What Type of Account Is It?

The type of account your investments are held in is an important consideration when determining how that investment will be taxed. Certain accounts, such as individual retirement accounts (IRAs), Health Savings Accounts (HSAs), and employer-sponsored retirement accounts (such as 401(k)s), are tax-deferred, meaning no tax is due on the investments within them until funds are withdrawn.

In other accounts, such as a brokerage account, taxes may be owed based on the investment activity that occurs within the account. If the investment activity is potentially taxable, you may consider reviewing the account’s activity to determine whether it is taxable for the year.

Ordinary Income: What You Need to Know 

Many investments yield ordinary income, such as interest or rental income from real estate. Other sources of ordinary income include savings accounts, certificates of deposit (CDs), money market funds, annuities, bonds, and certain types of preferred stock. This type of income is taxed at standard income tax rates, rather than the typically lower capital gains rates. 

Within a taxable account, when you receive this kind of income, it generally would be either taxable or tax exempt.

Tax-exempt income refers to income that is not subject to federal, and sometimes state, taxes. Municipal bonds and certain U.S. government securities are common sources of tax-exempt income. 

Taxable income comes from investments which do not qualify as tax exempt, such as capital gains, dividends, and interest income. If your investments generate taxable ordinary income, you’re required to report it on your federal tax return.

And a quick note on losses: Some investments can result in ordinary losses rather than income. These losses can offset ordinary income, helping to reduce your taxable income for the year. 

Knowing Your Basis 

In general terms, your basis is the amount you’ve invested in a particular asset. To determine your capital gain or loss when you sell or trade that asset, you need to know both your original basis and your adjusted basis. 

Most of the time, your original basis is simply what you paid for the asset. For instance, if you bought 100 shares of stock at $1,000 each, your original basis in that stock would be $100,000. However, if you acquired the asset through a gift, inheritance, or certain types of nontaxable transactions, your basis may be calculated differently.

Over time, your basis can change due to various factors. This is known as your adjusted basis. For example, if you purchase a home for $150,000, that amount becomes your original basis. If you later spend $25,000 remodeling the kitchen, the adjusted basis may rise to $175,000. 

Adjustments to basis can be increases or decreases, depending on the situation. For more guidance on what affects basis, refer to IRS Publication 551. 

Calculating Capital Gains and Losses 

When you sell stocks, bonds, or other capital assets, you will realize either a capital gain or a capital loss. Your capital gain or loss would be calculated by subtracting your adjusted basis in the asset from the amount you received from the sale.

If you sell an asset for more than your adjusted basis, you’ll have a capital gain. For example, if your original basis in a stock was $15,000 and you sell it for $20,000, then your capital gain is $5,000. Instead, if you sell it for less than your adjusted basis, you have a capital loss. Selling the same stock for $10,000 when the adjusted basis is $15,000 would result in a $5,000 capital loss.

Capital gains and losses can be either short term or long term, depending on the holding period and how the investment is reported on schedule D of your tax return. The holding period refers to the length of time you’ve owned the asset. A gain is considered short term if you held the asset for a year or less, and long term if you held it for more than one year.

How are Capital Gains and Losses Taxed?

After reviewing sales that occurred during the year, consider the holding periods and group the transactions based on whether they resulted in gains or losses. You may end up with categories such as long-term capital gains, long-term capital losses, short-term capital gains, and short-term capital losses.

Losses are netted against gains to reduce your taxable amount, after which you determine your overall gain or loss, and whether it is long term or short term. Schedule D of your federal tax return will guide you through this process.

Long-term capital gains and qualified dividends are usually taxed at preferential rates of 0 percent, 15 percent, or 20 percent, depending on your taxable income. However, certain types of gains may be subject to higher tax rates—up to 25 percent or 28 percent.

Calculating the tax on long-term gains and qualified dividends can be complex, as it depends on your net gains and taxable income. 

The type of asset sold also affects the tax rate and, possibly, the method used to calculate gains or losses. For example, gains from the sale of antiques are taxed at a maximum rate of 28 percent, regardless of how long they were held.

Key Tax Considerations

Net-Investment Income Tax

Individuals with higher incomes may be subject to an additional 3.8 percent net investment income tax. This tax applies to those with investment income whose modified adjusted gross income (MAGI) exceeds certain thresholds.

The tax is 3.8 percent of the lesser of

Important exceptions to net investment income for this tax include: 

Resource by the CAPTRUST wealth planning team

This material is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance. This material does not constitute legal, accounting, or tax advice. This material has been prepared solely for informational purposes. Investment advisory services offered by CapFinancial Partners, LLC (“CAPTRUST” or “CAPTRUST Financial Advisors”), an investment advisor registered under The Investment Advisors Act of 1940.

Risk is often reduced to market volatility, or more simply, the chance to lose money. In reality, risk investing refers to the possibility that your returns may fall short of expectations or that you could lose some or all of your investment.

No investment is entirely safe, not even those considered conservative. Because of this inherent risk, it is essential to understand the different types of risk in personal finance, how to manage them effectively, and how your own comfort level with risk can guide your investment decisions.

Risk Types

There are many forms of risk to consider when investing. Here are some examples:

Balancing Risk and Potential Return

In most cases, risk and reward are directly correlated. Typically, this means the more risk you take, the greater your chances of earning higher returns. On the other hand, there is also a greater chance that you will incur losses.

Most people understand this concept because it aligns with our instinct to avoid uncertainty. Still, the possibility of bigger gains often encourages investors to accept more risk. The key is finding the right balance. Your goal is to grow your investments without taking on more risk than is appropriate for your situation.

Risk Tolerance Versus Risk Capacity

What is traditionally described as risk tolerance can be broken into two concepts. First, risk tolerance is emotional, referring to your comfort level with uncertainty and market swings. If you are losing sleep over your investments, you may be taking on more risk than you can handle.

Risk capacity is your ability to absorb losses based on your age, goals, and time horizon. A 35-year-old who is investing with a goal of retiring in 30 years has a higher risk capacity than a person who is already retired, simply because they have more time to recover from short-term losses and benefit from long-term growth.

Managing Risk with a Diversified Portfolio

Diversification helps reduce risk by spreading investments across different asset classes and types. Since markets don’t move in sync, gains in one area can offset losses in another.

Diversification does not guarantee profits or prevent losses, but it helps manage risk. A classic portfolio mix is 60 percent stocks and 40 percent bonds, designed to balance growth and stability. But even that approach has limits, like in 2022, when both stocks and bonds declined.

You can also diversify within an asset class. Large-cap stocks behave differently than small-cap stocks. Bond investors can spread risk across treasuries, corporate bonds, and municipal bonds. This helps reduce the impact of any single investment on your overall portfolio.

Key Sources for Investment Information

Before making any investment decisions, it’s important to fully understand the product in which you are investing. Begin by referencing reliable information sources—such as a mutual fund’s prospectus, which outlines its goals, fees, risks, and expenses.

Third-party financial publications and websites can also provide valuable information. They offer credit ratings, news, and performance comparisons. For mutual funds, these sources often provide ratings and analysis that help you evaluate how a fund stacks up against its peers. The Securities and Exchange Commission (SEC) is another reliable resource for company filings and disclosures.

Talking to a financial advisor can be a valuable step. They can clarify how specific investments align with your overall financial goals and ensure your strategy reflects your personal risk tolerance.

Resource by the CAPTRUST wealth planning team

This presentation is intended as an educational program presented by CAPTRUST Financial Advisors. This presentation is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance.

While these foundational numbers remain important, they tell only part of the story. High-level averages can mask critical disparities and limit opportunities to improve plan outcomes.

Enter the new model of retirement plan evaluation: holistic, efficient, and employee centered. Proactive plan sponsors are moving beyond surface-level analytics to embrace segmented insights, modern metrics, and employee feedback. This approach doesn’t abandon traditional measures; rather, it enriches them with greater context and actionable intelligence.

First Things First

Before diving into analytics, plan sponsors must define what success looks like for their workforces. Is the primary goal maximizing retirement income replacement? Achieving universal participation? Improving employee financial confidence? Clearly defined objectives provide the foundation for meaningful measurement.

Foundational metrics remain the baseline for evaluating retirement plan performance and include:

Plan sponsors track these metrics periodically to identify trends that inform their decisions. These metrics provide a useful snapshot of plan health but only scratch the surface.

For example, a plan might boast an 85 percent participation rate, even while hourly workers participate at only half that level.

High usage of a plan’s qualified default investment alternative (QDIA) may provide excellent diversification. However, it may also mean that employees are only contributing at the auto-enrollment level—below the 10 to 15 percent typically needed for retirement security.

Looking beyond averages and toward behavioral trends, segment-specific outcomes, or employee sentiment can reveal actionable insights. “Sponsors who take this more in-depth approach often uncover opportunities to tailor communications, adjust plan design, and improve outcomes for underserved employee groups,” says Jennifer Doss, CAPTRUST’s defined contribution practice leader.

More Modern Metrics

Today, many proactive sponsors supplement foundational metrics with forward-looking indicators to assess whether participants are on track for retirement security.

Several factors drive the need for deeper analysis:

Fortunately, technological advancements enable sponsors to mine employee data for insights and opportunities. As a result, plan sponsors can have access to improved visibility into participant behaviors through dashboard views of participant outcomes. These capabilities are available due to recent upgrades in recordkeeper systems.

Recordkeeper platforms track participant engagement with plan resources, such as account logins, planning tool use, and content. Gap analyses highlight deficiencies in contribution levels or projected income. Monte Carlo simulations allow sponsors to model thousands of retirement scenarios under different market conditions, helping them see not just how many employees participate but also how many are really on track.

“These tools are essential in assessing retirement adequacy,” says Doss. “Monte Carlo tools elevate the conversation from ‘how many are participating’ to ‘how many are on track.’ And the ability to customize these tools to participant-specific retirement goals and spending strategies is key.”

“We believe that our investment in more sophisticated plan measurement will pay off by ensuring our employees not only have access to retirement benefits but also understand and feel empowered to use them,” says Jen Howe from Holland Hospital’s human resources team. Holland Hospital is a nonprofit, community-focused medical center in West Michigan with about 2,400 employees, a 190-bed main campus, and multiple satellite facilities.

Holland Hospital embarked on a process of enhancing its retirement plan metrics about three years ago to better attract and retain colleagues in several key employee segments.

Segmented Insights

One powerful evolution in plan measurement is access to segmented analysis. Averages are deceptive—they can hide significant disparities that merit attention and intervention. “More detailed analytics can create targeted opportunities to engage participants through education, timely nudges, or behavior-focused initiatives,” says Chris Whitlow, head of CAPTRUST at Work.

A notable dimension for segmentation is generation. “With multiple generations in our workforce, we recognize that each group has unique needs, learning styles, and comfort levels with technology,” says Howe. “We take a multi-channel approach, using every resource available to reach employees where they are most comfortable.”

Beyond generation, segmentation and analysis may reveal actionable insights based on:

Emerging best practices involve combining segmented data with financial wellness data—like emergency savings accounts, student loan assistance, or health spending guidance—and connecting retirement planning with broader total rewards strategies.

“Traditional retirement metrics can be insightful tools when viewed alongside broader financial wellness indicators,” says Whitlow. “These metrics can help plan sponsors spot hidden signs of financial stress or identify timely moments to capture a participant’s attention.”

SECURE Opportunities

Many SECURE and SECURE 2.0 Act provisions aim to improve the financial well-being of participants. SECURE 2.0, for example, introduced several provisions that require new metrics to track adoption, utilization, and impact.

“The biggest lift from SECURE 2.0 is that it has pulled financial wellness concepts into the mainstream of employee benefit decisions,” says Whitlow. “With SECURE 2.0, the Department of Labor (DOL) has put a clear priority on financial wellness, giving plan sponsors new ways to help improve employees’ overall financial wellbeing.”

With SECURE 2.0, the DOL also created new measurement possibilities and needs. Plan sponsors are starting to track student loan match participation; emergency savings withdrawal patterns; auto-portability matches, both into and out of the plan; and repayments (e.g., emergency savings withdrawals, federal disaster distributions, and qualified birth or adoption distributions).

“These provisions blur the line between retirement savings and financial wellness, requiring sponsors to think differently about success metrics,” says Doss. “Plan sponsors should consider integrating metrics from their financial wellness program to track success and avoid potential false negatives.”

One case in point: Early indications from plans implementing student loan matching show that while some participants may reduce 401(k) contributions to pay down debt faster, employee satisfaction increases, and the benefit serves as a competitive advantage.

Behind the Curtain

Quantitative metrics reveal what is happening. Qualitative feedback explains why—and it can add an important dimension to plan measurement. “A plan can be healthy by the numbers yet fail to support certain segments of employees if it doesn’t align with their financial goals and circumstances,” says Doss.

Feedback during benefits enrollment, employee sentiment check-ins, or pulse surveys, focus groups on specific topics, and engagement with employee resource groups (ERGs) can provide crucial context on the why.

Key qualitative metrics that may be of interest include:

“Imagine being able to pull together data from the recordkeeper, human resources systems, and employee sentiment surveys,” says Doss. “A sponsor can now track retirement readiness by income or age band and overlay that with survey data to better understand who is happy and engaged, who is not—and why.”

At the core of Holland Hospital’s approach is qualitative feedback from employees through employee surveys, benefit fairs, and one-on-one financial wellness consultations. In the course of their engagement with the hospital’s employees, CAPTRUST’s representatives gather answers to a handful of simple questions—think Net Promoter Score—and dig deeper through conversation to uncover hidden insights.

Benchmarking Success

The last piece of the puzzle is creating benchmarks. How do plan sponsors know how good is good enough? Or what is possible in a particular industry or with a specific employee demographic? Establishing retirement plan benchmarks requires a balance of aspiration with reality.

An effective approach combines external benchmark data with internal goals informed by workforce demographics and business goals.

External data sources offer context about industry performance. They can also help identify areas where a plan may be lagging. Examples include the Plan Sponsor Council of America’s (PSCA) annual survey and Vanguard’s “How America Saves.” The plan’s recordkeeper and advisor can also chime in.

However, industry averages shouldn’t become rigid targets that ignore the characteristics of an employee population. For example, a manufacturing company with a largely hourly workforce might set different participation targets than a professional services firm with higher-income employees.

The key is for plan sponsors to understand what drives success for their specific population and set benchmarks that reflect those realities, while still pushing for improvement. 

Regular benchmark review is essential, as workforce composition, economic conditions, and regulatory changes can all impact what constitutes reasonable performance. Annual—or more frequent—reviews ensure that targets remain relevant and challenging while accounting for evolving participant needs and market conditions.

Holland Hospital uses benchmarking data from CAPTRUST and their recordkeeper, in addition to published sources such as Vanguard’s annual study. Given the pace of change and innovation, they are having conversations about plan success more frequently than the traditional annual check-in. By asking for help from their partners, Holland Hospital’s HR team can spend less time on tactical issues and more time optimizing their overall benefits package.

“The most successful sponsors view benchmarking as a starting point for conversation rather than an endpoint,” says Doss. “They use external data to understand the landscape then they set internal targets that reflect their unique workforce and business objectives.”

From Insight to Action

Of course, sponsors can’t simply gather the data. The key is acting on what they learn. The payoff is building trust through ongoing plan improvement and communication adjustments. Acting on insights can also lead to more equitable and targeted plan design. 

With their limited budget and time, sponsors must focus their efforts where they can achieve the greatest impact. Getting started is easy.

Plan sponsors can begin by requesting segmented reporting from their recordkeeper or advisor. Some recordkeepers provide tools to analyze participant data in their sponsor portals. In other cases, the sponsor may need to share data with the recordkeeper to perform an analysis.

Advisors can help interpret this data and recommend strategies.

Segmented insights enable precise interventions. Here are a few ideas:

“We strive to tailor our communication to the individual rather than the group, ensuring that every employee feels supported, included, and able to access the resources they need in a way that resonates with them,” says Howe. “That may be through in-person one-on-one meetings, group sessions, texts, printed materials, digital articles, emails, letters, or our robust company intranet.”

At Holland Hospital, this approach has made a big difference. In addition to moving the needle with a few important demographics—like early-career employees—they are getting real-time feedback. This feedback indicates employees generally appreciate their plan and benefits package.

The Path Forward

While participation rates and average deferral percentages remain important, today plan sponsors have access to tools that can drive meaningful improvement in retirement outcomes. This evolution reflects a fundamental shift in how employers view their role in employee financial wellness and how they communicate with their people.

By embracing deeper analysis and feedback, plan sponsors can transform their plans into active drivers of financial security. “Sponsors who embrace this holistic approach aren’t just checking compliance boxes; they’re building retirement programs that make a difference in their employees’ lives—and that’s what success looks like,” says Doss. “This drives better participant outcomes, builds employee satisfaction through a sense of security and support, and enhances retention by reinforcing our commitment to their long-term wellness” says Howe. “As an organization rooted in community health, investing in our employees’ overall wellness is a direct investment in the future success of both our people and our mission.”

1. Understand the Benefits of Compounding

Compounding interest is a powerful financial concept that allows investments to grow exponentially over time. Like a snowball rolling downhill, the longer money is invested, the more it grows, with interest building on to not only the principal amount invested but also the previous interest earned.

Investors who start early, even if they’re only investing small amounts, tend to accumulate more wealth than investors who contribute a large amount of money later in life. For example, a modest investment of $10,000 at an annual rate of return of 8 percent would grow to $100,627 in 30 years assuming no additional contributions or withdrawals. In contrast, an investor who contributed $25,000 in year 15 would only have $82,676 in year 30.

In addition to assuming no additional contributions or withdrawals, this simple example also assumes that no taxes are paid. Tax-deferred individual retirement accounts (IRAs) and qualified retirement plans, including 401(k)s, function similarly to our example. Assets invested in these types of accounts are not subject to income tax until they are withdrawn. The principle of compounding is especially impactful in saving for retirement; it’s why financial experts recommend funding those tax-deferred accounts early in your career, even if you can only afford a small contribution.

Regardless of how much you save, it’s important to remember that starting early to take advantage of compounding can lead to substantial growth over time—and create disciplined savings habits along the way.

2. Remain Disciplined During Times of Market Volatility

Riding out market volatility is one of the most effective financial strategies for long-term investors. Financial markets naturally experience ups and downs due to economic cycles, geopolitical events, and investor sentiment. While it can be tempting to react to short-term fluctuations by selling your investments, doing so often locks in losses and causes you to miss out on potential rebounds. Historically, markets have shown resilience and a tendency to recover over time, rewarding those who stay invested through turbulent periods.

While leaving assets in the market through times of volatility is part of a disciplined investment approach in the long run, there are many reasons investors may need or want to withdraw assets during market volatility. A financial advisor can help guide you. Considering the time horizon for your various buckets of investments is essential. For assets you may need in the short term, you may consider investments that are designed to protect your principal, even if they may have a lower return, while assets that you won’t need for many years can remain invested in a long-term, growth-focused investment strategy.

It’s also important to remember that different asset classes perform differently in various markets. In addition to investing based on your time horizon, investing across asset classes may reduce overall volatility in your portfolio and help you stay disciplined by keeping those longer-term assets in the market during times of turbulencl.

By maintaining a long-term perspective and trusting in the market’s historical resilience, investors can build wealth more steadily and confidently.

3. The Power of Diversification

Asset allocation involves distributing your funds across different types of investments, commonly known as asset classes. The four most common asset classes are stocks, bonds, cash, and alternative investments (assets that don’t fall into any of the previous three categories). A basic asset allocation strategy would likely include at least stocks, bonds, and cash.

Diversification across asset classes is a fundamental principle of sound investing that helps reduce risk by spreading investments across a variety of asset classes, industries, and geographic regions that perform differently. By not putting all your money into a single investment or sector, you minimize the impact of any particular asset’s poor performance on your overall portfolio. For example, if technology stocks decline, gains in healthcare or energy sectors might offset those losses. This balance helps protect your portfolio from volatility and unexpected market events.

Proper asset allocation that meets your risk tolerance and time horizon can provide for more stable and consistent returns over time. Different asset classes perform differently under various economic conditions. While equities may thrive during periods of growth, bonds might perform better during downturns. A diversified portfolio can capture growth opportunities while cushioning against losses, making it easier to stay invested and avoid emotional decision-making during market swings.

Ultimately, diversification is not about eliminating risk entirely but about managing it wisely. It’s a mitigation. It’s a strategy that supports long-term financial goals by building resilience into your investment approach.

4. Learn How Time Horizon Impacts Investment Choices

Considering your time horizon is crucial when making investment decisions, because it directly influences the types of assets you should choose and the level of risk you can afford to take.

For example, saving for retirement in 30 years is considered a long-term time horizon and, therefore, allows for greater tolerance of short-term market fluctuations. This means you can invest in higher-risk, higher-reward assets like stocks, which historically offer better returns over time. Conversely, a shorter time horizon, such as saving for a home in the next few years, calls for more conservative investments to preserve capital.

Your time horizon also affects how you respond to market volatility. Investors with long-term goals can better weather the downturns, riding them out and knowing that markets tend to recover and grow over time. This patience can lead to significant gains, especially when combined with strategies like dollar-cost averaging (which is explained below) and reinvestment of dividends. On the other hand, those with short-term goals may need to prioritize liquidity and stability by choosing investments that are less likely to fluctuate dramatically in value but may have lower returns.

Finally, aligning your investment strategy with your time horizon helps you stay focused and avoid emotional decision-making. It provides a framework for setting realistic expectations and measuring progress toward your goals. Whether you’re investing for retirement, education, or a major purchase, understanding your time horizon ensures that your portfolio is appropriately structured to meet your needs when you need the money.

5. Consider Dollar-Cost Averaging

Dollar-cost averaging (DCA) is a strategy that involves investing a fixed amount of money at regular intervals, regardless of market conditions. One of its primary benefits is that it helps reduce the impact of market volatility. By purchasing more shares when prices are low and fewer shares when prices are high, investors can lower their average cost per share over time. This approach can smooth out the highs and lows of the market and can lead to better long-term investment outcomes, especially in uncertain or fluctuating market and economic environments.

Another advantage of DCA is that it encourages consistent investing habits. Rather than trying to time the market, DCA promotes discipline and removes emotion from the investment process. Investors are less likely to make impulsive decisions based on fear or greed, which can lead to costly mistakes. This steady approach is particularly useful for long-term goals like retirement, where regular contributions can compound significantly over time.

DCA also makes investing more accessible. It allows individuals to start investing with smaller amounts of money, making it easier to build a portfolio gradually. This is especially beneficial for new investors or those with limited capital, as it lowers the barrier to entry and fosters financial growth over time. By spreading out investments, DCA helps manage risk and provides a structured path toward wealth accumulation.

6. Review and Rebalance

Regular investment portfolio review and rebalancing are essential practices for maintaining alignment with your financial goals and risk tolerance. Over time, market fluctuations can cause your asset allocation to drift from its original targets. For example, if stocks perform well, they may begin to dominate your portfolio, increasing your exposure to risk beyond what you intended. By reviewing your portfolio periodically, you can more quickly identify these shifts and make informed decisions to bring your investments back in line with your strategy.

Rebalancing also helps you take advantage of market movements in a disciplined way. It involves selling assets that have grown disproportionately and buying those that have lagged, effectively encouraging a buy-low, sell-high approach. This can enhance long-term returns and reduce the likelihood of overexposure to any single asset class. Without rebalancing, your portfolio may become too concentrated, making it more vulnerable to downturns in specific sectors or markets.

Resource by the CAPTRUST wealth planning team

In addition to managing risk and optimizing returns, regular reviews also ensure your portfolio continues to reflect your life circumstances, financial goals, and market conditions. Whether you’re approaching retirement, experiencing a change in income, or adjusting your investment timeline, periodic check-ins allow you to adapt your strategy accordingly. Staying proactive with reviews and rebalancing helps keep your investment plan on track and increases the likelihood of achieving your financial objectives.This material is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance. This material does not constitute legal, accounting, or tax advice. This material has been prepared solely for informational purposes. Investment advisory services offered by CapFinancial Partners, LLC (“CAPTRUST” or “CAPTRUST Financial Advisors”), an investment advisor registered under The Investment Advisors Act of 1940.

The guidance confirms that, starting January 1, 2026, participants whose prior-year Federal Insurance Contributions Act (FICA) wages exceed $145,000 must make catch-up contributions on a Roth basis.

While other provisions in the regulations apply to tax years beginning after December 31, 2026, the IRS did not delay the effective date for the mandatory Roth catch-up contribution requirement. Plan sponsors should prepare to implement this change by the start of 2026.

While the final regulations span 94 pages, here are some key highlights:

To comply with regulations, we suggest plan sponsors complete the following:

For more information, please contact your CAPTRUST advisor.

This information is provided for educational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or buy securities, investment products, or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. 

Understanding Multigenerational Wealth Planning

Multigenerational wealth planning is a forward-looking strategy that goes beyond individual financial goals. It focuses on helping ensure that each subsequent generation has the resources and opportunities to succeed.

Key elements of multigenerational wealth planning include:

Scenario Planning: Modeling wealth and cash flow scenarios to evaluate which options can help you reach your long-term objectives.

Wealth Transfer: Developing strategies for the tax-efficient transfer of assets to heirs and beneficiaries, including trusts and gifting.

Global Asset Allocation: Determining asset allocation among diverse asset classes such as business holdings, real estate, private equity, and other alternative investments to better align the overall risk profile with long-term goals.

Legacy Planning: Establishing a clear vision for the family’s legacy, including philanthropic goals and values.

Understanding Estate and Business Preservation

Estate and business preservation are integral components of multigenerational wealth planning. It creates a framework for making longer-term decisions balancing lifetime needs and advanced estate planning objectives with longer-term business and family needs. Advanced planning strategies can be implemented to properly manage estate taxes, thereby preserving your legacy and wealth for future generations.

Estate planning concepts that can be integrated into a comprehensive financial strategy include:

Alternatives and Risk Management: In-depth financial modeling of scenarios provides a framework to analyze opportunities and risks.

Liquidity Analysis: Identification of strategies to properly manage estate tax and business transfer costs as well as long-term family needs.

Tax Efficiency: Gifting, charitable giving, and the use of trusts to minimize estate and income tax liabilities.

Review of Wills, Trusts, and Beneficiary Designations: Working closely with your estate planning attorney to help ensure you have the appropriate legal documents and structures in place to effectively apply business and estate preservation strategies.

Integrating multigenerational wealth planning and advanced estate planning into an overall strategic financial plan can provide a roadmap for securing your family’s financial future and ensuring your legacy endures. By aligning your financial goals, protecting your assets, and fostering open communication across generations, you can create a well-rounded and flexible plan that benefits your family for years to come.

Choosing experienced professional advisors who specialize in these areas is key to developing a financial strategy that addresses the unique needs of your family and your vision for the future.

Before You Begin

Before diving into investment options and strategies, take a moment to assess your current financial situation. Start by gathering all your banking and investing statements from the last 12 months, as well as any other financial documents, such as paystubs, tax returns, and an estimated expenses breakdown.

Ask yourself:

Analyzing your income and expenses will help you understand your cash flow and identify opportunities to invest. These foundational steps matter because investing works best when you’re not constantly pulling money out of your accounts to cover unexpected expenses.

Once your financial base is stable, you’re ready to consider how investing fits into your broader goals.

Saving vs. Investing

Most of us were taught early on to save a portion of what we earn for a rainy day, a treat, or a future purchase. But as we get older, we realize that saving alone often isn’t enough. The math doesn’t lie: if we don’t put those savings to work, we may fall short of major life goals like buying a home or retiring comfortably.

That’s where investing comes in. Saving isn’t just about safety and liquidity, and investing isn’t only about growth and long-term potential. Saving is the act of setting money aside (that is, not spending it). Investing, however, can include assets that are safe and liquid as well as those with long-term growth potential but inherently more risk. Both approaches allow you to put your money to work, but they offer different strategies to help you reach your goals.

Next Steps

The first step in investment planning is determining your goals and understanding the time it may take to achieve them. Your goals give your plan a direction. Why are you investing? Is it for a down payment on a home? Funding a child’s education? Retiring at a certain age? Creating financial independence?

Your goals also help determine how much you need to save and how aggressively you should invest. Once your goals are clear, consider your time horizon.

Understanding the Impact of Time

Time is one of the most powerful tools in investing. The earlier you start, the more opportunity your money has to grow. Compound interest means your earnings generate their own earnings, typically creating a snowball effect over the years.

For example, suppose you invest $10,000 in an account that earns 7 percent interest annually, compounded once per year.

This process continues, with each year’s interest calculated based on a larger amount than the year before. Over time, this compounding effect significantly accelerates your investment growth, especially if you leave the money untouched for many years.

Boosting Growth with Contributions

Allowing your principal amount to compound while continuing to add funds to the account creates even greater growth potential. For example, if you start with the same $10,000 at 7 percent annual interest—but also contribute an extra $1,000 per year—your balance after three years would be $15,690.37, a $3,439.94 difference!

Waiting to invest, even for just a few years, can significantly reduce your long-term growth potential. Starting small and starting now is often better than waiting. Remember, even modest, regular contributions add up over time, thanks to the power of compounding.

Stay Engaged and Consider Help from an Expert

You could choose to manage your investments on your own, assuming you have the skill, will, and time to do so. There are countless educational resources available, and many people enjoy learning about investing independently.

But even professional athletes have coaches. Having a trusted advisor by your side can make the process smoother and more effective. Working with an advisor doesn’t mean giving up control. It means gaining a partner who’s invested in your success. Financial advisors bring experience, objectivity, and strategy to the table. They help you avoid common pitfalls, stay focused during market volatility, and tailor your plan to your unique situation. They can also challenge your thinking and help you see opportunities you might miss on your own.

Investment planning isn’t a one-time event either. Life changes, markets shift, and over time, your needs and goals will evolve. Regularly reviewing your progress ensures that your plan stays aligned with your needs. Whether you’re adjusting contributions, rebalancing your portfolio, or revisiting your goals, staying engaged is key.

Getting started with investing doesn’t require perfection. It requires intention. With a stable foundation, clear goals, and the right support, you can build a plan that grows with you. The journey may seem complex at first, but you don’t have to walk it alone.

Your future self will thank you.

Resource by the CAPTRUST wealth planning team

This material is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance. This material does not constitute legal, accounting, or tax advice. This material has been prepared solely for informational purposes. Investment advisory services offered by CapFinancial Partners, LLC (“CAPTRUST” or “CAPTRUST Financial Advisors”), an investment advisor registered under The Investment Advisors Act of 1940.

What is a 401(k) Retirement Plan?

A 401(k) plan is a retirement savings account that is offered by your employer. You cannot open a 401k on your own; you must work for a company that offers this type of plan. Because the plan is provided through your workplace, contributions are made via payroll deduction.

Having contributions go directly into your 401(k) plan makes it easier to save for retirement before you even cash your paycheck. Although many components are common across 401(k) plans, certain features vary by employer. Be sure to consult your plan’s rules to understand what applies to you.

When Can I Contribute?

Each 401(k) plan specifies when you can begin making contributions. Some plans require up to a year of employment, while others allow contributions with your first paycheck. To boost employee participation, many employers offer automatic enrollment once you become eligible.

If you are automatically enrolled, it’s important to review your default contribution rate and investment selections to ensure they align with your financial goals and personal circumstances.

What Are the Income Tax Consequences of Contributing to a 401(k) Plan?

The two most common ways to contribute to a 401(k) are on a pre-tax or after-tax (Roth) basis. Contributing on a pre-tax basis means that your contributions are deducted from your paycheck and deposited into your 401(k) before federal—and most state—income taxes are calculated. By contributing to your 401(k) plan on a pre-tax basis, you will pay less taxes than if you did not contribute. In addition to not paying income taxes on the amount you contribute, any investment gains that you earn on your contributions would also not be taxable until you take distributions from the plan.

For example, Taylor earns $65,000 annually and contributes $5,000 to her employer’s 401(k) plan on a pre-tax basis. Because of Taylor’s contribution, her taxable income is reduced to $60,000. She will not pay taxes on the $5,000 contribution, or any investment earnings, until she withdraws money from the plan.

Most 401(k) plans now allow after-tax contributions, or what is known as Roth contributions. Unlike pre-tax contributions, Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA (individual retirement account) contributions. This means you receive no immediate tax break. Your contributions are taken from your paycheck and deposited into the plan after taxes are applied. However, because you already paid taxes on this type of contribution, qualified Roth 401(k) distributions are tax-free when you withdraw them.

For example, Jeremy earns $65,000 annually. He contributes $5,000 to his employer’s 401(k) plan on an after-tax basis. Because these are Roth contributions, Jeremy’s taxable income remains $65,000. However, if his withdrawals qualify under IRS rules, his Roth 401(k) contributions and all investment earnings on those contributions will be income tax-free when distributed. A Roth 401(k) distribution is considered qualified if it meets specific requirements, typically including a five-year holding period and occurring after age 59½, or due to disability or death.

The five-year waiting period for qualified Roth 401(k) withdrawals begins on January 1 of the year you make your first Roth contribution. For instance, if your first Roth contribution is made in December 2026, the waiting period starts on January 1, 2026, and ends on December 31, 2030. This means you could take a qualified distribution starting January 1, 2031, assuming you meet the age and other qualifying conditions.

Withdrawals from pre-tax accounts before age 59½, as well as nonqualified withdrawals from Roth accounts, are generally subject to regular income tax and a 10 percent penalty—unless an exception applies.

2025 401(k) Contribution Limits

Under age 50:

Ages 50 through 59 and over 64:

Ages 60 through 63:

Starting in 2026, workers who are over 50 and earn more than $145,000 will automatically have their catch-up contributions made on an after-tax (Roth) basis.

Whether you contribute to your 401(k) on a pre-tax or Roth basis, the total contribution limits are the same. However, you are allowed to split your contributions between pre-tax and Roth contributions in any proportion you choose.

Keep in mind that if you have more than one job and contribute to another employer’s 401(k), 403(b), SIMPLE, or SAR-SEP plan, your combined contributions—both pre-tax and Roth—cannot exceed the annual limit for your age group. If you participate in more than one employer-sponsored plan, it is your responsibility, not your employer’s, to make sure you don’t exceed these limits.

Can I Also Contribute to an IRA?

Yes. Participating in a 401(k) does not affect your ability to contribute to a traditional IRA. In 2025, you can contribute as much as $7,000 to an IRA ($8,000 if you’re age 50 or older) as long as you have earned income equal to or greater than the amount you contribute.

However, your ability to make deductible contributions to a traditional IRA may be limited if you or your spouse participates in a 401(k) and your modified adjusted gross income (MAGI) exceeds certain thresholds. Similarly, your ability to contribute to a Roth IRA may be restricted if your MAGI exceeds certain levels.

What About Employer Contributions?

Employers are not required to make contributions into 401(k) plans. However, many offer matching contributions to encourage participation and provide an employee benefit. Your employer may choose to match contributions made on a pre-tax basis, on a Roth basis, or both. Some employers match catch-up contributions for those age 50 and older, while others do not.

No matter what match your company may offer, their contributions to your 401(k)—even if they match your Roth contributions—are always made on a pre-tax basis. This means both the contributions and any earnings they may generate will be taxable when you take a distribution from the plan.

A company match is essentially free money, making it a valuable way to grow your retirement savings. Be sure to contribute enough to take full advantage of your employer’s matching contributions.

Should I Make Pre-Tax or Roth Contributions?

Choosing between pre-tax and Roth contributions can feel overwhelming. A simple guideline is this:

Because future tax rates are uncertain, a mix of pre-tax and Roth contributions can provide flexibility for retirement income planning. Other factors to consider include your investment time horizon and projected investment returns.

What Happens If I Terminate Employment?

Before you decide what to do with the money in your 401(k) after leaving your job, review your company’s vesting schedule to determine how much of the balance is yours to keep. Your own contributions and any earnings on them are always 100 percent vested (you always own these). Depending on your company’s vesting schedule and how long you have worked there, you may be partially vested or fully vested in your employer’s matching contributions and associated earnings. The longest vesting schedule allowed is six years.

After you figure out how much money in your 401(k) is yours, you will have some options for what you would like to do with that money.

Note: When deciding whether to roll over your retirement savings to an IRA or another employer’s plan, it’s important to carefully evaluate each option’s investment choices, fees and expenses, available services, rules for penalty-free withdrawals, level of creditor protection, and distribution requirements.

What Else You May Need to Know

If your plan permits loans, you can typically borrow up to 50 percent of your vested 401(k) balance, with a maximum limit of $50,000. These loans are not taxable and are repaid through payroll deductions. In cases of immediate and severe financial need, a hardship withdrawal may be permitted, but this should be a last resort because hardship distributions are usually taxable.

Since 401(k) plans are intended for retirement, taking money out before age 59½ (or 55 in certain cases) could trigger a 10 percent early withdrawal penalty unless you qualify for an exception. Depending on your income, you may also be eligible for a tax credit of up to $1,000 on the amounts you contribute.

Your assets in a 401(k)are generally protected in the event of your or your employer’s bankruptcy. Most plans allow you to choose how your money is invested, typically from a selection of mutual funds offered by your employer. While they provide the choices, it’s up to you to pick the investments that best align with your retirement goals.

Sources:
401(k) plans | Internal Revenue Service

401(k) plan overview | Internal Revenue Service

Individual retirement arrangements (IRAs) | Internal Revenue Service

Roth IRAs | Internal Revenue Service

Resource by the CAPTRUST wealth planning team

This material is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance. This material does not constitute legal, accounting, or tax advice. This material has been prepared solely for informational purposes. The information and statistics in this content are from sources believed to be reliable but are not guaranteed by CAPTRUST Financial Advisors to be accurate or complete. Investment advisory services offered by CapFinancial Partners, LLC (“CAPTRUST” or “CAPTRUST Financial Advisors”), an investment advisor registered under The Investment Advisors Act of 1940. 

Families often establish FLPs for three key reasons:

Ownership within an FLP is divided into two categories: 

How an FLP is set up depends on the nature of the business and the goal of the family. A family may choose the FLP structure by establishing a family business in which the family members all put in capital to purchase shares of the partnership. The capital can then be used to fund the business venture, with the general partners running the business and the limited partners receiving a share of the profits in exchange for the capital they contributed. All profits are shared with all partners in accordance with the percentage of shares they own.

If effective and efficient wealth transfer is a goal, an FLP can serve as an effective estate planning strategy. Depending on the specifics of your financial situation, it may:

This type of FLP structure is typically created by one or more senior family members who contribute existing business and income-generating assets to the partnership in return for both general and limited partnership interests. Portions—or all—of the limited partnership interests are subsequently gifted to younger family members.

Ultimately, the general partner(s) do not have to hold a majority of the partnership interests. In many cases, they may own just 1 or 2 percent, while the majority of the interests belong to the limited partner(s).

Benefits of Structuring a Business as an FLP 

Choosing an FLP structure offers several advantages for your business. Individuals can gift shares of the FLP to heirs during their lifetime every year, gift-tax free, up to the annual gift-tax exclusion limit. These shares are often valued below the full fair market value of the underlying assets, because reasonable discounts are allowed for lack of marketability and lack of control. As a result, gifting assets through limited partnership interests, instead of directly transferring the assets, can allow you to move more assets outside your estate, using little to none of your lifetime exemption.

At the time of your death, only the value of your interest in the partnership is counted in your gross estate. All growth on shares gifted during your lifetime occurs outside your estate and is not subject to state or federal estate taxes. Heirs receiving shares of the FLP that are part of your estate receive a step-up in basis at your passing.

Maintaining assets in the family line is also often a concern. FLP partnership agreements can be written in such a way that they restrict the transfer of partnership interests to family members only, or even to specific family members, thereby protecting assets from divorcing spouses, individuals who marry into a family, etc., and thus maintaining continuous family ownership of the business. 

Using the partnership structure also enables you to shift some of the business income and future growth in value to other family members while retaining management control over the business. Younger individuals, including children or grandchildren, may pay income taxes at a lower rate than their older family members. Transferring shares of an FLP to those in a lower tax bracket will lower the overall taxes the whole family pays on interest, dividends, income, and capital gains.

As with all financial planning strategies, there are always disadvantages that should be considered. Creating and maintaining an FLP can be costly, requiring legal assistance to set up, plus yearly professional tax compliance and advice. Members can be subject to liabilities in the case of mismanagement. Rules governing FLPs are often complex and therefore require understanding and adherence to take advantage of the benefits.

Your CAPTRUST financial advisor can help you understand more and decide if an FLP is right for you.

Sources:

Understanding the ins and outs of a Family Limited Partnership – Littorno Law Group

Unlocking Tax Savings: Family Limited Partnerships in Estate Planning | American Heart Association

Resource by the CAPTRUST wealth planning team

This article does not constitute legal, accounting, or tax advice. This material has been prepared solely for informational purposes. This article is not individual investment advice. If you have questions or concerns regarding your own individual needs, please contact a CAPTRUST representative for further assistance.  Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

On August 7, President Donald Trump signed an executive order directing the Department of Labor (DOL) to reexamine fiduciary duties regarding alternative asset investments in ERISA-governed 401(k) and other defined contribution plans. The order defines alternative assets as private equity, private debt, private real estate, infrastructure, digital assets, or lifetime income investment strategies.

Over the next 180 days, the Secretary of Labor is directed to “clarify” the DOL’s position on alternative assets and the appropriate fiduciary process for offering asset allocation funds that include such investments. Although the directive comes during a time of industry fervor, promotion, and product launches, the form and timing of regulatory guidance remain unclear.

Alternative investments have long been permitted in defined contribution plans; however, their complex and operationally demanding natures have historically limited access for most 401(k) plans. Over the years, the DOL has issued information letters in response to specific fiduciary inquiries, but it has not yet provided comprehensive guidance.

With more than two decades of experience, CAPTRUST provides plan sponsors with due diligence and advice on private market and alternative investments solutions. For more information, please contact your CAPTRUST Financial Advisor.