Financial Innovations Answers Your Financial Health Questions
Financial Health
Q: What is a Fiduciary?
A: A fiduciary is someone who looks out for the best interests of the person they are supposed to be helping. A person who is legally and ethically obligated to look out for his or her client’s best interests. A doctor is a fiduciary for his/her patients. Financial Advisors should be fiduciaries for their clients as well. If you are hiring an investment person or any professional, you should check their background. For investment brokers, you can look at finra.org for a broker check.
Q: Do I need estate planning documents?
A: Yes, if you’re 18 or older. Key estate planning documents include a health care directive and financial power of attorney, which allow someone to make decisions on your behalf if needed. These documents vary by state, so ensure yours are valid where you live. A Last Will and Testament is essential, and some may benefit from a trust. Estate planning can be complex, so consult an attorney for guidance. This is general advice, not legal counsel.
Q: What is the difference between a traditional IRA and a Roth IRA?
A: A traditional IRA allows you to invest money pre-tax, and then when you withdraw the investment, it is subject to ordinary income taxes. It is also subject to required minimum distributions. A Roth IRA allows you to invest money post-tax, and then a qualified withdrawal is subject to no taxes. They both have the same annual contribution limits. Anyone may contribute to a traditional IRA; however, a Roth IRA contribution is not allowed for those at higher income levels. Both accounts have tax-deferred growth, but the Roth IRA has tax-free qualified withdrawals. Consult an investment expert for more details.
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