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Monday Money Report

| February 10, 2020

The market recovered from the corona virus drop last week, with both the S&P 500 and Dow Jones Industrial Average reaching all-time highs. Despite some slow down in global growth, the economy is chugging along and we expect the bull market to continue.

And as tax season kicks into high gear, this is a good time to look at how your money is treated for taxes. There are two main types of accounts for tax purposes: what the industry refers to as qualified and non-qualified accounts. Non-qualified accounts are just after-tax investment accounts. If you are paying a commission, they are referred to as brokerage accounts. If you are paying a fee, it may be referred to as an advisory account, or simply a non-qualified account.

A qualified account is one that meets IRS requirements to qualify for special tax treatment. These accounts include IRAs, 401(k)s, 403(b), the Thrift Savings Plan, and other employer-sponsored plans. All of these are retirement accounts, and qualify for some kind of tax deferral.

Within qualified accounts, you have two more options: traditional and Roth. With a traditional account, you contribute money that has not been taxed. For example, if you make $50,000 and contribute $5,000, you would pay taxes as if you had made $45,000. That money grows tax-deferred, meaning you don’t pay any taxes until you take it out when it is taxed as ordinary income. A Roth, which is named for Senator Roth from Delaware, works the opposite: you contribute $5,000 and you still pay taxes on the full $50,000 you made. However, when you take out money from a Roth in retirement, it is not taxed.

There are lots of rules and restrictions around qualified accounts. Limits on how much you can contribute and how much you make and still contribute, as well as rules around when you can take money out. One common misconception is around Roth 401(k)s, that is, a Roth option inside your 401(k) plan at work, or the Roth TSP if you are in the military or work for the federal government. There is no income limit for Roth contributions to these plans. And, any matching funds from your employer go into the traditional 401(k) or TSP.

A Roth is also not subject to required minimum distributions in retirement. And, because the income is tax-free, it doesn’t impact taxation of social security or Medicare means-testing.

If you work with a tax professional and/or financial advisor, this is a good time to look at how much you’re contributing to your qualified accounts, and under which tax treatment, traditional or Roth. These decisions can have a big impact in retirement. Next week, we’ll talk about how non-qualified accounts are taxed, and how tax management can impact your next egg.

For more information and educational videos, please visit our website at And consider joining us at one of our upcoming events: our signature Women, Wine & Wisdom event this month will discuss home and auto insurance, and features Dean D’Camera of the D’Camera Group.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

The D’Camera Group, CovingtonAlsina, Great Valley Advisor Group and LPL Financial are not affiliated.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.