Wealth Management Washington DC

Why do you need a wealth management company local to the Washington DC area?

You might have managed your own wealth for some time now. But as your assets grow, things can get complicated.  Your family may start with having five things to worry about.  But then you have a child.  Or an investment property.  Or perhaps you have to care for an aging relative.

And then all of a sudden you have twenty things to think about.  At this stage, hiring a wealth management firm becomes an increasingly good option.

And even if you can manage everything yourself, wealth management firms can add a strong level of professionalism to any investment strategy.

Why do you need a local specialist?

When hiring a wealth manager, you need someone who understands YOU.  Wealth management is much like dating.  You want someone you can work with on a personal level who also matches your personal style.  Someone who just *gets* you.

But more importantly, you need someone who understands the investments you make.  While large national and multi-national wealth advisors such as UBS and Bank of America (Merrill Lynch) can be good options, you should also consider smaller firms that specialize in the area you live in.

In this article, we explore the four reasons why you need a local specialist if you live in Washington DC or the surrounding areas.

1. Taxes

National wealth management companies often need to hire local tax experts.  While they understand federal tax consequences, they are often unaware of local tax issues.  If you work in Washington DC but live in Maryland or Virginia, for instance, what is the best way to deduct taxes to make sure you’re not paying double?

It’s the same for wealth management.  Make sure you aren’t paying double for good tax advice.  Why hire an outside tax consultant for work your wealth manager should already know?  Local wealth management firms should have expertise in local taxes.

What makes DC different?

You can choose your tax locale

Living in the Washington DC area brings one enormous advantage. You have the choice of choosing your tax locale.

Most people in the United States live, work and retire in the same state. For instance, someone in Boston may live in a suburb. But they will still pay Massachusetts state taxes unless they commute in from New Hampshire or Rhode Island.  Otherwise, there’s little flexibility for filing taxes.

Not so for people living in Washington DC.

Because of its proximity to Maryland and Virginia, the Washington DC population actually grows 80% every workday from commuters. This far outpaces all major cities in the United States.

Why is this important?

Income and property taxes add up.

Washington DC has the sixth highest tax rate in the country. Since much of DC’s federal lands are tax-exempt, the city must raise income via other means. Neighboring Maryland is not much better, clocking in at the 2nd least tax-friendly state in the nation.  In Maryland, some families pay even more in local taxes than in Social Security contributions!  If you want lower taxes, you should consider moving to Virginia or West Virginia where local taxes are generally zero.

Income taxes on a $400,000 salary

• • • Maryland: $161,056 (highest)
    • DC: $158,643
    • West Virginia: $151,795
    • Virginia: $149,567 (lowest)

However, there are some benefits to living in Washington DC. The District has one of the lowest property tax rates in the Northeast.  A homeowner can expect to pay just half of Virginia’s rate.  West Virginia also has relatively low rates.

Property taxes on a $2.5MM house

• • • Virginia: $28,750 (highest)
    • Maryland: $23,350
    • West Virginia: $14,725
    • DC: $14,300 (lowest)

A good wealth manager should understand the benefits of owning real estate in Washington DC and reporting income in Virginia.  Even a 1% difference can magnify into the $100,000’s of dollars over time as your wealth grows.

2. Real Estate

Most wealth management plans involve real estate investment.  But how can a wealth management company advise you without in-depth knowledge of the local market?

Most wealth advisors at national firms are only comfortable with stocks and bonds their companies offer. When asked about real estate, many will throw their hands up. “Well, it’s up to you and your real estate broker to make a good investment…” they may say. This is nonsense.  You should be able to rely on your wealth manager to help you manage your portfolio in its entirety.

What makes DC different?

DC has an unusually high-end rental market

While politicians are a minority of DC’s total population, they carry huge weight in the rental market.  That’s because of the hoards of lobbyists, political consultants, lawyers, and other support staff also need temporary housing.  These consultants usually own homes in their home state.  So they come to Washington DC as renters.

In other cities, rentals tend to be lower-end.  Renters are usually young people who cannot yet afford the down payment to buy a house.

Not so in Washington DC.

While DC also has its share of low-end real estate, the District also has an unusually lively rental market on high-end properties.

Why is this important?

DC real estate must FIT your investment portfolio

Washington DC has a bifurcated rental market.  High-end properties are extremely different from low-end properties.  But does your wealth manager understand the difference in buying property in Georgetown versus in Anacostia?  What about a townhouse in Adams Morgan?

While real estate agents can help point you to good properties, only a great wealth manager can tell you how that property fits with the rest of your investment portfolio.

Wealth managers must understand the local market.  A riskier investment in Wards 8 or 9 might have to be offset by safer investments in bonds.  On the other hand, a more conservative investment in Capitol Hill might be counted as a steady income stream.  This would allow for riskier investments elsewhere.

Put another way, only a local specialist can help you invest locally without having to rely on third-party real estate agents for unsolicited advice.

3. Many DC residents retire elsewhere

Washington DC is a young city. According to the U.S. Census, the median age of people living in Washington DC is just 34 years old. In neighboring Virginia?  38.2 years.

The District also boasts fewer retirees. Only 12% of the DC population is 65 and older. That compares to 16% nationwide, and 20% for Florida.

You want a financial advisor who understands that you may retire elsewhere. Even if you don’t plan to move, many couples change their minds once they realize how many of their friends retire to Sunbelt states.

Why do DC residents retire elsewhere?

Estate Taxes

Both Washington DC and Maryland impose up to 16% estate taxes. Maryland can also impose a 10% inheritance tax on its residents. Virginia, on the other hand, has zero estate taxes on the state level.  That’s why so many couples leave DC to retire.  A short move across the Potomac River could save a wealthy family hundreds of thousands of dollars!

Affordability

Washington DC is the fourth most expensive metropolitan area in the United States.  Only New York City, San Francisco, and Honolulu rank higher, according to Kiplinger.  Even if they can afford the cost of living in Washington DC, many retirees enjoy an even higher quality of life by relocating to a less costly city.

Access to Services

Even though Washington DC has the most physicians per capita, the number of research hospitals in the Nation’s capital inflates this statistic.  The city was never designed with retirees in mind.

In fact, many people in DC struggle even to get around.  High city density means driving and parking are often infeasible.  What about the DC subway system?  The system can be ill-suited for aging seniors with limited mobility.  In other words, DC is a walking city.  And this severely limits options for seniors getting around.

Why is this important?

You need a wealth manager who can anticipate a relocation

Moving requires advanced planning.  If you have a business you want to sell or a rental property that needs local management, these are things to anticipate if you want to retire elsewhere.

Even if you decide to stay in Washington DC, you need a wealth manager who can help you plan for taxes.  Perhaps you should move your wealth into a trust fund to help reduce estate taxes.  Or follow a more conservative plan that anticipates a higher cost of living.

4. DC has strange local regulations

Regulations cover more than just taxes.  And as the nation’s capital, Washington DC has several quirks.

Issues such as in-state tuition, marriages, divorces, setting up LLCs, and local permits are all slightly different in Washington DC.  Can you rent out a real estate property for a week on Airbnb? (no).  But can you rent out that same property for a full month? (yes).

People might not realize it at first, but the number of local DC issues can be staggering!

What makes DC different?

DC has a different in-state tuition program

Unlike other states, Washington DC doesn’t have a home-grown in-state college system. Instead, the District issues vouchers for use elsewhere.  With a D.C. Tuition Assistance Grant (DCTAG), the District will pay the difference between in-state and out-of-state tuition up to $10,000 for 6 years. That means your child could potentially enroll in ANY state college for a rebate.

DC offers special grants

Here is a brief list of other DC-specific grants that you and your wealth advisor should be aware of.

• Adoption: The DC Adoption Scholarship (DCAS) offers up to $10,000 per year for up to 6 years for children adopted through the DC Child and Family Services Agency.
• Housing: The Historic Homeowner Grant Program offers $25,000 (or $35,000 in Anacostia) for restorations of certain properties.
• Scholarships: The DC Mayor’s Scholars Undergraduate program rewards students seeking undergraduate degrees.

Why is this important?

Don’t turn down free money!

Even if you can easily afford to send your children to school, having a wealth advisor with knowledge of these grants will still benefit you and your family.  You and your family have likey accrued money over the years by being smart about business and finances. And no one should turn down free money for something they’re already doing.

So Why Local Wealth Management?

You can benefit from having a wealth manager with in-depth local knowledge.  Independent, local wealth management companies in Washington DC can help you navigate issues specific to the local market.

At Jurnex Financial Advisors, we have the backing of Charles Schwab as our primary brokerage. Yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from a local, independent firm.

Too often, we see wealth managers talk on broad levels.  But they are unable tailor to plan specific to the Washington DC region. Having a local firm can help you create a better financial outcome for you and your family.

Want to learn more?