4 Things You Must Do When Your Savings Reaches $1M
Many financial advisors believe that $1 million is no longer enough for a secure retirement, but even if that’s true, you’ve got some celebrating to do if you’ve built a seven-figure nest egg — but only tonight. Tomorrow, the celebration ends and the strategizing begins.
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When you amass $1 million in savings, you open up a whole new world of opportunities, but you’ll have to guard against unfamiliar threats and new dangers, as well.
If what you’re about to read pertains to you, you’ve reached a milestone that will remain a dream for all but the most diligent savers. You have a lot to be proud of — and a lot to prepare for. So get ready by following these tips just for millionaires.
Assemble a Trusted Team
The arrival of that second comma brings prestige, but it also signifies the need for sophisticated financial management. Now is the time to surround yourself with specialists.
“Your professional advisory team includes, at minimum, your financial planner, CPA, and attorney,” said Cassandra Smalley, CFA, CFP and owner of her own wealth management and financial planning practice. “They will be valuable resources for guiding you to continue to grow, build and sustain your wealth.”
She recommends building intimate relationships with them and introducing them to your spouse and children.
“Don’t forget that your heirs and partner will need to communicate with your professional advisory team in an emergency to know who to contact and lean on in the future,” Smalley said. “Everyone should feel comfortable working with a team of professionals you all can trust.”
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Put a Renewed Focus on Taxes
Andrew Griffith, CPA, associate professor of accounting at the LaPenta School of Business of Iona University, agrees with Smalley that a good tax accountant should be part of your advisory team’s nucleus — but he recommends vetting candidates based on their specialized credentials.
“You will need someone who can represent you before the tax authorities in the event of an audit, which means you should only be looking to hire CPAs, EAs (Enrolled Agents), or tax lawyers,” Griffith said. “Less than 40% of all IRS-recognized tax professionals are EAs, CPAs, or tax attorneys. The ideal tax accountant is highly credentialed, highly educated, and willing to periodically tell you ‘I do not know’ or ‘I have to look that up.’ Also, that tax accountant needs to be accessible to you all year long.”
That last part is key, as taxes will factor into nearly all of your wealth management decisions.
“For example, if you choose to convert part or all of your traditional IRA to a Roth IRA, you may have to pay taxes on any income from the conversion,” said Linda Chavez, founder and CEO of Seniors Life Insurance Finder. “Additionally, if you are in a higher tax bracket, then it may make sense to reduce the size of your retirement accounts before retirement in order to avoid paying higher taxes when you withdraw from them during retirement. In addition, changes in the law may create new opportunities or limitations that need to be taken into consideration when planning for retirement.”
A Million Bucks Puts a Bullseye on Your Back — Play Defense
There’s a reason why millionaires don’t have to work very hard to make new friends — and when you become one, asset protection should top your list of priorities.
“The more you have, the more of a target you are for people who would just as soon take your money as earn their own,” said real estate investor and Spark Rental founder Brian Davis.
As a property owner, he’s endured several frivolous lawsuits.
“Even if you don’t own investment properties, people can still sue you at any time and for any reason,” he said. “They don’t have to be right. It still costs you a lot of money to defend yourself.”
According to Davis, asset protection like trusts and LLCs can help you prevent a fight as well as win one — when lawyers who are looking for low-hanging fruit see that you have strong protections in place, they’ll move on to softer targets.
Research Your New Investment Options — You’re Varsity Now
Accredited investors can buy securities that aren’t registered with the SEC or other regulatory bodies and they have privileged access to special opportunities in early-stage equity, real estate, venture capital and hedge funds.
One of the SEC’s financial criteria for registering as an accredited investor is seven-figure wealth that doesn’t include your primary residence.
“As someone with a net worth over $1 million, you qualify as an accredited investor,” Davis said. “That opens up a slew of new investments to you that aren’t available to the general public. First among these is real estate syndications and some more flexible real estate crowdfunding investments. While real estate syndications come with their own risks and downsides — such as a long-term commitment and high minimum investments — they can also generate huge returns of 15%-50% or higher, offer excellent tax benefits, and let you invest completely passively for both income and appreciation.”
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