If you sell an investment property like a rental home or other piece of commercial real estate, you will owe taxes on the gain. Between capital gains tax and depreciation recapture, a taxpayer could pay more than 1/3 of their gain in taxes.
Many investors turn to DST programs to complete a tax-deferred exchange (known as a 1031 exchange). DST programs offer several advantages over finding individual replacement properties.
Some DST programs have an additional feature known as an UPREIT option. In these, an investor may have their DST interests subsequently acquired by a REIT on a tax-deferred basis, in exchange for Operating Partnership units (OP units).
This UPREIT option can provide additional benefits, such as:
Further diversification: A DST may own a handful of properties, while a REIT may own hundreds
Increased income: OP units often have a higher yield than DST interests
No need for future exchanges: An UPREIT transaction ends the ability to complete future 1031 exchanges, but maintains the investor’s tax-deferred status indefinitely (subject to some limitations).
Ability to control the timing of taxes: Deferred tax is not due until OP units are redeemed. An investor can choose if and when to request a redemption.
Liquidity for heirs: Heirs can choose to redeem OP units at stepped up basis. DST interests do not usually provide liquidity to heirs until the properties in the DST are sold.
The 1031 exchange rules are complex. It is advisable to speak with a tax professional and a financial advisor well before an investment property is sold.
If you sell an investment property like a rental home or other piece of commercial real estate, you will owe taxes on the gain. Between capital gains tax and depreciation recapture, a taxpayer could pay more than 1/3 of their gain in taxes.
Many people aren’t aware that there is a way to defer this tax liability.
The IRS allows a property seller to reinvest their proceeds into a new property (known as a replacement property), essentially exchanging one for the other. This process is commonly called a 1031 exchange, named for the section of the tax code that allows it. Taxes are deferred until the replacement property is sold. You could repeat this process when the replacement property is sold to continue deferring taxes.
The IRS also allows a type of real estate investment vehicle known as a Delaware Statutory Trust (DST) to qualify as the replacement property.
There are several advantages to choosing a DST rather than finding individual replacement properties.
Not having to actively manage a property (dealing with tenants, maintenance, etc). The properties inside a DST are professionally managed, and the DST investors receive income.
Diversification – DSTs often contain more than one property, which may span real estate markets as well.
Estate planning – It is easier for heirs to receive interests in a DST than partial ownership of a physical property.
The 1031 exchange rules are complex. It is advisable to speak with a tax professional and a financial advisor well before an investment property is sold.
Meet Megan. She’s in her early 30s, single, and fairly stable in her career, although she may change employers.
Like most younger professionals we work with, Megan was unsure how to get started. She had a couple of previous company retirement accounts and a Roth IRA she started years ago. She had accumulated a sizable bank account but was unsure how to invest, especially after seeing her parents experience mixed results.
Integras Analysis
Our conversations determined that she was living within her means, but she needed a cash safety net (for unexpected events such as car repairs or job loss). She hopes one day to start a family and own a home. She contributes to her 401(k) but was unsure if she was contributing enough.
Recommendations
Put some of the excess cash in her bank account into a high-yield savings account for emergency / unexpected expenses
Allocate her remaining excess cash into two strategic accounts. First, a moderate account seeking 4% to 5% returns for goals in the next 3-5 years, such as purchasing a home. Then, a growth account seeking appreciation for longer-term goals before retirement age.
A modest increase to her 401(k), to better pave the path to future retirement. A 2% increase for someone earning $100K typically only lowers bi-weekly take-home pay by about $50.
Open a Roth IRA
Consolidate her former company plans to ensure she’s not losing track of these investments.
Results
With her “safety net” in place, Megan started an automatic bank draft of $100/month to her moderate account and is comfortable making monthly contributions to the Roth IRA. Besides tax-free growth, once you’ve owned a Roth for five years you can withdraw up to $10,000 without penalty towards a first-time home purchase! We consolidated her former company plans and helped allocate her current employer’s 401(k). Now, Megan’s retirement investments complement each other, and she has a track to meet her future retirement goal.
Inflation is one of the major risks to retirement. We’re all living longer, and the things we spend more of our money on in our older years (healthcare, senior housing) have the biggest price increases.
The recent inflationary environment is fresh in everyone’s mind, but even 2% inflation (the Fed’s current goal) is a risk to a retiree’s spending power over time. In a simple example, a $100,000 lifestyle when you initially retire would cost you over $148,000 in 20 years, assuming prices rose at a constant rate of 2%.
Inflation can’t be controlled, but evaluating it within your retirement plan can help identify ways to mitigate it. Here are a few ways inflation can be considered.
Investment Allocation: Investing too conservatively may mean that your investments won’t meet your spending needs long term. You want to make sure that you have enough invested for growth to keep up with inflation. This is not a static allocation. Integras Partners’ investment strategies are designed to align with anticipated inflation-adjusted spending needs over time.
Investment Selection: Investment selection within your portfolio is also a consideration. For example, there are types of investments that typically keep ahead of inflation, such as companies with a history of dividend growth and real estate.
Social Security Claiming Strategies: Delaying social security can give you higher lifetime benefits, but factors such as health and longevity must also be considered.
Strategies to Offset Healthcare Costs: Healthcare costs can be significant at older ages, and costs inflate at higher rates than other spending categories. Evaluate long-term care insurance or how to best make use of an HSA.
Withdrawal Strategies: Withdrawing too much in early retirement years, or having to sell assets to meet withdrawals during down markets are major risks to the longevity of a portfolio. Dedicate a portion of investments to near-term spending needs using relatively conservative, liquid investments. Drawing from that portion of the portfolio allows longer-term assets to remain invested for growth (to keep up with inflation), with the time needed to recover from market downturns.
Clients often ask us how to begin investing for their kids or grandkids. As always, starting early pays the greatest benefits. Here are two ideas to consider:
529 Plans allow you to invest cash for school expenses. The 529 account grows tax free, and money taken out for qualified education expenses is not taxed. These accounts are typically owned by a single parent, with one beneficiary. They are state-specific and can accept high contributions.
Almost all states offer income tax deductions for contributions to their state 529 plans. Some states offer tax breaks for investing in any state’s 529 plan.
Not all plans are created equal, with investment choices limited to that plan’s fund lineup. Most plans offer target-date funds which are a good idea to align with HS graduation.
The definition of qualified education expense has broadened over the years. Beginning in 2026, $20k in annual distributions are allowed for K-12. Other qualifying expenses include college apps, housing, and even exam-prep and computers.
Beneficiaries can be changed to other family members.
Once a 529 account has been open for 15 years, unused funds up to $35K can be rolled into a Roth IRA for the beneficiary (subject to annual Roth eligibility and contribution limits).
UTMA (Custodial) Accounts are irrevocable gifts to a minor. These accounts can accept not only cash, but gifted securities as well. Minors have very low tax brackets which enable some gains to be realized tax free, or at a very low rate.
Funds can be used for almost anything for the benefit of the child, including cars, extracurricular activities, travel and Greek life.
This can be a great tool for gifting appreciated stocks or mutual funds, selling with minimal taxes and using the proceeds to cover those athletic or extra-curricular activities.
Grandparents and others can directly gift to these accounts!
UTMAs are considered assets of the child and can decrease financial aid eligibility.
Parents often pair a 529 plan with a UTMA, to take advantage of the features and uses of both.
The Fed remains reluctant to lower short-term interest rates, as the inflation outlook heads back up towards 3%. Slowing economic growth and sustained employment weakness would prompt rate cuts.
The technical chart below reflects that the bond market is expecting slower economic growth. Projections are for two interest rate cuts before the end of the year.
Equity markets are signaling the opposite, by valuing cyclical stocks higher than defensive stocks. This happens when the broad market expects an acceleration of economic growth (which leads to higher rates).
Both cannot be right. Either the bond market is wrong and interest rates will move higher, or the stock market is wrong and will see declines. No one knows which it will be. This is the dilemma investors face when positioning their portfolios.
At Integras Partners, we recently increased our more defensive allocations. Markets are shrugging off multiple concerning trends. There are downside risks in a cautious U.S. consumer, slowing economic growth, and weaker employment data not yet reflected in market valuations.
We have concentrated our growth allocations in those sectors less likely to be negatively impacted – sectors where strong secular growth trends remain in place.
It is our nature to err on the side of caution. Chasing returns is not our primary objective. We are motivated every day to ensure that our clients are positioned to enjoy their lifestyle, without worrying about what’s going on short-term in the markets.
If this approach sounds like a good fit for you, please reach out to learn how we can help!
There is an old Wall Street saying that ‘the market goes down in an elevator and rises on an escalator’. The market did indeed fall like an elevator in March but then took the elevator right back up. As tariff postponements soothed markets, stocks staged a major relief rally that continues as of this writing. Simultaneously, the superiority race over artificial intelligence, onshoring production of essential products and increasing operational efficiencies continues unabated across virtually all industries.
After a 19.5% decline which extended through the first week of April, the S&P 500 Index® rebounded a surprising 9.8% during the remainder of the 2nd quarter. The best performance was garnered overseas as the MSCI EAFE Index® finished the quarter up 10.7% and is up 20% YTD. We were glad to see markets finally recognize the cheaper and stronger dividend-paying foreign companies, which we think will continue near-term.
While the détente in the most punitive tariffs sparked the April recovery, the prospect of tariffs has not disappeared. They negatively impact corporate earnings, employment, and inflation. Some companies’ stocks have already been squeezed. The market response to these companies’ quarterly reports will be an interesting indicator of what may manifest later this year.
Future earnings are what matter when valuing a company.
Tariffs will likely remain in place to some degree across most industries, so how companies handle increased costs will sway stock prices.
Economic growth is slowing slightly, and we will closely monitor U.S. consumer strength as data is released over the next months. Anecdotal evidence implies that consumer spending remains strong but is beginning to slow. Employment remains firm as businesses are retaining employees but not hiring many new ones. Strong employment kept us from recession a couple of years ago as consumers had the confidence to continue spending. We don’t expect a major shift, but with today’s elevated stock prices any consumer weakness could cool investor optimism. Unless companies can show earnings growth in a slowing economy, markets will decline. Sectors and industries making major capital expenditures aimed at artificial intelligence and supply chain realignment should be fine, but for others, it will be a challenge.
Many people have unanswered questions about setting themselves up for a successful retirement. Below are the primary risks to consider and some general ideas for overcoming them. We help our clients address these risks through financial planning, which starts with identifying the amounts needed to fund goals (like retirement). This conversation is different for everyone, so we invite you to connect.
Underfunding:
Not saving enough for retirement becomes harder to correct in later years. Try to maximize saving through your employer’s retirement plan. Many Americans contribute only the amount that triggers an employer match, failing to adequately fund this primary channel for retirement savings. Since salary-deferral contributions are not taxed, the reduction to your take-home pay is less than any contribution increase.
Overspending:
Be conservative with your portfolio’s growth rate assumption, and try to set your baseline withdrawals below that rate. Overspending early in retirement can be particularly detrimental to the longevity of your portfolio. Consider a flexible withdrawal approach where you can give yourself a “raise” In years when the market performs better than you projected.
Longevity:
Life expectancies are a mid-point, not an end-point. What you don’t want to do is plan to live to age 88 and turn 87 without enough money for the next 10 years. With increasing life expectancy, retirees should plan to spend 35 years in retirement.
Investments too Conservative:
The refrain of maintaining your principal and living off interest is not a good strategy. Inflation compounds every year, so every retiree needs some growth investments to maintain their lifestyle. Growth investments do better over long periods of time and can offset the challenges of increased longevity and rising costs.
Inflation and Medical Costs:
Inflation occasionally spikes (like after COVID), but even a 4% rate doubles your expenses in 18 years. It’s estimated that 80% of your lifetime medical expenses occur in your last five years, and the medical cost inflation rate averages 8%. Be sure to factor rising healthcare and living costs into your retirement planning.
The “4% Rule” is outdated and can compromise a peaceful retirement if markets decline early in your retirement. Integras Partners created time-layered strategies to grow investments with appropriate risk throughout your retirement.
Employer-sponsored retirement plans, like 401(k)s, are designed to encourage saving during your career but are not efficient when it comes time to take money out.
How Withdrawals Are Funded
Many 401(k)s don’t enable choice when investments are sold. Some plans sell pro-rata (every investment is sold based on its percentage of your account). Others use a hierarchy-based approach where investments are sold in a predetermined order, often cash and low-risk assets first, which would leave your remaining investments skewed toward riskier assets. Both methods would mean you’re taking unnecessary risks and leaving investments not aligned to your needs.
Mandatory Tax Withholding
401(k) distributions are typically subject to mandatory 20% federal income tax withholding, regardless of whether this is the right amount for you or how you would like to pay. Effectively, it requires taking an extra 25% of taxable income to realize the same amount of cash.
Required Minimum Distributions (RMDs) and Account Aggregation Rules
Once you reach age 73 (or 75, depending on your birth year), the IRS requires you to take a minimum amount from retirement accounts each year. With 401(k)s, you must calculate and withdraw the RMD from each one separately.
Consider rolling 401(k)s into an IRA for several advantages:
Broader investment choices – 401(k)s typically have a limited menu of investment options which may or may not suit your needs in retirement.
More flexible withdrawal strategies – including the ability to choose exactly which assets to sell and when.
Customizable tax withholding
Ability to aggregate RMDs – If you have multiple IRAs, you can choose to take your combined RMDs from a single account, reducing the likelihood of missing one and incurring a penalty.
If you’re approaching retirement, now is the time to review your options and develop a withdrawal strategy that aligns with your goals, not just your plan’s default settings.
Call us today to learn how we can help. 404-941-2800
Many schools don’t teach Financial Literacy.Beyond a formal education, one of the most powerful gifts you can share is how to manage money.
Encourage them to get started with investing early. Compounding returns over time is like a rolling snowball accumulating more and more wealth.
Does your high schooler or college student have a summer job? Contribute a portion of their earnings to a Roth IRA.
Has your new grad received monetary gifts from family? Talk to them about investing some of that money for their future self.
A single $1,000 investment at age 20 could turn into $80,0001 by age 65. Wait 10 years to make that investment, and it’s less than half the amount by age 65.
First job? Maybe coming up with $1,000 all at once sounds like a lot. What if they could invest just $100 a month?
Investing just $100 a month beginning at age 25 could grow to $530,0001 at age 65! Putting in $48,000 over 40 years and ending up with over $500,000 is pretty compelling.
Treat investing like a bill you pay to your future self. Automate it and let compound growth make life-changing decisions possible.
Here are some ideas to free up money for investing each month.
Cancel subscriptions not used regularly
Make coffee at home
Cook some meals at home
Use cashback credit cards (as long as they’re paid off each month) and invest the bonuses
One last question your kids may have – what if they can’t invest consistently for 40 years? Is it still worth it?
Investing $100 a month beginning at age 25, then stopping at age 45 could still turn into $330,000 by age 651.
The takeaway? Start early and be consistent. Small, regular contributions now can lead to life-changing outcomes later.
Call us today to learn how we can help. 404-941-2800
