Money can be a touchy subject, especially regarding our closest relationships. Whether we like it or not, finance plays an integral role in our partnerships, families, and friendships. So, how can we foster healthy attitudes and productive conversations around this sensitive topic?

In this blog, we want to explore money’s psychological impact on our bonds with others. We’ll unravel why finances stir up so many emotions in our connections, examine communication breakdowns and breakthroughs, and equip you with actionable tips to enhance financial harmony in your relationships.

And what better time to dig into the psychology of relationships and money than the month of Valentine’s Day and love? In February, many couples may exchange gifts, splurge on dates or romantic trips, and bask in the joy of romance. But we should also evaluate our financial partnership: Did we maintain open communication and alignment on priorities throughout the year? Could we establish new habits or spending boundaries that foster closeness and stability? We hope this blog empowers you and your loved ones with the tools to build a greater financial understanding beyond this season of candy hearts.

Our goal is to help you reflect on your money mindset when relating to loved ones so that you can pinpoint growth areas and make positive shifts. Because our financial behaviors, values, fears, and anxieties don’t develop in a vacuum, relationship dynamics profoundly influence them. Let’s discover how and why regarding the psychology of love and money!

According to a 2021 survey by the Harris Poll on behalf of the American Institute of Certified Public Accountants (AICPA), 73% of married or cohabiting Americans say they experience relationship tension due to financial decisions. We all think differently about money, but getting on the same page with your partner is critical to avoiding long-term and sometimes irreconcilable problems.1

The Psychology of Money

A psychological dimension of how we think and feel about money impacts our behavior; some see money as a source of pride, comfort, or security, while others feel a sense of guilt, stress, or shame around their finances. With these different perspectives and values, financial conflicts are often inevitable in our closest relationships.

Several theories seek to explain the psychological impact money has on partnerships and families:

1. Learning theory implies that we adopt our attitudes and beliefs about money from our parents or social environments during our upbringing. If we observe dysfunctional behaviors, they subconsciously shape our habits.2

2. The evolutionary psychology perspective associates money with survival and security, which can lead to feelings of anxiety and stress when money is scarce. Financial hardship can quickly erode relationships by triggering our instinctual fight-or-flight response.3
   
3. Social or economic exchange theory suggests that people use money as a form of reward or punishment in relationships, creating power imbalances and feelings of insecurity or inferiority.2

We all have preconceived notions and biases about money that we bring to our marriages and other relationships. Figuring out what causes stress can go a long way toward happiness.

Five Points of Financial Friction

While some of your feelings about money may be hardwired into your psyche, getting more in sync with your significant other is possible if you know where the friction points are. Here are five financial issues that have the potential to derail even the best match.3

1. Differences in Financial Goals
   Couples often have different financial goals. One partner may want to buy a vacation property, while the other dreams of extensive travel. Figuring out what timeline makes sense and agreeing on a strategy may help you work better as a team and develop a shared vision of your financial future.
   By consulting with a financial professional, you can collectively articulate what you want to pursue in the short and long term and map out a well-constructed strategy.
2. Limited Communication About Big Money Decisions
   When one partner makes all the major financial decisions without input, it can make the other partner feel diminished. Agreeing on financial guardrails that trigger a discussion before purchases over a certain dollar amount can help both parties feel heard.
   We encourage all client meetings to include both members of the relationship so that each person is aware of and agrees with the financial strategy and any changes. This practice is designed to build strong, trusting client connections.
3. Financial “Infidelity”
   Financial “infidelity” is concealing or being untruthful about money. It includes betrayals of trust, such as hiding accounts or credit cards from your partner. It’s also surprisingly common. A 2022 poll from the National Endowment for Financial Education study found that 39% of respondents say they’ve hidden cash, statements, bills, or purchases from a partner, and 21% say they’ve lied about finances, debt, or money earned. When asked why they commit financial infidelity, 38% say they believe some aspects of money should be private, 34% fear disapproval from a spouse, and 33% say they’re embarrassed or fearful of finances and don’t want to share.3
   As difficult as you may find it, being transparent about your financial moves and creating a supportive environment where you and your partner feel comfortable sharing good and bad financial information can help.
4. Different Spending Habits
   If you and your partner have different spending habits, you know they can lead to fundamental disagreements. Although you may never be able to change each other’s mindsets about spending, there could be ways to come to a happy medium.
   A financial professional can give you an outside opinion on your spending behaviors and hopefully guide you to reach mutually agreeable common ground.
5. Income Differences
   In some relationships, one partner may earn more than another, which can cause tension. Money imbalances are not only about who makes more; they can also include differences in spending habits and financial goals. Honesty is the foundation of a healthy partnership. Being transparent can prevent partners from feeling either inadequate or resented.

Financial professionals can play a role as you pursue financial harmony.

Relationships are seldom effortless. You need to put the time in and work on it every day. When it comes to the stresses that finances add to the mix, financial professionals can help navigate conflicts.

We assist couples in managing their financial differences by:

• Identifying financial goals and priorities, assisting couples in clarifying their individual and shared financial objectives, focusing on alignment, and managing potential conflicts.
  
• Developing a comprehensive financial strategy to create a personalized financial roadmap that addresses investment decisions and retirement considerations.
  
• Educating couples on financial concepts and strategies to help them make informed decisions when managing their finances.
  
• Providing guidance that offers insights based on the couples’ financial circumstances and risk tolerance.

While celebrating Valentine’s Day this month, we must acknowledge that a lack of communication, differing values, and power imbalances can often turn natural psychological inclinations about money and occasional financial challenges into real personal strains. Open communication and teamwork can be key to a healthy relationship. As financial professionals, we can strengthen the financial side of your relationship by creating roadmaps that help ease friction.

1. BusinessWire.com, February 4, 2023
   https://www.businesswire.com/news/home/20210204005261/en/Relationship-Intimacy-Being-Crushed-by-Financial-Tension-AICPA-Survey
2. PsychologyToday.com, December 7, 2022
   https://www.psychologytoday.com/us/blog/how-make-better-choices/202212/the-psychological-impact-money-relationships 
3. Experian.com, February 17, 2023
   https://www.experian.com/blogs/ask-experian/money-issues-that-can-hurt-relationship/#:~:text=A%20massive%2073%25%20of%20married,impacts%20intimacy%20with%20their%20partner 

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With the start of the new year, we wanted to discuss a topic that will likely garner attention throughout 2024: the potential sunsetting of the Tax Cuts and Jobs Act (TCJA) in 2025.

Although some of the provisions within the TCJA are permanent, such as reducing the corporate tax rate from 35 percent to 21 percent, most individual tax changes are not. If Congress does not act to renew all or part of this law passed in 2017, changes may be on the horizon for taxpayers.1

It’s important to remember that tax rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article is for information purposes only and is not a substitute for real-life advice. You may want to review any specific questions about the TCJA with a tax, legal, or accounting professional.

While allowing the TCJA to sunset at the end of 2025 may have some positive outcomes, there might be some negatives to consider when evaluating potential tax strategies.

Current and Post-TCJA Comparison

The TCJA had multiple provisions, modifications, and new rules. If the law is allowed to sunset, untangling everything might create new complexities. To help you better understand what may change, here is a comparison of where things stand today and what could happen after the TCJA expires.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes That May Affect Some

• The SALT deduction would no longer be capped at $10,000 annually but would be subject to phaseouts at higher income levels.

• Because state and local taxes vary widely throughout the country, this cap affected wealthy taxpayers the most in states with high tax rates, like New York, New Jersey, California, and Illinois.

• The deduction allowed for mortgage interest would increase from $750k of debt to $1M plus $100k in home equity debt.

• This would be felt by taxpayers with high mortgage debt.

• Miscellaneous deductions could return.

• Before the TCJA, several household deductions, including investment expenses, moving expenses, tax preparation fees, and unreimbursed employee expenses exceeding 2% of adjusted gross income, were allowed. Specific households may see these deductions return.

Changes That May Affect Others

• The standard deduction would be cut in half, to the level it was before the TCJA.

• Whether this change affects you may depend on your family size and filing status.

• The AMT would apply again to many more taxpayers.

• The AMT has been around for many years and has been a thorn in the side of some taxpayers. Originally designed to ensure that high-income earners paid more taxes, it affected a disproportionate number of households over the years because it was never indexed for inflation. The TCJA raised the AMT exemptions, but if the law sunsets, the AMT is expected to return to prior levels.

• The unified lifetime exclusion for estates and gifts would be reduced roughly in half.

• High-net-worth individuals, business owners, and others need to know about this potential change.

For Business Owners Specifically

• The TCJA expiration would result in all pass-through income being taxed at the personal income tax rate of the business owners.

• The TCJA changed how pass-through entities were taxed, creating a new 20% qualified business income deduction for many owners of pass-through entities, such as FLPs, LLCs, and S corporations.3

• Businesses would no longer be allowed to fully and immediately expense short-lived capital investments for five years, and the $1 million cap would shrink back to $500,000.

• In addition to changes to capital investment, various business taxes and expenditure reductions are expected to go away, including the deductibility of net interest, net operating loss carrybacks and carryforwards, and the corporate AMT.4

Forewarned is Forearmed

We have yet to determine what Congress will do about the pending expiration of the TCJA. Congress could have a bipartisan epiphany and decide to renew all or at least parts of the law, making them permanent and taking a degree of uncertainty out of your future tax strategy.

Regardless of what happens in D.C., focus on what you can control. If you have any questions about these potential changes, don’t hesitate to contact us. We may have some tax-related resources to help guide you through the evolving tax landscape.

1. Kiplinger Personal Finance, June 13, 2023
https://www.kiplinger.com/taxes/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset
2. Putnam Personal Finance, February 22, 2023
https://www.putnamwealthmanagement.com/taxpayers-face-challenges-as-tax-provisions-sunset-in-2025#:~:text=On%20the%20positive%20side%3A,deduction%20for%20certain%20investment%20expenses
3. Advisor Perspectives, October 2, 2023
https://www.advisorperspectives.com/articles/2023/10/02/preparing-for-the-sunset-of-the-tcja-tax-relief
4. Tax Foundation, August 30, 2023
https://taxfoundation.org/taxedu/glossary/tax-cuts-and-jobs-act/

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Choosing mutual funds for your retirement plan’s investment lineup can feel like wading through a sea of alphabet soup. Fund companies typically offer multiple share classes, each sporting its own unique letter. A shares, C shares, I shares, R shares — what does it all mean? Luckily, you don’t have to be a mutual fund expert to understand the different share classes. Here’s a brief primer to help you understand the basics.

 

ABCs of Fees

Before diving into the share class alphabet soup, first, a brief word about fees. Each share class of a mutual fund owns the same underlying securities (stocks, bonds, etc.); the only difference is the cost. These come in two basic varieties: expense ratios and sales “loads.”

Expense ratios are the percentage of a fund’s assets used to cover administrative, marketing and distribution (12b-1 fees), and all other costs. Typically paid by participants, these fees are calculated annually as a percentage of an investor’s assets. For example, a participant would pay $150 for a $10,000 balance invested in a share class with a 1.5% expense ratio.

Additionally, certain share classes charge significant sales loads. However, these are typically waived for mutual funds purchased through 401k plans.^[1] If this is the case, neither the plan nor its participants pay these fees.

How to Compare Shares

Now, let’s talk share classes. Here’s a primer of the most common share classes:

A shares: Charge a front-end load for sales commissions for financial planners, brokers and investment advisors. It’s paid when shares are purchased and is calculated as a percentage of the original investment. For example, if the opening balance is $5,000 with a 5% front-end load, the fee is $250, making the invested balance $4,750. Within retirement plans, these costs are generally waived in retirement plans.

C shares: May be “no-load” funds, or those that carry a back-end load, in which an investor may pay a sales charge — typically 1% — if shares are sold within a specific period of time (generally less than a year). However, within retirement plans, a back-end charge is typically waived. Class C shares also carry higher expense ratios than A shares.

I shares: Known as “institutional” share classes, I shares typically carry much lower fees than A or C shares. While A and C shares are available to most plans of all sizes, they are mostly accessible to larger plans.¹

R shares: Specifically designed for retirement plans, R shares range from R-1 to R-6. R shares typically don’t have front- or back-end loads; however, they may potentially carry a revenue-sharing component. As such, expense ratios vary: those with 12b-1 marketing and distribution fees may range from .25% to .1%.^[2] It is worth noting that R-6 shares generally have no 12b-1 or servicing fees, although they are typically only available to plans with assets of $10 million to $250 million.^[3]

CITs: Collective Investment Trusts (CITs) are the new kids on the investment block. They are similar to mutual funds; however, there are major differences. CITs are not registered; therefore, their administrative expenses are typically lower than those of mutual funds because they are not subject to the many regulations that mutual funds must abide by.  Mutual funds are open to the public, whereas CITs are not, and are designed to be part of a specific 401(k) investment strategy.  Keep in mind that CITs do not have traditional Ticker Symbols, so while they might have lower costs, there is also a lack of investment transparency. As a plan fiduciary, it is a best practice to truly understand the investment structure, weigh the potential cost savings and compare the benefits with implementing CITs.[4]

What’s more, new share classes — T and “clean” shares — have emerged in response to changing regulations. These share classes are designed to promote greater fee transparency and level the playing field on commissions for financial professionals, while enabling plan sponsors to distinguish investment costs from plan costs.

The bottom line: when selecting and reviewing mutual funds for a plan’s investment menu, it’s important for sponsors and fiduciaries to understand the different share classes and their related fees, as well as how they impact plan costs and participants’ ability to optimize their retirement savings. As you review the many different options available out there, remember: “you must choose, but choose wisely.”^[5]

 

 

Investment Advisory services offered through Cresta Advisors, Ltd., a Registered Investment Adviser.
Asset Allocation does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Exchange Traded Funds and Mutual Funds are sold by prospectus.

Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information
about the investment company, can be obtained from the Fund Company or your financial professional.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

^[1] Simon, Javier. Planadviser. “Understanding Share Classes in DC Plan Funds.” May 2017.

^[2] Investopedia. “What is a 12B-1 Fee?” Aug 2016.

^[3] Simon, Javier. Planadviser. “Understanding Share Classes in DC Plan Funds.” May 2017.

[4] Morningstar Office. “What is a Collective Investment Trust?” November 2018.

^[5] Boam, Jeffrey; Kaufman, Philip; Lucas, George & Meyjes, Menno. “Indiana Jones and the Last Crusade.” May 1989.

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In the final days of 2022, Congress passed a new set of retirement rules designed to facilitate contribution to retirement plans and access to those funds earmarked for retirement.

The law is called SECURE 2.0, and it is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019.

The sweeping legislation has dozens of significant provisions; here are the major provisions of the new law.

New Distribution Rules

Required minimum distribution (RMD) age will rise to 73 years in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking RMDs. Further, starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. However, if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach.¹

Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees. For example, 2024 onward, an employee can take up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.²

Reduced penalty. Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25 percent from 50 percent. If you promptly fix the mistake, the penalty may drop to 10 percent.³

New Accumulation Rules

Catch-up contributions. From January 1, 2025, investors aged 60 through 63 years can make annual catch-up contributions of up to $10,000 to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals with annual earnings more than $145,000.⁴

Automatic enrollment. In 2025, the Act requires employers to automatically enroll employees into workplace plans. However, employees can choose to opt-out.⁵

Student loan matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.⁶

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth individual retirement account (IRA). Therefore, if your child receives a scholarship, goes to a less expensive school, or does not go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are also allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.⁷

SIMPLE and SEP. 2023 onward, employers can make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP).⁸

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 401(b)s with Roth IRA rules. From 2024, the legislation no longer requires minimum distributions from Roth accounts in employer retirement plans.⁹

More Highlights

Support for small businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100 percent from 50 percent for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.¹⁰

Qualified charitable donations (QCDs). 2023 onward, QCDs will adjust for inflation. The limit applies on an individual basis; therefore, for a married couple, each person who is 70½ years and older can make a QCD as long as it remains under the limit.¹¹

The change in retirement rules does not mean adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changes to another.

Moreover, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It is not intended as a substitute for real-life advice. If changes are appropriate, your trusted financial professional can outline an approach and work with your tax and legal professionals, if applicable.

1. Fidelity.com, December 23, 2022
   2. CNBC.com, December 22, 2022
   3. Fidelity.com, December 22, 2022
   4. Fidelity.com, December 22, 2022
   5. Paychex.com, December 30, 2022
   6. PlanSponsor.com, December 27, 2022
   7. CNBC.com, December 23, 2022
   8. Forbes.com, January 5, 2023
   9. Forbes.com, January 5, 2023
   10. Paychex.com, December 30, 2022
   11. FidelityCharitable.org, December 29, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

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This season is a time of reflection and connection as we bid farewell to the old year and look, with hope, toward the new. As your family gathers, it may be a perfect opportunity to share your estate strategy and explain your decisions regarding your wealth. We’re always happy to help you structure that discussion and can help explain why we selected specific approaches with your overall financial management.

Discussing financial matters can be challenging, so please let us know if we can ever be of assistance, and don’t hesitate to share our contact information or let us know how we can help.

Happy holidays to you and your loved ones!

 

From all of us at Cresta Advisors

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This billboard is as real as COVID-19. #MaskUpLaredo

Our billboard went up this week! Make sure you catch a glimpse of it next time you’re driving down Del Mar Blvd.

Protect our community and remember to wear a mask around others. #LaredoContraCOVID19

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Facts only 🧠 In 2019 the U.S. retained its position of being the world’s largest economy since 1871. Its economy constitutes of almost a quarter of the global economy, backed by advanced infrastructure, technology, and an abundance of natural resources. Did you know? A handful of US states have similar, if not bigger, economies than countries.

Sources: The World Bank, Statista, Investopedia, Sporting News.

 

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Meet the Team! This week we will highlight Karla F. Pena, our lead Client Associate. At Cresta Advisors, Karla is a primary point of contact for clients and their account service requests.  Additionally, she coordinates the firm’s marketing initiatives, creates content for our social media, and executes on the firm’s brand communication. She has over 6 years of experience in digital content design and will be working towards creating modern multimedia marketing to further communicate the firms Mission and Vision.

Karla’s favorite things about working at Cresta are her close-knit team, and the opportunity to advance within the firm.

She likes sewing, anything creative like art and design, and wants to travel to Seoul, South Korea.

We asked KP: What hobby would you like to develop?

I am torn between learning to play piano and learning to make clay pottery! Both are beautiful.

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In this week’s spotlight we have Manuel E. Garza.  Manuel is a founding partner of Cresta Advisors and is responsible for establishing and implementing Cresta’s mission and vision. Manuel has years of experience advising clients through all market cycles and is the only designated Certified Private Wealth Advisor (CPWA) in Laredo.

At Cresta, Manuel strives to be a good leader and help guide our clients and team members.  He believes in always being able to improve in everything we do as a firm, and is responsible for ensuring that we provide the best advice, service, and guidance to all our relationships.

He enjoys forming long lasting relationships with our clients and team members, and finds satisfaction in knowing that we are building a firm that will provide unique services and advice to our community.

Like most of us during this pandemic, he has been spending invaluable time with family and staying busy with outdoor activities.

We changed things up and asked Manuel something a little different: If you could add one thing to Cresta’s office, what would it be?

A golf simulator.  It would bring two of my favorite things under one roof.

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