Powerful financial investment options for Colorado attorneys

Advice from the experts at Maia Wealth
Shutterstock 1673085244

Let’s face it: COVID-19 has put a lot of us through the wringer. Most professions, barring certain segments in the medical industry, that rely on human interaction to stay afloat have taken a hit in these unpredictable times, and the legal sector is no exception.

Naturally, many attorneys have been looking for alternative streams of income since the lockdown put the American economy in a vice grip, and one such stream is investing. But what are some investments an attorney can make that will specifically benefit them?

Let’s take a look.

Low-Risk ROIs

To begin, ROI stands for Return On Investment, or the ratio between your net profit and cost of investment. It measures the efficiency of either single or multiple investments. It’s best for newer investors to go with a low-risk investment, as they are often safer bets, which means you’re less likely to lose money.

So, what are some excellent, low-risk investments for attorneys?

  •  Money Market Mutual Funds – These investments work by investing in overnight commercial paper and other short-duration securities, which typically offer a next-to-no yield. However, money market funds provide absolute liquidity to investors, unlike corporate bonds and treasury products. You can also pull your money out at any time, as they hardly experience any volatility.
  • Preferred Stocks – Think of preferred stocks as the best of both the bonds and stocks worlds: they provide regular income payments, as bonds do while providing some of the appreciation potentials you’ll get from common stocks. Interestingly, preferred stocks often provide higher dividend payments than companies’ bonds, since payment is not guaranteed. If you’re after an investment with high average annual returns, preferred stocks are it. They’ve offered average annual returns of more than 7% since the turn of the 20th century, most of which come from dividend payments.
  • Index Funds – Index funds allow you to invest in hundreds or thousands of individual bonds and stocks while still providing high dividend or interest rates, thereby significantly reducing the risk you acquire upon investment. Unlike bonds or common and preferred stocks, though, individual equities are not diversified. What’s more, you can only buy bonds or stock from a company or two, which naturally could turn into a much bigger issue if one of the companies goes belly up.

Investment Options for Attorneys

If you have a bit more money to spare, though, you’ll be happy to know that there are a host of great investment strategies specifically for attorneys.

Here are some of the best investment options for attorneys that you can make through the end of this year.

401(k)s as Savings Plans – Law firms have been known to contribute more to employee 401(k) plans than nearly any other industry. If your law firm offers you a match, they’re practically handing you free money that would be a mistake not to take. Fortunately, many law firms provide this kind of match, so you may be in luck.

What’s more, 401(k) plans have higher contribution limits than other retirement plans, such as traditional and Roth Individual Retirement Accounts (IRAs). For lawyers younger than 50, the annual employee 401(k) contribution limit for 2020 is $19,500. There is also a combined limit of $57,000 for combined employer and employee contributions in 2020. In contrast, IRAs have a much lower annual contribution limit in 2020 of $6,000 for anyone younger than 50.

To claim a tax deduction on your traditional IRA contributions, your Adjusted Gross Income (AGI) in 2020 cannot exceed $206,000. And, if your AGI exceeds $206,000, you may not contribute to a Roth IRA at all. Your AGI limit could be lower, depending on marital status and other factors. However, claiming a tax deduction on your 401(k) contributions has no income threshold.

Tax Planning – Poor tax compliance and/or planning can end up costing attorneys a lot over an extended period. This is what makes careful tax preparation so important, since the financial devil is very much in the details. Here are a couple of suggestions you can follow for the next tax period that might end up saving you a good chunk of dough.

One option is to align your estimated tax payments with your cash flow. Since many firms’ annual incomes vary drastically from year to year, they often face irregular partner distribution schedules heavily weighted towards the year’s end. A tax advisor can help you make smaller estimated payments at the beginning of the year and larger

payments later in the year to better mirror your cash flow. Another option is to have them help you set up smaller estimated tax payments in lower-income years.

It’s also essential to make doubly sure that you’re filing in all relevant tax jurisdictions. This can get confusing and complicated quickly. It can also potentially trigger additional penalties and audits if the taxes aren’t filed correctly, since attorneys often have to file in multiple states and localities. Working with an accredited tax advisor will help ensure that you meet all of these filing requirements, get all available deductions, and properly document your filings to avoid these extra penalties and audits. Just keep in mind that you’ll need an accountant with foreign tax experience if you need to file foreign tax returns.

Refinancing Student Loans – You’ll be hard-pressed to find an attorney under 40 who isn’t saddled with a mountain of student loan debt (hello, law school!). A simple refinancing of these student loans can bring your interest rate down and, in turn, slash how much you pay in annual interest fees by thousands of dollars.

Investing should never be taken lightly, but it’s nice to know that there are many options for investments that have a good chance of providing you with a high return. Don’t forget to do your due diligence if you are researching these investment options for yourself. An easier path is to work with a wealth professional that has specific experience working with attorneys if you need help.

Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area.

Categories: Business Insights, COVID-19, Legal