rates as long-term capital gains: 0%, 15%, or 20%, depending on your taxable income ( IRS Topic 409 ). But a dividend doesn't earn "qualified" status automatically. Two tests must be met: The payer test.  The dividend must come from a U.S. corporation or a qualifying foreign corporation. Most S&P 500 and total market index funds pass this easily. REITs usually do not — their dividends are generally ordinary income. The holding period test.  You must hold the stock for more than 60 days during the 121-day window that begins 60 days before the ex-dividend date ( IRS Publication 550 ). Sell too early, and the dividend reverts to ordinary. Your 1099-DIV breaks this out for you. Box 1a shows total ordinary dividends. Box 1b shows the qualified portion. If you've never compared those two numbers, now is the time. Dividend Tax Rates for 2025 and 2026 The OBBBA made the Tax Cuts and Jobs Act (TCJA) rate structure permanent. That means the qualified dividend rates of 0%, 15%, and 20% are no longer set to expire — they're embedded in the tax code for good ( TLD Law — OBBBA Individual Tax Changes ). Here are the current thresholds for married filing jointly: 2025 Qualified Dividend Rates (MFJ)  ( IRS Rev. Proc. 2024-40 ) 0% on taxable income up to $96,700 15% on taxable income from $96,701 to $600,050 20% on taxable income above $600,050 2026 Qualified Dividend Rates (MFJ)  ( IRS Rev. Proc. 2025-32 ) 0% on taxable income up to $98,900 15% on taxable income from $98,901 to $613,700 20% on taxable income above $613,700 For ordinary dividends, you'll pay your marginal income tax rate. In 2026, the 24% bracket for married filers covers taxable income from $211,401 to $403,550 ( Tax Foundation — 2026 Tax Brackets ). That's the bracket most affluent retirees land in. The bottom line:  on the same $50,000 in dividends, a couple in the 24% ordinary bracket pays $12,000. If those dividends are qualified, they pay $7,500 at the 15% rate. That's a $4,500 difference — every single year. This is the section to forward to your CPA or to revisit when you're evaluating   how retirement account withdrawals impact your tax bracket . The 3.8% Surtax Most Retirees Overlook The rates above aren't the whole story. If your modified adjusted gross income (MAGI) exceeds $250,000 for married filers — or $200,000 for single filers — you'll also owe the Net Investment Income Tax (NIIT). That's an extra 3.8% on all investment income, including every dividend. Here's what makes the NIIT dangerous: those $250,000/$200,000 thresholds have not been adjusted for inflation since they took effect in 2013. They're written into the statute at fixed dollar amounts. The OBBBA did not change them. Every year, inflation pushes more retirees over the line. That means the real  maximum tax rate on qualified dividends is 23.8% (20% + 3.8%). On ordinary dividends, it's 40.8% (37% + 3.8%). On $50,000 in dividends, the spread between those two rates is approximately $8,500 per year.  Over a 20-year retirement, that's up to $170,000  — just from the difference between how your dividends are classified. One more wrinkle for REIT investors:  Most REIT dividends are taxed as ordinary income, not qualified dividends. However, the Section 199A deduction — now made permanent by the OBBBA — lets you deduct 20% of qualified REIT dividends from your taxable income ( IRS — Qualified Business Income Deduction ). That effectively drops the top federal rate on REIT dividends from 37% to about 29.6%. It helps, but it still doesn't match the 20% qualified rate — and it doesn't reduce your AGI, which matters for other thresholds or change the inherent   tax efficiency of ETFs used for income . What Your IRA Does to Your Dividend Tax Rate Here's what most advisors don't explain — and it's the single most expensive blind spot in dividend planning for retirees who are searching for the   best investments for income in retirement . Qualified dividends earned inside a taxable brokerage account keep their preferential tax rate. A couple with $200,000 in taxable income pays just 15% on those dividends. But the same qualified dividends earned inside a traditional IRA lose that status entirely. When you withdraw the money, every dollar comes out as ordinary income — taxed at your marginal rate. For that same couple, that's 24%. The dividend's "qualified" label disappears the moment it enters a traditional IRA. Think of it this way: your IRA is like a black box. Everything that goes in — capital gains, qualified dividends, interest — comes out the same color: ordinary income. The tax code doesn't care what generated the growth. The Numbers That Matter The Davila scenario in three acts: ❌ Inaction:  $50,000 in qualified dividends held inside a traditional IRA. Taxed at 24% ordinary rate on withdrawal = $12,000/year in taxes. ⚠️ Generic advice:  "Put your dividend stocks in a retirement account for tax-deferred growth." Sounds smart. Costs them $4,500/year in lost preferential rates. ✅ Optimized strategy:  Move dividend-paying equities to the taxable brokerage account where they're taxed at 15%, coordinating this with a broader plan for   reducing capital gains tax on stocks . Shelve high-yield bonds and REITs in the IRA where they'd be taxed at ordinary rates anyway. Annual savings:  $4,500. 20-year savings:  $90,000. The trade-off is real: tax-deferred growth inside the IRA has value, especially for high-turnover funds that generate frequent taxable events. This isn't a universal rule. It depends on your tax bracket, your time horizon, and whether the NIIT applies. But for retirees already taking withdrawals, the math often favors holding qualified-dividend stocks outside the IRA. Forward this section to your CPA and ask:   "Are my dividend-paying funds in the right accounts — or am I converting qualified dividends into ordinary income?"   This is also a great time to consider   questions to ask your financial advisor about your tax plan . Check This Now Here's what you can check right now — before your next meeting with an advisor. Pull your most recent 1099-DIV.  Compare Box 1a (total dividends) to Box 1b (qualified dividends). If Box 1b is much smaller than 1a, you're paying ordinary rates on most of your dividend income. Check which account holds your dividend funds.  Log into your brokerage and IRA accounts. Are dividend-heavy equity funds sitting inside your traditional IRA? If yes, you may be losing the qualified rate. Look at last year's tax return, Line 3a (qualified dividends) vs. Line 3b (ordinary dividends).  Note that Line 3a is a subset of Line 3b — so if 3a is much smaller than 3b, most of your dividends are being taxed at your full marginal rate. Check your MAGI against the NIIT threshold.  If your joint MAGI exceeded $250,000 in 2025, you owe an extra 3.8% on every dividend — qualified or not, so it may be worth exploring broader   strategies to minimize taxes on retirement income . [Disclosure: The information above is provided for educational purposes to help you evaluate your own situation. It is not personalized financial advice. Your specific circumstances may differ — consult a qualified financial professional before making changes to your plan.] Over a 20-year retirement, the difference between getting dividend taxation right and wrong can reach $170,000.  That's not a rounding error. It's a retirement year — or two. Want Our Team to Just Do Your Retirement Planning for You? Schedule Your Strategy Session! Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Frequently Asked Questions What is the Difference Between Qualified and Ordinary (Nonqualified) Dividends? Understanding this difference is a key input to tax-efficient   IRA withdrawal strategies that can maximize your savings . Qualified dividends come from U.S. corporations (or qualifying foreign ones) and meet a minimum holding period. They're taxed at 0%, 15%, or 20%. Ordinary dividends don't meet these tests and are taxed at your regular income tax rate — up to 37% in 2026 ( IRS Topic 404 ). What Are the Current Dividend Tax Rates? For 2026, qualified dividends are taxed at 0% (up to $98,900 MFJ), 15% (up to $613,700 MFJ), or 20% (above $613,700). Ordinary dividends are taxed at your marginal income rate, from 10% to 37%. An additional 3.8% NIIT may apply above $250,000 MAGI ( IRS Rev. Proc. 2025-32 ). Are Dividends Taxed in Retirement Accounts? Dividends interact with required minimum distributions in complex ways, so it helps to review an   essential guide to RMD tax strategies  alongside the rules below. Dividends inside a traditional IRA grow tax-deferred, but all withdrawals are taxed as ordinary income — even if the dividends were "qualified." In a Roth IRA, qualified withdrawals are entirely tax-free. This makes account selection a critical tax decision ( IRS Publication 550 ). What is the Holding Period Requirement for Qualified Dividends? Your holding period, combined with the timing of withdrawals and RMDs, can influence your taxes; many retirees pair these rules with   strategies to lower taxable income once RMDs begin . You must hold the stock for more than 60 days within the 121-day period starting 60 days before the ex-dividend date. Days when your risk of loss is reduced — through short sales or options — don't count ( IRS Topic 404 ). Ready to get your retirement portfolio on track? Contact us today for a Free Strategy Session. About the author: Andrew Casteel, CFP® Chief Investment Officer Andrew is the Chief Investment Officer for Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 11 years of experience in the financial services industry in the areas of wealth management and financial planning for retirement. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Losing a spouse is an emotionally challenging experience, and it often comes with complex financial decisions. One of the most significant choices a surviving spouse may face is whether to sell the family home. This decision can have far-reaching tax implications that are crucial to understand. In this article, we'll explore the tax consequences of selling a house after the death of a spouse , providing you with the knowledge you need to make informed decisions during this difficult time. Keep in mind, for many individuals, deeper insights can help you avoid tax mistakes and help your money last. Consider downloading our free retirement cheat sheets to help you navigate retirement in many areas of your finances. Key Takeaways The step-up in basis rule can significantly reduce capital gains tax liability for surviving spouses. Surviving spouses have up to two years to sell their home and claim the full $500,000 capital gains exclusion. Proper documentation of home improvements is crucial for accurately calculating the cost basis. Understanding the interplay between state and federal tax laws is essential for comprehensive tax planning. Consulting with a financial advisor can help navigate the complex tax implications of selling a home after spousal loss. Table of Contents Key Takeaways The Personal Side of Selling a Home After a Loss How Long Do You Have to Sell a House After a Spouse Dies? What Happens to the Cost Basis of a Home When One Spouse Dies? Surviving Spouse Home Sale Exclusion Rules The Importance of Tracking Cost Basis State-Specific Considerations How Will the Sale of My House Be Taxed? FAQs Conclusion The Personal Side of Selling a Home After a Loss After my father died, my mom was saddened, confused, and even a bit forgetful. When it came time to think about the finances, it became apparent that we really needed to think through the tax and financial implications of selling her home. The process was daunting and there were a few things we should have prepared for in advance, such as itemizing the cost basis of the home which included improvements over nearly 34 years! Luckily, my father kept files going back decades. That was the good news. The bad news was that I had to scourer through every file to find receipts for all of the home improvements. Then, I had to itemize them all. The process saved my mom nearly $40,000 in taxes. But, it took a lot of work and could have been a lot easier had better planning been in place. This personal experience underscores the importance of understanding the tax consequences of selling a house after the death of a spouse. It's not just about numbers on a tax form; it's about proper planning and making sound financial decisions during an emotionally turbulent time. How Long Do You Have to Sell a House After a Spouse Dies? When it comes to selling a house after the death of a spouse, time is both a comfort and a consideration. While there's no strict deadline imposed by the IRS for selling your home, there are important timelines to keep in mind for tax purposes. The Two-Year Rule One of the most significant tax benefits for surviving spouses is the ability to use the full $500,000 capital gains exclusion if they sell their home within two years of their spouse's death. This is a substantial advantage compared to the $250,000 exclusion available to single filers. Scott Hurt, CFP® , CPA at Covenant Wealth Advisors in Richmond, VA, explains, "The two-year window is crucial for many of our clients. It allows them to maximize their tax savings while giving them time to process their loss and make a well-considered decision about their living situation." Considerations Beyond the Two-Year Mark While the two-year rule is important, it's not the only factor to consider. Here are some additional points to keep in mind: Market Conditions : The real estate market can fluctuate. Sometimes, waiting for a more favorable market can outweigh the tax benefits of selling within two years. Emotional Readiness : Grief is a personal journey. Some may not feel ready to sell a home full of memories within two years. Financial Needs : Your overall financial situation might necessitate selling sooner or allow for holding onto the property longer. What Happens to the Cost Basis of a Home When One Spouse Dies? Understanding the cost basis of your home is crucial when calculating potential capital gains taxes . When a spouse passes away, the cost basis rules can work in the surviving spouse's favor through a concept known as "step-up in basis." Step-Up in Basis Explained The step-up in basis rule allows the cost basis of an asset to be adjusted to its fair market value at the time of the owner's death. For married couples, this rule applies differently depending on how the property is owned: Community Property States : In community property states, both the deceased spouse's half and the surviving spouse's half of the property receive a step-up in basis to the fair market value at the date of death. Common Law States : In common law states, only the deceased spouse's half of the property receives a step-up in basis. The surviving spouse's half retains its original cost basis. Let's look at an example to illustrate the step up in cost basis in common law states: Sarah and John bought their home in a common law state for $300,000 in 1990. At the time of John's death in 2024, the home was worth $800,000. The new cost basis would be: John's half: $400,000 (stepped-up to 50% of current value) Sarah's half: $150,000 (original 50% of purchase price) New total cost basis: $550,000 This step-up in basis can significantly reduce the capital gains tax liability if Sarah decides to sell the home. Importance of Accurate Records Megan Waters, CFP® at Covenant Wealth Advisors in Richmond, VA, emphasizes, "Keeping meticulous records of home improvements is vital. These costs can be added to your basis, potentially reducing your capital gains tax if you sell. Many clients overlook this, but it can make a substantial difference in their tax liability." To accurately track your cost basis: Keep receipts for all home improvements Document the date and cost of each improvement Include major renovations, additions, and system upgrades Remember, regular maintenance and repairs typically can't be added to your cost basis. Surviving Spouse Home Sale Exclusion Rules The home sale exclusion is a significant tax benefit for homeowners, and it comes with special rules for surviving spouses. Understanding these rules can help you maximize your tax savings when selling your home. The $500,000 Exclusion Window As mentioned earlier, surviving spouses have a unique opportunity to exclude up to $500,000 of capital gains if they sell their home within two years of their spouse's death. This is double the $250,000 exclusion available to single filers. To qualify for this exclusion: The sale must occur within two years of the spouse's death The couple must have owned and used the home as their primary residence for at least two of the five years preceding the death The surviving spouse must not have remarried at the time of the sale After the Two-Year Window If you sell your home more than two years after your spouse's death, you'll be subject to the single filer exclusion of $250,000. However, this doesn't necessarily mean you should rush to sell within two years. Other factors, such as market conditions and your personal readiness, should also be considered. Download Now: Important Numbers Every Tax Savvy Investor Should Know [Free Report] Special Considerations for Military and Foreign Service If you or your deceased spouse was on qualified official extended duty in the U.S. military or foreign service, you may be eligible for special considerations regarding the use and ownership tests. These rules can extend the period in which you're eligible for the exclusion. The Importance of Tracking Cost Basis Tracking the cost basis of your home is crucial for minimizing your tax liability when you eventually sell. The cost basis isn't just the price you paid for the home; it also includes certain expenses and improvements made over time. What to Include in Your Cost Basis Original purchase price : The amount you paid to buy the home Closing costs : Certain closing costs can be added to your basis Home improvements : Significant upgrades that add value to your home Legal fees : Costs associated with defending or perfecting the title to your property Examples of Eligible Improvements Adding a room or garage Installing central air conditioning or a new heating system Replacing the roof or windows Major landscaping projects Installing a security system Keeping Detailed Records Maintain a file (physical or digital) with: Receipts for all improvements Contracts and agreements with contractors Before and after photos of improvements Property tax assessments showing increased value due to improvements Matt Brennan, CFP® at Covenant Wealth Advisors in Reston, VA, advises, "Create a spreadsheet to track all improvements chronologically. This not only helps with calculating your cost basis but also serves as a valuable record of your home's history, which can be appealing to potential buyers." State-Specific Considerations While federal tax laws apply uniformly across the United States, state tax laws can vary significantly. This variation can have a substantial impact on the overall tax consequences of selling a house after the death of a spouse. Community Property vs. Common Law States As mentioned earlier, whether you live in a community property or common law state can affect how the step-up in basis is applied: Community Property States : Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin Common Law States : All other states In community property states, both halves of the property typically receive a full step-up in basis, potentially resulting in greater tax savings. State-Specific Capital Gains Taxes Some states impose their own capital gains taxes in addition to federal taxes. For example: California has a state capital gains tax rate of up to 13.3% New York's top rate is 8.82% Florida and Texas have no state capital gains tax Understanding your state's specific tax laws is crucial for accurate tax planning. Inheritance Taxes While there is no federal inheritance tax, some states do impose inheritance taxes: Iowa Kentucky Maryland Nebraska New Jersey Pennsylvania If you live in one of these states, it's important to understand how inheritance tax might apply to your situation, especially if you inherit your spouse's share of the home. How Will the Sale of My House Be Taxed? Understanding how the sale of your house will be taxed after the death of a spouse is crucial for effective financial planning. The tax implications can vary based on several factors, including the sale price, your cost basis, and the timing of the sale. Capital Gains Tax Basics When you sell your home, the difference between the sale price and your adjusted cost basis is considered a capital gain (or loss). This gain may be subject to capital gains tax. However, there are several provisions that can reduce or eliminate this tax burden for surviving spouses. Capital Gains Tax Rates If you do have taxable gains, the rate you'll pay depends on your income and how long you owned the home: Short-term capital gains  (property owned for one year or less) are taxed as ordinary income. Long-term capital gains  (property owned for more than one year) are taxed at preferential rates: 0% for single filers with taxable income up to $41,675 (2022 tax year) 15% for single filers with taxable income between $41,676 and $459,750 20% for single filers with taxable income above $459,750 If you do have significant capital gains, there are ways to potentially offset capital gains. Here' how to reduce capital gains tax on stocks (and real estate) . State Taxes Remember that state taxes can add to your overall tax burden. Some states have their own capital gains taxes, while others treat these gains as regular income. Be sure to consider both federal and state tax implications when planning the sale of your home. Net Investment Income Tax High-income earners may also be subject to the Net Investment Income Tax (NIIT). This additional 3.8% tax applies to the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds certain thresholds ($200,000 for single filers). Want Our Team to Just Do Your Retirement Planning for You? Schedule Your Strategy Session! Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide FAQ Section Q: Do I have to pay capital gains tax on the sale of my house after my spouse dies?   A: It depends on several factors, including the sale price, your cost basis, and how long after your spouse's death you sell. If you sell within two years and meet certain conditions, you may be able to exclude up to $500,000 in capital gains. Q: How is the cost basis calculated when one spouse dies?   A: In most cases, the deceased spouse's share of the property receives a step-up in basis to its fair market value at the date of death. In community property states, both halves may receive this step-up. Q: Can I still use the $500,000 exclusion if I remarry before selling the house?   A: Generally, no. To use the $500,000 exclusion as a surviving spouse, you must not have remarried at the time of the sale. Q: What if I can't sell the house within two years due to market conditions?   A: While you may lose the opportunity for the full $500,000 exclusion, you can still use the $250,000 single filer exclusion. Additionally, a depressed market might mean lower capital gains, potentially offsetting the reduced exclusion. Q: Are there any exceptions to the two-year rule for selling after a spouse's death?   A: The IRS may grant exceptions in cases of unforeseen circumstances, such as natural disasters or certain employment changes. However, these are evaluated on a case-by-case basis. Conclusion Navigating the tax consequences of selling a house after the death of a spouse can be complex, but understanding the rules and planning ahead can lead to significant tax savings. Key points to remember include: The potential for a step-up in basis, which can reduce your capital gains tax liability The two-year window for using the full $500,000 capital gains exclusion The importance of accurate record-keeping for home improvements State-specific tax considerations that may affect your decision While tax implications are important, they shouldn't be the sole factor in your decision to sell. Consider your emotional readiness, financial needs, and long-term plans as well. Remember, every situation is unique, and tax laws can be complex. It's always advisable to consult with a qualified financial advisor or tax professional to understand how these rules apply to your specific circumstances. Do you want advice to help simplify your financial life? Contact us today for a free assessment to see how we can help you. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors  and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free retirement assessment today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

Are you a high-net-worth investor with over $2 million who is concerned about maximizing your wealth and minimizing risk? If so, conducting an investment portfolio review is a crucial step towards achieving your financial goals . With the fast-paced nature of the financial markets, it's easy to lose sight of your long-term financial objectives and get caught up in short-term fluctuations. That's why it's essential to periodically assess your investment portfolio to ensure that it's well-positioned to achieve your financial goals while minimizing risk. A financial advisor at Covenant Wealth Advisors can provide a personalized investment portfolio review. Take our short quiz and be matched with an experience advisor today! In this blog, we'll discuss the 9 crucial components of an investment portfolio review that will help you optimize your portfolio for tax efficiency, assess your risk exposure, and stay disciplined in your investment decisions. Most importantly, it will provide you with a framework to identify potential gaps and blind spots in your investment game plan. So, grab a cup of coffee and join us as we dive into the world of investment portfolio reviews. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide SCHEDULE YOUR FREE ASSESSMENT What is an investment portfolio review? An investment portfolio review is an assessment of your investment portfolio to evaluate whether it's aligned with your financial goals, risk tolerance, and tax efficiency objectives. It involves analyzing your asset allocation, diversification, risk exposure, management expenses, ownership costs, and tax strategies. The primary objective of an investment portfolio review is to ensure that your portfolio is well-positioned to achieve your long-term financial goals while minimizing risk. During an investment portfolio review, you may evaluate the performance of your investments, assess the level of risk in your portfolio, and identify areas that require adjustments to achieve your financial objectives. You will also evaluate the tax efficiency of your portfolio by assessing the impact of turnover on your taxes and evaluating your portfolio's tax strategies. Investment portfolio reviews are typically conducted at least annually, but the frequency may vary depending on your financial situation and investment objectives. For example, at Covenant Wealth Advisors, we review portfolios every couple of weeks to ensure they continue to align with our client's personal situations. Regular portfolio reviews are crucial for high-net-worth investors who want to maximize their wealth, minimize risk, and optimize tax efficiency. Why is an investment portfolio review important? An investment portfolio review is important for several reasons. First, it helps you evaluate the performance of your portfolio against your financial goals and objectives. By reviewing your portfolio periodically, you can identify areas that require adjustments to achieve your long-term financial goals. Once you understand the returns you need to accomplish your goals, you can then start to build a portfolio that gives you the highest probability of accomplishing those returns without unnecessary risk. Secondly, a portfolio review helps you assess the level of risk in your portfolio. By evaluating your asset allocation, diversification, and risk exposure, you can ensure that your portfolio is well-positioned to achieve your financial objectives while minimizing risk. Thirdly, an investment review helps you assess the tax efficiency of your portfolio. Taxes can have a significant impact on investment returns, especially for high-net-worth investors. By evaluating your portfolio's tax strategies and assessing the impact of turnover on your taxes, you can optimize your portfolio for tax efficiency and improve your after-tax returns. Fourthly, an investment portfolio analysis helps you evaluate the expenses associated with managing your portfolio. By evaluating the management expenses and ownership costs of your investment holdings, you can ensure that you're paying reasonable fees for the value provided. Finally, an investment portfolio review helps you stay disciplined and focused on your long-term financial goals. Market volatility and short-term fluctuations can tempt investors to make emotional investment decisions that can harm their long-term financial prospects. By conducting regular portfolio reviews, you can maintain a long-term perspective and stay disciplined in your investment decisions. Now, let’s dive into the 9 critical components of an investment portfolio review . 1. Asset Allocation Asset allocation is the process of dividing your investment portfolio among different asset classes, such as stocks, bonds, and cash. The purpose of asset allocation is to create a diversified portfolio that balances risk and return. By diversifying your investments across different asset classes, you can reduce the impact of market volatility on your portfolio's performance. Asset class diversification means investing in different types of investments within one category. For example, in the category of stocks, you can invest in big companies, medium-sized companies, and small companies. By investing in different types of stocks, you can reduce the risk of losing money if one type of stock does not perform well. Asset Allocation Review - For Illustrative Purposes Only. Not Advice. The asset allocation that you choose will depend on your financial goals, investment time horizon, and risk tolerance. Asset allocation is a crucial component of investment portfolio management, and studies have shown that it can account for up to 90% of portfolio returns over the long term. By diversifying your investments across different asset classes, you can achieve a well-balanced portfolio that is aligned with your investment objectives and risk tolerance. 2. Global Diversification Global diversification involves investing in companies and assets outside of your home country. By investing in global markets outside of the United States, you can reduce your exposure to domestic market risk and benefit from the growth potential of developed and emerging markets. A proper portfolio analysis should help you understand what your domestic and international exposure is across your entire portfolio. International Portfolio Diversification Review - For Illustrative Purposes Only. Not Advice or a Recommendation. But, some investors may be fearful of investing outside of the United States. Perhaps you feel the same way. Home bias is the tendency for investors to invest most of their money in companies and assets that are located in their own country. This can be a threat to investors because it limits their exposure to other opportunities in different countries that may offer higher returns or lower risk. Investing only in your own country can be risky because your investment returns may be closely tied to the performance of your country's economy. If your country's economy is not doing well, your investments may suffer. Diversifying your investments across different countries can help reduce this risk and potentially provide higher returns. In addition, investing in only one country can also limit your exposure to companies and assets in other countries that may offer unique growth opportunities or may be less affected by market volatility. For example, in the chart below we provide the returns of US. stock markets (S&P 500) vs non-U.S. developed markets (EAFE) and Emerging Markets (EM) over a period of time. Index return data only. Indexes are not available for investment and contain no fees or expenses. As you can see, market returns differ depending upon the year. It's important for investors to consider diversifying your investments across different countries and not only invest in their own country. While there is no guarantee, this can help reduce risk and potentially provide higher returns over the long-term. As part of your portfolio review, you should evaluate your exposure to global markets and consider whether your current allocation is consistent with your risk tolerance and investment objectives. 3. Stock Concentration Risk Stock concentration risk is when you have too much of your money invested in just one company's stock or a small group of companies' stocks. This can be risky because if that company or group of companies don't do well, you could lose a lot of money. For example, if you have a lot of your money invested in just one technology company and that company doesn't do well, the value of your investment could go down a lot and you could lose a lot of money. Here's what a stock concentration risk analysis may looks like: Concentration portfolio risk review - For Illustrative Purposes Only. Not Advice. There have been many well-known companies that have filed for bankruptcy in the past. Here are a few examples: Enron - In 2001, Enron, an energy company, filed for bankruptcy after it was discovered that the company had engaged in accounting fraud. Lehman Brothers - In 2008, Lehman Brothers, a global financial services firm, filed for bankruptcy as a result of the subprime mortgage crisis. Toys "R" Us - In 2018, Toys "R" Us, a popular toy retailer, filed for bankruptcy due to declining sales and increased competition from online retailers. Kodak - In 2012, Kodak, a well-known photography company, filed for bankruptcy due to a decline in demand for its film products and its failure to successfully transition to digital photography. Sears - In 2018, Sears, a department store chain, filed for bankruptcy after years of declining sales and increased competition from online retailers. These examples show that even large and well-known companies can face financial difficulties and may not be immune to bankruptcy. It's important for investors to carefully evaluate the financial health and stability of companies before investing in them. The truth is that bankruptcies happen all of the time as illustrated in the chart below: Source: SPGlobal It's important to have a diversified portfolio, which means investing in different types of companies and industries, to help reduce the risk of losing a lot of money if one company or sector does poorly. Sometimes, you may own holdings, such as mutual funds that have the exposure to the same stocks. As a result, your portfolio may have increased exposure to a single stock without your knowledge. As part of your portfolio review, you should evaluate your exposure to individual stocks and sectors and consider diversifying your holdings to reduce concentration risk. 4. Equity Factor Analysis Popularized by Nobel Prize winning economist, Eugene Fama and Professor Kenneth French, equity factor exposure refers to how much a stock or investment is affected by certain characteristics or factors, such as the size of the company, the value of the company, or how profitable the company is. The multi-factor model of investing by Fama and French suggests that the performance of stocks is not just affected by the overall market, but also by other factors such as company size, value, and profitability. These factors are important to consider when building an investment portfolio because they can affect the risk and return of investments. By diversifying across different factors, investors can potentially achieve higher returns while managing their risk exposure. For example, here is a sample equity factor analysis for an investment portfolio. The red triangle denotes the hypothetical investor's current portfolio (slightly tilted toward large and growth companies). The green circle denotes the hypothetical recommended portfolio that includes tilting the stock portfolio toward more small and value companies. Equity factor portfolio analysis - For Illustrative Purposes Only. Not Advice. Your investment portfolio review should help you understand how much or how little exposure you have toward these factors. Understanding your factor exposure can help you understand how to potentially improve expected returns going forward. But, why should you consider tilting your stock portfolio toward factors in the first place? Exposure to Value Companies Value companies are companies that are undervalued relative to their peers. Value stocks tend to outperform growth stocks over the long term, but they can be more volatile in the short term. As part of your portfolio review, you should evaluate your exposure to value stocks and consider whether your current allocation is consistent with your investment objectives. Exposure to Small Companies Small companies are companies with a market capitalization of less than $2 billion. Small-cap stocks tend to be more volatile than large-cap stocks but offer higher growth potential over the long term. As part of your portfolio review, you should evaluate your exposure to small-cap stocks and consider whether your current allocation is consistent with your investment objectives. Exposure to Companies with High Profitability Companies with high profitability tend to generate consistent earnings and have a lower risk of bankruptcy. As part of your portfolio review, you should evaluate your exposure to companies with high profitability and consider whether your current allocation is consistent with your investment objectives. As you can see, it's important to understand how much exposure you have in your investment portfolio to different factors. Be sure to include a factor analysis in your investment portfolio review. 5. Fixed Income Quality At Covenant, we view bonds as an important component of building investment portfolios. In our view, they should be used primarily to reduce risk in a portfolio and provide a source of liquidity for cash needs or income. But, different types of bonds have different levels of risk. Bonds are rated based on their credit quality, which refers to how likely it is that the borrower will be able to pay back the money they borrowed. This rating is assigned by credit rating agencies such as Moody's and Standard & Poor's. The rating is usually represented by a letter grade, such as "AAA," which is the highest rating, or "D," which is the lowest rating. Bonds with a higher rating are considered less risky because the borrower is more likely to be able to pay back the money they borrowed. Bonds with a lower rating are considered more risky because there is a higher chance that the borrower may not be able to pay back the money. When investors are looking to buy bonds, they may consider the credit rating to help them determine how risky the investment is. Fixed income credit quality analysis. - For illustrative purposes only. Not advice. Bonds with higher ratings may have lower returns, while bonds with lower ratings may have higher returns, but also higher risk. It's important to carefully consider the credit rating and other factors when making investment decisions. As part of your portfolio review, you should evaluate the quality of your fixed income holdings and consider whether your current allocation is consistent with your risk tolerance and investment objectives. 6. Fixed Income Maturity Fixed income maturity refers to the length of time until the bond's principal is repaid. Bonds with longer maturities tend to offer higher yields but are more sensitive to changes in interest rates. Bonds with shorter term maturities are less sensitive to movements in interest rates. Here is an example of a fixed income maturity analysis: Fixed Income Maturity Analysis Review - For illustrative purposes only. Not advice. A large increase in interest rates is the primary reason that bond prices declined substantially in 2022! As part of your portfolio review, you should evaluate the maturity of your fixed income holdings and consider how movements of interest rates may impact your holdings. 7. Investment Costs Investment costs are the expenses that investors pay for buying, holding, and selling investments. These costs can include fees, commissions, and other expenses related to managing and maintaining an investment portfolio. Some examples of investment costs include brokerage commissions for buying and selling stocks, mutual fund fees, account maintenance fees, and advisor fees. These costs can vary depending on the type of investment and the investment firm you are working with. Investment costs are an important consideration for investors because they can impact the overall return on investment. High investment costs can reduce the return on investment, while lower investment costs can increase the return on investment. Mutual fund and ETF expense ratios When you invest in a mutual fund or exchange traded fund (ETF), you pay a fee for the professionals who manage the fund and make investment decisions. This fee is called the expense ratio, and it is expressed as a percentage of the total amount of money invested in the fund. Expense ratios are important because they impact the overall return on investment. A high expense ratio means that a larger portion of your investment is going towards paying fees, which can lower your overall returns. Conversely, a low expense ratio means that more of your investment is going towards buying assets, which can increase your overall returns. It's important to carefully consider the expense ratio when choosing a mutual fund or ETF to invest in. Cost of Turnover The cost of turnover in a stock portfolio is the expense of buying and selling stocks within the portfolio. When stocks are bought and sold frequently, the cost of turnover can add up quickly and impact the overall return on investment. One factor that can impact the cost of turnover is the bid-ask spread. The bid-ask spread is the difference between the price at which a buyer is willing to buy a stock (the bid price) and the price at which a seller is willing to sell the stock (the ask price). The bid-ask spread represents the cost of executing a trade and can impact trading costs. For example, if the bid price for a stock is $10 and the ask price is $11, the bid-ask spread is $1. If an investor wants to buy the stock, they will have to pay the ask price of $11, which is higher than the bid price. This difference in price represents the cost of executing the trade, and can impact the overall return on investment. According to academic studies, the added cost of turnover in an investment portfolio can vary depending on several factors, such as the frequency of trading, the type of assets traded, and the size of the portfolio. Some studies have suggested that the cost of turnover can range from as low as 0.1% to as high as 2% or more per year, depending on these factors. In general, higher turnover rates tend to result in higher trading costs and lower returns over the long term. Here are a few examples of academic studies that have examined the impact of turnover on investment costs: "Turnover and Mutual Fund Performance" by Mark Carhart (1997) - This study found that mutual funds with higher turnover rates tended to have higher expenses and lower returns. "Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors" by Brad M. Barber and Terrance Odean (2000) - This study found that individual investors who traded frequently tended to have lower returns due to higher trading costs and other factors. "Portfolio Turnover and Equity Trading Costs" by Robert M. Dammon, Chester S. Spatt, and Harold H. Zhang (2004) - This study found that higher portfolio turnover rates tended to result in higher trading costs, which can impact investment returns over time. "The Costs of Mutual Fund Turnover" by Ari Levine and Yao Lu (2010) - This study found that higher mutual fund turnover rates tended to result in higher expenses and lower returns for investors. When reviewing your investments, your portfolio analysis review should include an evaluation of all current expenses and suggestions for potential investments that may help reduce total cost of ownership. 8. Tax Efficiency Tax efficiency is an important consideration for high-net-worth investors, as taxes can have a significant impact on investment returns. As part of your portfolio review, you should assess the impact of turnover on your taxes and evaluate your portfolio's tax strategies, such as tax-loss harvesting, tax-efficient fund selection, and the specific location of your investments across different types of accounts. Studies have shown that tax-efficient investing can significantly improve after-tax returns for investors. The exact amount of improvement can vary depending on several factors, such as the investor's tax bracket, the type of investments held, and the overall investment strategy. One study conducted by Vanguard found that tax-efficient investing can improve after-tax returns by as much as 2% per year, compared to a less tax-efficient approach. 9. Risk Tolerance Assessment Every investor wants great returns. But stock markets don’t always go up. If you can’t tolerate the tough periods, then you may bail on your investment plan at exactly the worst time. As a result, you won’t be around when markets potentially rebound. A personal risk tolerance assessment is a tool that helps investors determine their individual comfort level with investment risk. It typically involves a series of questions or a questionnaire designed to gauge an investor's willingness to take on risk in pursuit of potential returns. The assessment considers factors such as the investor's age, financial goals, investment experience, and other personal factors that may impact their willingness to take on risk. Based on the answers provided, the assessment assigns a risk tolerance level, which can help guide investment decisions. Get a Free Investment Portfolio Review: Tying your $1 million+ portfolio to your life plan can be overwhelming. Don't make costly mistakes with your hard earned wealth. Contact Covenant Wealth Advisors today for a free portfolio checkup and review. Knowing your personal risk tolerance is important when building an investment portfolio because it can help you choose investments that align with your goals and comfort level. By selecting investments that match your risk tolerance, you can potentially achieve your financial objectives while minimizing the likelihood of significant losses due to market volatility. It's important to note that risk tolerance assessments are just one tool to consider when making investment decisions. Other factors, such as investment goals, time horizon, and financial situation should also be taken into account when determining the appropriate investment strategy. As part of your portfolio review, you should evaluate whether your actual portfolio risk is consistent with your risk tolerance. If your actual risk is higher than your risk tolerance, you may need to adjust your asset allocation or diversify your holdings to reduce risk. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Conclusion Conducting an investment portfolio review is an essential component of managing your investment portfolio. By evaluating your asset allocation, diversification, risk exposure, management expenses, ownership costs, and tax strategies, you can improve the likelihood that your portfolio is well-positioned to achieve your long-term financial goals while minimizing risk. As a high-net-worth investor, optimizing your portfolio for tax efficiency is critical to achieving your financial objectives. By considering the 11 components discussed in this blog, you can move several steps closer to ensuring that your investment portfolio is optimized for tax efficiency and aligned with your financial goals and risk tolerance. So, where do you start? We can help simplify the entire investment portfolio review process for you. At Covenant Wealth Advisors, we specialize in analyzing investment portfolios and helping high-net-worth individuals manage their wealth for a more secure financial future. If you have over $1 million in savings and investments (excluding real estate), click here to request a free retirement assessment from one of our CERTIFIED FINANCIAL PLANNER ™ professionals. You’ll be glad you did! About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors  and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free retirement strategy session today! Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss.

What is a financial advisor’s most valuable asset? It’s not investments, taxes, saving strategies, and financial plans. It’s not their patented system or other methods. All of those things can be taught, learned, and achieved through certifications, degrees, and other resources. Download Now: The Most Important 25 Questions to Ask a Financial Advisor Before You Hire [Free Guide] A financial advisor’s most valuable asset is something much simpler than a tax plan yet much more difficult to find and nurture: trust . Trust is the foundation of a strong financial practice . When you work with an advisor you trust, you know that your needs always come first. In addition, you have confidence that they care about you, your financial goals, dreams, and aspirations. But how do you find an advisor you can trust if you don't work with Covenant Wealth Advisors already? You can start by downloading our comprehensive list of questions to ask a financial advisor that go beyond the scope of this article. Otherwise, it's not easy. Prior to leading Covenant Wealth Advisors, I spent over eleven years consulting financial advisors on investment strategy and practice management. I've met thousands of financial advisors across the country. Some were great. But many were not. Many of these advisors were trained to be great sales people but lacked the skillset necessary to help their clients across many different financial situations. On the flip side, I've also met some incredible advisors who I would trust with my own parents, friends, and family. Today, I'd like to share a bit of wisdom to help you find the right financial advisor for you and your family. My goal is to help guide you toward working with someone who will treat you with respect, integrity, and competence. The first step in establishing a trusted relationship is to ask the right questions the first time you meet an advisor. In short, every financial advisor you interview should be asked these questions. And be sure to read to the end to learn about the best question to ask a financial advisor before you hire. Table of Contents: Are you a fiduciary? What are your personal or firm values? What is your fee structure? What is your investment philosophy? How will we work together? What are your credentials? What is your net promoter score? Conclusion Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Here are 7 powerful questions to ask a financial advisor in the first meeting. If you want a more comprehensive list of questions to ask, click here . 1. Are you a fiduciary? As you search through advisor profiles, you have probably encountered this emphatic financial buzzword. "Fiduciary" is often plastered on advisor websites and marketing materials, but what does it mean and how do you know if an advisor adheres to that standard? The fiduciary standard was created by the SEC and stipulates that advisors who uphold it are required by law to put the needs of their clients above their own . Built on a foundation of duty, loyalty, and care, this standard was designed to enhance the client experience and ensure advisors upheld the needs of the client first and foremost. Another goal of the fiduciary standard is to limit or clearly express any conflicts of interest . A financial advisor who is a fiduciary needs to clearly state any conflicts of interest should they arise. This is important because conflicts of interest may limit an advisor’s ability to act in the client's best interest. Sounds simple, right? Yet once you dig into it, the fiduciary standard is anything but straightforward. This is because there isn’t a clear method for upholding and adhering to it. It is important to know that not all advisors are fiduciaries and many may serve as a fiduciary for one element of the relationship, but not in others. For example, many advisors market themselves as fiduciaries but also serve in a dual capacity under a lesser standard of care called the suitability standard . The suitability standard was created for brokers and dealers and stipulates that their recommendations must be simply suitable for the client. In other words, advisors working under the suitability standard are only obligated to recommend products that are a suitable solution for you, but may not be in your BEST interest. Imagine if your son or daughter said they were getting married to someone who was simply “suitable” for them, but not necessarily best for them! So how do you know if your advisor is a broker operating under the suitability standard or a pure fiduciary? To find out, visit the Broker-Check website . For example, when you search for my background, you’ll notice that I am a “Previously Registered Broker”. However, now, I operate as an “Investment Advisor” which means that I am required by law to always put my client's interests first. Alternatively, here is a search for a random Wells Fargo financial advisor from the Broker Check website: In this example, the advisor is a Broker and does not operate under the fiduciary standard of care. This person also has a compliance disclosure! Imagine going to a doctor who recommends a specific drug to make you feel better. Later, you find out that the doctor was paid by the pharmaceutical company to recommend that prescription. Even worse, another less expensive drug was available but the doctor didn't recommend it because he wasn't paid a commission for selling it. How would you feel? This would be a lapse of fiduciary duty. But brokers or non-fiduciary advisers do that all the time when they sell a product that is suitable for you, but not necessarily in your best interest. What's the bottom line? The fiduciary duty should be an integral part of your conversations with potential advisors. Here are some follow-up questions you can ask an advisor before you hire to ensure that person is indeed a pure fiduciary: Will you sign the fiduciary oath? How do you uphold the fiduciary standard in your business? Do you apply your fiduciary commitment to every part of your business? (investments, planning, etc.) Are you a registered representative? If so, then they are a broker too. 2. What are your personal or firm values? When was the last time that you had a meaningful relationship with someone without a shared sense of values? Working with a financial advisor should be no different. After all, you'll be sharing some of your most personal feelings, stories, and ambitions over time. You'll likely feel a lot more comfortable doing that if your financial advisor shares similar values to you and your family. While asking this question may feel a bit uncomfortable at first, the most genuine financial advisors I've met over the last two decades should be excited to share their answer. For example, here's a quick video on one of our core firm values, gratitude. At Covenant Wealth Advisors, our goal is to hire team members who share similar values . This creates a sense of community, trust, and a meaningful desire to work with each other day after day. More importantly, strong values may help guide your financial advisor when the answer to tough questions isn't always black and white. For example, we are driven by the following values: Integrity Gratitude Make it Happen Attitude Listen Pursue Excellence Family and Relationships Values aren't the only factor in finding the right financial advisor, but I believe a shared sense of values is a must when it comes to long-term relationships. 3. What is your fee structure? Another reason financial planning can get murky is through advisor fees and compensation. Many advisors don't disclose their fees through their website. That's a major problem and reeks of a lack of transparency. That's why our fees ( See our financial planning and investment fees here ) are prominently displayed on our website. After all, how can you trust an advisor if they don't even tell you how much they are paid? The truth is that there is a whole slew of ways advisors get paid and it is important that your advisor clearly articulates and illustrates their fees so you know exactly how it works. After all, good investment advice is never free. Your financial advisor should be compensated. But how they are compensated can create conflicts of interest. Let’s go over a few of the basics on how a financial advisor can be compensated. Fixed fee Also known as a flat fee, this structure is a pre-arranged price for a given solution. For example, a financial advisor may charged $5,500 for a financial plan. Hourly fee This fee is relatively straightforward and stipulates that the advisor is paid at a certain hourly rate for the work they provide clients. For example, a financial advisor may charge $250 to $500 depending upon who you hire. Assets under management (AUM) A common investment fee, AUM is an annual fee levied as a percentage of the investments managed for a given client. Commissions Advisors can receive commissions on common financial products like annuities, mutual funds, insurance, and more. Be sure you know if your advisor is receiving a commission on the products they recommend. We don't charge commissions because we believe they create too much of a conflict of interest. But advisors often use multiple fee structures based on the service provided. For example, at Covenant Wealth Advisors, we have a range of fees depending on the type of work we do for our clients. We charge a fixed fee, hourly fees, or fees based on assets under management if we manage your investments. But our team takes pride in the fact that we are a fee-only firm . This means that we never receive commissions and are only compensated directly from our clients. This reduces conflicts of interest and better aligns our interest with yours. In a recent study by the CFA, 84% of responders said that full disclosure on fees and costs is a determining factor in developing a trusting relationship with advisors and yet only 48% felt that their advisor was holding up their end of the bargain. It is important that your financial advisor clearly be able to discuss their fees so you don’t receive a surprise bill at the end of the month/quarter/year. It also helps you understand the type of service you receive for the fee you pay. 4. What is your investment philosophy? Investments play an important role in your overall financial health and you want to work with an advisor who uses methods you are comfortable with. The thing to watch out for here is that the advisor has a clear, evidence based strategy that can be clearly communicated. To get to a full understanding of your advisor's approach, be sure to ask these important questions about your portfolio and investments . You advisor be able to clearly articulate their investment philosophy, strategy, and principles using evidence based methodology. If this isn’t the case, they might be operating the investment side based on a hunch rather than academic research. For example, our investment philosophy is as follows: Don’t try to time the stock market Invest for the long-term Diversification is key Keep costs low Keep taxes low Maintain discipline Don't invest based upon media headlines We are passionate about educating clients about our investment philosophy because we believe that when you understand how and why you are invested, your probability of success increases through improved discipline. 5. How will we work together? Before you commit to an advisor after the first meeting, you should know their process for interacting and engaging with clients. This is a chance for you to learn more about their process, systems, communication style, and overall business operations. A few additional questions you can ask are: What will be covered during our personal financial planning meetings? Will you help me with budgeting? With retirement planning? Tax planning? How does the financial planning process work? Can you put your financial services in writing? How often will we meet? How often will you reach out to me? These questions will help you understand how your financial advisor will work with you and if that system is good for you. Are they able to meet virtually? Are they flexible in terms of changing needs, goals, and priorities? How do they set up your financial plan? Is your plan comprehensive? There are so many valuable insights you can glean by knowing the right questions to ask a financial advisor in the first meeting. 6. What are your credentials? Many industries are filled with designations and professional certifications and the financial services industry is no different. Each designation can differ in both the difficulty of achieving the designation in the first place and the level of continuing education requirements that must be maintained over time. This is important because financial planning strategies can change over time due to changes in law or advancements in research. It's important for your financial professional to focus on continuing education because that may lead to increased knowledge. Common credentials and memberships may include: Certified Financial Planner (CFP) = 30 hours of continuing education every 2 years National Association of Personal Financial Advisors (NAPFA) = 60 hours every 2 years Certified Public Accountant (CPA) = 120 hours every 3 years. 7. What is your net promotor score? What if there was one number that helped assess the average client experience of a financial advisor? Sound too good to be true? Well, I have good news. There is such a score and it's called the Net Promotor Score® or NPS®. The Net Promotor Score® is used to assess the experience of customers across many different industries and many great companies including Apple, Ritz Carlton, and American Express. For example, take a look at the chart below which illustrates the average net promotor score by industry for 2021. The average net promotor score for the brokerage/investments industry is a 49. What if your financial advisor had a Net Promotor Score® of 30? Wouldn't you want to know? Alternatively, what if their Net Promotor Score® exceeded 80 (January 2023 client survey) like our firm, Covenant Wealth Advisors? You can identify major differences in advisors based on this score alone. That's why asking a financial advisor about Net Promotor Score® is so important. The answer to this question will provide you great information on how clients perceive the services of their financial advisor. While there are a lot of great questions to ask a financial advisor, "What is your Net Promotor Score?" may be one of the best questions you can ask a financial advisor before you hire. If the financial advisor doesn't know their score, it's possible they are more concerned about selling products than providing a great client experience. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Conclusion Knowing the right questions to ask a financial advisor in the first meeting is paramount to a successful relationship. There are a lot of things you need to know to ensure that your advisor is working in your best interest and has a genuine desire to help you succeed. Just as important, a good advisor should have the professional competence to provide personalized financial advice that helps you toward a secure financial future and financial life. We structured our business to be as transparent with our fees and operations as possible in order to build trust right from the initial meeting with our clients. At Covenant Wealth Advisors, we take the time to get to know you and understand your priorities and values. We’ll help you create a personalized plan that answers the most important questions to you. Our team of independent Certified Financial Planner ™ (CFP ® s) professionals operate on a fee-only basis; meaning we never receive commissions for product sales. Additionally, we serve as a fiduciary which means we are required by law to always put your best interests and objectives at the forefront. We can help you find the right retirement strategies to conserve your wealth and the right investments to achieve your goals. Do you have over $1 million in savings and investments and want to get on track for your retirement planning? Connect with one of our fiduciary financial advisors to request a free retirement assessment and find out how we can help you retire with peace of mind. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors  and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free retirement strategy session today! Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does with possible loss of principal and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Forbes Best-In-State Wealth Advisor full ranking disclosure . The #1 Fee-Only NAPFA ranking was calculated by reviewing every financial advisor on Forbes list and crossed checked via NAPFA's advisor search directory as of 04/1//2022. Read more about Forbes ranking and methodology here . Registration of an investment advisor does not imply a certain level of skill or training.

Are you asking the right retirement questions to your employer? Many professionals approaching retirement feel unprepared regarding essential details about their retirement benefits . They often wish they had learned this information years earlier. At Covenant Wealth Advisors, we’ve encountered numerous situations where asking the right questions early on could have vastly improved our clients’ retirement outcomes. Here's what you need to know. Key Takeaways Understanding your employer's retirement benefits can significantly boost your retirement savings. Many employees miss valuable benefits by not grasping their company's retirement match formula. Knowing your vesting schedule can prevent leaving money behind when changing jobs. Special retirement benefits, like mega backdoor Roth contributions or deferred compensation plans, are often overlooked. Early retirement options and retiree healthcare benefits can greatly impact your retirement planning . Table of Contents Understanding Your 401(k) Plan Structure Exploring Additional Retirement Benefits Healthcare and Insurance Considerations Stock Options and Equity Compensation Special Retirement Programs Pension Plan Questions FAQ Section Conclusion Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Understanding Your 401(k) Plan Structure The foundation of most corporate retirement plans is the 401(k), but the details can differ significantly between employers. Matt Brennan, CFP® at Covenant Wealth Advisors in Richmond, VA, emphasizes: "The most costly mistake I see is employees not fully understanding their company's matching formula. I've had clients leave tens of thousands of dollars on the table simply because they didn't structure their contributions optimally." Essential 401(k) Questions To maximize your 401(k), ask these essential questions: What is the exact matching formula? Is there a true-up provision for the match? What is the vesting schedule for employer contributions? Are after-tax contributions allowed? What are the investment options and their associated fees? Here are IRS Contribution Limits to help you understand how much money you can defer in your employer 401(k). 💡 Pro Tip : Don’t assume your employer's matching formula is simple. Some companies have complex tiered matching systems that require specific contribution patterns to maximize the match. Exploring Additional Retirement Income Benefits Employers often provide retirement benefits beyond the standard 401(k) plan. Understanding these additional options can enhance your retirement strategy significantly. Engaging a financial planner can help navigate these benefits and ensure you're optimizing your retirement strategy. Deferred Compensation Plans Some employers offer non-qualified deferred compensation plans (NQDC) that allow you to postpone receiving a part of your income until retirement. While deferred compensation plans can be powerful tax-planning tools, they come with risks that need careful evaluation. Understanding the distribution options and company credit risk is crucial. Healthcare and Health Insurance Considerations Let’s face it— healthcare costs can eat into your retirement savings if you’re not prepared. Your retirement date marks a shift from employer-provided health and life insurance to personal responsibility for healthcare coverage. Understanding your employer’s healthcare benefits when you retire can be invaluable! Critical Healthcare Questions Does the company offer retiree health insurance? What happens to my HSA when I retire? Is there a transition plan to help bridge the gap until Medicare eligibility? Are there wellness program benefits that extend into retirement? 💡 Pro Tip : If your employer offers an HSA-eligible health plan , consider maximizing contributions even if you are healthy. HSAs offer triple tax advantages and can be an excellent way to save for future healthcare costs. Stock Options and Equity Compensation Understanding your equity compensation can be complex—as intricate as a Rubik's cube! It's essential to comprehend the income tax implications of exercising stock options to avoid unexpected tax liabilities. “One of the biggest mistakes we observe is clients exercising stock options without considering the tax implications,” notes Scott Hurt, CFP®, CPA at Covenant Wealth Advisors . “A strategic exercise plan can potentially save hundreds of thousands in taxes.” Key Questions About Equity Compensation Consider these critical questions regarding your equity compensation: What types of equity compensation do I receive (RSUs, ISOs, NSOs)? What are the vesting schedules and expiration dates? How does retirement impact unvested equity? Are there special retirement provisions for equity compensation? Special Retirement Programs This is where things get interesting! Many companies offer special retirement programs that can be game-changers for your planning. Consider this the secret sauce in your retirement recipe! Programs to Ask About Phased retirement options Retirement transition consulting Financial planning services Volunteer or consulting opportunities Alumni networks and benefits 💡 Pro Tip : Some companies offer "retirement transition" programs that let you gradually reduce your hours while maintaining full benefits. This can be a fantastic way to test-drive retirement while still earning an income. Pension Plan Questions If you have a pension plan, dig deep into the details. Essential Pension Questions According to the Employee Benefit Research Institute, understanding these details can significantly impact your retirement planning. What are my payment options (lump sum vs. monthly payments)? How is my benefit calculated? Are there early retirement reduction factors? What survivor benefits are available? How are cost-of-living adjustments managed? Understanding Your Retirement Benefits Navigating the landscape of retirement benefits can be overwhelming, but understanding your entitlements is essential for a secure post-work life. What Retirement Benefits Am I Eligible For? Understanding your retirement benefits is crucial for effective planning. Note these essential aspects when evaluating your retirement benefits: Retirement Plan Options : Your employer may provide various retirement plans such as 401(k), 403(b), or pensions. It's vital to understand each plan's details, including contribution limits and investment options. This knowledge can help you maximize savings. Retirement Savings : Your retirement savings are a critical component. Consider additional accounts like an IRA or Roth IRA for better financial security and flexibility. Retirement Income : Your income during retirement may depend on savings, Social Security, and other income sources. A financial advisor can help create a sustainable income strategy. Retirement Benefits Eligibility : liaise with your HR to confirm your eligibility for health coverage and other perks, allowing effective planning. Early Retirement : If retiring early, know the implications on your benefits, such as eligibility for packages and phased retirement options. Full Retirement Age : Understand how your full retirement age affects Social Security benefits. Health Insurance : Knowing your health coverage options is vital, ensuring you have adequate protection against high medical costs. Financial Advisor : Financial advisors can help you navigate retirement benefits and create a comprehensive plan. They assist with investment strategies and benefit optimization. By understanding your retirement benefits and options, you can make informed decisions for a secure and comfortable post-work life. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide FAQ Section Q: How do I find out about benefits I might have missed? A: Schedule a meeting with your HR department, focusing specifically on retirement benefits. Request a complete benefits guide and inquire about special programs for long-term employees. It’s a good idea to bring a financial advisor to ensure you're asking all the right questions. Q: Can I continue working while collecting retirement benefits? A: This depends on the employer and type of benefits. Some companies allow collecting certain retirement benefits while working part-time, while others require full separation. Understanding these rules is critical. Q: What happens to my benefits if the company is acquired? A: Benefits may change during acquisitions. Stay informed about transition periods and any grandfathered benefits. Keep your benefit documentation handy and don’t hesitate to ask questions during transition periods. Q: Should I take a lump sum or monthly pension payments? A: This decision varies based on income sources, life expectancy, and your overall financial plan. It's advisable to work with a financial advisor to analyze your specific situation and make an informed choice. Conclusion Taking charge of your retirement future begins with asking the right questions. Think of it as putting together your retirement puzzle—every benefit is a vital piece that must fit into your overall picture. Understanding and maximizing your employer-provided retirement benefits leads to a more secure and comfortable retirement. These questions are just the starting point. Your unique situation might require additional considerations, which is where professional guidance can offer immense value. At Covenant Wealth Advisors, we specialize in assisting professionals like you in navigating these complex decisions to optimize your retirement strategy. Would you like our team to handle your retirement planning? Contact us today for a free retirement roadmap experience . About the author: Adam Smith, CFP® Senior Financial Advisor Adam is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 17 years of experience in the financial services industry, focusing on retirement financial planning, tax planning, and investment management. Schedule your free strategy session today Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration as an investment advisor does not imply a specific level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and potential loss of principal capital. The views and opinions expressed here are as of the date of posting and are subject to change based on market conditions. This content includes some statements that may be considered forward-looking. Any such statements are not guarantees of future performance, and actual results could differ materially. Nothing herein should be interpreted as an offer to sell or solicit an offer to purchase any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. For personalized advice, consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with assistance from AI. No advice can be provided by Covenant Wealth Advisors without a client service agreement. Hypothetical examples are fictitious and used solely to illustrate a specific perspective. Diversification does not guarantee against risk of loss. This guide attempts to cover comprehensive retirement planning aspects, yet no article can include all details. Consulting an advisor is recommended for thorough advice.

Do you want to reduce your taxes? Of course you do. If you're in a high tax bracket, you'll be happy to know that there are numerous tax reduction strategies for high-income earners . However, you need to be diligent in pursuing them or consult with a financial advisor who can guide you effectively. Tax laws change frequently, and their increasing complexity can make it challenging for high-income earners and high-net-worth individuals to stay current with the latest tax strategies. Download Now: Important Numbers Every Tax Savvy Investor Should Know [Free Report] Even with a free cheat sheet to guide you, keeping up with the latest tax rules can be overwhelming. Since 2017, there have been several significant overhauls of tax legislation: The Tax Cuts and Jobs Act of 2017 was the largest overhaul of the tax code in a generation. This legislation made adjustments to income tax rates for many individual tax brackets. In December 2019, additional tax legislation was passed, including the SECURE Act and Taxpayer Certainty and Disaster Tax Relief Act of 2019. In December 2022, Congress passed the SECURE Act 2.0, which introduced numerous changes affecting retirement planning and tax strategies. In July 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, making permanent most of the individual tax provisions from the Tax Cuts and Jobs Act of 2017 that were set to expire after 2025. This includes the current seven tax brackets (10% to 37%) and the higher standard deduction. It's important to note that some tax changes from the 2017 Act are temporary and are set to expire after 2025 unless extended by future legislation. One significant change was the increase in the standard deduction. For 2026 , the standard deduction is $16,100 for individuals and $32,200  for joint filers. This higher standard deduction can make it more challenging for some high-income earners to find enough deductions to itemize. These pieces of legislation have significantly altered the tax landscape. So, how can you leverage these new tax laws, and what tax reduction strategies remain available for high-income earners? One effective approach is to consult with a tax-savvy financial advisor. Consider a free retirement assessment to help you navigate these complex tax strategies. Let's delve deeper into the details and explore some specific strategies that can help high-income earners like you optimize your tax situation in 2026 and beyond. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Tax Basics and New Tax Legislation Before we get into the tax reduction strategies, it’s important that you understand the basics of taxes, starting with tax brackets. Your federal tax bracket is the percentage of tax that you owe the IRS on each tier of your taxable income; not to be confused with adjusted gross income. Generally speaking, adjusted gross income (AGI) is an individual's total gross income minus above the line deductions allowed by the IRS. Conversely, taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions, also known as below the line deductions. Once you know your taxable income, you can use the chart below to determine your federal tax bracket. High-income earners should always know how the next dollar of earned income will be taxed. In 2025, federal tax rates fell into the following categories depending upon your taxable income. For 2026, federal tax rate income thresholds increase, thus automatically decreasing the taxation of income for high-income earners. Tax rates on capital gains and dividends Here are the tax rates on capital gains and dividends for 2025. The tax rates on capital gains and dividends stayed the same for 2026, but the income thresholds went up slightly just as they did in 2025. If you are curious, here's how to reduce capital gains tax on stocks and how the capital gains tax is calculated. The SECURE Act The SECURE Act , passed in December 2019, and its follow-up legislation, SECURE 2.0, passed in December 2022, include several provisions that affect your retirement planning and tax strategies . These acts introduced key changes that impact tax reduction strategies for high-income earners. Important numbers and changes for 2024 include: The age for Required Minimum Distributions (RMDs) increased to 73 in 2023 and will increase to 75 in 2033. This change gives your retirement savings more time to grow tax-deferred. There is no longer an age limit for contributions to a Traditional IRA, allowing older workers to continue saving in these accounts. Annual contribution limits for 2024: 401(k)/403(b) plans: $23,000 SIMPLE IRAs: $16,000 Traditional and Roth IRAs: $7,000 Catch-up contributions: $7,500 for 401(k)/403(b) plans, $3,500 for SIMPLE IRAs, and $1,000 for Traditional and Roth IRAs. The income ceiling for Roth IRAs has increased. For 2024, contributions phase out at: $146,000 - $161,000 modified adjusted gross income (MAGI) for singles $230,000 - $240,000 for married couples filing jointly The phaseout zone for deducting traditional IRA contributions for an uncovered spouse has also increased to $230,000 - $240,000. The Social Security wage base for 2024 is $168,600. This is the maximum amount of income subject to Social Security tax. The limits on deducting long-term care premiums for 2024 are: $5,880 per person for those ages 71 or over $4,770 for those ages 61 to 70 This means a married couple aged 71 or over can deduct up to $11,760 in long-term care insurance premiums in 2024. Self-employed individuals can still deduct 100% of their premiums on Schedule 1 of Form 1040. These changes provide new opportunities for tax planning and retirement saving strategies. It's important to review your financial plan annually to ensure you're taking full advantage of these provisions. Lastly, a tax deduction is a deduction that reduces a tax payer’s tax liability by reducing his adjusted gross income and potentially, taxable income. The more deductions you can find, the higher your potential for lowering your tax bill. Tax deductions can be broken down into two important categories: above the line deductions and below the line deductions. The “line” is a reference to your adjusted gross income (AGI). Now that you have a basic understanding of tax brackets, the new Secure Act and Secure 2.0, and tax deductions, let’s talk about above the line and below the line deductions. Above the Line Deductions for 2022 Above-the-line deductions  reduce a taxpayer's adjusted gross income (AGI) and are allowed regardless of whether you itemize or take the standard deduction. These deductions are important because reducing your AGI may help you qualify for additional deductions or credits on your return. High-income earners may consider the following above-the-line deductions: Health Savings Account (HSA) contributions:   HSAs offer triple tax advantages : contributions are tax-deductible, the money grows tax-free, and withdrawals are tax-free for qualified medical expenses at any age. For non-medical expenses, withdrawals become penalty-free (but still taxable) at age 65. The contribution limits for 2024 are: $4,150 for individuals $8,300 for families An extra $1,000 catch-up contribution if you're 55 or older Deductible Traditional IRA contributions:  Contributions to Traditional IRAs may be deductible, with different income thresholds based on access to an employer-sponsored retirement plan. For 2024: If neither you nor your spouse has access to an employer plan, there's no income limit for taking the deduction. For a married couple with one spouse having access to an employer plan, the MAGI limit to deduct contributions is $230,000 - $240,000. If both spouses have access to an employer plan, the MAGI limit is $123,000 - $143,000. For a single filer with access to an employer plan, the MAGI limit is $77,000 - $87,000. Qualified retirement plan contributions:  Many employers offer qualified retirement savings plans such as 401(k), 403(b), and 457 plans. These remain one of the easiest ways for high-income earners to reduce taxes. Contributions are made pre-tax, reducing your taxable income directly. The income stated on IRS Form 1040 is net of any pre-tax retirement plan contributions. For 2024, the contribution limit for these plans is $23,000, with an additional $7,500 catch-up contribution allowed for those 50 and older. Qualified Charitable Distributions (QCDs):  A QCD is a distribution from an IRA owned by an individual age 70½ or over that is paid directly from the IRA to a qualified charity. The IRS allows you to donate up to $100,000 annually to qualified charities directly from your IRA, tax-free. This amount is indexed for inflation starting in 2024. QCDs can satisfy your Required Minimum Distribution (RMD) and potentially save you thousands in taxes if you are charitably inclined. Download our free QCD checklist to see if you can take advantage of qualified charitable distributions. Below the Line Deductions Below-the-line deductions , which include the standard deduction and itemized deductions, are determined after calculating your Adjusted Gross Income (AGI). Not all below-the-line deductions will necessarily lower your taxable income. According to recent estimates, approximately 90% of taxpayers opt for the standard deduction rather than itemizing deductions. For the 2024 tax year, the standard deduction amounts are: $14,600 for individuals $29,200 for married couples filing jointly $21,900 for heads of household These amounts are higher for blind individuals and those age 65 and over. While itemizing deductions has become more challenging for high-income earners in recent years, careful planning can still yield significant tax reductions. Here are some tax reduction strategies to consider: 1. Charitable Contributions: High-income earners can maximize their charitable contributions and reduce their income tax through several strategies: Donating appreciated stocks or other securities Contributing to a donor-advised fund Bunching multiple years' worth of charitable donations into a single year to exceed the standard deduction threshold 2. Mortgage Interest Expenses: If you're currently renting or have significant consumer credit card debt, purchasing a home or doing a cash-out refinance might allow you to deduct mortgage interest. For mortgages taken out after December 15, 2017, interest on up to $750,000 in principal may be tax-deductible. This limit applies to the combined amount of loans used to buy, build, or substantially improve the taxpayer's main home and second home. 3. Medical Expenses: Keep detailed records of your medical expenses. While you may be in good health, larger families or unexpected medical needs could allow you to deduct a portion of your medical expenses. For the 2024 tax year, medical expenses that exceed 7.5% of your AGI may be deducted as an itemized expense. 4. State and Local Taxes (SALT): The deduction for state and local taxes (including property taxes) remains capped at $10,000 for both single filers and married couples filing jointly. This cap is set to expire after 2025 unless extended by new legislation. 5. Miscellaneous Itemized Deductions: Note that many miscellaneous itemized deductions that were previously allowed (such as unreimbursed employee expenses and tax preparation fees) are no longer deductible following the Tax Cuts and Jobs Act of 2017. This provision is also set to expire after 2025 unless extended. Income Deferral or Acceleration Strategies Deferring or accelerating taxable compensation isn't the right approach for every situation, but it may reduce your exposure to income and capital gains taxes, as well as the 3.8% Net Investment Income Tax (NIIT) on certain investment income. Income deferral isn't just about shifting income from one year to the next. Tax-savvy individuals know that creating a long-term income deferral strategy can help compound savings and investments more rapidly by postponing the tax burden. It's crucial to note that the current tax rates established by the Tax Cuts and Jobs Act of 2017 are set to expire after 2025, unless extended by new legislation. This means that income deferred from 2024 might be taxed at a higher rate in future years if the tax laws revert to pre-2018 rates or if new tax legislation is enacted. Key income strategies to consider: Consider non-qualified deferred compensation contributions. If your employer offers a deferred compensation plan you can reduce your taxable income this year and build your post-retirement savings. Ask your employer to defer income until 2023. Are you having a big year for commission income? If so, your taxable income may be higher this year than next year.. If you plan on receiving commissions or other types of earned income late in 2024, consider asking your employer to defer paying your income until 2025. If your taxable income is going to be lower next year, deferring your income until next year could reduce your tax burden by transferring the income to a lower tax bracket. Delay or accelerate IRA withdrawals upon retirement. Depending upon your tax bracket, you may benefit from accelerating or delaying IRA distributions until a later date. For example, converting traditional IRA savings to a Roth IRA may be advantages if you plan to be in a higher tax bracket in the future. Conversely, you may consider delaying IRA distributions if you need to reduce your taxable income this year. Either strategy may help smooth out your tax brackets over time thereby reducing the income tax you pay in retirement. Income Tax Deferral Tax-deferred investment vehicles aren’t the same as tax-exempt (such as a Roth IRA or HSA accounts); at some point, there will be tax consequences associated with the distribution of the assets. However, tax-deferred accounts can be an effective tax strategy for high-income earners to reduce current year tax liabilities. Additionally, tax-deferred accounts benefit by compounding returns faster by sheltering income from current taxation. Here are three tax-deferred investment vehicles to consider: Qualified retirement plans:  Contributing to a 401(k), 403(b), or 457 plan is one of the easiest ways to defer investment income. For 2024, the SECURE Act 2.0 allows employees to contribute up to $23,000 to these plans, with an additional $7,500 catch-up contribution for those age 50 and over. This means high-income earners age 50 and over can save up to $30,500 a year in a 401(k), providing more control over when you are able to retire . Your earnings are sheltered from tax until withdrawal, which means you won't pay tax on dividends, interest, and capital gains until you take a distribution from the account, typically at age 59½ or later. 529 plans for education:  You pay federal taxes on your contributions, but the money grows tax-free, and distributions for qualifying educational expenses are not taxed. There are no annual contribution limits imposed by the federal government, but contributions are considered gifts for tax purposes. For 2024, contributions up to $18,000 per donor per beneficiary fall under the annual gift tax exclusion. Contributions above this amount count against the lifetime estate and gift tax exemption. For Virginians looking to reduce their Virginia income tax , up to $4,000 per account per year is deductible for state income tax purposes. (Note: State tax benefits may vary; please check your state's specific rules.) Money in these accounts can be used to cover: Up to $10,000 per year for K-12 tuition Qualified higher education expenses Up to $10,000 (lifetime limit) to repay student loans Certain apprenticeship programs Cash-value life insurance:  This remains a popular tax deferral strategy for high-income earners due to the potential for higher investment limits compared to some other tax-advantaged accounts. You make contributions with after-tax dollars, but the cash value can grow tax-deferred. Withdrawals up to the amount of premiums paid (your cost basis) are typically not taxed. However, it's important to note that if the policy lapses or is surrendered, gains may be taxable. Also, if the policy becomes a Modified Endowment Contract (MEC), different tax rules apply. Change the character of your income You can adjust the assets in your portfolio to change the way your income is taxed. If you own a business, changing your business structure can be a very effective tax reduction strategy for high-income earners. Here are some options: Convert your traditional, SEP, or SIMPLE IRA to a Roth. After age 59-½ (if you’ve met the five-year rule), Roth distributions are generally tax-free. In addition, they aren’t considered investment income, so they won’t increase your MAGI for the 3.8% Medicare surtax. You’ll need to analyze your federal tax brackets, but Roth conversions can be a powerful tool to reduce the taxation of your future income. Buy tax-exempt bonds. Interest income from tax-exempt bonds is excluded from Medicare surtax calculations and not subject to federal income tax. Even better, municipal bond interest on bonds purchased in your state of residence are state and federal income tax free. Restructure your business entity. Incorporating your business lets you choose the tax structure that works best for you financially. A C-corp, for example, has a lower top tax rate than an S-corp or sole proprietorship. In addition, earnings from a pass-through entity may also qualify for a new deduction of up to 20% of business income. Switching to a sole proprietorship lets you hire your minor children without having to withhold or match payroll taxes. Children’s earnings are also taxed at a lower rate. Invest Your Health Savings Account contributions. Many high-income earners either don’t use an HSA at all or they use it incorrectly. If you qualify for a Health Savings Account, consider investing your HSA contributions for the long-term instead of spending them on current medical expenses. Earnings will grow tax free and future distributions are tax free if used for a qualified medical expense. Invest in tax-efficient index mutual funds and exchange-traded funds (ETFs). Every high-income earner should have a plan to diversify the taxation of income in retirement. For taxable accounts, a tax-efficient index mutual fund and/or ETF may help reduce the taxes you pay on your investments year-to-year. Index funds and ETFs can be more tax-efficient than actively managed funds. Time your gains or losses Effective tax strategies for high-income earners should include managing the timing of large gains so you aren’t subject to the Medicare surtax or pushed into the 20% capital gains bracket. Here are some techniques to manage your gains: Establish and contribute appreciated positions to a charitable remainder trust. Charitable remainder trusts disperse income to beneficiaries for an established period of time before the remainder is donated to charity. By contributing a long-term, appreciated asset, you avoid incurring tax on the gains and get a deduction based on the current value of the gift. Invest in a Qualified Opportunity Funds (QOFs) were created by the Tax Cuts and Jobs Act of 2017. They offer several tax benefits for investing eligible capital gains in designated Opportunity Zones. Here are the key points, with corrections: Tax Deferral: You can defer taxes on capital gains until December 31, 2026, by investing them in a QOF within 180 days of the sale that generated the gains. Partial Tax Reduction: If you hold the QOF investment for at least 5 years before December 31, 2026, you can reduce your deferred capital gains tax liability by 10%. Additional Tax Benefits: If you hold the QOF investment for at least 10 years, you may be eligible for additional tax benefits on the appreciation of your QOF investment. Harvest unrealized losses on your investments. When stock markets fall, you may consider selling investments in taxable accounts that have losses. A strategy known as tax-loss harvesting allows you to sell your investments to capture your losses on paper. In 2024, the IRS allows taxpayers to deduct up to $3,000 in losses against regular income and allows you to offset losses with current and future year capital gains. Losses not used in the current year can be carried forward to subsequent years. Bundle your 529 plan contributions If you want to maximize your family gifting, there is indeed a special provision for 529 plans. Under the law, an individual can make a lump-sum contribution of up to $90,000 (or $180,000 for married couples electing to split gifts) to a beneficiary's 529 plan in a single year. This amount represents five years' worth of gift-tax exemptions, allowing you to accelerate your gifting without incurring gift taxes. It’s worth noting that any additional gifts to that same student over the next five years will reduce your lifetime exclusion. However, the student gets the benefit of kickstarting his account and the cash has more time to compound and grow. For Virginia tax payers who want to know how to reduce Virginia income tax , 529 plan accounts can further reduce your taxable income by $4,000 per account. Will Your Money Last Through Retirement? Let's Find Out Together. Investment Management  — built around your retirement income needs, not a generic model Tax Planning For Retirement  — Roth conversions, withdrawal sequencing, IRMAA strategies Retirement Income Planning  — a clear plan so you know your money won't run out Award Winning* | Fee-Only Fiduciary | Serving Clients Nationwide Conclusion Wealth management is complicated. It takes more than finding the right tax reduction strategies for high-income earners to ensure your money is working for you in the most efficient way possible. The right financial advisor makes all the difference. At Covenant Wealth Advisors, we specialize in high net worth retirement planning and take the time to get to know you and understand your priorities and values. We’ll help you create a wealth management plan that accomplishes your goals and maximizes the assets you built over a lifetime. We have a team of independent Certified Financial Planner practitioners who operate on a fee-only basis; meaning we never receive commissions for product sales. Additionally, we serve as a fiduciary which means we are required by law to always put your best interests and objectives at the forefront. We can help you find the right tax-reduction strategies to conserve your wealth and the right investments to achieve your goals. If you are a high-income earner aged 50 plus with over $1 million saved for retirement, request a free retirement assessment today! About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors  and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free retirement assessment today   Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does with possible loss of principal and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like accounting, tax or legal advice, you should consult with your own accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. The RVA25 is an annual survey performed by Richmond BizSense. Companies profit and loss statements were reviewed by an independent accounting firm, Keiter CPA, and analyzed for three year revenue growth end December 31st, 2019. The top 25 fastest growing companies were chosen as recipients of making the RVA25 list. No fee or compensation was provided to Richmond BizSense or Keiter CPA for participation in the survey.

We are thrilled to announce that Mark Fonville, CFP®, CEO and Financial Advisor at Covenant Wealth Advisors, has been recognized by Forbes as one of the 2025 Best-In-State Wealth Advisors for Virginia .  Mark secured a spot on the list for the state of Virginia – South region, underscoring his commitment to delivering exceptional financial guidance and personalized service to his clients. This is the second time that Mark has been recognized by Forbes.​ This prestigious accolade, developed by Forbes in partnership with SHOOK Research, evaluates advisors based on a rigorous methodology that includes qualitative and quantitative factors such as industry experience, assets under management, client retention, and compliance records. Importantly, investment performance is not a criterion, ensuring that the focus remains on advisors who prioritize client interests and uphold the highest standards of integrity and professionalism.​ Mark's dedication to his clients and his unwavering commitment to fiduciary principles have been the cornerstone of his success. As a CERTIFIED FINANCIAL PLANNER™ professional, he has consistently demonstrated a deep understanding of the complexities of financial planning, helping individuals navigate their financial journeys with confidence and clarity.​ At Covenant Wealth Advisors, we are proud to have Mark leading our team. His recognition by Forbes is not only a testament to his individual excellence but also reflects our collective mission to provide comprehensive, client-focused wealth management services.​ For more information about Mark Fonville and Covenant Wealth Advisors, please visit our website. About the author: Matt Brennan, CFP® Senior Financial Advisor and Vice President Matt is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 20 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice. CWA was nominated for the Forbes Best-In-State Wealth Advisor 2025 ranking for Virginia in April of 2025. Forbes Best-In-State Wealth Advisor full ranking disclosure. Read more about Forbes ranking and methodology here.

We're humbled to announce that Covenant Wealth Advisors has been recognized by USA Today and Statista as one of the Best Financial Advisory Firms for 2025 . As one of only five firms selected from Virginia, this recognition reflects our unwavering commitment to putting our clients first in everything we do. What This Recognition Means to Us This acknowledgment isn't about accolades or achievements—it's about the trust our clients place in us every day. In a financial landscape marked by volatility, uncertainty, and rapid change, we understand that who you choose as your financial partner matters more than ever. The USA Today/Statista rankings evaluate firms based on assets under management growth and—most meaningfully to us—recommendations from clients and peers. While we're proud of our growth, it's the relationships we've built and the financial peace of mind we've helped create that truly define our success. Our Commitment as a Fiduciary As a Registered Investment Adviser (RIA), we take our fiduciary responsibility seriously. This isn't just a legal obligation—it's the foundation of our practice. We are committed to: Always acting in our clients' best interests Providing fee-based services that align our success with yours Taking a holistic approach to your financial wellbeing Offering transparent, objective advice Looking Forward In times of economic uncertainty, having a trusted partner to navigate the complexities of the financial markets becomes even more crucial. Whether it's responding to market shifts, planning for retirement, or building generational wealth, our team remains dedicated to providing steady guidance through all of life's financial seasons. This recognition reinforces our mission, but our focus remains unchanged: to serve our clients with integrity, expertise, and personalized attention. We extend our deepest gratitude to our clients for their trust and to our team for their dedication to excellence. Thank you for allowing us to be part of your financial journey. If you're considering working with a financial adviser, we invite you to learn more about our approach and how we might serve you. Every financial journey is unique, and we're here to help navigate yours. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

We’re pleased to share that Covenant Wealth Advisors was mentioned in a recent article published by Fortune.com  titled, “Warren Buffett’s Go-To Advice for Staying Calm During a Stock-Market Correction Is Over 100 Years Old—and It Comes from a Famous Poem.” The article, published on March 12, 2025, discusses strategies for maintaining perspective during periods of market volatility. It includes commentary and perspectives from several financial professionals, including a mention of Covenant Wealth Advisors in the context of how how many stock market corrections there have been since WWII. You can read the full article here: 👉 Warren Buffett’s advice for staying calm when stocks are falling comes from a 130-year-old poem: ‘Keep your head’ At Covenant Wealth Advisors, we strive to help our clients make informed decisions and remain confident in their financial plans—even when markets are uncertain. We believe that sound financial planning, combined with a disciplined investment approach, can help clients stay focused on what matters most. Mention in third-party media is for informational purposes only and should not be construed as an endorsement or testimonial. Covenant Wealth Advisors did not compensate Fortune or any other party for inclusion in the article. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.

We’re pleased to share that Covenant Wealth Advisors was referenced in a recent Business Insider  article titled, “Market Jitters? Let's Learn From History,”  published on March 17, 2025. The article explores how markets have historically performed following corrections and what investors might expect going forward. In the article, Business Insider  highlights data sourced from Covenant Wealth Advisors—originally cited by Axios —showing that stock market corrections have historically recovered within approximately four months. Additionally, the data illustrates that the S&P 500 has delivered an average return of 14.7% in the 12 months following a correction since 1955. You can read the full article here:👉 Business Insider – Market Jitters? Let’s Learn From History Our goal at Covenant Wealth Advisors is to equip investors with objective, historically grounded insights that support confident, long-term financial decision-making. Third-party mentions are provided for informational purposes only and should not be construed as an endorsement, testimonial, or indication of investment performance. Covenant Wealth Advisors did not compensate Business Insider, Axios, or any third party for inclusion in this article. About the author: Mark Fonville, CFP® CEO and Senior Financial Advisor Mark is the CEO of Covenant Wealth Advisors and a Senior Financial Advisor helping individuals age 50+ plan, invest, and enjoy retirement comfortably. Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule your free Strategy Session today   Disclosures:  Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER ™ professional  with the assistance of AI.  No  advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.