Modern Wealth Builders Press Features
Expert Advice on Life Insurance vs. Roth IRA for Retirement
Our research indicates some consumers are considering whether to fund a Roth IRA or permanent life insurance to plan for retirement. Why might they be making this comparison?
If someone is considering funding permanent life insurance over a Roth IRA, it's probably because they're being sold on it. In my experience as a fee-only advisor (and someone who previously had an insurance license) without an incentive to sell a product, I rarely find that permanent insurance makes sense for the vast majority of people. Unless you have an estate tax liability (very few people do) or own an illiquid business, most would be much better served by term insurance and investing the difference using accounts like a Roth IRA. The fact that this is even a question is silly because if you are able to contribute to a Roth IRA directly, you're not a high enough earner to benefit from any tax deferral a complex permanent insurance policy may provide.
How do the contributions and contribution limits for a Roth IRA compare to premium payments for life insurance?
For 2024, phaseouts for direct Roth IRA contributions start at $146k MAGI (single filer) and $230k MAGI (married filing jointly). You can make up to a $7k direct Roth contribution if you're below those thresholds. However, there are still ways to make backdoor Roth IRA contributions even if you exceed the phaseout limits. Premium payments for permanent life insurance will depend on the specific product and coverage amount. Again, I would highly recommend maxing Roth IRA contributions (and many other things) before considering funding a permanent life insurance policy.
Recently some social media accounts have touted the value of insurance as a way to save for and fund retirement. Is this just marketing?
Yes, I'd say the people marketing these products have a substantial conflict of interest as they get paid via commission for selling these products. A true advice professional would examine the individual's situation and personal goals and would not have a one-size-fits-all solution for retirement planning. I highly recommend following Andy Panko on LinkedIn to understand the tactics of IUL salespeople in particular.
For the typical consumer who’s not eligible for a Roth IRA, but isn’t ultra wealthy, how would you recommend they employ these products? Would you recommend one over the other or some usage of both?
Keep in mind that anyone can contribute to a traditional IRA; it's just that their contribution may not be deductible if their income exceeds the phaseout amount. However, if they don't have any pre-tax money existing in their IRA, they can convert this money to a Roth IRA (this is known as a backdoor Roth IRA contribution). There are many different accounts to consider funding before permanent life insurance, such as a 401(k), a health savings account and even a taxable brokerage account. I would highly recommend keeping insurance and investments separate. Combining the two is a recipe for complexity and hidden fees.
A conflicted question: What is fiduciary advice?
Northwestern Mutual’s practices raise difficult questions about the nature of retail advice just as wealth management faces greater scrutiny under new rules.
Fee-only financial advisor T.J. van Gerven posted a popular “Real Housewives” meme involving Northwestern last year.
As Uber stock continues slide, 5 questions all first-time investors should ask right now
Friday, as many investors now know, was unlikely to be your pay day, said T.J. van Gerven, the founder of Modern Wealth Builders in Woburn, Mass. He said people planning to invest in Uber should temper their expectations. The most likely to make oodles of cash, should the IPO be successful, are the venture capital investors, executives and financial institutions who have already gotten in on the ground floor, investing in Uber when it was a public company.
If you don’t invest in Uber, what should you be doing with your money instead? Eat your veggies. Van Gerven likens investment choices to the food pyramid that advises a steady diet of whole grains and vegetables, with a sparing amount of fats and sweets at the top. Similarly, retail investors should focus on low-cost, diversified mutual funds and ETFs, he said. Take advantage of your employer’s 401(k) match if you are fortunate to have one. Stock picking is like dessert, he said. “If you want to speculate a little, that’s fine,” he said. But cover your basics.
It’s unlikely to work out that way for everyone else. “If you think you’ll buy Uber and Lyft and hold it, get ready for an extremely bumpy ride,” he said.
Advisor Spotlight – T.J. van Gerven of Modern Wealth Builders
For this equity comp advisor, Knudge is his daily driver for client communication.
When TJ van Gerven reaches out to clients, most often, he does it with a nudge.
The Boston-based advisor serves millennials receiving equity comp and kicks off the relationship with a nudge to upload their docs into the Right Capital vault. As he works through the initial planning process – in his case, this is a monthly meeting for the first quarter – he will send a follow-up Loom video embedded in a nudge.
Once the relationship is in flight, TJ sends a variety of nudges to keep it running smoothly.
“I try to use it for everything now,” he said. “[Especially] because it integrates with Wealthbox for notes.”
On a quarterly basis, clients receive informational nudges (these are nudges that send just one notification) to invite them to schedule a meeting. He also assignes nudges for any action items that come out of the meeting.
To avoid multiple logins for his clients, he rarely invites them to register for the platform. While some receive text messages, most of TJ’s clients receive and respond via the emails Knudge sends. For TJ, this has been a boon.
“Before, I didn’t have a system for action items. I had to manually email somebody to follow up with them,” he said. “Now, I don’t have to worry about it because Knudge will just keep following up with them. “
Off-cycle, TJ helps clients stay on top of things by scheduling nudges to coincide with open trading windows as reminders to sell RSUs or exercise options. And he makes sure there’s a quarterly nudge for his clients who pay estimated quarterly taxes so they don’t forget.
“I could easily sell any advisor who is looking for an action item system on Knudge.
Before, I didn’t have a system for action items. I had to manually email somebody to follow up with them. Now, I don’t have to worry about it because it will just keep following up with them.
For me, anything less than $1,000 a year for a piece of tech that I’m using on a regular basis is very affordable.”
TJ van Gerven, Modern Wealth Builders
Sometimes, TJ adds nudges just to let clients know the work is getting done.
“If I process a Roth conversion or something, I’ll informationally nudge them and that also links to Wealthbox so that there’s a note there,” he said.
And that’s not the only reason he does it.
It’s the Matthew Jarvis dishwasher rule,” he said. “If you don’t show the client what you’re doing, you don’t get credit for it.”
A few of TJ’s nudges:
Book your meeting
Re-sync your account data in Right Capital
Sell or exercise in the trading window
Pay your estimated quarterly taxes
Two more things TJ does with Knudge:
Demonstrates value (I did a thing for you!)
Ask clients for Google reviews
TJ has a word of advice for advisors who are thinking about adopting Knudge:
“I would say that you have to be all in on it, using it as your notes section as well and having it integrate with Wealthbox,” he said. “For me, anything less than $1,000 a year for a piece of tech that I’m using on a regular basis is very affordable.”
Nine Tips To Ease The Compliance And Registration Process
To simplify the compliance and registration process, follow these nine tips when starting a business:
Join a professional association with expertise in helping new advisors. Membership groups such as XY Planning Network (XYPN) guide new advisors through the thicket of compliance issues, providing templates, videos and customized help as needed. Regulatory rules differ by state and change often, so it helps to ally yourself with an organization that tracks these matters on a state-by-state basis.
"I used XY Planning Network's compliance team," said Theodore van Gerven, a certified financial planner in Woburn, Mass. "They did most of the heavy lifting for me."
Watch your wording. Regulators want advisors to explain their fee structure and track where and how money will flow as it comes into the firm and goes into designated bank accounts. You'll need to file Form ADV to register with your state and report certain facts about your business. Clear, succinct descriptions work best and help smooth the way in starting a business.
"XYPN was extremely helpful with the registration process and providing me with the appropriate ADV language," van Gerven said.
Muster your patience. Some advisors find that their state regulators lack responsiveness. Even if you submit all the initial documents to request registration and adhere to the state's preferred method of communication (such as using email rather than calling), there's no guarantee that you'll hear back promptly. Polite persistence pays off.
Take minor setbacks in stride. During the registration process, advisors may receive a deficiency notice from the state securities division. In many cases, addressing the concern is straightforward and will not significantly impede the approval process.
Stick to the topic. Give crisp, concise responses when communicating with regulators. If you're chatty by nature, beware of going overboard and volunteering ancillary information that throws a wrench into the proceedings.
"If you provide more than they need, it can lead to more questions," said van Gerven. "They'll keep going. Answer questions directly and give them exactly what they're looking for."
Use the time wisely. You cannot launch a website, advertise or otherwise represent yourself as an advisor until you get the regulatory go-ahead. But you can still engage in productive activities while you're in limbo.
For instance, van Gerven spent those 3-1/2 months developing his service model, forming a limited liability company and shopping for technology such as financial planning software, portfolio analytics and a customer relationship management platform.
"I came into this knowing that I'll only be a solo advisor," van Gerven said. "My goal is to have 75 clients, max."
Consider fintech vendors. A growing number of providers offer compliance software and consulting. With a range of fees and tiers of service, they may promote a turnkey solution. Examples include RIA in a Box, Smarsh and Compliance Advisers.
Gird for an audit. Many states will audit new advisors during their first year in business. Expect them to look over your books, scrutinize your processes and inspect the engagement letter and financial planning agreement that your clients sign.
5 Ways Financial Advisors Can Land Millennial Clients
With the help of clickable finance stories posted on Instagram to "spread awareness" and move them closer to the "call-for-action" button on his website, 26-year-old T.J. van Gerven, CFP, now has 14 clients since launching Modern Wealth Builders in Woburn, Mass., last October. The firm caters to millennials who want investing help, and advice about 401(k)s and what to do if stocks plunge.
Considerations Before Maxing Out Your 401(k)
Get an Employer Match.
Taking advantage of employer 401(k) contributions is the fastest way to build a nest egg for retirement. The amount you need to save to get the maximum possible 401(k) match varies by employer, but frequently requires saving approximately 6 percent of pay. "Any time there's an employer match, I think it makes sense to at least contribute enough to receive the full match," says Theodore J. van Gerven, a certified financial planner for Modern Wealth Builders in Woburn, Massachusetts.
Pay Down High Interest Debt.
If the interest rate you are paying on your debt is higher than the return you expect to earn on your investment, it makes sense to pay down the debt first. "Obviously, if you have high interest rate debt, such as credit card debt, that should take priority over additional 401(k) contributions, above the amount needed to receive any match," van Gerven says.
Those who have low interest debt, such as you might pay on a mortgage or student loans, may come out ahead by prioritizing saving for retirement. However, some people prefer to eliminate a specific debt before maxing out a retirement account. "Depending on the interest rate and repayment options, it can make sense to pay down student loan debt before increasing 401(k) contributions," van Gerven says. "In all honesty, it's not always about maximizing the financial outcome. A lot of times it's about creating a plan that a person will stick to because it makes them feel better."
Balance Other Savings Goals.
Many people have more immediate financial goals than saving for retirement, such as accumulating enough money for a home down payment. There are cases when it makes sense to contribute enough to the 401(k) plan to qualify for employer contributions, and then prioritize your more immediate savings goals. "When working with young professionals, we're often trying to balance short and long-term goals, such as saving for a down payment on a home versus maximizing employer benefits," van Gerven says. "If you're planning to buy a home in the next couple of years, but you're using your cash flow to max your 401(k) contributions, you'll obviously have less money to save for a down payment."