What Is a Step-Up in Basis on Inherited Assets?

When a beneficiary inherits an appreciated asset—such as stock, a home, or a business interest—the IRS typically allows the cost basis of that asset to be “stepped up” to its fair market value (FMV) as of the date of the original owner’s death.

This means that any unrealized capital gains that occurred during the original owner's lifetime are effectively erased. The beneficiary's new basis is the asset’s value on the date of death, which significantly reduces taxable gains if the asset is later sold.

Step-Up in Basis Example Using Stock

Let’s say a parent purchased 1,000 shares of Apple Inc. (AAPL) at $10 per share many years ago—totaling a $10,000 cost basis. At the time of their death, the shares are worth $180 per share, or $180,000 in total.

• Original basis: $10,000

• Value at death (new basis): $180,000

• Sale by heir: $185,000

• Taxable gain: $5,000

Instead of paying capital gains tax on $175,000, the heir only owes tax on the $5,000 increase that occurred after they inherited the shares. This is the power of a properly applied step-up in basis for inherited stock.

Which Assets Receive a Step-Up in Basis?

Most taxable assets are eligible for a step-up in basis at death, including:

• Individual stocks and bonds

• Exchange-traded funds (ETFs) and mutual funds

• Real estate (primary residences, rental property, land)

• Collectibles (art, antiques, etc.)

• Interests in privately held businesses

These are commonly referred to as capital assets, and the adjustment to their basis helps reduce or eliminate capital gains tax when sold by the heir.

Assets That Do Not Receive a Step-Up in Basis

Some assets do not qualify for a step-up in basis. It’s important to understand how they are taxed differently:

• Cash and bank accounts – Do not appreciate in value, so there’s no cost basis to adjust.

• IRAs and 401(k)s – These are pre-tax retirement accounts. Distributions are taxed as ordinary income, not capital gains, and thus are not eligible for a step-up.

• Annuities – Gains are taxed as ordinary income when withdrawn.

• U.S. Savings Bonds – Accrued interest is taxable when redeemed; no step-up applies.

For inherited retirement accounts, different rules govern distributions and tax treatment. Learn more about IRA beneficiary rules here.

Key Planning Considerations for Step-Up in Basis

Understanding how step-up in basis rules interact with your estate plan can lead to more tax-efficient outcomes for your beneficiaries.

• Gifting vs. Inheriting: Appreciated assets gifted during your lifetime carry over your original basis to the recipient. If those same assets are inherited instead, the beneficiary typically receives a step-up in basis—greatly reducing potential capital gains taxes.

• Diversification Opportunity: Many investors hold onto concentrated positions—such as legacy holdings in companies like AAPL—because of the tax consequences of selling. After inheritance, however, the step-up in basis gives heirs a chance to diversify without triggering major tax liability. This allows them to realign their portfolios with long-term goals and risk tolerance.

• Community Property Rules: In community property states (like California or Texas), a surviving spouse may receive a full step-up in basis on jointly owned assets—not just their deceased spouse’s half. This can unlock significant tax benefits in joint estate planning.

• Trust Design Impacts: Assets held in certain irrevocable trusts may not receive a step-up in basis unless they are included in the taxable estate. Coordinating with both a tax advisor and estate attorney is essential when designing trusts for generational wealth transfer.

Final Thoughts

The step-up in basis is one of the most important tax planning tools available when transferring taxable assets. When used strategically, it can eliminate years—or even decades—of embedded capital gains and help heirs make better financial decisions with inherited wealth.

At Vaultis Private Wealth, we approach every client with an understanding of their unique goals, values, and financial complexities. We help implement tax-smart estate planning strategies that align with your vision—so that what you’ve built can be preserved and passed on with intention.

Frequently Asked Questions

What is a step-up in basis?

A step-up in basis increases the cost basis of an inherited asset to its fair market value on the date of death. This often reduces or eliminates capital gains taxes if the asset is sold soon after inheritance.

Does the step-up in basis apply to retirement accounts like IRAs or 401(k)s?

No. Retirement accounts such as IRAs, Roth IRAs, and 401(k)s do not receive a step-up in basis because they are taxed differently — either as ordinary income or tax-free in the case of Roth accounts.

Do jointly owned assets receive a full step-up in basis?

It depends on the state and how the assets are titled. In community property states, both halves of a jointly owned asset may receive a full step-up. In separate property or common law states, typically only the decedent’s share receives a step-up.

What happens if I sell an inherited asset shortly after receiving it?

If the asset’s value hasn’t changed much since the date of death, you’ll likely owe little to no capital gains tax due to the step-up. The gain or loss is measured against the stepped-up basis, not the original purchase price.

What documentation should I keep to support the step-up in basis?

Keep records that show the asset’s fair market value as of the date of death — such as brokerage statements, qualified appraisals, or real estate comps. This information is critical in case of an IRS inquiry or future sale.

Disclosure: This communication is for informational purposes only and should not be construed as investment, legal, or tax advice. The information provided is based on current laws and regulations, which are subject to change. Vaultis Private Wealth (“Vaultis”) is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Vaultis and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future results. All investments involve risk, including the potential loss of principal. Consult with a qualified financial, legal, or tax professional before making any decisions based on this content.

Naming a Trust as an IRA Beneficiary: What You Need to Know

Trusts are widely used in estate planning to provide control, protection, and flexibility over how assets are managed and distributed. They help ensure assets are directed according to your wishes, protect beneficiaries who may not be equipped to manage an inheritance on their own, and offer privacy and efficiency in settling your estate.

While it is more common to name individuals as IRA beneficiaries, there are specific cases where naming a trust as an IRA beneficiary may be the right choice—such as when planning for minors, beneficiaries with special needs, or coordinating more complex family or tax strategies.

However, the rules governing trusts as IRA beneficiaries are intricate and have become even more so following the SECURE Act (2019) and SECURE 2.0 (2022). If you're considering naming a trust as your IRA beneficiary, understanding the IRS required minimum distribution (RMD) rules and their tax impact is essential to avoiding unintended consequences.

Why Consider Naming a Trust as an IRA Beneficiary?

Naming a trust as the beneficiary of your IRA can give you more control over how and when retirement assets are distributed after death. For example:

• Distribute assets gradually to a young or financially inexperienced heir

• Protect a beneficiary who relies on means-tested public benefits

• Provide long-term oversight for a loved one with special needs

• Centralize planning by updating one trust document instead of multiple beneficiary forms

However, due to post-SECURE Act complexity, careful structuring is critical to avoid accelerated taxes and lost deferral opportunities. 

Understanding Beneficiary Categories Under the SECURE Act

The SECURE Act categorizes beneficiaries into three main types, each with distinct tax treatment:

1. Eligible Designated Beneficiaries (EDBs)

These individuals can stretch IRA distributions over their life expectancy:

• Surviving spouse

• Minor child of the account owner (until age 21, then 10-year rule applies)

• Disabled or chronically ill individual

• Individuals not more than 10 years younger than the account owner

2. Non-Eligible Designated Beneficiaries (Non-EDBs)

These include most adult children and grandchildren. They must withdraw the entire IRA balance within 10 years, accelerating taxable income.

3. Non-Designated Beneficiaries

Includes entities like estates or certain trusts that do not qualify as see-through. These are subject to stricter RMD schedules:

• If the owner died before their Required Beginning Date (RBD): Account must be emptied within 5 years

• If the owner died on or after their RBD: Distributions follow the owner’s remaining life expectancy

RBD Note: The Required Beginning Date is April 1 of the year after turning age 73 (or 75 if turning 74 after December 31, 2032, under SECURE 2.0).

Examples

• A 15-year-old minor child (EDB) can stretch distributions to age 21, then must fully distribute by age 31

• A 45-year-old adult child (non-EDB) must withdraw all funds within 10 years

• A non-see-through trust inheriting a $500,000 IRA must follow the 5-year rule if the owner died before RBD—leading to large annual distributions taxed at 37% federal if retained

 Trusts as IRA Beneficiaries: A Complex Framework

Trusts are subject to unique IRS rules depending on whether they qualify as see-through trusts and the status of the underlying beneficiaries.

Non-See-Through Trusts (Non-Designated Beneficiaries)

These trusts fail to meet IRS "see-through" requirements—often due to:

• Having non-individual beneficiaries

• Failing to provide documentation to the IRA custodian

• Ambiguous or noncompliant language in the trust document

Distribution rules:

• Owner died before RBD → 5-year rule

• Owner died on or after RBD → Distributions follow owner’s life expectancy

Example: A non-see-through trust inherits a $500,000 IRA in 2025. If the owner died before RBD, the account must be distributed by 2030—about $100,000 per year. If retained, income taxed at trust rates (37% federal starting at $15,200 in 2025).

See-Through Trusts (Designated Beneficiaries)

A see-through trust meets IRS criteria:

• Has identifiable individual beneficiaries

• Is valid under state law

• Provides timely documentation to the IRA custodian

This allows the IRS to look through to the underlying beneficiaries and apply EDB or non-EDB rules.

Scenarios:

• All EDBs: Life expectancy stretch allowed

• Any Non-EDB: 10-year rule applies

• Owner died after RBD: Years 1–9 require annual RMDs based on oldest beneficiary’s life expectancy

Example: A see-through trust names a 65-year-old spouse (EDB) and a 30-year-old adult child (non-EDB). The presence of a non-EDB triggers the 10-year rule—$1 million must be distributed by 2034, likely $100,000 annually.

Separate Accounting: A Key Opportunity Under Final Regulations (2024)

New IRS guidance (Final RMD Regulations, July 2024) allows separate accounting for subtrusts if:

• The trust document mandates division immediately after death

• Subtrusts receive pre-specified IRA shares (not discretionary)

Each subtrust can then follow the distribution schedule of its own beneficiary:

• EDB Subtrusts: Stretch allowed

• Non-EDB Subtrusts: 10-year rule applies

Example: A $1 million IRA is split between a spouse (EDB) and adult child (non-EDB) in 2025.

• Spouse’s subtrust: Life expectancy stretch (approx. $21,000/year initially)

• Child’s subtrust: 10-year rule ($50,000/year if evenly split)

• Each pays tax based on their own rate—potentially reducing trust-level taxation.

Strategic Tax Planning for IRA Trust Beneficiaries

If you're considering naming a trust as your IRA beneficiary, keep these planning tips in mind:

• Use separate accounting: Mandate subtrusts in your document and assign specific IRA shares

• Ensure see-through compliance: Only use identifiable individual beneficiaries and submit timely documentation

• Match structure to intent:

  • Use conduit trusts for simplicity and direct distributions to EDBs

  • Use accumulation trusts for control, but account for high trust tax rates

• Consult a qualified attorney to ensure compliance with SECURE Act and IRS regulations

• Review regularly: Update your trust after life events or regulatory changes (e.g., SECURE 2.0 RMD age shifts)

Take Action: Plan Your Trust with Precision

The SECURE Act and the 2024 IRS regulations introduced new complexities—but also new planning opportunities. If you’ve named, or are considering naming, a trust as your IRA beneficiary, now is the time to review your plan.

At Vaultis Private Wealth, we work closely with clients to ensure their estate and retirement assets are coordinated thoughtfully and tax-efficiently. From trust structure to beneficiary designation, we help you take proactive steps to protect your legacy and minimize unintended tax consequences.

Frequently Asked Questions

Can I name a trust as the beneficiary of my IRA?

Yes. A trust can be named as an IRA beneficiary, but it must meet certain IRS criteria to preserve favorable tax treatment. These are known as the “see-through” trust rules.

What is a see-through trust?

A see-through trust is one where all beneficiaries are identifiable individuals, allowing the IRA to “look through” the trust and apply distribution rules based on the underlying beneficiaries’ life expectancies or the 10-year rule under the SECURE Act.

Why would someone name a trust instead of an individual?

Trusts are often used to control how and when IRA assets are distributed — especially useful for minors, spendthrift heirs, or complex family situations. They also provide an additional layer of asset protection and control after death.

How did the SECURE Act change IRA planning with trusts?

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries, including trusts. Most trust beneficiaries must now fully distribute inherited IRA assets within 10 years, which can accelerate tax consequences.

Are there risks to naming a trust as the IRA beneficiary?

Yes. If the trust doesn’t meet IRS requirements or isn’t drafted carefully, it could trigger immediate taxation or force faster distributions. Coordination between your attorney and financial advisor is critical to avoid unintended outcomes.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or investment advice. Individual circumstances vary, and tax laws are subject to change. Please consult with a qualified financial, tax, or legal advisor before making decisions regarding your IRA or beneficiary planning.

Distribution Rules When You Inherit an IRA

With IRAs representing a significant portion of many investors’ wealth, both beneficiary planning and a clear understanding of IRA inheritance distribution rules are essential. The SECURE Act (2019) and SECURE 2.0 (2022) introduced major changes that affect how inherited IRAs are distributed—especially for non-spouse beneficiaries. Understanding these changes is critical for minimizing taxes and preserving wealth for future generations.

Why IRA Beneficiary Designations Matter

Unlike other assets, your IRA passes directly to the beneficiaries you name—regardless of what your will or trust says. That means your decisions have a direct impact on how and when heirs receive these assets—and how much may be lost to taxes. The SECURE Act eliminated the “stretch IRA” for most non-spouse beneficiaries, replacing it with a 10-year rule. SECURE 2.0 further changed required minimum distribution (RMD) ages and added flexibility for spouses.

The End of the Stretch IRA: A Compressed Timeline

Before 2020, most beneficiaries could stretch required minimum distributions (RMDs) over their entire life expectancy, using the IRS Single Life Table. This long-term deferral allowed younger beneficiaries to minimize annual tax burdens and maximize the IRA’s compounding potential.

The SECURE Act replaced this option for most non-spouse beneficiaries with a 10-year withdrawal rule. Now, the account must be emptied within 10 years—often increasing the beneficiary’s taxable income during peak earning years.

Example: A 45-year-old inheriting a $1 million IRA in 2025 must now withdraw the full balance by 2035. Even if spread evenly, that’s ~$100,000/year—versus $24,400/year under the former stretch rules. This change significantly compresses tax deferral and may push the heir into a higher tax bracket.

Understanding Beneficiary Categories

The distribution rules depend on the type of beneficiary. The SECURE Act defines three main categories:

Eligible Designated Beneficiaries (EDBs)

These individuals can still stretch distributions over their life expectancy:

• Surviving spouses – May roll the IRA into their own, delay RMDs until age 73, or use the deceased’s schedule

• Minor children of the account owner – Stretch allowed until age 21, then 10-year rule applies

• Disabled or chronically ill individuals – Stretch permitted with proper documentation

• Individuals less than 10 years younger than the owner – Often siblings or close-in-age partners

Example: A 15-year-old inheriting an IRA can take distributions based on life expectancy until age 21, then must withdraw the remainder within the following 10 years.

Non-Eligible Designated Beneficiaries (Non-EDBs)

Most adult children, grandchildren, or unrelated individuals fall into this group. They must follow the 10-year rule, with specific requirements based on the IRA owner’s Required Beginning Date (RBD):

• RBD: April 1 of the year following the year the IRA owner reaches age 73 (for individuals born between 1951 and 1959) or age 75 (for those born in 1960 or later), as stipulated by SECURE 2.0.

If the owner died before RBD:

• No annual RMDs are required

• Beneficiary can withdraw any amount any year, as long as the IRA is fully distributed by the end of year 10

• Greater flexibility for tax planning

If the owner died on or after RBD:

• Annual RMDs are required for years 1–9, based on the beneficiary’s life expectancy

• Full distribution still required by the end of year 10

• IRS waived penalties for missed RMDs between 2021–2024 due to confusion

• Beginning in 2025, failing to take required minimum distributions (RMDs) may result in a 25% excise tax on the missed amount. However, if the oversight is corrected within two years, the penalty may be reduced to 10%, as outlined in SECURE 2.0.

Example: A 50-year-old inheriting an IRA from a parent who died after age 73 must take annual RMDs for 9 years and distribute the entire account by year 10. Strategic withdrawals—like taking more in lower-income years—can reduce overall tax impact.

Trusts as IRA Beneficiaries: Control Comes with Complexity

Trusts can provide valuable control and protection for beneficiaries, but they come with more complex tax treatment:

• Most trusts must follow the 10-year rule, unless structured as a see-through trust with qualified individual beneficiaries

• Non-see-through trusts are subject to even stricter rules

• For best results, work with an advisor to ensure the trust meets IRS requirements and aligns with your planning goals

Strategic Tax Planning for Inherited IRAs

If you’ve inherited an IRA—or are planning your legacy—consider these strategies:

• Time withdrawals strategically: Withdraw more in lower-income years to reduce total taxes

• Maximize spousal rollover options: Spouses can often delay or reduce taxable distributions

• Review designations regularly: Update beneficiaries after life events or tax law changes

• Coordinate with trusts: Ensure language is SECURE Act-compliant if using trusts as beneficiaries

Take Action: Plan for the Future, Avoid Surprises

The most important step you can take today is to review your IRA beneficiary designations. This simple task is often overlooked—but critical to ensuring your wealth is transferred in a tax-efficient, intentional way.

The shift from the stretch IRA to the 10-year rule has major tax implications. IRA owners must regularly review and update beneficiary designations. Beneficiaries must understand their distribution rules to avoid penalties and missed opportunities.

If you’re an IRA owner, take time to ensure your beneficiary choices reflect your goals and family structure. If you’re inheriting an IRA, know your category and obligations under current law. Staying informed and working with a qualified advisor can help protect your wealth—and your legacy.

Frequently Asked Questions

What are the current rules for inherited IRA distributions?

Most non-spouse beneficiaries must fully distribute the inherited IRA within 10 years of the original owner’s death, due to changes introduced by the SECURE Act. Required minimum distributions (RMDs) may still apply within those 10 years, depending on the beneficiary type.

Do spouses follow the same 10-year rule for inherited IRAs?

No. A surviving spouse can treat an inherited IRA as their own, which typically allows for more flexible distribution options and may delay RMDs until age 73.

What happens if the original IRA owner was already taking RMDs?

If the IRA owner passed away after beginning RMDs, the non-spouse beneficiary may be required to continue those distributions annually within the 10-year window, depending on their relationship to the decedent.

Are trusts subject to the same 10-year distribution rule?

Generally yes. Most trusts that inherit IRAs are now subject to the 10-year rule. However, certain types of trusts — like “eligible designated beneficiary” (EDB) trusts for disabled or chronically ill individuals — may still qualify for stretch treatment.

What are the penalties for missing required IRA distributions?

Missing a required distribution can trigger a penalty of 25% of the amount that should have been withdrawn. Working with a financial advisor can help ensure compliance and avoid costly mistakes.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or investment advice. Individual circumstances vary, and tax laws are subject to change. Please consult with a qualified financial, tax, or legal advisor before making decisions regarding your IRA or beneficiary planning.

How the Latest Tax Bill Could Impact Bonds and Your Portfolio

 The Tax Bill’s Direction and Deficit Impact

This week, the House Ways and Means Committee introduced a sweeping, multi-trillion dollar tax proposal that could have far-reaching effects beyond the headlines. While much of the coverage will focus on the changes to tax laws themselves, less attention is being paid to the impact these changes could have on the federal deficit. The story beneath the surface is how these fiscal shifts may ripple through the bond market—a connection every investor should understand when managing a diversified portfolio in today’s environment.

Although the proposed legislation is still in its early stages, its intent is clear: it aims to deliver significant tax relief through measures such as a higher cap on state and local tax deductions, permanent extensions of the 2017 individual tax rate cuts, an increased standard deduction, and a larger child tax credit. While the specifics will likely evolve as the bill moves through Congress, the overarching theme is unmistakable. The focus is on substantial tax cuts, accompanied by only modest reductions in government spending. This direction, more than any single provision, is what will ultimately shape the fiscal landscape and its downstream effects on the bond market.

Early estimates suggest that the proposed tax cuts would reduce federal revenue by $3.7 trillion over the next decade, while the planned spending cuts would offset only about $1.5 trillion of that amount. As a result, the government’s income will fall much more than its expenses are reduced, leading to a larger deficit—a challenge that is nothing new for the U.S. fiscal landscape. While deficits have long been a feature of U.S. policy, this legislation is poised to further widen the gap, requiring the government to borrow even more by issuing additional Treasury bonds. This increase in borrowing is a key factor that could influence the bond market in the years ahead.

 What This Means for the Bond Market

Understanding the link between government borrowing and the bond market is essential for investors navigating today’s environment. As we’ve discussed previously (Understanding the Treasury Market: A Primer for Investors), increased Treasury issuance means more bonds entering the market. When supply outpaces demand, yields tend to rise, which puts downward pressure on bond prices. This dynamic is especially important for investors to understand, as it suggests that interest rates could remain elevated or even rise further if the government continues to rely on debt to finance persistent deficits. While many factors influence the direction of interest rates, the prospect of sustained, elevated Treasury issuance is a structural force that could shape the bond market for years to come.

 Rethinking Portfolio Construction

Given these shifts in the bond market, it’s important to revisit how portfolios are typically constructed. Traditional portfolio construction relies on diversification between stocks and bonds, with the mix tailored to each investor’s risk tolerance. Bonds have long been viewed as the “risk-off” component, providing stability and income during equity market volatility. That’s why we’re closely monitoring these evolving dynamics for our clients.

With the potential for higher yields and increased volatility, investors may want to consider strategies that help manage interest rate risk. These could include favoring short-duration bonds, incorporating Treasury Inflation-Protected Securities (TIPS), or exploring alternatives such as dividend-paying equities or gold. The ongoing imbalance between Treasury supply and demand could continue to drive rates higher, introducing new risks to traditional bond holdings and underscoring the importance of thoughtful portfolio construction.

 Preparing for What’s Ahead

As we look to the future, it’s clear that the debate over tax policy will continue to have significant implications for the bond market (and your portfolio). In an environment where government borrowing shows no sign of slowing, now is the time to review your bond holdings and broader portfolio to ensure you’re prepared for the shifting landscape ahead.

Disclosure: 

The information provided in this article is for informational purposes only and should not be construed as investment, tax, or legal advice. Opinions expressed are those of the author and are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. Please consult with your financial advisor, tax professional, or legal counsel before making any investment decisions. Vaultis Private Wealth is a registered investment advisor. Registration does not imply a certain level of skill or training.

Backdoor Roth Contributions: A Guide for High-Income Earners

For high-income individuals who exceed Roth IRA contribution limits, the Backdoor Roth IRA contribution is a powerful strategy to maximize tax-free retirement savings. This approach allows you to benefit from the advantages of a Roth IRA, even if your income is too high to contribute directly.

 Traditional IRA vs. Roth IRA

A Traditional IRA and a Roth IRA both help you save for retirement, but they work differently:

• Traditional IRA:

  • You may be able to deduct your contributions from your taxable income, lowering your tax bill for the year you contribute.

  • Your money grows tax-free, but you pay ordinary income tax when you eventually take distributions in retirement.

• Roth IRA:

  • Funded with after-tax dollars, so you don’t get a tax deduction up front.

  • Your money grows tax-free and you can withdraw it tax-free in retirement.

  • If your income is too high, you can’t contribute directly to a Roth IRA.

 Contribution and Income Limits

• Traditional IRA: Anyone with earned income can contribute, but whether you can deduct the contribution depends on your income and if you have a workplace retirement plan.

• Roth IRA: Direct contributions are not allowed if your income is above certain limits (for 2025, $150,000 for single filers and $236,000 for married couples).

Deductible vs. Non-Deductible IRA Contributions

A deductible contribution means you can subtract the amount you contribute from your taxable income, lowering your tax bill for the year. A non-deductible contribution is made with after-tax dollars—you don’t get a tax break now, but you can still grow your retirement savings. The key to the Backdoor Roth is making a non-deductible (after-tax) contribution to a Traditional IRA, which sets the stage for a tax-free Roth conversion.

 What Is a Roth Conversion?

A Roth conversion is when you move money from a Traditional IRA to a Roth IRA. There is no income limit to make a Roth conversion, making it an accessible option for high-income earners. Normally, this is a taxable event—you pay taxes on any pre-tax money you convert. But if you only convert the after-tax (non-deductible) contribution, you won’t owe taxes on the conversion, because you’ve already paid taxes on that money.

 Important Considerations

To ensure a seamless Backdoor Roth contribution, it’s essential to understand potential tax implications. If you have other pre-tax IRA balances, the IRS applies the pro-rata rule, meaning a portion of your conversion may be taxable based on the ratio of pre-tax to after-tax funds across all your IRAs. For example, suppose you have $50,000 in pre-tax IRA funds and contribute $7,000 non-deductible, totaling $57,000 in your IRAs. If you convert the $7,000 to a Roth IRA, the pro-rata rule determines the taxable portion: $50,000 (pre-tax) ÷ $57,000 (total IRA balance) = 87.72% of the conversion is taxable. To avoid this, you can roll old IRAs into a 401(k), which may take a few weeks, so plan ahead. Additionally, ensure accurate reporting on Form 8606 to avoid potential IRS penalties. Cleaning up these accounts helps ensure a tax-free conversion and maximizes the benefits of your Backdoor Roth.

 Step-by-Step: How to Make a Backdoor Roth Contribution

• Make a non-deductible contribution to a Traditional IRA (up to $7,000 for 2025, or $8,000 if age 50+). This can be done for the current year or prior year (if done prior to the tax filing deadline).

• Convert the amount to a Roth IRA, ideally within days to avoid taxable earnings. Even small investment gains in the Traditional IRA before conversion are taxable, so acting promptly simplifies the process and avoids unexpected tax bills.

• Report the non-deductible contribution and conversion on IRS Form 8606 when you file your taxes.

The Power of Tax-Free Growth

As a simple example, if you contribute $7,000 a year for 25 years and earn an average 8% return, you could accumulate over $513,000—all tax-free in retirement. In a taxable account, the same $7,000 annual investment at 8% could lose 20-30% to taxes on capital gains, dividends, and interest throughout the 25 years, including when you access the funds, reducing your final balance significantly. This analysis does not account for future increases in contribution limits.

 Roth IRA Distribution Rules

Once you’ve built your Roth IRA through the Backdoor strategy, understanding how to access your funds tax-free is important. The following rules apply:

• You can withdraw your contributions at any time, tax- and penalty-free.

• Earnings can be withdrawn tax-free after age 59½, provided your first Roth IRA contribution or conversion was made at least five years earlier (the five-year clock starts January 1 of the year of your first contribution or conversion).

• No required minimum distributions during your lifetime.

The Backdoor Roth is a strategic tool for high-income earners looking to secure a source of tax-free growth for retirement. By leveraging this approach, you can build a substantial Roth IRA bucket—potentially worth hundreds of thousands of dollars, as illustrated—that offers flexibility and tax advantages in your later years. Integrating this strategy into a comprehensive financial plan can enhance your long-term wealth-building efforts, especially when paired with other tax-efficient solutions.

Disclosure:

This article is for informational purposes only and should not be considered tax, legal, or investment advice. Individual circumstances vary, and strategies discussed may not be suitable for all investors. Before implementing any financial strategy, including the Backdoor Roth IRA, consult with a qualified tax advisor or financial professional to ensure it aligns with your overall financial plan and current tax laws. Vaultis Private Wealth does not provide tax or legal advice. All examples are hypothetical and for illustrative purposes only. Past performance is not indicative of future results.

Understanding the Treasury Market: A Primer for Investors

In recent months, headlines across the financial media have been filled with discussion on the direction of the 10-year Treasury yield and the broader movement of interest rates. These shifts have significant implications for investors’ portfolios, influencing everything from borrowing costs to the perceived safety of traditional fixed income allocations. Against this backdrop, it’s essential to understand what Treasuries are, how they function within portfolios, and the key risks currently shaping this critical market sector.

 What Are Treasuries?

Treasuries are debt securities issued by the U.S. government to fund spending deficits when revenue from taxes, tariffs, and other sources falls short. Purchasing a Treasury means lending money to the government in exchange for interest payments and the return of principal at maturity. Treasuries have long been considered the gold standard for safety, as the U.S. has never defaulted—even during crises like the 2008 financial meltdown or the COVID-19 pandemic.

For example, the U.S. is projected to run a $2.6 trillion deficit in 2025, spending $7.5 trillion while collecting $4.9 trillion in revenue. Persistent deficits like these are financed by issuing Treasuries.

 How Do Treasuries Fit in a Portfolio?

Treasuries typically comprise a portion of a portfolio’s fixed-income allocation, providing potential stability during market volatility. Their returns often move independently of riskier assets like equities, making them a key diversification tool—though years like 2022 have challenged this historical relationship. Treasuries are seen as the ultimate safe haven, given the U.S. government’s ability to meet its debt obligations, with the Federal Reserve printing money if necessary.

Treasuries are available with maturities ranging from a few days to 30 years. Shorter-term Treasuries carry less risk, as principal is returned sooner. Longer maturities generally offer higher yields, though recent yield curve inversions—where short-term Treasuries yield more—can complicate this dynamic.

Interest rate risk is a key consideration, as bond prices and rates move inversely. For example, if you buy a 10-year Treasury yielding 4.5% and rates rise to 5% six months later, your bond’s value drops if sold before maturity. Holding to maturity ensures principal return, but interim price fluctuations matter if liquidity is needed.

The role of Treasuries depends on each investor’s risk tolerance and time horizon. While often used as a risk-off allocation, they still carry risks.

 Current Risks in the Treasury Market

As with any market, supply and demand dynamics drive the Treasury market. On the supply side, issuance is likely to remain high due to ongoing deficits—like the $2.6 trillion projected for 2025—and an estimated $9.3 trillion in maturing debt to be refinanced, often at higher rates. Debates over spending and tax policies further suggest deficits will persist, increasing Treasury supply.

Demand comes from individual investors, hedge funds, banks, insurance companies, foreign governments, and central banks, including the Federal Reserve. While the Federal Reserve and banks buy for regulatory or policy reasons, about 56% of the market consists of investors seeking competitive yields. A notable risk, especially amid potential geopolitical tensions, is that foreign investors and central banks—holding roughly 30% of marketable Treasuries—could sell holdings, flooding supply and pushing rates higher, which would raise government borrowing costs.

The primary risk is a supply-demand imbalance, where excessive issuance outpaces demand, driving rates up and impacting the “safe” portion of portfolios.

What Should Investors Consider?

Given these dynamics, now is a critical time to review your fixed-income allocation. Consider asking:

- How much interest rate risk am I taking?

- Is my portfolio truly diversified, or overexposed to a single risk factor?

- How do Treasuries interact with other assets during periods of stress?

At Vaultis, our team continuously monitors these evolving risks and opportunities, leveraging deep expertise and advanced analytics to help clients navigate the complexities of today’s fixed income markets. As the landscape shifts, we remain committed to building resilient, diversified portfolios.

Disclosure: This article is for informational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security. The views expressed herein are those of Vaultis Private Wealth and are based on information believed to be reliable at the time of writing. However, no representation or warranty is made as to the accuracy or completeness of this information. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Investors should consult their own financial, tax, and legal advisors before making any investment decisions. Vaultis Private Wealth is a registered investment advisor. Registration does not imply a certain level of skill or training.

The Importance of Saving Outside Your Retirement Plan

When planning for retirement, many prioritize maxing out their 401(k) or IRA. These accounts offer tax advantages and often an employer match, making them a cornerstone of retirement savings. However, an often-overlooked aspect of financial planning is the value of diversifying the types of accounts you save into. At Vaultis Private Wealth, we frequently encounter clients with substantial 401(k) or IRA balances but limited savings elsewhere. This can restrict their ability to craft a tax-efficient Lifestyle Distribution Strategy in retirement. By spreading savings across taxable brokerage accounts, Roth IRAs, and traditional retirement plans, you gain flexibility to minimize taxes and optimize your retirement income.

The Power of 401(k) Savings

Saving through a 401(k) is straightforward. You choose a percentage of your paycheck to contribute, up to $23,500 in 2025 (or $31,000 if you’re 50 or older, or $34,750 if you’re aged 60 to 63, thanks to the SECURE 2.0 Act’s higher catch-up contribution rules), and deductions happen automatically. Many employers offer a match, boosting your savings effortlessly. This consistent, behind-the-scenes approach allows individuals to build significant retirement nest eggs over time. However, relying solely on a 401(k) can limit your options when transitioning from earning a paycheck to funding your retirement lifestyle.

Why Diversify Account Types?

Diversifying account types creates options to minimize taxes and optimize your Lifestyle Distribution Strategy in retirement. Each account type has unique tax implications and access rules, which can be combined strategically to meet your cash flow needs. Consider these key accounts and their roles in a diversified plan:

• Traditional 401(k)s and IRAs
  Distributions from these accounts are taxed as ordinary income, with marginal 2025 rates for married couples filing jointly ranging from 10% to 37% (for example, 22% for income between $96,951 and $206,700, or 24% for income between $206,701 and $394,600, with the top 37% rate applying to incomes over $751,600). Additionally, Required Minimum Distributions (RMDs) begin at age 73, requiring withdrawals of approximately 4% of your account balance annually, based on the prior year’s December 31 value. These withdrawals can push you into higher tax brackets, particularly if RMDs exceed your spending needs.

• Taxable Accounts
  Taxable accounts provide unparalleled flexibility, with no age restrictions on accessing funds. You pay taxes annually on dividends, interest, and realized capital gains, but these are often taxed at preferential rates: qualified dividends and long-term capital gains face 0%, 15%, or 20% rates, depending on your income (for example, 15% for married couples with taxable income between $96,951 and $583,750 in 2025). You can also access your principal (basis) tax-free. For instance, to generate $40,000 from a taxable account, you might have $10,000 in dividends taxed at 15% and sell investments for $30,000 with a $20,000 basis, resulting in only $10,000 of taxable long-term capital gains.

• Roth IRAs
  Roth IRAs stand out for their tax-free growth and distributions, provided you meet two conditions: you’re at least 59½, and the account has been open for five years. Unlike taxable accounts, you avoid annual taxes on earnings, and unlike traditional IRAs, there are no RMDs. Contributions in 2025 are limited to $7,000 (or $8,000 if 50 or older), subject to income limits. Because Roth IRAs grow tax-free, it’s often strategic to preserve these funds for later in retirement or for years when your tax bracket is high, using them to supplement income without increasing taxable income.

Crafting a Tax-Efficient Lifestyle Distribution Strategy

In retirement, your focus shifts from saving to generating income to support your lifestyle. A Lifestyle Distribution Strategy involves combining income sources, such as Social Security, pensions, rental income, or part-time work, with withdrawals from your investment accounts. The goal is to meet your cash flow needs tax-efficiently while minimizing your overall tax burden.

To illustrate the power of diversification of account types, consider a common retirement scenario. Imagine you need $100,000 to supplement your Social Security and pension income. If you withdraw this entirely from a 401(k) or IRA, the full amount is taxed as ordinary income, potentially pushing you into a higher tax bracket, such as 22% or 24%. Now consider a diversified approach: $40,000 from an IRA (taxed as ordinary income), $40,000 from a taxable account (with, say, $10,000 in dividends and $10,000 in capital gains taxed at preferential rates, typically 15%), and $20,000 tax-free from a Roth IRA. This strategy reduces your taxable income by blending income sources with different tax treatments, keeping you in a lower bracket and minimizing your overall tax burden compared to the IRA-only approach. This flexibility becomes even more critical when considering mandatory withdrawals.

RMDs add another layer of complexity. If your 401(k) or IRA is your only significant account, large RMDs could force withdrawals beyond your needs, reducing your ability to control your tax bracket. A diversified portfolio allows you to draw from taxable accounts or Roth IRAs in years when RMDs inflate your income, preserving tax efficiency.

Building a Diversified Savings Plan

To achieve flexibility in retirement, diversify your savings now. Continue contributing to your 401(k) to capture any employer match, up to the $24,000 limit (or $32,000 if 50+). Also prioritize:

• Taxable accounts for their accessibility and favorable tax treatment on capital gains and dividends.

• Roth IRAs for tax-free growth, through direct contributions ($7,000 or $8,000 if 50+) or Roth conversions from traditional IRAs, strategically timed with your advisor to manage tax implications.

By diversifying your savings, you create a robust framework for retirement. You’ll have the flexibility to navigate tax brackets, RMDs, and unexpected expenses while optimizing your income. At Vaultis Private Wealth, we view retirement planning as a strategic process of aligning your unique mix of assets with your lifestyle goals. Spreading savings across account types isn’t just about saving more—it’s about saving smarter to minimize taxes and maximize your retirement freedom.

Disclaimer

This article is provided for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security or financial product. The information presented is general in nature and does not take into account your specific financial situation, objectives, or needs. Past performance is not indicative of future results, and all investments carry risks, including the potential loss of principal. Tax laws and regulations are subject to change and may vary based on individual circumstances. Please consult a qualified financial advisor or tax professional before making any investment or financial planning decisions. Vaultis Private Wealth is not responsible for any actions taken based on the information in this article.

Trump vs. Powell: Why the Fed Chair Stayed Hawkish

Last week, a public clash between President Donald Trump and Federal Reserve Chair Jerome Powell grabbed headlines. Trump demanded lower interest rates, claiming, “Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ … Powell’s termination cannot come fast enough!” Powell, however, stood firm, stating, “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.” At Vaultis Private Wealth, we believe this spat reveals critical insights about the Fed’s priorities. This firm rate policy—favoring steady rates to stabilize markets—potentially signals Powell’s focus on protecting the U.S. Treasury market amid uncertainty. In this article, we explore why Powell responded this way and what it means for your portfolios.

Trump’s push for rate cuts aims to spur economic growth, particularly as consumer confidence falters amid tariff concerns. Recent data presents a mixed picture: real GDP grew at a 2.4% annual rate in Q4 2024, down from 3.1% in Q3, signaling a slowdown. Q1 2025 growth forecasts range from -2.2% annualized (Atlanta Fed GDPNow) to 2.5% (Philadelphia Fed), reflecting tariff pressures. Inflation, measured by the Consumer Price Index, eased to 2.4% in March 2025, yet remains above the Fed’s 2% target. Powell’s firm rate policy—maintaining steady or higher rates to curb inflation and stabilize markets—clashes with Trump’s agenda, underscoring the Fed’s independence. By prioritizing bond market stability, Powell aims to prevent disruptions that could worsen economic stability.

A key factor to consider is that Powell’s hawkish rate policy stems from his focus on stabilizing the U.S. Treasury market, where bonds fund government borrowing. The U.S. faces a projected $2.4 trillion budget deficit for fiscal year 2025 and $9.7 trillion in debt refinancing, boosting Treasury supply, while foreign investors, holding $8.7 trillion (30% of marketable Treasuries), may buy less amid tariff tensions (https://vaultis.com/knowledge-center/foreign-ownership-in-us-treasuries). Think of the Treasury market like an auction: too many bonds for sale and fewer buyers could push yields higher, risking instability. This unique scenario—waning demand alongside rising supply—presents risks that could destabilize the treasury market. By maintaining steady or higher rates, it is possible Powell is attempting to ensure demand for Treasuries and a stable financial system.

Powell’s hawkish stance, long-term supply dynamics, and potential demand reduction suggest U.S. Treasury yields may remain elevated, impacting bond portfolios. The 10-year Treasury yield, currently at 4.35%, has seen significant swings over the past two weeks. For instance, it rose from 4.0% on April 1 to 4.5% by April 11 before settling at 4.41% on April 21 all while we experienced equity market volatility. Bonds are typically seen as a safe haven in portfolios but when yields rise, prices fall, creating risks for investors holding longer-term bonds. Allocating to shorter-term bonds, which are less sensitive to rate changes, may help manage this risk, though strategies must align with your financial goals and risk tolerance. At Vaultis Private Wealth, we’re guiding clients to review fixed-income allocations to navigate these market pressures, ensuring our client portfolios are properly positioned.

The public spat between President Trump and Federal Reserve Chair Jerome Powell marks a pivotal moment for monetary policy. By maintaining steady or higher rates, Powell is likely seeking to address the risks in the treasury market. This firm rate policy counters Trump’s aggressive push for rate cuts, underscoring the Fed’s resolve in turbulent times. At Vaultis Private Wealth, our cautious approach to long-term Treasuries reflects the risks of elevated yields and market pressures outlined in this article, demonstrating our commitment to prudent, data-driven strategies for navigating complex markets.

Disclaimer:

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Data and projections, including budget deficits, Treasury yields, and economic forecasts, are based on sources believed to be reliable but are subject to change and inherent uncertainties. Forward-looking statements, such as potential market impacts from tariff or policy changes or investment strategies, involve risks, including lower yields or reinvestment risks for bond strategies, and may not occur as anticipated. Past performance does not guarantee future results. Investing involves risks, including loss of principal. Consult a professional for personalized guidance tailored to your financial goals and risk tolerance.

The Risk of Foreign Ownership in U.S. Treasuries

We find ourselves in a unique place in the fixed income market, specifically with Treasuries. On April 4, 2025, the 10-year Treasury yield closed at 4.009%, only to climb to 4.494% by April 11—despite significant volatility in the equity markets. Historically, investors flock to the safety of U.S. government bonds during periods of stock market stress, driving yields lower. In this blog, we explore a critical factor we are closely monitoring: the risks posed by foreign ownership of U.S. Treasuries.

Foreign investors and central banks currently hold approximately $8.5 trillion in Treasury securities, representing roughly 30% of the total marketable Treasury debt. This substantial share underscores the importance of international demand in sustaining the Treasury market’s stability. However, this reliance introduces vulnerabilities, particularly in an environment shaped by President Trump’s “America First” policies and intermittent tariff proposals. Should foreign investors or central banks respond to trade tensions by selling their Treasury holdings or refraining from purchasing new issuances, the impact on the Treasury market could be significant.

The scale of this risk becomes evident when we consider the U.S. government’s borrowing needs. Over the next 12 months, approximately $9.3 trillion in Treasury debt is projected to mature, while the federal budget deficit is expected to reach $2.6 trillion. Together, this necessitates issuing roughly $12 trillion in new debt—a considerable figure relative to the $29 trillion marketable Treasury market.

If foreign demand weakens, whether due to retaliatory trade actions or other factors, yields could rise sharply as the Treasury competes for buyers. Higher yields would elevate the government’s interest expenses, exacerbating the fiscal deficit. We suspect this dynamic may have influenced President Trump’s recent decision to delay tariff implementations, as rising yields signaled caution in the bond market.

This foreign ownership risk is but one consideration in a multifaceted Treasury market (e.g., inflation, Fed policy, recession). On the supply side, the U.S. fiscal outlook suggests persistent government spending, requiring continuous issuance of Treasuries to finance deficits. Any disruption to demand—foreign or otherwise—could push rates higher, challenging the historical perception of Treasuries as a risk-free safe haven.

Foreign ownership of Treasuries during a potential trade war is one of multiple reasons we have found ourselves cautious about owning long-term Treasuries in our client portfolios. While historically considered a safe haven, the unique combination of factors at play introduces the risk that rates may need to increase in the coming years to satisfy the growing supply of Treasuries. When looking to reduce risk in our client portfolios, we are focusing on shorter-term, less interest-rate-sensitive fixed income areas.

Disclaimer: This blog post is provided for informational purposes only and does not constitute investment advice, legal advice, or a recommendation to buy or sell any securities. Investing involves risks, including the potential loss of principal. The views expressed reflect Vaultis Private Wealth’s analysis as of April 14, 2025, and are subject to change without notice. Past performance is not indicative of future results. Please consult a qualified financial advisor to discuss your individual circumstances before making investment decisions.

529 Plans: A Guide to Education Savings

As the cost of education continues to rise, many families are looking for effective ways to save for their children's future. One popular option is the 529 plan, a tax-advantaged savings vehicle designed specifically for education expenses. In this guide, we'll explore what 529 plans are, how they work, and strategies to maximize their benefits.

What is a 529 Plan? A 529 plan is a state-sponsored investment account that allows families to save for education expenses with tax advantages. These plans are named after Section 529 of the Internal Revenue Code and are designed to encourage saving for future education costs. An account owner, typically a parent or grandparent, opens the account on behalf of a beneficiary (the future student).

Key Features of 529 Plans:

1. Tax Advantages: Earnings in 529 plans grow tax-free, and withdrawals for qualified education expenses are also tax-free at the federal level. Many states offer additional tax benefits for contributions.

2. Flexibility: Funds can be used for a wide range of qualified education expenses, including tuition, fees, books, supplies, and room and board for college. Since 2018, up to $10,000 per year can also be used for K-12 tuition expenses.

3. Control: The account owner maintains control of the funds, not the beneficiary. This includes the ability to change the beneficiary if needed.

Contribution Rules:

1. No Income Restrictions: Unlike some other savings vehicles, there are no income limits for contributing to 529 plans.

2. Gift Tax Considerations: Contributions are considered gifts for tax purposes. In 2025, you can contribute up to $19,000 per beneficiary annually without triggering gift tax reporting.

3. Superfunding Option: You can front-load up to five years of gifts at once, contributing up to $95,000 (or $190,000 for married couples) in a single year without incurring gift taxes, provided you make an election on your tax return.

Distribution Rules:

1. Qualified Distributions: Withdrawals for qualified education expenses are tax-free and penalty-free. These include:

• Tuition and fees

• Books and supplies

• Room and board (if enrolled at least half-time)

• Computer equipment and internet access

• K-12 tuition (up to $10,000 annually)

• Apprenticeship programs: Funds can be used for the beneficiary's participation in certain registered apprenticeship programs

• Student loan repayment: Up to $10,000 (lifetime limit) can be used to repay qualified student loans for the beneficiary 

2. Non-Qualified Distributions: Withdrawals for non-qualified expenses are subject to income tax on the earnings portion, plus a 10% penalty. Exceptions to the penalty include:

• Death or disability of the beneficiary

• Receipt of a scholarship by the beneficiary

• Attendance at a U.S. Military Academy

Funding Strategies:

1. Front-Loading: If financially feasible, consider making a large upfront contribution to maximize potential tax-free growth. Front-loading allows more time for investments to grow in the market, potentially leading to greater returns over time. This strategy can be particularly effective when you have access to lump sums, such as bonuses, stock options, or inheritances.

2. Automatic Contributions: Set up regular, automatic contributions from your bank account or paycheck to ensure consistent saving. This "set it-and-forget it" approach helps make saving a habit and integrates education savings seamlessly into your budget. Even small, regular contributions can add up significantly over time.

Investment Options: 

529 plans typically offer a range of investment options, including:

1. Age-Based Portfolios: These automatically adjust the asset allocation based on the beneficiary's age.

2. Static Portfolios: These maintain a consistent asset allocation over time.

3. Individual Fund Options: Some plans allow you to create your own portfolio from a selection of mutual funds.

Additional Features and Considerations:

Who Can Contribute? While the account owner maintains control of the 529 plan, anyone can contribute to it. This means parents, grandparents, other relatives, and even friends can all contribute to a child's education savings. This flexibility makes 529 plans an excellent tool for collective family saving efforts.

Flexibility in Beneficiary Designation: One of the key advantages of 529 plans is the ability to change the beneficiary. The account owner has the power to transfer the benefits to another qualifying family member without incurring penalties. For example, if you have multiple children and the older child doesn't use all the funds (perhaps due to scholarships or choosing a less expensive education path), you can change the beneficiary to a younger child. This flexibility ensures that the education savings can be used efficiently within the family.

New Roth IRA Conversion Option: Recent legislation has introduced an exciting new feature for 529 plans. Starting in 2024, account owners can convert a portion of unused 529 funds to a Roth IRA for the beneficiary. This option provides a valuable alternative for funds that aren't needed for education expenses. Here are the key details:

• Lifetime Limit: Up to $35,000 can be converted over the beneficiary's lifetime.

• Annual Limits: Conversions are subject to the annual Roth IRA contribution limits. For 2025, this limit is $7,000 (under 50).

• Account Age: The 529 account must have been open for at least 15 years.

• Contribution Timing: Only contributions (and earnings on those contributions) made at least 5 years before the conversion are eligible.

The ability to transfer excess funds to a Roth IRA can jumpstart the beneficiary's retirement savings, offering long-term financial benefits beyond education.

529 plans offer a tax-efficient way to save for education expenses, with flexible investment options, and now, potential retirement savings benefits. Whether you're a parent, grandparent, or someone else looking to support a child's education, a 529 plan can be an excellent choice. The ability to change beneficiaries and the new Roth IRA conversion option add even more flexibility to these already versatile savings tools.

By understanding the rules, employing smart funding strategies like front-loading or automatic contributions, and taking advantage of the plan's flexibility, you can maximize the benefits of these powerful savings vehicles. Remember, while this guide provides a general overview, tax laws and specific plan details can vary by state. It's always wise to consult with a financial advisor or tax professional to determine the best strategy for your individual situation.

Disclosure:

The information provided in this article is for general informational purposes only and should not be considered as personalized financial advice. This content does not take into account your individual circumstances, objectives, or needs. While we strive to provide accurate and up-to-date information, tax laws and regulations are subject to change, and specific details of 529 plans may vary by state. Before making any financial decisions or implementing strategies discussed in this article, we strongly recommend consulting with a qualified financial advisor, tax professional, or legal counsel. They can provide personalized advice based on your specific situation and help ensure compliance with current laws and regulations. The author and publisher of this article are not responsible for any actions taken based on the information provided herein. Investment involves risk, and past performance is not indicative of future results. Please carefully consider your financial situation, risk tolerance, and goals before making any investment or financial decisions.

Faux Diversification: The Hidden Risk in Standard Investment Portfolios

The Illusion of Diversification

In the investment world, diversification is often touted as the holy grail of risk management. But at Vaultis Private Wealth, we've observed a troubling trend—what we call faux diversification. This is a term we use to describe portfolios that may appear diversified on paper but fail to offer meaningful protection or differentiated exposure in practice. Too many advisory firms create portfolios that simply check boxes across broad asset classes—large cap, international, small cap—and label them as diversified.

The issue? These broad asset classes often perform similarly during market downturns, leaving investors more exposed than they realize.

True diversification isn't about owning a little bit of everything; it's about thoughtful, research-driven exposure to specific market segments that behave differently across various economic environments. At Vaultis, we take a fundamentally different approach to building truly diversified portfolios.

Avoiding the Industry’s “Check-the-Box” Mentality

Too often, industry-standard models rely on broad, benchmark-based allocations that serve more as a compliance shield than a strategic roadmap. These approaches are designed to be easily defensible on paper—aligned with conventional wisdom and institutional norms—but they often fall short in delivering meaningful outcomes for clients.

At Vaultis, we reject this “set-it-and-defend-it” mentality. Instead, we embrace a more hands-on, conviction-driven process rooted in current research, market awareness, and client-specific goals.

Precision Over Generalization

While broad-based ETFs can play a role in our portfolios, we don't stop there. Our approach involves digging deeper when our research indicates more specific opportunities. Take emerging markets, for instance. Sometimes a broad emerging markets fund might be appropriate, but often our analysis leads us to more targeted investments—like small-cap Indian companies or large-cap Latin American firms—based on growth potential and market conditions.

This nuanced approach allows us to capture unique dynamics that are often missed in generalized strategies. It's not just about being in emerging markets; it's about being in the right emerging markets, in the right way, at the right time.

By combining broad-based funds where appropriate with more specific, research-based selections, we aim to create portfolios that move beyond surface-level asset allocation.

Conviction-Driven Allocations

Another key differentiator in our approach is our willingness to take strong positions based on our research. We're not bound by industry norms or benchmark weightings. If our analysis suggests that U.S. large-cap stocks offer superior opportunities, we're not afraid to significantly overweight that sector.

Conversely, if we believe international equities are likely to face headwinds, we may substantially underweight them. This dynamic approach, driven by ongoing research and internal debate, ensures that our portfolios reflect our best current thinking—not a static, one-size-fits-all template.

Continuous Evaluation and Adaptation

Our commitment to true diversification doesn't end with initial portfolio construction. Our investment team constantly challenges assumptions, debates positioning, and re-evaluates holdings. This ongoing process ensures that our portfolios evolve with changing market conditions and emerging opportunities.

We're not wedded to any particular allocation or style. If our research signals a shift in market dynamics, we're ready to adjust. That flexibility is crucial in navigating an ever-changing global investment landscape.

The Vaultis Difference

While many in the industry claim to offer diversified portfolios, we believe our approach offers a more thoughtful alternative. By focusing on specific exposures, maintaining the conviction to act on our research, and continuously adapting to new information, we aim to deliver portfolios that are truly built to perform.

True diversification isn't about spreading thin across categories—it’s about depth, precision, and relevance. At Vaultis, we're committed to cutting through the noise of faux diversification and delivering investment strategies that align with our clients' goals and values.

Frequently Asked Questions

What is diversification?

Diversification is an investment strategy that spreads capital across different types of assets or markets to reduce risk. The goal is to include investments that don’t move in perfect sync, so that losses in one area may be offset by gains in another. True diversification requires thoughtful selection—not just variety for its own sake.

What is faux diversification?

Faux diversification is a term we use at Vaultis to describe portfolios that look diversified on the surface—typically by including several broad asset classes—but in reality offer limited risk protection because the underlying investments tend to behave similarly. This kind of “box-checking” approach is common in the industry but can mislead investors into a false sense of security.

How is Vaultis’ approach to diversification different?

We go beyond generic allocations. Our investment process includes ongoing research, market-specific insights, and the willingness to take meaningful positions when we believe the data supports it. We blend broad market exposure with more focused strategies where appropriate to pursue better outcomes for our clients.

Why not just follow a standard model portfolio?

Standard model portfolios are often built to be defensible for the advisor—not optimal for the client. At Vaultis, we believe one way we earn our value is through hands-on research and thoughtful portfolio construction tailored to the specific needs and goals of each client.

Disclosures: Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is not indicative of future results. The investment strategies mentioned may not be suitable for all investors. The opinions expressed are those of Vaultis Private Wealth and are subject to change without notice.

Understanding Fiduciary Responsibility in Wealth Management

In the complex world of wealth management, one term stands out as a beacon of trust and responsibility: fiduciary. But what does it mean to be a fiduciary, and why is it so crucial when it comes to managing your hard-earned wealth? In this blog post, we'll explore the concept of fiduciary duty, its significance in the financial industry, and how Vaultis Private Wealth upholds this standard of client care.

What Does It Mean to Be a Fiduciary?

A fiduciary is a person or entity that has a legal and ethical obligation to act in the best interests of their clients. In the context of wealth management, this means that financial advisors who are fiduciaries must put their clients' interests ahead of their own at all times. This includes:

1. Providing advice and recommendations that are in the client's best interest

2. Disclosing any potential conflicts of interest

3. Being transparent about fees and compensation

4. Offering unbiased investment options

5. Regularly reviewing and adjusting strategies to align with the client's goals

Why Is Fiduciary Responsibility Important?

The importance of fiduciary responsibility in wealth management cannot be overstated. Here's why:

1. Trust and Confidence: When working with a fiduciary, clients can trust that their advisor is legally bound to act in their best interests, fostering a relationship built on confidence and transparency.

2. Conflict-Free Advice: Fiduciaries must avoid conflicts of interest or, at the very least, disclose them fully. This ensures that the advice given is not influenced by hidden agendas or personal gain.

3. Long-Term Focus: Fiduciaries are more likely to recommend strategies that align with a client's long-term goals rather than pushing products or services that may generate higher commissions but may not be the best fit.

4. Higher Standard of Care: The fiduciary standard is generally considered to be higher than the "suitability" standard that applies to non-fiduciary financial professionals. While the suitability standard only requires that investments be appropriate for a client's needs and objectives, the fiduciary standard goes further. Fiduciaries must not only ensure investments are suitable but must also recommend the best options for their clients, putting the client's interests ahead of their own.

5. Legal Accountability: Fiduciaries can be held legally accountable for breaching their duty, which provides an additional layer of protection for clients.

Our Commitment to Fiduciary Duty

At Vaultis Private Wealth, we recognize that being a fiduciary is not just a legal obligation but a fundamental principle that guides everything we do. Here's how we strive to uphold our fiduciary duty:

1. Alignment with Our Values: Our core mission is to help our clients achieve their financial goals. Being a fiduciary aligns perfectly with this mission, as it requires us to always put our clients' interests first.

2. Building Trust: We understand that managing wealth is a significant responsibility. By adhering to fiduciary standards, we aim to build and maintain the trust of our clients, which we believe is the foundation of any successful long-term financial relationship.

3. Transparency and Clarity: Our commitment to being a fiduciary means we're dedicated to providing clear, transparent communication about our services, fees, and investment strategies. This clarity helps our clients make informed decisions about their wealth.

4. Addressing Conflicts of Interest: We continually work to identify and address potential conflicts of interest. This includes our innovative Dynamic Advisory Fee model, which caps our fees at certain asset levels. For detailed information about our fee structure, please refer to our Form ADV, available on our website or upon request.

5. Comprehensive Wealth Management: Our fiduciary duty extends beyond just investment management. It encompasses all aspects of wealth management, including financial planning, estate planning, and tax optimization strategies. This holistic approach allows us to truly serve our clients' best interests in every facet of their financial lives.

In an industry where trust is paramount, being a fiduciary sets a clear standard for ethical and responsible wealth management. At Vaultis Private Wealth, we've embraced this standard not just as a legal requirement, but as a core principle that defines who we are and how we serve our clients. By always putting our clients first and addressing potential conflicts of interest, we strive to build lasting relationships based on trust, transparency, and shared success.

When choosing a wealth management partner, we encourage you to ask about their fiduciary status and what it means for you as a client. At Vaultis, we're committed to upholding our fiduciary duty, ensuring that your financial well-being is always our top priority.

Disclosure: Vaultis Private Wealth is a Registered Investment Advisor (RIA). As an RIA, we are legally required to act as fiduciaries for our clients. For more detailed information about our services, fees, and fiduciary obligations, please refer to our Form ADV, which is available on our website or upon request. Past performance does not guarantee future results. Investing involves risk, including the potential loss of principal. Please consult with a financial advisor before making any investment decisions.

Navigating Fixed Income in a Changing Landscape

In the world of investing, bonds have long been considered a safe harbor, a reliable counterweight to the volatility of stocks. However, at Vaultis Private Wealth, our outlook on bonds is more nuanced as we recognize that the fixed income landscape has evolved significantly in recent years. We believe that many investors may be underestimating the risks lurking within their fixed income allocations. As the financial landscape evolves, it's crucial to reassess the role and risks of bonds in modern portfolios.

Current Market Risks in the Bond Sector

The bond market today faces a storm of challenges that investors cannot afford to ignore. At the core of these challenges is the precarious fiscal situation in which many developed economies, including the United States, find themselves. Massive government spending and ballooning deficits have led to unprecedented levels of national debt. This fiscal reality puts significant pressure on the bond market, potentially leading to higher yields and lower prices.

Moreover, inflation has become a persistent and unpredictable concern. While we've seen periods of moderation, it's likely that we'll continue to see inflation ebb and flow in the coming years. This cyclical nature of inflation creates a challenging environment for bonds. During inflationary spikes, the real value of bond returns erodes quickly. Conversely, when inflation moderates, central banks, particularly the Federal Reserve, may adjust interest rates, causing bond prices to fluctuate. This constant push and pull makes it difficult for bonds to deliver consistent real returns.

From a real return perspective – that is, returns after accounting for inflation – the outlook for traditional bonds is particularly challenging. With nominal yields still relatively low by historical standards, even modest inflation can significantly eat into returns. As inflation waxes and wanes, many bond investments may struggle to provide meaningful real returns over time. This situation creates a significant hurdle for investors relying on bonds for wealth preservation and income, as the purchasing power of their bond returns may be consistently undermined by inflationary pressures.

The Danger of Complacency in Fixed Income Investing

Despite these clear and present risks, many investors and advisors continue to treat their bond allocations with a "set it and forget it" mentality. This complacency is particularly concerning given the stark reminder we received in 2022 of how quickly bond markets can turn.

In 2022, as interest rates rose sharply, many bond investors experienced significant losses – a reality that caught many off guard. The Bloomberg U.S. Aggregate Bond Index, a common benchmark for the broad bond market, posted its worst annual return in decades. To put this into perspective, the iShares Core U.S. Aggregate Bond ETF (AGG), which tracks this index, suffered a -13.01% total return in 2022. Even more dramatically, longer-duration government bonds, as represented by the iShares 20+ Year Treasury Bond ETF (TLT), plummeted by -31.22% in the same year. This event should have been a wake-up call, yet many investors seem to have hit the snooze button.

The persistent view of bonds as the "safe" part of a portfolio can lead to a false sense of security. Many investors may be unknowingly exposed to duration risk, credit risk, or concentration risk within their bond holdings. The belief that bonds will always provide stability and income, regardless of market conditions, is a dangerous oversimplification in today's complex financial landscape.

A Nuanced Approach to Fixed Income

While our outlook on traditional bonds is cautious, this isn't a call to abandon fixed income altogether. Rather, it's a plea for a more nuanced, active approach to this crucial asset class. The key lies in understanding what you own and why you own it.

In the current environment, investors might consider alternatives to traditional long-duration government and corporate bonds. Treasury Inflation-Protected Securities (TIPS) can provide a hedge against inflation risk. Short-dated bonds can help mitigate interest rate risk. Collateralized Loan Obligations (CLOs), while more complex, can offer attractive yields with some protection against rising rates due to their floating-rate nature. Convertible bonds can provide a unique blend of fixed income stability with potential equity upside, which may be attractive in certain market conditions. High-yield bonds, although carrying higher credit risk, can offer enhanced income potential and may be less sensitive to interest rate changes compared to investment-grade bonds. 

However, it's crucial to emphasize that the specific mix of these instruments should be carefully tailored. The optimal allocation will depend on individual circumstances, risk tolerance, investment goals, and the prevailing market environment. A skilled advisor can help navigate these options and construct a fixed income portfolio that aligns with an investor's unique needs and the current economic landscape.

Most importantly, successful fixed income investing in today's market requires being intentional. It demands a thorough process that consistently monitors and manages these risks. At Vaultis, our investment team employs sophisticated research and a global perspective to navigate these choppy waters. We believe that active management, careful security selection, and a willingness to challenge conventional wisdom are essential in today's bond market.

Conclusion

The fixed income landscape is changing, and yesterday's safe haven may be tomorrow's unexpected risk. While bonds remain an important part of a diversified portfolio, the key is to approach fixed income with a tactical, well-informed strategy. As an investor, it's crucial to work with advisors who understand these nuances and can help navigate the complexities of the modern bond market. By staying informed, remaining vigilant, and adopting a more active approach to fixed income investing, you can better position your portfolio to weather the challenges and opportunities that lie ahead. In today's dynamic financial environment, a thoughtful and adaptable fixed income strategy is not just beneficial—it's essential for long-term financial success.

Disclosure:

This article is for informational purposes only and does not constitute investment advice. Investing involves risks, including possible loss of principal. Past performance does not guarantee future results. Fixed income securities are subject to various risks, including interest rate, inflation, credit, and default risk. Alternative investments like CLOs, convertible bonds, and high-yield bonds carry additional risks and may not be suitable for all investors. The views expressed are those of Vaultis Private Wealth as of the date of publication and are subject to change. Any forward-looking statements are based on current expectations but are not guarantees of future performance. Diversification and asset allocation do not ensure profit or protect against loss in declining markets. Before investing, consider your financial situation, goals, and risk tolerance, and read all offering documents carefully. Vaultis Private Wealth is a Registered Investment Advisor. More information about our services can be found in our Form ADV Part 2, available upon request.

CLOs Explained: Structure, Function, and Market Role

In the ever-evolving world of finance, sophisticated investors are constantly seeking ways to enhance portfolio performance. One investment vehicle gaining traction among market participants is the Collateralized Loan Obligation (CLO). Let’s explore what CLOs are, how they work, and why they're attracting attention from investors and wealth managers alike.

What are CLOs?

Collateralized Loan Obligations (CLOs) are structured credit instruments that pool together a diverse set of corporate loans. Imagine a carefully curated basket of loans, typically made to below-investment-grade companies. These loans are then divided into different "tranches" or slices, each offering varying levels of risk and return.

How do CLOs work?

1. Loan Collection: A CLO manager assembles a portfolio of corporate loans.

2. Securitization: These loans are packaged into a single security.

3. Tranching: The CLO is divided into tranches, ranging from senior (lower risk, lower yield) to equity (higher risk, potentially higher returns).

4. Active Management: Unlike some static pools, CLOs are actively managed by experienced professionals.

Key Features of CLOs:

1. Floating Rate: CLO coupons typically adjust with interest rates, offering some protection in rising rate environments.

2. Diversification: A single CLO can contain hundreds of loans across various sectors.

3. Structural Protections: Built-in safeguards aim to protect investors, especially in senior tranches.

4. Potential for Higher Yields: Compared to similarly rated corporate bonds, CLOs often offer yield premiums.

Why CLOs are Attractive to Investors

CLOs have several compelling attributes that make them an intriguing option for sophisticated investors:

1. Strong Historical Performance: Despite their complexity, CLOs have demonstrated resilience. AAA-rated CLO tranches have never experienced a default in the asset class's 30+ year history.

2. Yield Enhancement: CLOs can offer attractive returns, especially for those willing to venture into mezzanine tranches.

3. Floating Rate Nature: As we navigate uncertain interest rate landscapes, the floating rate feature of CLOs can provide a hedge against rising rates.

4. Diversification Benefits: CLOs can help diversify fixed income portfolios beyond traditional corporate and government bonds.

5. Active Management Advantage: The expertise of CLO managers in selecting and managing the loan portfolio can add significant value.

6. Structural Protections: Features like overcollateralization and interest coverage tests are designed to protect investors, particularly in senior tranches.

Approaching CLOs with Due Diligence

While CLOs offer significant potential, they require careful analysis and understanding. Investors and wealth managers typically conduct:\

• In-depth credit analysis of underlying loans

• Thorough evaluation of CLO structures and documentation

• Careful selection of CLO managers with proven track records

• Ongoing monitoring and risk management

When properly understood and strategically incorporated, CLOs can be a valuable component of a well-diversified portfolio, potentially offering enhanced yields without undue risk.

Conclusion

CLOs represent a sophisticated investment option that aligns with the goals of investors seeking innovative ways to generate returns. While they require expertise to navigate, the potential benefits make them a worthy consideration for suitable investors looking to enhance their portfolio strategies.

As with any investment decision, it's crucial to consider individual investment goals and risk tolerance. CLOs, while powerful, are not suitable for every investor. However, for those with the right risk profile and investment horizon, they can offer an intriguing opportunity to potentially boost returns and diversify fixed income holdings.

In the complex world of modern finance, CLOs stand out as a testament to financial innovation - offering new ways to access corporate credit markets and potentially enhance portfolio performance. At Vaultis Private Wealth, we recognize the potential of CLOs and include them as part of our overall portfolio strategy for suitable clients. However, it's important to note that CLOs, while powerful, are not appropriate for every investor. As with any sophisticated investment vehicle, education and careful consideration are key. Our team at Vaultis is committed to helping clients understand these complex instruments and determine if they align with individual investment goals and risk tolerances. By leveraging our expertise in CLOs and other innovative financial tools, we strive to create robust, diversified portfolios tailored to each client's unique financial objectives.

Disclosures 

Past performance is not indicative of future results. The historical performance of CLOs does not guarantee future results. Investing in CLOs involves risks, including credit risk, interest rate risk, and liquidity risk. CLOs are complex financial instruments and may not be suitable for all investors.  This material is for informational purposes only and does not constitute investment advice. Investors should consult with their financial advisor to determine if CLOs are appropriate for their individual circumstances. At Vaultis Private Wealth, we include CLOs as part of our overall portfolio strategy for suitable clients. However, it is important to note that CLOs are not appropriate for every investor. Our team is committed to helping clients understand these complex instruments and determine if they align with individual investment goals and risk tolerances.

Retirement Plans for Small Business Owners

As a small business owner, offering a retirement plan is not just about attracting and retaining talented employees—it's also about securing your own financial future. With various retirement plan options available, choosing the right one can be challenging. As a business owner, your retirement planning needs are unique, often intertwined with your business succession strategy and personal financial goals. This article will explore different retirement plans suitable for small businesses, focusing on how they can benefit you as the business owner. We will discuss their features, benefits, contribution limits, and considerations to help you make an informed decision.

1. 401(k) Plans (Traditional and Roth)

Overview: A 401(k) plan is a popular retirement savings option that allows employees, including business owners, to contribute pre-tax dollars from their wages, with the option for employers to match contributions. Additionally, a traditional 401(k) can include a Roth 401(k) feature, allowing for after-tax contributions with tax-free withdrawals in retirement.

Ideal for: 401(k) plans are ideal for business owners with more than 25 employees who want to offer a competitive benefits package while maximizing their own retirement savings. The Roth feature is particularly beneficial if you expect to be in a higher tax bracket in retirement.

Contribution Limits (2024):

• Employee contribution: Up to $23,000 annually

• Catch-up contribution (age 50+): Additional $7,500

• Total contribution (employee + employer): $69,000 or 100% of compensation, whichever is less

Tax Benefits: Contributions to a traditional 401(k) are made with pre-tax dollars, reducing your taxable income, while Roth 401(k) contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement. Employer contributions are tax-deductible.

Considerations: 401(k) plans require annual non-discrimination testing and have higher administrative costs compared to some other plans. However, they offer flexibility and high contribution limits, making them a robust option for business owners looking to maximize their retirement savings.

As a business owner, this plan type may offer you the ability to save significantly for retirement while providing a valuable benefit to attract and retain top talent.

2. Solo 401(k) Plans

Overview: Also known as an individual 401(k), this plan is designed for self-employed individuals or business owners with no employees other than a spouse. It allows for significant contributions as both employer and employee.

Ideal for: Solo 401(k) plans are perfect for sole proprietors, partnerships, and small business owners with no full-time employees. This plan offers a retirement savings option without the complexity of managing a larger plan.

Contribution Limits (2024):

• As both employer and employee, you can contribute up to $69,000 annually

• Catch-up contribution (age 50+): Additional $7,500

The contribution limits for Solo 401(k) plans is higher than traditional 401(k) plans because you can contribute in two capacities: as both the employee and the employer. This dual contribution ability allows you to maximize your retirement savings more effectively than with other plan types. 

Tax Benefits: Contributions are tax-deductible, and earnings grow tax-deferred, providing significant tax advantages for self-employed individuals.

Considerations: Solo 401(k) plans are easy to administer with minimal paperwork but require filing Form 5500 when plan assets exceed $250,000. This plan is ideal for business owners looking to maximize their retirement savings without the administrative burden of a larger plan.

As a business owner, this plan type may offer you the flexibility to maximize your retirement savings while maintaining full control over your contributions and investments.

3. SIMPLE IRA (Savings Incentive Match Plan for Employees)

Overview: A SIMPLE IRA is a straightforward retirement plan that's easy to set up and manage, with mandatory employer contributions.

Ideal for: SIMPLE IRAs are ideal for business owners with 100 or fewer employees who want a low-cost, easy-to-administer plan that still provides valuable retirement benefits for themselves and their employees.

Contribution Limits (2024):

• Employee contribution: Up to $16,000 annually

• Catch-up contribution (age 50+): Additional $3,500

• Employer must match up to 3% of employee contributions or provide a 2% non-elective contribution for all eligible employees

Tax Benefits: Employee contributions are made with pre-tax dollars, and employer contributions are tax-deductible, making it a tax-efficient option for both parties.

Considerations: SIMPLE IRAs have lower contribution limits compared to 401(k) plans and require mandatory employer contributions. However, they are easy to set up and maintain, making them a convenient option for business owners looking for simplicity.

As a business owner, this plan type may offer you a straightforward way to save for retirement while providing a valuable benefit to your employees with minimal administrative burden.

4. SEP IRA (Simplified Employee Pension)

Overview: A SEP IRA allows employers to make tax-deductible contributions to their employees' retirement accounts, with high contribution limits relative to other plans.

Ideal for: SEP IRAs are ideal for self-employed individuals and small business owners with few employees. This plan offers a simple and flexible retirement savings option with significant tax advantages.

Contribution Limits (2024):

• Up to 25% of an employee's compensation or $69,000, whichever is less

• Same percentage must be contributed for all eligible employees

Tax Benefits: Contributions are tax-deductible for the employer, and earnings grow tax-deferred, providing significant tax advantages.

Considerations: Only employers can contribute to SEP IRAs, and they are easy to set up and administer. However, SEP IRAs can be less suitable for businesses with many employees due to the requirement to contribute the same percentage for all eligible employees. This can become costly as your workforce grows. This plan is ideal for business owners looking for a straightforward and tax-efficient way to save for retirement, particularly those with a small number of employees or solo practitioners.As a business owner, this plan type may offer you the ability to make substantial contributions to your own retirement while maintaining flexibility in your annual contribution amounts.

5. Safe Harbor 401(k)

Overview: A Safe Harbor 401(k) is similar to a traditional 401(k) but automatically passes non-discrimination testing, making it easier to manage.

Ideal for: Safe Harbor 401(k) plans are ideal for small to medium-sized business owners who want to maximize their own contributions and those of highly compensated employees without the risk of failing non-discrimination tests.

Contribution Limits (2024):

• Same as traditional 401(k)

Tax Benefits: Safe Harbor 401(k) plans offer similar tax benefits to traditional 401(k) plans, including tax-deductible contributions and tax-deferred growth.

Considerations: Safe Harbor 401(k) plans require mandatory employer contributions, which are immediately 100% vested, providing a strong incentive for employee participation. This plan is ideal for business owners looking for a straightforward way to maximize contributions and ensure compliance.

Non-discrimination testing, which these plans automatically pass, is an annual requirement for traditional 401(k) plans to ensure they don't unfairly benefit highly compensated employees or key company decision-makers. By passing these tests automatically, Safe Harbor plans reduce administrative burden and allow higher-earning employees to maximize their contributions without restriction.

This plan is ideal for business owners looking for a straightforward way to maximize contributions and ensure compliance without the worry of failing non-discrimination tests.

As a business owner, this plan type may offer you the ability to maximize your own retirement savings without concerns about test failures, while also providing a valuable benefit to your employees.

Choosing the right retirement plan for your small business depends on various factors, including the size of your company, your budget, and your retirement goals. Each plan type offers unique advantages and considerations, from contribution limits to tax benefits and administrative requirements. By carefully evaluating these options and consulting with a financial advisor, you can select a retirement plan that best serves your business and your long-term financial goals.

For personalized guidance on selecting and managing the right retirement plan for your business, consider reaching out to Vaultis Private Wealth. Our team of experts specializes in working with business owners like you, understanding the unique challenges and opportunities you face in planning for retirement while managing your business. We can help you navigate the complexities of retirement planning, integrate it with your business succession strategy, and optimize your overall financial picture. Contact us today to learn how we can assist you in achieving your retirement goals while maximizing the value of your business.

Disclosures: The information provided in this article is for educational purposes only and should not be considered as financial, legal, or tax advice. Please consult with a financial advisor, tax professional, or legal counsel for advice specific to your business and personal financial situation. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. It is important to carefully consider your investment objectives, risk tolerance, and time horizon before making any investment decisions. Retirement plans are subject to various IRS and Department of Labor regulations. Business owners should ensure that their chosen retirement plan complies with all applicable laws and regulations, including contribution limits and non-discrimination requirements. The tax benefits and implications of retirement plans can vary based on individual circumstances and changes in tax laws. It is recommended to consult with a tax professional to understand the specific tax implications for your business and personal finances. The administration of retirement plans may involve additional costs and responsibilities. Business owners should consider these factors when selecting a retirement plan and may wish to engage a third-party administrator or financial institution to assist with plan management. The information in this article is based on current laws and regulations as of the date of publication. Future changes in legislation or regulations may impact the suitability or benefits of certain retirement plans. Regularly review your retirement plan options to ensure they continue to meet your needs.

Tax-Loss Harvesting: A Year-Round Strategy

In the complex world of investment management, understanding and leveraging tax-efficient strategies is crucial for maximizing wealth. One such strategy, often misunderstood or underutilized, is tax-loss harvesting.

Tax-loss harvesting is a method of reducing your tax liability by strategically selling investments that have experienced a loss. These realized losses can then be used to offset capital gains from other investments, which may lower your overall tax bill. If your capital losses exceed your capital gains in a given year, you can use up to $3,000 of the excess to offset ordinary income, with any remaining losses carried forward to future tax years.

The mechanics of tax-loss harvesting are straightforward, but its effective implementation requires careful planning and execution. When an investment in your portfolio has declined in value, you sell it to realize the loss for tax purposes. Immediately after, you reinvest the proceeds in a similar (but not identical) investment to maintain your desired market exposure. This process allows you to capture the tax benefit without significantly altering your investment strategy.

It's crucial to note the IRS "wash sale" rule, which prohibits claiming a loss on a security if you purchase the same or a "substantially identical" security within 30 days before or after the sale. Navigating this rule effectively is essential to successful tax-loss harvesting.

While many investors and even some advisors only consider tax-loss harvesting at year-end, at Vaultis Private Wealth, we recognize that market volatility creates opportunities for tax-loss harvesting throughout the year. Our approach is proactive and ongoing, designed to capture value for our clients whenever market conditions present an opportunity.

Our team continuously monitors client portfolios for tax-loss harvesting opportunities. We employ sophisticated software and analytics to identify investments that have declined in value and may be candidates for harvesting. This constant vigilance allows us to act swiftly when opportunities arise, rather than waiting for an arbitrary date on the calendar.

When we identify a potential tax-loss harvesting opportunity, we carefully evaluate it in the context of the client's overall financial picture. We consider factors such as the size of the loss, the client's current and projected tax situation, and the role of the investment in the overall portfolio strategy. This thorough analysis ensures that any tax-loss harvesting action aligns with the client's broader financial goals.

The benefits of this year-round, proactive approach to tax-loss harvesting are significant:

1. Tax Savings: By consistently identifying opportunities to offset capital gains and potentially reduce ordinary income, clients may see substantial reductions in their annual tax bills. This approach can be particularly beneficial in years with significant market volatility.

2. Improved After-Tax Returns: Over time, the tax savings generated through harvesting can be reinvested, potentially leading to enhanced long-term portfolio growth. This compounding effect can significantly impact wealth accumulation over an investor's lifetime.

3. Customized Approach: By integrating tax-loss harvesting into our ongoing portfolio management process, we can tailor the strategy to each client's unique financial situation. This personalized approach ensures that tax-loss harvesting decisions are made in the context of the client's overall investment strategy, risk tolerance, and tax circumstances.

In conclusion, tax-loss harvesting is a powerful tool for enhancing after-tax returns, but its effectiveness lies in consistent, year-round implementation. At Vaultis Private Wealth, we've made this strategy an integral part of our investment management process, allowing us to capitalize on opportunities as they arise and maximize the potential benefits for our clients. By doing so, we help ensure that tax considerations are not just an afterthought, but a key component of a comprehensive wealth management strategy.

Disclosures:

The information provided in this article is for educational purposes only and should not be considered as investment advice. Tax-loss harvesting strategies may not be suitable for all investors, and the benefits can vary based on individual circumstances. The effectiveness of tax-loss harvesting is subject to change based on tax laws, which are subject to change. Investors should consult with their tax advisor or financial professional to understand the implications of tax-loss harvesting on their specific tax situation. Vaultis Private Wealth does not guarantee any specific tax savings or investment outcomes. Past performance is not indicative of future results. Please be aware that the IRS "wash sale" rule may limit the ability to claim tax losses if a substantially identical security is purchased within 30 days before or after the sale. It is important to adhere to this rule to ensure compliance. For personalized advice tailored to your financial situation, please contact a qualified financial advisor.

Estate Planning: A Cornerstone of Your Financial Future

At Vaultis Private Wealth, we understand that a comprehensive financial strategy extends far beyond investment management. Estate planning is a crucial component of this strategy, serving as one of the cornerstones of our financial planning process. By addressing estate planning early and thoroughly, we help ensure that your legacy is protected and your wishes are honored.

What is Estate Planning?

Estate planning is the process of arranging for the management and disposal of your estate during your lifetime and after death. It's not just for the wealthy; everyone can benefit from having an estate plan in place. The primary goals of estate planning include:

1. Ensuring your assets are distributed according to your wishes

2. Minimizing taxes, legal fees, and court costs

3. Naming guardians for minor children

4. Providing for family members with special needs

5. Establishing advance directives for healthcare decisions

Key Components of an Estate Plan

A comprehensive estate plan typically includes several important documents:

1. Will: This legal document specifies how you want your assets distributed after your death and names an executor to manage your estate.

2. Trust: Trusts can help manage and protect your assets during your lifetime and after death, potentially avoiding probate.

3. Power of Attorney: This document designates someone to make financial decisions on your behalf if you become incapacitated.

4. Healthcare Directive: Also known as a living will, this outlines your wishes for medical care if you're unable to communicate them yourself.

5. Beneficiary Designations: These ensure your retirement accounts, life insurance policies, and other assets go directly to your chosen beneficiaries.

Why Estate Planning Matters

Estate planning is crucial for several reasons:

1. Control: It allows you to decide how your assets are distributed, rather than leaving it to state laws.

2. Protection for Minor Children: You can name guardians for your children and set up trusts to manage their inheritance.

3. Minimizing Taxes: Proper planning can help reduce estate taxes, leaving more for your beneficiaries.

4. Avoiding Probate: Certain estate planning tools can help your heirs avoid the time-consuming and potentially costly probate process.

5. Peace of Mind: Knowing your affairs are in order can provide significant peace of mind for you and your loved ones.

The Importance of Professional Guidance

While online resources and DIY options exist, estate planning can be complex, especially when dealing with significant assets or unique family situations. Working with experienced professionals ensures your plan is comprehensive, legally sound, and tailored to your specific needs.

At Vaultis Private Wealth, we're committed to helping you navigate this crucial aspect of financial planning. As part of our comprehensive service, we:

1. Help you understand the importance of estate planning in your overall financial strategy

2. Guide you through the key considerations based on your unique situation

3. Connect you with trusted estate planning attorneys and other professionals

4. Work alongside these professionals to ensure your estate plan aligns with your overall financial goals

Take the First Step

Don't leave your legacy to chance. Understanding and implementing a comprehensive estate plan is key to ensuring your wishes are honored and your loved ones are cared for. At Vaultis Private Wealth, we're here to guide you through this important process. Reach out to us today to learn more about how we can help you navigate estate planning and build a lasting legacy.

Disclosures:

The information provided in this blog post is for informational purposes only and should not be construed as legal or financial advice. Always consult with a qualified attorney or financial advisor to discuss your specific circumstances and needs. Vaultis Private Wealth does not provide legal services. We connect clients with trusted estate planning attorneys and other professionals who can assist with the creation and implementation of estate plans. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Vaultis Private Wealth does not provide tax advice. Consult with a tax professional for advice on your specific tax situation. The dedication of a portion of advisory fees to cover the cost of connecting you with estate planning professionals is subject to the terms and conditions of your advisory agreement with Vaultis Private Wealth.

The Importance of Regular Estate Plan Reviews

In the dynamic world of wealth management, one crucial aspect often overlooked is the regular review of estate plans. At Vaultis Private Wealth, we emphasize that an estate plan is not a "set it and forget it" document. Here's why consistent reviews are essential:

Evolving Tax Laws

Tax legislation is constantly changing. What was optimal for your estate plan last year might not be the most advantageous strategy today. Regular reviews ensure your plan aligns with current tax laws, potentially saving your heirs significant sums

Life Changes

Major life events such as marriages, divorces, births, or deaths in the family can dramatically impact your estate planning needs. Reviewing your plan annually allows for timely adjustments to reflect your current family situation.

Asset Fluctuations

Your net worth isn't static. As your assets grow or your investment portfolio changes, your estate plan should be updated to reflect these changes. This is particularly crucial for those nearing or crossing the federal estate tax threshold.

Evolving Goals and Priorities

Your philanthropic interests or desires for wealth distribution may change over time. Regular reviews provide opportunities to realign your estate plan with your current wishes and values.

Changes in Estate Planning Strategies

New estate planning tools and strategies emerge regularly. Periodic reviews allow us to implement innovative approaches that could better serve your wealth transfer goals.

Business Ownership Considerations

For business owners, company valuations and succession plans can change rapidly. Regular estate plan reviews ensure your business interests are properly addressed and protected.

At Vaultis Private Wealth, estate plan reviews are a key component of our wealth management process. Our team of experts is committed to staying abreast of changes in tax laws, economic conditions, and estate planning strategies that may impact your plan.

When we conduct an estate plan review, we perform a thorough examination of your entire wealth transfer strategy. If we identify areas that may benefit from updates, we work collaboratively with you and your attorney to implement these changes. This team approach ensures that your estate plan remains aligned with your current financial situation, personal goals, and the latest legal and tax considerations.

By maintaining an up-to-date estate plan, you can have confidence that your hard-earned wealth is protected and will be distributed according to your wishes. It's a critical aspect of comprehensive wealth management that provides peace of mind for you and your heirs.

We encourage you to prioritize your estate plan as an integral part of your overall financial strategy. Contact Vaultis Private Wealth today to discuss how we can help ensure your estate plan continues to serve your evolving needs and secure your family's financial future.

Disclosures:

The information provided in this article is for general informational purposes only and does not constitute legal, tax, or investment advice. Readers should consult with their own legal, tax, and financial advisors before making any decisions based on the content of this article. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Vaultis Private Wealth does not guarantee that the strategies discussed will be suitable or profitable for every individual. Each individual's financial situation is unique, and you should seek personalized advice from qualified professionals.