The Advisor, May 2023

What’s New at GPW

Amidst the ever-changing economic landscape we are committed to providing our clients with insightful advice and guidance. It is crucial to stay current on market developments and make informed decisions regarding your financial future. In this edition of our newsletter, we offer a range of perspectives, analysis, and practical tips to help you achieve your financial goals. Scroll down to read about our latest investment portfolio updates and learn more about Mega Backdoor Roth IRA strategies.


Jeff Wetta, RPS and Dustin Jackson, CFP® RICP®
Managing Partners


GoalVest Portfolio Update

The economy has proven resilient and market performance has been solid so far this year. Equities and bonds are off to a decent start in 2023, despite regional bank volatility. As a result of recent events, we’ve been cautious regarding the banking sector and are underweight financials. That said, we remain confident in the health of banks. We also believe banks will likely tighten lending standards going forward, which could impact GDP growth this year.

Lead indicators such as new manufacturing orders, retail stocks, the inventory/sales ratio, and the yield curve point towards an economic slowdown. A slowdown could negatively impact earnings (especially for cyclical companies), however it could be positive if the slowdown allows the Fed to pause interest rate hikes. We are cautiously optimistic and view this as a likely occurrence in the near future. A pause in interest rate hikes by the Fed has been beneficial for equities over the following twelve months in seven out of eight cases since 1980.

Inflation is gradually decreasing – headline CPI came in at 5.0% in March, while core CPI came in at 5.6%. This downward trend in core CPI has proven positive for equities. Although inflation remains well above the Fed’s 2% target and needs to fall more before the Fed can adjust their policy. Shelter and service inflation remain elevated, but lower energy prices have helped bring overall CPI down. Until the shelter and service inflation components come down, we do not anticipate impactful interest rate cuts.

Although management commentary indicates a gradual slowdown in discretionary economic activity, earnings season has shown mixed results so far. Our investments focus on quality companies with an overweight to companies that have resilient earnings streams. We remain invested for the long term and hold high-quality core and yield investments. As we move closer to a pause in Fed rate hikes, we have slightly decreased our level of hedging but retained some hedges in the form of structured, hedged notes designed to mitigate near term risk. We also continue to allocate a healthy portion of our portfolios to alternative investments and will take advantage of volatility where appropriate to price structured yield notes with attractive payoff structures.

Sevasti Balafas, CFA, CPWA®
CEO & Founder
GoalVest Advisory

Source: YCharts, BlackRock, JP Morgan Asset Management, Invesco, Bloomberg, Wall Street Journal


Mega Backdoor Roth IRA Strategy

By: Maria Martin

Traditionally, individuals can use Roth IRAs and Roth 401(k)s to save after-tax dollars for their retirement. But for some individuals, the amount they can contribute to these types of accounts is limited or they only have Traditional 401(k) options available to them. An alternative strategy that is available is a Mega Backdoor Roth IRA Contribution. Similar to a traditional Backdoor Roth IRA, this strategy takes your contributions to a traditional 401(k) and rolls them over to a Roth IRA. But how does this work if you’ve already maxed out your 401(k)?

Let’s take a look at a few examples:

George has maxed out his traditional 401(k) for this year, so he has contributed $22,500. His employer has given him a match of $5,000, totaling $27,500. However, the total (both employee and employer) 401(k) contribution limit for 2023 is $66,000 1. This means that George has $38,500 ($66,000 – $27,500) available before he hits his total annual contribution limit.

This is where the Mega Backdoor Roth IRA comes into play. George can take after-tax dollars and contribute a lump sum of $38,500 to his 401(k). Then, he will roll the $38,500 over to his Roth IRA, thus executing a Mega Backdoor Roth IRA Contribution.

Sounds too simple, right? There are a few items that George had to confirm including 1) determining that his 401(k) plan allows for after-tax contributions and 2) determining that his 401(k) plan allows for in-service withdrawals. An in-service withdrawal is a type of withdrawal that occurs while you are still employed by the company2.

Mega Backdoor Roth IRAs are helpful tools when implemented correctly and can elevate your retirement savings strategies. They are often used when an individual has maximized their current retirement accounts and has ample funds to pay taxes and contribute after-tax money. Remember to consult your advisor and tax professional before utilizing this tool. If you have questions about how a Mega Backdoor Roth IRA or a more traditional Backdoor Roth IRA can impact your plan, let us know. We’d be happy to sit down and discuss your plan in detail.