“We were all shocked, except our granddaughters. They just said, ‘OK,’ in unison,” says Weaver. By throwing down the gauntlet—not only to the girls, but to himself—there was no option to back out. So he buckled into a climbing harness and started climbing, grabbing onto the color-coded plastic handholds and footholds on the wall. 

The funny thing is, Weaver was terrified of heights. 

“I would never have tried it if I hadn’t been so unwilling to chicken out in front of my granddaughters after my reckless dare,” he says. But, by the time the REI staffer holding his rope had belayed him safely to the floor, Weaver’s fear turned into a flood of exhilaration and accomplishment. 

Once a niche pursuit, rock climbing has become all the rage, culminating in the sport making its debut on the world stage at the Tokyo Olympics last summer. In recent years, TV shows like American Ninja Warrior and documentaries like The Dawn Wall and Free Solo have raised the profile of climbing and made celebrities out of some amazing elite climbers. One of the most famous is Alex Honnold, who in 2017 ascended the 2,900-foot sheer rock face of Yosemite National Park’s El Capitan without any ropes. 

Stupendous feats like Honnold’s, and the lightning-quick speed-climbing competitions from the Olympics (worth a watch on YouTube), can make rock climbing seem like the exclusive domain of the near-superhuman. That’s why it can be surprising to learn that almost anybody can enjoy a version of this adrenaline-pumping activity. 

Indoor rock climbing, in a gym with proper safety equipment, is the very opposite of death defying. In fact, it’s a wonderful activity for almost anybody, young or old. 

Safe Thrills 

Indoor rock climbing is very safe. In fact, the injury rate for participants in indoor climbing gyms stands at less than 1 percent of activities like tennis, basketball, and bicycling. 

Researchers in Germany, tracking 515,337 climbing gym visits over five years (participants aged eight to 80), recorded only 0.020 injuries per thousand hours of participation, according to the journal Wilderness & Environmental Medicine. That’s a significantly lower rate of injury than for many common activities, such as running (which had 3.6 injuries per thousand participation hours), training in a gym (3.1), bicycling (2.0), or even walking (1.2), according to the International Journal of Sports Medicine. 

In particular, top-rope climbing is even safer, registering only 0.005 injuries per thousand hours in the German study. In this climbing style, common for beginner and intermediate-level climbers in gyms, the climber’s harness is roped through an anchor at the top of the route and then through one or more carabiners to the belayer (the person who holds the rope). If the climber should fall, the belayer can easily stop the fall with the rope system. 

Indoor rock climbing is a fun and interactive activity that provides an excellent path to wellness for older adults. Here’s a look at more of the health benefits of rock climbing. 

Non-repetitive Exercise 

A safe yet challenging activity that’s easy on the joints, rock climbing offers mental and physical stimulation through the need for continual problem solving in a variety of situations. Lifting weights, participating in aerobics classes, or going to the gym can all get old and routine. Not so with rock climbing. 

“There are so many reasons why people fall off a fitness routine, and boredom is one of them. But climbing appeals to the child in you,” says Jon Meyer, chief technology officer at CAPTRUST, who has been an avid indoor rock climber for about eight years. “It’s like climbing on the jungle gym, a more adult version of the playground.” 

As your skills improve, it never gets boring because the routes are often changed around, and there’s always another challenge to try. 

Strengthening 

Climbing builds total body endurance, flexibility, and core strength. Many rock climbers who stick with it find that as their overall strength improves, many of the aches and pains associated with aging start to slip away. 

Adam Cork, 41, started rock climbing five years ago as a fun couples activity to do with his wife, Ericka. They both fell in love with climbing and find it makes them more adventurous. Before climbing, he was sometimes plagued by sciatica from an old sports injury that frequently had him in physical therapy. 

“I had sciatic pain running down my leg for years,” says Cork, a project manager in institutional client services with CAPTRUST. “In climbing, you use your upper body to take the weight off your back. You’re always moving your core. With the amount of core work involved, I cured my back with climbing.” 

Fall Prevention 

Balance and center-of-gravity awareness is a major part of climbing. “Climbers get a lot of very effective balancing practice right at the edge of their ability to balance. They also gain significant core, hip flexor, and leg strength, all of which help to prevent falls in their everyday life,” says Weaver. 

Cognitive Workout 

Standing at the bottom of the route and looking up, climbers face a mental puzzle of figuring out how to approach the handholds, and which is the best way to go. 

“People think rock climbing is not an intellectual sport, but it becomes an obsession. How do I move my body to solve this puzzle?” says Cork. 

“It’s cognitively relaxing,” says Meyer, 53. “All you can think about is the wall, the spatial relationships, and putting your body in different positions.” 

Social Benefits 

Conquering challenges in the company of others is a quick route to new friendships, especially considering the powerful trust that builds between a climber and a belayer. Climbing is also a rare activity that is naturally intergenerational. 

“A benefit for older people is just being around a bunch of twentysomethings who are climbing,” says Meyer. “To have a conversation and drink up the energy of younger people is a real positive.” 

For Weaver, at the time he scaled the REI climbing tower, he was not in good physical shape. He was overweight, plagued by asthma, and had swollen finger joints. Although he had been trying to get healthier, he found it too boring to work out with weights or gym machines. 

But his rock-climbing experience was different. After the rush he felt, Weaver pushed aside his fear of heights and signed up for a beginner class at a climbing gym. Unlike other exercises, climbing was engaging and motivating. He met other people. He had so much fun that he kept at it and soon began trying more difficult climbs. 

Life Changing 

The more he climbed, the better he got. The more weight he lost, the stronger he got and the more his joint strength improved. He ended up 60 pounds lighter, with strong fingers that were free from pain and a resting heart rate that was down to 60, from 80 in previous years. Endurance, balance, and flexibility all greatly improved. 

Weaver says discovering indoor rock climbing changed his life for the better, and he was inspired to share the gift. He has encouraged and taught many other older adults to try the sport. As something of a climbing evangelist, he enjoys being there to witness the transformation that occurs when people, especially formerly sedentary people, get into an activity they never imagined themselves trying. 

“In a sudden adrenaline-fueled rush, they realize that they still possess surprising reserves of power and courage. It’s hard to overstate how powerful and emotional this is for folks between 50 and 80 years old who may have never had a similar experience,” says Weaver. 

For thrill seekers of any age, trying an unusual and new activity— especially something that makes you feel a little bit of fear—can add something to your spirit that wasn’t there before. 

“I opened it, and it said that I’d been admitted to Villanova Law School, which was a huge surprise to me since I hadn’t applied,” he says. 

Dworetzky, who is now a second-career journalist for the Bay City News Foundation and a social and political cartoonist, had been telling people he was going to be a writer. And indeed, he had been writing since the age of about 16. There was just one problem. He was prolific and enthusiastic when it came to first sentences. After that, though, Dworetzky suffered from a lack of follow-through. He’d never actually written something that had an ending. 

Dworetzky had no interest in going to law school. He didn’t know anything about it. He didn’t even know any lawyers. His father had asked him to take the LSAT before he left the country and, receiving Joe’s score in the mail, had taken it upon himself to fill out an application on his son’s behalf—essays and signature included. 

Dworetzky didn’t give the offer much thought. He quickly wrote his father a note that said nope, not happening, and continued his travels. But by 1973, when he finally made his way back to Philadelphia, the thought of staying in one place and focusing on something interesting had gained some appeal. He agreed to try law school. For one week. 

Many people who embark on a second career eventually look back and realize they never felt truly fulfilled in pursuit of the first. Their hearts were never fully in it, or they felt too afraid to go after their real passions. But Dworetzky loved his first go-round as a lawyer. From that very first week of law school, he found the work stimulating and challenging, and he was exceptionally good at it. 

A Little Tickle 

Dworetzky worked as an attorney for 35 years, specializing in insolvency and enjoying the kind of illustrious career that likely raised some eyebrows when he eventually rearranged his resume to put journalism experience at the top. But the itch to write was always present: a little tickle just under the surface that Dworetzky was able to scratch by representing authors and other artists pro bono, serving as a reader for a novelist friend, and continuing to dabble in fiction writing during his free time. 

“I still wasn’t really finishing things,” Dworetzky remembers. “I was getting them started and thinking big thoughts about them but wasn’t really doing the hard work of making them come together.” 

Then, one day, Dworetzky did something different. He finished a story. 

“Everything changed when, instead of just a fragment of something, I had a complete story and then another and another,” he says. “And I didn’t do anything with them. I didn’t send them out to be published and didn’t really even show many of them to people, but it changed how I felt about my ability to tell a story.” 

Soon, stories were filling up a three-ring binder, and Dworetzky had an even bigger idea. By then, he had four children. He wanted to write a book that would allow him to speak to them—to say things he knew they couldn’t really process if the words were coming out of their father’s mouth in real time. 

He started waking up at five in the morning to write until seven, when the routines and obligations of the day could no longer proceed without his attention. It took more than a year of drafting and even longer to edit, but finally, Dworetzky had a published young adult novel he was proud of. 

Kirkus Reviews reviewed Nine Digits, which Dworetzky wrote under a nom de plume. “A quote on the novel’s back cover compares it to Norton Juster’s 1961 classic The Phantom Tollbooth, and … Duret’s book really does begin to approach the witty, imaginative, and accessible brilliance of that genre-busting work.” The book’s success coincided with a major life change for Dworetzky, whose wife was offered an exciting professional opportunity in the San Francisco Bay Area. The couple and their two younger children moved across the country to start over on a new coast. 

Dworetzky allowed the fresh start to extend beyond his geography. He agreed to stay on with his law firm to continue ongoing work but carved out most of his days for writing. For the first time in his life, he was free to write full time—and he wanted to. 

Starting Over 

He began sending his writing out, navigating a brand-new world of solo creative work in San Francisco. At nearly 60 years old, he was starting over. 

“I didn’t really have many friends out here. I didn’t know anybody,” Dworetzky says. “So, it was like really starting at the very bottom of the ladder. A new discipline, a new city. No structured support.” 

The social capital he’d built as a lawyer in Philadelphia, where he had a large network of friends and acquaintances to call upon for various things—support, validation, distraction—was replaced by an unencumbered sense of freedom but also with a sense of aloneness and a large measure of rejection. Instead of feeling secure and confident each morning, hardly having to think about how to get things done, Dworetzky now felt unsure. He got up every day, went to his desk, and tried to figure out how to tell a story in a way that would interest other people and satisfy himself. 

“You’re in your head a lot,” he says. “You’re solving issues that nobody else knows about. They don’t make any sense to anybody. And so, you’re really just doing it yourself, and that isolation I thought was challenging.” 

But instead of letting the uncertainty best him, Dworetzky began joining writers’ groups and seeking out the company and counsel of other authors. With all the diligence and determination with which he had thrown himself into the study and practice of law, Dworetzky embarked on a serious quest to become a professional writer. 

For Dworetzky, writing was not a side hustle or a pastime. “I’ve always been terrified that people would think of my writing as a hobby,” he says. “I’ve always had very ambitious ideas for what I could do as a writer.” He told himself, if he was actually going to make a career switch at an age when many of his compatriots were wrapping up their professional pursuits, he had to go all in.

At the same time, Dworetzky was letting himself have fun with a far less staid pursuit. In working with an illustrator for Nine Digits, he had struggled to communicate the exact look and feel of the drawings to accompany the text. He started playing around with illustrating his own short stories. To enforce a bit of discipline, he committed to completing a drawing and posting it on his website every day. 

Dworetzky says that at first, his drawings were not that good. “In fact, they were so bad that I started putting a little line of text into the drawing, almost like a T-shirt kind of slogan, which I thought would distract a little bit from how bad the drawing was,” he says. “I had probably been doing it for three or four months before it occurred to me: Hey, this is a cartoon.” 

His cartoons weren’t nearly as bad as he thought. An editor at SF Weekly, an indie print newspaper in San Francisco, took interest in them, and soon Dworetzky was supplying three cartoons a week for publication. 

Armed with Ambition 

He got more serious about the medium as he moved into political cartooning, and later he was accepted as a fellow at Stanford University’s Distinguished Careers Institute, a non-degree-conferring experience for highly accomplished mid-life professionals who want to deepen their knowledge in a field or expose themselves to a new one. 

At Stanford, Dworetzky found the community he’d been craving. The narrative and sports writing courses he took also opened his eyes to the possibility of combining his interests in writing and cartooning with his experience as a lawyer and with the arts. A career as a journalist seemed to hit a sweet spot. 

After finishing the program, Dworetzky felt he had only scratched the surface of the training he’d need to be a working journalist. So, at 68 years old, he got an internship. 

Dworetzky started learning to write like a journalist as an intern on the Los Angeles Times’ Metro desk. For one assignment, he shadowed a wildlife ecologist with the National Park Service who was evaluating the health of red-legged frog populations following a devastating wildfire. 

“We hiked around and talked for a long time,” says Dworetzky. “That story ended up running on the front page, which seemed to me like the greatest thing in the world. Here I am talking to people, and they’re talking to me, which is great fun, and then I’m trying to translate this into a narrative that would be interesting to other people. And now look: All these people are seeing this story.” 

On the side of that burned canyon with his notebook, Dworetzky felt it. He was right where he was supposed to be: “It just seemed to me that this is the greatest thing ever. And I’ve had that feeling pretty much throughout the journalism I’ve done.” 

In the fall, Dworetzky walked into another classroom with a bunch of twentysomethings. He was a new master’s student at Stanford’s journalism school. 

Plenty of his classmates were more than a decade younger than Dworetzky’s first two children; he was three times as old as the youngest person in his graduate school class and twice as old as the oldest. But Dworetzky was pleasantly surprised to find that the kids in his program were as interested in getting to know him as he was in building relationships with them, and they shared a drive and a passion. “I found a bunch of people who just want to be friends,” he says. “And that really was amazing to me and great fun.” 

Out of 300 Distinguished Careers Institute alumni, Dworetzky is the only one to go on to earn a master’s degree from Stanford. He wrote and cartooned for the Stanford Daily, and after graduating, Dworetzky got an internship at Local News Matters, a community nonprofit newsroom that provides local news focused on the Bay Area to regional newswires reaching up to 8 million readers. He was soon offered a full-time position reporting on legal affairs, arts, and culture. He continues to post social and political cartoons to its website, Bay City Sketchbook. 

Doing Work That Matters 

“It is a bit of a surprise to me to be working full time,” he says. “I’m now 70. And I make this joke all the time, but I do believe I’m the oldest cub reporter in the United States.” Despite the deadlines and the demands of being an early-career journalist, Dworetzky doesn’t miss the lawyer life. He’s doing work that matters—not just to his clients but to himself. 

Dworetzky finally tells people that he is a writer. “I didn’t do that until pretty recently,” he says. “But I do think of myself that way. And that’s a change.” He’s relishing the opportunities to keep learning and exploring. And he has no intention of sitting down and looking back just yet. “I have a long ways to go,” Dworetzky says. “I have ambitious ideas about the work I’ll do.” 

Q: What’s a trusted contact? Should I name one for my investment accounts? 

Extra layers of security are excellent words to live by in these uncertain times. One easy step to take is adding a trusted contact person to your investment accounts. You may have received an email request from CAPTRUST to do just that, whether on a new account or one you’ve had for a while. So what in the world is a trusted contact, and should you have one? 

A trusted contact is simply a person you authorize your investment firm to get in touch with in case of any difficulty reaching you or suspicion of potential fraud or financial abuse affecting your account. This person could be a spouse, a relative, a professional like your attorney or accountant, or any reliable person of your choosing over age 18. 

Financial exploitation and fraud is rampant, and older Americans were scammed out of $1 billion in 2020, according to a report from the Federal Bureau of Investigation. As part of an effort to safeguard financial accounts, the Financial Industry Regulatory Authority (FINRA) introduced a rule in 2018 requiring financial institutions to ask clients to establish a trusted contact. Note that while a financial institution is required to ask you for this information, the choice is yours whether or not to provide a trusted contact. 

If it’s not required, should you bother? In this age of identity theft and synthetic identity fraud, both FINRA and the Securities and Exchange Commission’s Office of Investor Education recommend that you designate a trusted contact for your accounts. 

Imagine that your financial advisor has repeatedly tried to reach you without success for an urgent matter regarding your accounts. By having preauthorization to reach out to your established trusted contact, your advisor would have greater ability to help in a variety of situations, such as: 

• You’re on vacation. 
• You’re having health issues or are in the hospital. 
• You’ve been displaced by a fire or natural disaster. 
• You’re a victim of identity theft. 

As you can see, the trusted contact should be someone who is able to reach you easily to convey a message. This person might need to confirm your health status, confirm the identity of someone with power of attorney for your account, or confirm the identity of an executor or trustee who is working on your affairs. 

A trusted contact is not the same as a power of attorney. The trusted contact does not have any authority to: 

• make trades or execute transactions; 
• act on your behalf; or 
• engage in activity on your account. 

You’d have to separately authorize this person to allow any such actions. However, the financial institution does have the ability to place a temporary hold on disbursements from the account if financial exploitation is suspected. 

Adding a trusted contact is a bit like turning on two-factor authentication on your phone—an extra step that might make all the difference in protecting your account from fraud or scams. 

Q: I have been hearing about stagflation. What is it, and is it something to be concerned about? 

Stagflation is about as fun as it sounds, especially if you remember the 1970s, with its steep oil prices, runaway inflation, and terrible joblessness. No investor wants to suffer through that again, but the Federal Reserve’s coming actions to curb inflation that’s the highest it’s been in many years are causing some anxiety about the potential for stagflation. 

The Fed has signaled that it will act aggressively by raising interest rates to get control over inflation, which has been over 8 percent over the past 12 months. Its goal is to raise rates just the right amount to shrink consumer demand somewhat, gently tapping the brakes on the economy and tamping down inflation. But this maneuver will be hard to get perfect. If the Fed overshoots and cools the economy too much, it could trigger a recession and many lost jobs. 

With the blunt instruments it has, the Fed can only try to rein in demand; it has no tools available to increase the supply side of the equation. A series of external blows—COVID-19 lockdowns, global supply chain problems, and the war in Ukraine—have severely limited the supply of some goods, which is why prices are going up. Unfortunately, the Fed can’t control whether any more supply-side shocks, like more pandemic lockdowns, are still to come. Further supply-side problems could cause prices to continue to rise and trigger stagflation. 

However, we are not in a period of stagflation yet. The technical definition of stagflation involves the triple threat of: 

• elevated inflation; 
• slowing economic growth; and 
• high unemployment. 

Unemployment currently is nowhere near high. In fact, the opposite is true. Because of the extraordinarily tight labor market, the current economy doesn’t meet the criteria for stagflation. Companies everywhere are having great difficulty hiring enough workers, as evidenced by the Great Resignation and rising wages. 

The fact that there are unfilled jobs in the system gives the Fed some latitude. The perfect scenario would be for the Fed to slow the economy at just the right pace to remove six million excess jobs, relieving wage inflation, and bringing down price inflation. The danger is, if Fed actions remove too many jobs, rising unemployment could result. 

These uncertainties have driven the stock market down some 15 to 30 percent in various sectors. For investors, it’s certainly challenging to position your portfolio for stagflation. The best approach is to make sure you’ve got ample liquidity to let the market work through this period of volatility. The key to success is to buy enough time with your liquidity bucket to ensure that you are not forced to turn a temporary decline into a permanent loss. You don’t want to have to sell until you identify a good time to exit. 

As always, diversification is your friend. Stay patient and try to keep emotion out of your investment decisions. Reactive emotional decisions can erase decades of good decisions, wreaking havoc on a sound financial plan. 

For a brief, dark period, she says, everything changed. She suffered crushing anxiety over her diagnosis, her difficult treatment decisions, and her family’s future. 

Eight years later, Harris, 48, is in a much brighter place, enjoying a new career as a certified health coach and a life that is “more productive, more energetic, and happier” than ever, she says. Harris is one of nearly 17 million cancer survivors living in the U.S., according to the American Cancer Society (ACS). Those millions include recently diagnosed patients and people many months or years past diagnosis. The number is expanding as the population grows and ages and as early detection and better treatment extends survival for more people with cancer, the ACS says. 

Not everyone emerges from a cancer diagnosis feeling as well, physically and mentally, as Harris does. Cancer survivors are a diverse group, medically, psychologically, and otherwise, says Laura Makaroff, the ACS’s senior vice president for prevention and early detection. She says that some people complete initial treatment, get a clean bill of health, and never look back. Others have lingering health effects from chemotherapy, radiation, surgery, or other treatments. Some need ongoing treatment to keep cancer at bay or prevent recurrences. And many struggle with the mental health fallout of what’s often a life-threatening experience. 

“It’s common for people who’ve been through an active cancer experience to have some anxiety or worry or concern about what the future will look like,” Makaroff says. “It’s a pretty intense experience … so getting support for mental health and mental well-being is so important.” The bottom line is that finding a new normal takes time and is different for everyone. 

Here are stories of survivors and how they found their way forward in the years after a cancer diagnosis. 

Samantha Harris: Learning to Ride the Waves 

Fear, anxiety, a loss of control. Harris says she endured waves of despair in the early days after her cancer diagnosis. “I knew I couldn’t keep feeling that way,” she says. So, she says, she started looking for the light. 

As she went through a double mastectomy and breast reconstruction, she focused on the good in her situation, including the strong support of friends and family. She started focusing on ways she could improve her health as a survivor. Her goal was not only to prevent a recurrence but also to ward off other health problems. She also wanted to be an example for others, including her daughters. 

While she’d always stayed thin on a low-fat and low-sugar diet, she learned that she felt better on a diet rich in healthy fats, from foods like nuts, seeds, and avocados, and plenty of organic greens, berries, and other fruits and vegetables. She looked for ways to cut toxins from foods, makeup, and household products. She revamped her workouts, learning to adapt her moves to her changed body. She found ways to improve her relationships and reduce stress. 

“I made sweeping changes with one tiny, small step at a time,” says Harris, who lives in Los Angeles with her husband and two daughters, now 11 and 14. As a certified health coach and fitness trainer, she helps other people make those kinds of changes through her subscriber community at yourhealthiesthealthy.com. Many of her clients are fellow cancer survivors. 

For the most part, she says, cancer is “in the rearview mirror.” The most disruptive remaining reminders, she says, are night sweats caused by tamoxifen, a medication she will take for two more years to prevent recurrences. But, she says, she’s learned to deal with them, like everything else about her cancer. 

Living well after cancer, she says, means “learning to ride the waves.” 

Paul Brands: Cancer Is Now Part of My Life 

Paul Brands, 66, is a retired human resources professional who enjoys traveling with his wife, spending time with his grown sons, golfing, and working as an executive coach. Outwardly, he says, he’s living much the same life he expected to live before he was diagnosed with prostate cancer and then kidney cancer at age 63. 

Surgery cured his kidney cancer, caught on a scan he had after he was diagnosed with prostate cancer. His prostate cancer, found early thanks to a routine test for a prostate-specific antigen, was successfully treated with radiation and hormone injections. 

“You would not know if you saw me that I’m a cancer survivor,” says Brands (not his real name), who lives in Charleston, South Carolina. But, he says, cancer did change him. For one thing, he says, he has a greater appreciation for life. The idea that “life is short, so you should enjoy it” has real meaning for him now. 

The flip side of that awareness is a heightened sense of mortality. Brands says he’s much more likely to notice and brood a bit when he sees news reports about someone famous and young dying of cancer. He feels the most intense anxiety, he says, when he has an upcoming scan to check for cancer recurrences. 

He repeatedly envisions the scene in which his doctor calls him in from the waiting room after a scan, “and my life could be changed in that one second.” But he also says that he relishes the “adrenaline rush” and gratitude he feels after every clean scan. 

For the most part, he says, he focuses on positive feelings. “I was healthy. I am healthy. It was an episode in my life, and I’m probably going to be OK.” 

But, he says, “Cancer is now a part of my life … for the rest of my life.” 

Lisa Masteller: I Was Just So Low 

Lisa Masteller had just finished the last of four rounds of chemotherapy for breast cancer when she hit an emotional low point. “I was done,” she says. “I was just so low.” Alone in her bedroom one morning in Raleigh, North Carolina, she appealed to God: “I just pretty much had a desperate talk with God. And I said, ‘God, I don’t know what the heck to do with my life.’” 

Masteller says she saw God’s hand in what happened the next day when she was offered a big role in a project that got her back to work as a designer. She had her first meeting with her new clients while still bald from treatment. 

That job, she says, was a crucial part of her healing. “That catapulted me into real life with real problems and challenges that I had to face. It was a huge gift,” says Masteller, now 53 and continuing to run her business, Sassafras Studios. But Masteller says that bouncing back from cancer isn’t a one-time thing. It’s a process, one she is still working through, nearly seven years after finishing chemotherapy and five subsequent surgeries. 

Over the years, she says, she’s struggled with body image as she’s adapted to her reconstructed breasts and grappled with her weight. It’s a bit higher than she’d like because of a medication she takes to prevent cancer recurrence. Her husband, three grown children, and three grandchildren help her to stay grounded and grateful, she says. But, she says, she also now sees a therapist to help her deal with the fallout from cancer and other challenges, including childhood memories of losing her father to cancer. 

Masteller says she does not struggle with fear of recurrence. She has always felt confident, she says, that her cancer “was going to be part of the story but not the end of the story.” 

Jay Middleton: You Have to Adapt 

A decade ago, Jay Middleton underwent major surgery for stage-three esophageal cancer, a disease that his doctors said he had a 7 percent chance of surviving. In the aftermath of the surgery, which involved the removal of most of his esophagus and a third of his stomach, he had to use a feeding tube for several weeks. He remembers it as a “challenging” experience. 

But the retired insurance sales representative and Navy veteran from Ocean Isle, North Carolina, also remembers the day that the feeding tube came out. He was with his wife in Florida and insisted on going out with friends to a restaurant where, instead of settling for applesauce or Jell-O as a first meal, he ordered a dozen raw oysters. 

As he slurped them down, he says, “My friends were looking at me like, are you crazy?” I said, “No, I’m celebrating.” 

Middleton, 74, says he’s managed to maintain his joy for life ever since. He travels, volunteers at his church, and has helped raise money to fight cancer. He also rides a motorcycle and, as a Vietnam veteran, participates in the Rolling Thunder veterans’ organization. 

The father of two and grandfather of three says he’s grateful for his family, his friends, his faith community, and his medical providers. “It’s not that I didn’t appreciate life before,” he says. “But I certainly do appreciate it more now.” 

Cancer changes lives, he says, “but you have to adapt to it.” In his case, that means eating less than he’d like and giving up spicy foods because of his altered digestive tract. For years, it meant showing up for follow-up scans, at three-month and then six-month and then one-year intervals. 

At his last appointment, his oncologist told him he didn’t need to come back. “That was a great relief,” he says. But every day, he says, brings something to celebrate, even if it’s just “being glad to see the sun come up.” 

Now that you’ve decided to start a new business or buy an existing one, you need to consider the form of business entity that’s right for you. Basically, three separate categories of entities exist: partnerships, corporations, and limited liability companies. Each category has its own advantages, disadvantages, and special rules. It’s also possible to operate your business as a sole proprietorship without organizing as a separate business entity.

Sole Proprietorship

A sole proprietorship is the most straightforward way to structure your business entity. Sole proprietorships are easy to set up–no separate entity must be formed. A sole proprietor’s business is simply an extension of the sole proprietor.

Sole proprietors are liable for all business debts and other obligations the business might incur. This means that your personal assets (e.g., your family’s home) can be subject to the claims of your business’s creditors.

For federal income tax purposes, all business income, gains, deductions, or losses are reported on Schedule C of your Form 1040. A sole proprietorship is not subject to corporate income tax. However, some expenses that might be deductible by a corporate business may not be deductible by a business structured as a sole proprietorship.

Partnerships

If two or more people are the owners of a business, then a partnership is a viable option to consider. Partnerships are organized in accordance with state statutes. However, certain arrangements, like joint ventures, may be treated as partnerships for federal income tax purposes, even if they do not comply with state law requirements for a partnership.

A partnership may not be the best choice of entity for a business that anticipates an initial public offering (IPO) in the near future. Although there are publicly traded partnerships, most IPO candidates are organized as corporations.

In a partnership, two or more people form a business for mutual profit. In a general partnership, all partners have the capacity to act on behalf of one another in furtherance of business objectives. This also means that each partner is personally liable for any acts of the others, and all partners are personally responsible for the debts and liabilities of the business.

It is not necessary that each partner contribute equally or that all partners share equally. The partnership agreement controls how profits are to be divided. It is not uncommon for one partner to contribute a majority of the capital while another contributes the business acumen or contacts, and the two share the profits equally.

Partnerships are a recognized entity in the sense that the entity can obtain credit, file for bankruptcy, transfer property, and so on. However, the partnership itself is generally not subject to federal income taxes (it does, however, file a federal income tax return). Instead, the income, gains, deductions, and losses of the partnership are generally reported on the partners’ individual federal income tax returns. The allocation of these items among the partners is governed by the partnership agreement, subject to certain limitations.

Limited Partnerships

A limited partnership differs from a general partnership in that a limited partnership has more than one class of partners. A limited partnership must have at least one general partner (who is usually the managing partner), but it also has one or more limited partner. The limited partner(s) does not participate in the day-to-day running of the business and has no personal liability beyond the amount of his or her agreed cash or other capital investment in the partnership.

Limited Liability Partnership

Some states have enacted statutes that provide for a limited liability partnership (LLP). An LLP is a general partnership that provides individual partners protection against personal liability for certain partnership obligations. Exactly what is shielded from personal liability depends on state law. Since state laws on LLPs vary, make sure you consult competent legal counsel to understand the ramifications in your jurisdiction.

Corporations

Corporations offer some advantages over sole proprietorships and partnerships, along with several important drawbacks. The two greatest advantages of incorporating are that corporations provide the greatest shield from individual liability and are the easiest type of entity to use to raise capital and to transfer (the majority stockholder can usually sell his or her stock without restrictions).

A corporation can be taxed as either a C corporation or an S corporation. Each has its own advantages and disadvantages.

C Corporations

A corporation that has not elected to be treated as an S corporation for federal income tax purposes is typically known as a C corporation. Traditionally, most incorporated businesses have been C corporations. C corporations are not subject to the same qualification rules as S corporations and thus typically offer more flexibility in terms of stock ownership and equity structure. Another advantage that a C corporation has over an S corporation is that a C corporation can fully deduct most reasonable employee benefit costs, while an S corporation may not be able to deduct the full cost of certain benefits provided to 2 percent shareholders. Virtually all large corporations are C corporations.

However, C corporations are subject to income tax. So, the distributed earnings of your incorporated business may be subject to corporate income tax as well as individual income tax.

S Corporations

A corporation must satisfy several requirements to be eligible for treatment as an S corporation for federal income tax purposes. However, qualification as an S corporation offers a potential tax benefit unavailable to a C corporation. If a qualifying corporation elects to be treated as an S corporation for federal income tax purposes, then the income, gains, deductions, and losses of the corporation are generally passed through to the shareholders. Thus, shareholders report the S corporation’s income, gains, deductions, and losses on their individual federal income tax returns, eliminating the potential for double taxation of corporate earnings in most circumstances.

However, many employee benefit deductions are not available for benefits provided to 2 percent shareholders of an S corporation. For example, an S corporation can provide a cafeteria plan to its employees, but the 2 percent shareholders cannot participate and receive the tax advantages that such a plan provides.

It is important to note that S corporation treatment is not available to all corporations. It is available only to qualifying corporations that file an election with the IRS. Qualifying corporations must satisfy several requirements, including limitations on the number and type of shareholders and on who can own stock in the corporation.

Limited Liability Company

A limited liability company (LLC) is a type of entity that provides limitation of liability for owners, like a corporation. However, state law generally provides much more flexibility in the structuring and governance of an LLC as opposed to a corporation. In addition, most LLCs are treated as partnerships for federal income tax purposes, thus providing LLC members with pass-through tax treatment. Moreover, LLCs are not subject to the same qualification requirements that apply to S corporations. However, it should be noted that a corporation may be a better choice of entity than an LLC if an IPO is anticipated.

Choosing the Best Form of Ownership

There is no single best form of ownership for a business. That’s partly because you can often compensate for the limitations of a particular form of ownership. For instance, a sole proprietor can often buy insurance coverage to reduce liability exposure, rather than form a limited liability entity.

Even after you have established your business as a particular entity, you may need to re-evaluate your choice of entity as the business evolves. An experienced attorney and tax advisor can help you decide which form of ownership is best for your business.

Source: Broadridge Investor Communication Solutions, Inc.

Retirement plans established under Section 401(k) of the Internal Revenue Code, commonly referred to as 401(k) plans, have become one of the most popular types of employer-sponsored retirement plans.

What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement savings plan that offers significant tax benefits while helping you plan for the future. You contribute to the plan via payroll deduction, which can make it easier for you to save for retirement. One important feature of a 401(k) plan is your ability to make pre-tax contributions to the plan. Pre-tax means that your contributions are deducted from your pay and transferred to the 401(k) plan before federal (and most state) income taxes are calculated. This reduces your current taxable income — you don’t pay income taxes on the amount you contribute, or any investment gains on your contributions, until you receive payments from the plan.

For example, Melissa earns $50,000 annually. She contributes $5,000 of her pay to her employer’s 401(k) plan on a pre-tax basis. As a result, Melissa’s taxable income is now $45,000. She isn’t taxed on her contributions ($5,000), or any investment earnings, until she receives a distribution from the plan.

You may also be able to make Roth contributions to your 401(k) plan. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Unlike pre-tax contributions to a 401(k) plan, there’s no up-front tax benefit — your contributions are deducted from your pay and transferred to the plan after taxes are calculated. But a distribution from your Roth 401(k) account is entirely free from federal income tax if the distribution is qualified. (See the section below on income tax consequences for more detail.)

How Much Can I Contribute?

Generally, you can contribute up to $20,500 ($27,000 if you’re age 50 or older) to a 401(k) plan in 2022 (unless your plan imposes lower limits). If your plan allows Roth 401(k) contributions, you can split your contribution between pre-tax and Roth contributions any way you wish.

Keep in mind that if you also contribute to another employer’s 401(k), 403(b), SIMPLE, or SAR-SEP plan, your total contributions to all of these plans — both pre-tax and Roth — can’t exceed $20,500 in 2022 ($27,000 if you’re age 50 or older). It’s up to you to make sure you don’t exceed these limits if you contribute to plans of more than one employer.

When Can I Contribute?

While a 401(k) plan can make you wait up to a year to participate, many plans let you to begin contributing with your first paycheck. Some plans also provide for automatic enrollment. If you’ve been automatically enrolled, make sure to check that your default contribution rate and investments are appropriate for your circumstances.

Can I Also Contribute to an IRA?

Yes. Your participation in a 401(k) plan has no impact on your ability to contribute to an IRA (Roth or traditional). You can contribute up to $6,000 to an IRA in 2022 ($7,000 if you’re age 50 or older) if you have at least that much in earned income. Your ability to make deductible contributions to a traditional IRA may be limited if you participate in a 401(k) plan, depending on your salary level.

What Are the Income Tax Consequences of Contributing to a 401(k) Plan?

When you make pre-tax 401(k) contributions, you don’t pay current income taxes on those dollars. But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 401(k) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax. A distribution is qualified if it meets the following requirements:

• It is made after the end of a five-year waiting period
• It is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts on January 1 of the year you make your first Roth contribution to the 401(k) plan. For example, if you make your first Roth contribution to your employer’s 401(k) plan in December 2022, your five-year waiting period begins January 1, 2022, and ends on December 31, 2026.

Withdrawals from pre-tax accounts prior to age 59½ and non-qualified withdrawals from Roth accounts will be subject to regular income taxes and a 10 percent penalty tax, unless an exception applies.

What about Employer Contributions?

Employers don’t have to contribute to 401(k) plans, but many will match all or part of your contributions. Your employer can match your Roth contributions, your pre-tax contributions, or both. But your employer’s contributions are always made on a pre-tax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are always taxable to you when you receive a distribution from the plan.

Try to contribute as much as necessary to get the maximum matching contribution from your employer. This is essentially free money that can help you pursue your retirement goals.

Should I Make Pre-tax or Roth Contributions (If Allowed)?

If you think you’ll be in a higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since future withdrawals, assuming they’re qualified, will generally be tax free. However, if you think you’ll be in a lower tax bracket when you retire, pre-tax 401(k) contributions may be more appropriate because your contributions reduce your taxable income now. Your investment horizon and projected investment results are also important factors.

What Happens When I Terminate Employment?

When you terminate employment, you generally forfeit all contributions that haven’t vested. (Vesting means that you own the contributions.) Your contributions and the earnings on them are always 100 percent vested. But your 401(k) plan may require up to six years of service before you fully vest in employer matching contributions and associated earnings (although some plans have a much faster vesting schedule).

When you terminate employment, you can generally leave your money in your 401(k) plan, although some plans require that you withdraw your funds once you reach the plan’s normal retirement age (typically age 65). Your plan may also “cash you out” if your vested balance is $5,000 or less, but if your payment is more than $1,000, the plan generally must roll your funds into an IRA established on your behalf, unless you elect to receive your payment in cash. [This $1,000 limit is determined separately for your Roth 401(k) account and the rest of your funds in the 401(k) plan.]

You can also roll all or part of your Roth 401(k) dollars over to a Roth IRA, and your non-Roth dollars to a traditional IRA. You may also be able to convert your non-Roth dollars to a Roth IRA, but income taxes will apply to any tax-deferred amounts in the year of conversion. You may also be able to roll your funds into another employer’s plans that accepts rollovers.

Finally, you may also be able to take a cash distribution of your contributions and earnings, as well as any vested employer amounts. However, keep in mind that any tax-deferred funds will be subject to income taxes and a possible 10% penalty tax if you’re under age 59½, unless an exception applies.

When considering a rollover, to either an IRA or to another employer’s retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option.

What Else Do I Need to Know?

• If your plan allows loans, you may be eligible to borrow up to one half of your vested 401(k) account (to a maximum of $50,000) if you need the money.
• You may also be able to make a hardship withdrawal if you have an immediate and heavy financial need. But this should be a last resort — hardship distributions are generally taxable to you.
• Distributions from your plan before you turn 59½ (55 in some cases) may be subject to a 10% early distribution penalty unless an exception applies.
• You may be eligible for an income tax credit of up to $1,000 for amounts you contribute, depending on your income.
• Your assets are generally fully protected in the event of your, or your employer’s, bankruptcy.
• Most 401(k) plans let you direct the investment of your account. Your employer provides a menu of investment options (for example, a family of mutual funds). But it’s your responsibility to choose the investments most suitable for your retirement objectives.

Source: Broadridge Investor Communication Solutions, Inc.

At any age, health care is a priority. When you retire, however, you will probably focus more on health care than ever before. Staying healthy is your goal, and this can mean more visits to the doctor for preventive tests and routine checkups. There’s also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs or medical treatments. That’s why having health insurance is extremely important.

Retirement—Your Changing Health Insurance Needs

If you are 65 or older when you retire, your worries may lessen when it comes to paying for health care—you are most likely eligible for certain health benefits from Medicare, a federal health insurance program, upon your 65th birthday. But if you retire before age 65, you’ll need some way to pay for your health care until Medicare kicks in. Generous employers may offer extensive health insurance coverage to their retiring employees, but this is the exception rather than the rule. If your employer doesn’t extend health benefits to you, you may need to buy a private health insurance policy (which may be costly), extend your employer-sponsored coverage through COBRA, or purchase an individual health insurance policy through either a state-based or federal health insurance Exchange Marketplace.

But remember, Medicare won’t pay for long-term care if you ever need it. You’ll need to pay for that out of pocket or rely on benefits from long-term care insurance (LTCI) or, if your assets and/or income are low enough to allow you to qualify, Medicaid.

More about Medicare

As mentioned, most Americans automatically become entitled to Medicare when they turn 65. In fact, if you’re already receiving Social Security benefits, you won’t even have to apply—you’ll be automatically enrolled in Medicare. However, you will have to decide whether you need only Part A coverage (which is premium-free for most retirees) or if you want to also purchase Part B coverage. Part A, commonly referred to as the hospital insurance portion of Medicare, can help pay for your home health care, hospice care, and inpatient hospital care. Part B helps cover other medical care such as physician care, laboratory tests, and physical therapy. You may also choose to enroll in a managed care plan or private fee-for-service plan under Medicare Part C (Medicare Advantage) if you want to pay fewer out-of-pocket health-care costs. If you don’t already have adequate prescription drug coverage, you should also consider joining a Medicare prescription drug plan offered in your area by a private company or insurer that has been approved by Medicare.

Unfortunately, Medicare won’t cover all of your health-care expenses. For some types of care, you’ll have to satisfy a deductible and make co-payments. That’s why many retirees purchase a Medigap policy.

However, it’s illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage. You don’t need and can’t buy a Medigap policy if you’re enrolled in a Medicare Advantage (Part C) plan, and you may not need it if you’re covered by an employer-sponsored health plan after you retire or have coverage through your spouse.

What Is Medigap?

Unless you can afford to pay for the things that Original Medicare (Parts A and B) doesn’t cover, including the annual co-payments and deductibles that apply to certain types of care, you may want to buy some type of Medigap policy when you sign up for Medicare Part B. There are eight standardized plans available to individuals new to Medicare (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). Each of these policies offers certain basic core benefits, and all but the most basic policy (Plan A) offer various combinations of additional benefits designed to cover what Medicare does not. Although not all Medigap plans are available in every state, you should be able to find a plan that best meets your needs and your budget.

When you first enroll in Medicare Part B at age 65 or older, you have a six-month Medigap open enrollment period. During that time, you have a right to buy the Medigap policy of your choice from a private insurance company, regardless of any health problems you may have. The company cannot refuse you a policy or charge you more than other open enrollment applicants.

Thinking about the Future—Long-Term Care Insurance and Medicaid

The possibility of a prolonged stay in a nursing home weighs heavily on the minds of many older Americans and their families. That’s hardly surprising, especially considering the high cost of long-term care.

Many people in their 50s and 60s look into purchasing LTCI. A good LTCI policy can cover the cost of care in a nursing home, an assisted-living facility, or even your own home. But if you’re interested, don’t wait too long to buy it—you’ll need to be in good health. In addition, the older you are, the higher the premium you’ll pay.

You may also be able to rely on Medicaid to pay for long-term care if your assets and/or income are low enough to allow you to qualify. But check first with a financial professional or an attorney experienced in Medicaid planning. The rules surrounding this issue are numerous and complicated and can affect you, your spouse, and your beneficiaries and/or heirs.

Source: Broadridge Investor Communication Solutions, Inc.

Why do so many people never obtain the financial independence that they desire? Often it’s because they just don’t take that first step—getting started. Besides procrastination, other excuses people make are that investing is too risky, too complicated, too time consuming, and only for the rich.

The fact is, there’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics. One of the biggest risks you face is not educating yourself about which investments may be able to help you pursue your financial goals and how to approach the investing process.

Saving Versus Investing

Both saving and investing have a place in your finances. However, don’t confuse the two. Saving is the process of setting aside money to be used for a financial goal, whether that is done as part of a workplace retirement savings plan, an individual retirement account, a bank savings account, or some other savings vehicle. Investing is the process of deciding what you do with those savings. Some investments are designed to help protect your principal—the initial amount you’ve set aside—but may provide relatively little or no return. Other investments can go up or down in value and may or may not pay interest or dividends. Stocks, bonds, cash alternatives, precious metals, and real estate all represent investments; mutual funds are a way to purchase such investments and also are themselves an investment.

Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, charges, and fees, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.

Why Invest?

You invest for the future, and the future is expensive. For example, because people are living longer, retirement costs are often higher than many people expect. Though all investing involves the possibility of loss, including the loss of principal, and there can be no guarantee that any investment strategy will be successful, investing is one way to try to prepare for that future.

You have to take responsibility for your own finances, even if you need expert help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose investments. The better you manage your dollars, the more likely it is that you’ll have the money to make the future what you want it to be.

Because everyone has different goals and expectations, everyone has different reasons for investing. Understanding how to match those reasons with your investments is simply one aspect of managing your money to provide a comfortable life and financial security for you and your family.

What Is the Best Way to Invest?

• Get in the habit of saving. Set aside a portion of your income regularly. Automate that process if possible by having money automatically put into your investment account before you have a chance to spend it.
• Invest so that your money at least keeps pace with inflation over time.
• Don’t put all your eggs in one basket. Though asset allocation and diversification don’t guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment.
• Focus on long-term potential rather than short-term price fluctuations.
• Ask questions and become educated before making any investment.
• Invest with your head, not with your stomach or heart. Avoid the urge to invest based on how you feel about an investment.

Before You Start

Organize your finances to help manage your money more efficiently. Remember, investing is just one component of your overall financial plan. Get a clear picture of where you are today.

What’s your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. You could use those lost dollars for investing. Are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar that you save in interest charges is one more dollar that you can invest for your future.

Establish a solid financial base: Make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans that your employer offers.

Understand the Impact of Time

Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For instance, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31. (This hypothetical example is intended as an illustration and does not reflect the performance of a specific investment).

Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years that it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in 9 years.

Consider Whether You Need Expert Help

If you have the time and energy to educate yourself about investing, you may not feel you need assistance. However, for many people—especially those with substantial assets and multiple investment accounts—it may be worth getting expert help in creating a financial plan that integrates long-term financial goals such as retirement with other, more short-term needs. However, be aware that all investment involves risk, including the potential loss of principal, and there can be no guarantee that any investment strategy will be successful.

Review Your Progress

Financial management is an ongoing process. Keep good records and recalculate your net worth annually. This will help you for tax purposes, and show you how your investments are doing over time. Once you take that first step of getting started, you will be better able to manage your money to pay for today’s needs and pursue tomorrow’s goals.

Source: Broadridge Investor Communication Solutions, Inc.

When developing your estate plan, you can do well by doing good. Leaving money to charity rewards you in many ways. It gives you a sense of personal satisfaction, and it can save you money in estate taxes.

A Few Words about Transfer Taxes

The federal government taxes transfers of wealth you make to others, both during your life and at your death. In 2022, generally, the federal gift and estate tax is imposed on transfers in excess of $12,060,000 ($11,700,000 in 2021) and at a top rate of 40 percent. There is also a separate generation-skipping transfer (GST) tax that is imposed on transfers made to grandchildren and lower generations. For 2022, there is a $12,060,000 ($11,700,000 in 2021) exemption and the top rate is 40 percent.

Note: The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.

You may also be subject to state transfer taxes.

Careful planning is needed to minimize transfer taxes, and charitable giving can play an important role in your estate plan. By leaving money to charity the full amount of your charitable gift may be deducted from the value of your gift or taxable estate.

Make an Outright Bequest in Your Will

The easiest and most direct way to make a charitable gift is by an outright bequest of cash in your will. Making an outright bequest requires only a short paragraph in your will that names the charitable beneficiary and states the amount of your gift. The outright bequest is especially appropriate when the amount of your gift is relatively small, or when you want the funds to go to the charity without strings attached.

Make a Charity the Beneficiary of an IRA or Retirement Plan

If you have funds in an IRA or employer-sponsored retirement plan, you can name your favorite charity as a beneficiary. Naming a charity as beneficiary can provide double tax savings. First, the charitable gift will be deductible for estate tax purposes. Second, the charity will not have to pay any income tax on the funds it receives. This double benefit can save combined taxes that otherwise could eat up a substantial portion of your retirement account.

Use a Charitable Trust

Another way for you to make charitable gifts is to create a charitable trust. There are many types of charitable trusts, the most common of which include the charitable lead trust and the charitable remainder trust.

A charitable lead trust pays income to your chosen charity for a certain period of years after your death. Once that period is up, the trust principal passes to your family members or other heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead, interest.

A charitable remainder trust is the mirror image of the charitable lead trust. Trust income is payable to your family members or other heirs for a period of years after your death or for the lifetime of one or more beneficiaries. Then, the principal goes to your favorite charity. The trust is known as a charitable remainder trust because the charity gets the remainder interest. Depending on which type of trust you use, the dollar value of the lead (income) interest or the remainder interest produces the estate tax charitable deduction.

Note: There are costs and expenses associated with the creation of these legal instruments.

Why Use a Charitable Lead Trust?

The charitable lead trust is an excellent estate planning vehicle if you are optimistic about the future performance of the investments in the trust. If created properly, a charitable lead trust allows you to keep an asset in the family while being an effective tax-minimization device.

For example, you create a $1 million charitable lead trust. The trust provides for fixed annual payments of $80,000 (or 8 percent of the initial $1 million value of the trust) to ABC Charity for 25 years. At the end of the 25-year period, the entire trust principal goes outright to your beneficiaries. To figure the amount of the charitable deduction, you have to value the 25-year income interest going to ABC Charity. To do this, you use IRS tables. Based on these tables, the value of the income interest can be high—for example, $900,000. This means that your estate gets a $900,000 charitable deduction when you die, and only $100,000 of the $1 million gift is subject to estate tax.

Why Use a Charitable Remainder Trust?

A charitable remainder trust takes advantage of the fact that lifetime charitable giving generally results in tax savings when compared to testamentary charitable giving. A donation to a charitable remainder trust has the same estate tax effect as a bequest because, at your death, the donated asset has been removed from your estate. Be aware, however, that a portion of the donation is brought back into your estate through the charitable income tax deduction.

Also, a charitable remainder trust can be beneficial because it provides your family members with a stream of current income—a desirable feature if your family members won’t have enough income from other sources.

For example, you create a $1 million charitable remainder trust. The trust provides that a fixed annual payment be paid to your beneficiaries for a period not to exceed 20 years. At the end of that period, the entire trust principal goes outright to ABC Charity. To figure the amount of the charitable deduction, you have to value the remainder interest going to ABC Charity, using IRS tables. This is a complicated numbers game. Trial computations are needed to see what combination of the annual payment amount and the duration of annual payments will produce the desired charitable deduction and income stream to the family.

Source: Broadridge Investor Communication Solutions, Inc.

Employers can offer 401(k) plan participants the opportunity to make Roth 401(k) contributions. If you’re lucky enough to work for an employer who offers this option, Roth contributions could play an important role in maximizing your retirement income.

What Is a Roth 401(k)?

A Roth 401(k) is simply a traditional 401(k) plan that accepts Roth 401(k) contributions. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. This means there’s no up-front tax benefit, but if certain conditions are met, your Roth 401(k) contributions and all accumulated investment earnings on those contributions are free from federal income tax when distributed from the plan. (403(b) and 457(b) plans can also allow Roth contributions.)

Who Can Contribute?

Unlike Roth IRAs, where you can’t contribute if you earn more than a certain dollar amount, you can make Roth contributions, regardless of your salary level, as soon as you are eligible to participate in the 401(k) plan. And while a 401(k) plan can require employees to wait up to one year before they become eligible to contribute, many plans allow you to contribute beginning with your first paycheck.

How Much Can I Contribute?

There’s an overall cap on your combined pre-tax and Roth 401(k) contributions. In 2022, you can contribute up to $20,500 ($27,000 if you’re age 50 or older) to a 401(k) plan. You can split your contribution between Roth and pre-tax contributions any way you wish. For example, you can make $10,000 of Roth contributions and $10,500 of pre-tax 401(k) contributions. It’s up to you. But keep in mind that if you also contribute to another employer’s 401(k), 403(b), SIMPLE, or SAR-SEP plan, your total contributions to all of these plans—both pre-tax and Roth—can’t exceed $20,500 in 2022 ($27,000 if you’re age 50 or older). It’s up to you to make sure you don’t exceed these limits if you contribute to plans of more than one employer.

Can I Also Contribute to an IRA?

Yes. Your participation in a 401(k) plan has no impact on your ability to contribute to an IRA (Roth or traditional). You can contribute up to $6,000 to an IRA in 2022 ($7,000 if you’re age 50 or older). Your ability to contribute to a Roth IRA may be limited if your modified adjusted gross income (MAGI) exceeds certain levels. Similarly, your ability to make deductible contributions to a traditional IRA may be limited if your MAGI exceeds certain levels and you (or your spouse) participate in a 401(k) plan.

Are Distributions Really Tax Free?

Because your Roth 401(k) contributions are made on an after-tax basis, they’re always free from federal income tax when distributed from the plan. Investment earnings on your Roth contributions are tax free if you meet the requirements for a qualified distribution.

In general, a distribution from your Roth 401(k) account is qualified if it satisfies both of the following requirements:

• It’s made after the end of a five-year waiting period
• The payment is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts on January 1 of the year you make your first Roth contribution to the 401(k) plan. For example, if you make your first Roth contribution to your employer’s 401(k) plan in December 2022, your five-year waiting period begins January 1, 2022, and ends on December 31, 2026. If you participate in more than one Roth 401(k) plan, your five-year waiting period is generally determined separately for each employer’s plan. But if you change employers and directly roll over your Roth 401(k) account from your prior employer’s plan to your new employer’s Roth 401(k) plan (assuming the new plan accepts rollovers), the five-year waiting period for your new plan starts instead with the year you made your first contribution to the earlier plan.

If your distribution isn’t qualified (for example, if you receive a payout before the five-year waiting period has elapsed), the portion of your distribution that represents investment earnings on your Roth contributions will be taxable, and will be subject to a 10 percent early distribution penalty unless you’re 59½ (55 in some cases) or another exception applies. You can generally avoid taxation by rolling all or part of your distribution over into a Roth IRA or into another employer’s Roth 401(k) or 403(b) plan, if that plan accepts Roth rollovers. (State income tax treatment of Roth 401(k) contributions may differ from the federal rules.)

If you contribute to both a Roth 401(k) and a Roth IRA, a separate five-year waiting period applies to each. Your Roth IRA five-year waiting period begins with the first year that you make a regular or rollover contribution to any Roth IRA.

What about Employer Contributions?

Employers don’t have to contribute to 401(k) plans, but many will match all or part of your contributions. Your employer can match your Roth contributions, your pre-tax contributions, or both. But your employer’s contributions are always made on a pre-tax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are not taxed until you receive a distribution from the plan. Your 401(k) plan may require up to six years of service before you fully own employer matching contributions. (Note: If your plan is a SIMPLE 401(k) plan, a safe-harbor 401(k) plan, or includes a qualified automatic contribution arrangement (QACA) your employer is required to make a contribution on your behalf, and special vesting rules apply.)

Should I Make Pre-Tax or Roth 401(k) Contributions?

When you make pre-tax 401(k) contributions, you don’t pay current income taxes on those dollars (which means more take-home pay compared to an after-tax Roth contribution of the same amount). But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 401(k) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax.

Which is the better option depends upon your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since you’ll effectively lock in today’s lower tax rates. However, if you think you’ll be in a lower tax bracket when you retire, pre-tax 401(k) contributions may be more appropriate. Your investment horizon and projected investment results are also important factors. A financial professional can help you determine which course is best for you.

Whichever you choose—Roth or pre-tax—make sure you contribute as much as necessary to get the maximum matching contribution from your employer. This is essentially free money that can help you pursue your retirement goals.

What Happens When I Terminate Employment?

When you terminate employment, you generally forfeit all employer contributions (and earnings on them) that haven’t vested. Vesting means that you own the contributions and any associated earnings. Your contributions, Roth and pre-tax, are always 100 percent vested. But your 401(k) plan may require up to six years of service before you fully vest in employer matching contributions (although some plans have a much faster vesting schedule).

When you terminate employment, you can generally leave your money in your 401(k) plan, although some plans require that you withdraw your funds when you reach the plan’s normal retirement age (typically age 65). (You generally must begin taking distributions after you reach age 72.) Your plan may also cash you out if your vested balance is $5,000 or less, but if your payment is more than $1,000, the plan must generally roll your funds into an IRA established on your behalf, unless you elect to receive your payment in cash. (This $1,000 limit is determined separately for your Roth 401(k) account and the rest of your funds in the 401(k) plan.)

You can also roll all or part of your Roth 401(k) dollars over to a Roth IRA, and your non-Roth dollars to a traditional IRA. You may also be able to convert your non-Roth dollars to a Roth IRA, but income taxes will apply to any tax-deferred amounts in the year of conversion. You may also be able to roll your funds into another employer’s plans that accepts rollovers.

Finally, you may also be able to take a cash distribution of your contributions and earnings, as well as any vested employer amounts. However, keep in mind that any tax-deferred funds will be subject to income taxes and a possible 10 percent penalty tax if you’re under age 59½ and an exception does not apply.

Note: When considering a rollover, to either an IRA or to another employer’s retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option.

What Else Do I Need to Know?

• Like pre-tax 401(k) contributions, your Roth 401(k) contributions and investment earnings can generally be paid from the plan only after you terminate employment, attain age 59½, become disabled, or die.
• You may be eligible to borrow up to one half of your vested 401(k) account, including your Roth contributions, (to a maximum of $50,000) if you need the money.
• You may be able to take a hardship withdrawal if you (or your spouse, dependents, or primary beneficiary) have an immediate and heavy financial need. But this should be a last resort—hardship distributions are generally taxable to you and a 10 percent penalty may apply to the taxable amount if you’re not yet age 59½, unless an exception applies.
• Unlike Roth IRAs, you must begin taking distributions from a Roth 401(k) plan after you reach age 72 (or in some cases, after you retire), but you can generally roll over your Roth 401(k) dollars into a Roth IRA if you don’t need or want the lifetime distributions.
• Distributions from your plan before you turn 59½ (55 in some cases) may be subject to a 10 percent early distribution penalty unless an exception applies.
• Depending on your income, you may be eligible for an income tax credit of up to $1,000 for amounts you contribute to the 401(k) plan.
• Your assets are generally fully protected from creditors.

Employers aren’t required to make Roth contributions available in their 401(k) plans. So be sure to ask your employer if they are considering adding this exciting new feature to your 401(k) plan.

Source: Broadridge Investor Communication Solutions, Inc.