Do You Know Why 2020 Is A Critical Year For Tax Planning?

Contributed by: Nick Defenthaler, CFP®, RICP®

It’s been quite the year, hasn’t it? 2020 has certainly kicked off the decade in an interesting fashion. In addition to the coronavirus quarantine, it’s also a year that required a significant amount of tax planning and forward-thinking. Why is this year so unique as it relates to taxes? Great question, let's dive in!

SECURE Act

The SECURE ACT was passed in late December 2019 and became effective in 2020. The most meaningful part of the SECURE Act was the elimination of the stretch IRA provision for most non-spouse IRA beneficiaries. Non-spouse beneficiaries now only have a 10-year window to deplete the account which will likely result in the beneficiary being thrust into a higher tax bracket. This update has made many retirees re-think their distribution planning strategy as well as reconsider who they are naming as beneficiaries on certain accounts, given the beneficiary’s current and future tax bracket. Click HERE to read more about this change. 

CARES Act 

Fast forward to March, the CARES Act was passed. This critical stimulus bill provided direct payments to most Americans, extended and increased unemployment benefits, and outlined the parameters for the Paycheck Protection Program for small business relief. Also, another important aspect of the CARES Act was the suspension of Required Minimum Distributions (RMDs) for 2020. This isn’t the first time this has occurred. Back in 2009, RMDs were suspended to provide relief for retirees given the “Great Recession” and financial crisis. However, the reality is that for most Americans who are over 70 1/2 and subject to RMDs (RMDs now begin at age 72 starting in 2020 due to the SECURE Act), actually need the distributions for cash flow purposes. That said, for those retirees who have other income sources (ex. Social Security, large pensions, etc.) and investment accounts to cover cash flow and don’t necessarily “need” their RMD for the year for cash flow, 2020 presents a unique planning opportunity. Not having the RMD from your IRA or 401k flow through to your tax return as income could reduce your overall income tax bracket and also lower your future Medicare premiums (Part B & D premiums are based on your Modified Adjusted Gross Income). We have seen plenty of cases, however, that still make the case for the client to take their RMD or at least a portion of it given their current and projected future tax bracket. There is certainly no “one size fits all” approach with this one and coordination with your financial planner and tax professional is ideal to ensure the best strategy is employed for you. 

Lower Income In 2020

Income for many Americans is lower this year for a myriad of reasons. For those clients still working, it could be due to a pay cut, furlough, or layoff. Unfortunately, we have received several dozen calls and e-mails from clients informing us that they have been affected by one of the aforementioned events. In anomaly years where income is much less than the norm, it presents an opportunity to accelerate income (typically though IRA distributions, Roth IRA conversions, or capital gain harvesting). Every situation is unique so you should chat with your planner about these strategies if you have unfortunately seen a meaningful reduction in pay. 

Thankfully, the market has seen an incredible recovery since mid-March and most diversified portfolios are very close to their January 1st starting balances. However, income generated in after-tax investment accounts through dividends and interest are down a bit given dividend cuts by large corporations and because of our historically low interest rate environment. We were also were very proactive in March and April with a strategy known as tax-loss harvesting, so your capital gain exposure may be muted this year. Many folks will even have losses to carry over into 2021 and beyond which can help offset other forms of income. For these reasons, accelerating income could also be something to consider. 

Higher Tax Rates In 2021, A Very Possible Scenario 

Given current polling numbers, a Democratic sweep seems like a plausible outcome. If this occurs, many analysts are predicting that current, historically low rates could expire effective January 1, 2021. We obviously won’t know how this plays out until November, but if tax rates are expected to see a meaningful increase from where there are now, accelerating income should be explored. Converting money from a Traditional IRA to a Roth IRA or moving funds from a pre-tax, Traditional IRA to an after-tax investment account (assuming you are over the age of 59 1/2 to avoid a 10% early withdrawal penalty) eliminates the future uncertainty of the taxes on those dollars converted or distributed. Ever since the Tax Cuts and Jobs Act was passed in late 2017 and went into law in 2018, we have been taking a close look at these strategies for clients as the low tax rates are set to expire on January 1, 2026. However, if taxes have a very real chance of going back to higher levels as soon as 2021, a more aggressive income acceleration plan could be prudent. 

As you can see, there have been many moving parts and items to consider related to tax planning for 2020. While we spend a great deal of our time managing the investments within your portfolio, our team is also looking at how all of these new laws and ever-changing tax landscape can impact your wealth as well. In our opinion, good tax planning doesn’t mean getting your current year’s tax liability as low as humanly possible. It’s about looking at many different aspects of your plan, including your current income, philanthropy goals, future income, and tax considerations as well as considering the individuals or organizations that will one day inherit your wealth and helping you pay the least amount of tax over your entire lifetime.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

---

All investments are subject to risk. There is no assurance that any investment strategy will be successful. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

What You Need to Know About the RMDs Deadline Extension

Contributed by: Robert Ingram, CFP®

To combat the economic impact of COVID-19, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020.  The more than 2 trillion dollar stimulus package contained numerous provisions including an expansion of unemployment benefits, tax credit direct payments to qualified individuals, financial support to small businesses/healthcare facilities/state and local governments, and some changes to retirement account rules.  One of the provisions affecting retirement accounts was to suspend Required Minimum Distributions (RMDs) for 2020.  Individuals subject to RMDs for qualified retirement plans such as 401(k), 403(b) and IRA accounts are not required to take distributions this year (including beneficiaries owning inherited IRAs who were still subject to annual RMDs).

What does this suspension of RMDs mean for individuals who have already taken distributions prior to the CARES Act, but would not have if given the choice? If you have taken a distribution before March 27 is there a way to reverse or ‘undo’ the distribution?

Expanding The 60-Day Rollover Window For 2020

A retirement account owner that takes possession of a distribution from the account has 60 days from the date of withdrawal to complete a rollover into another eligible retirement account, for example, a rollover to an IRA.  Doing so excludes the distribution from income that could be subject to taxes and penalties.  This is referred to as the 60-day rollover rule; the IRS allows this one time per 12-month period. Please note that the one time per year rule does NOT apply to direct rollovers such a direct 401(k) rollover to an IRA.

Individuals who took a retirement account distribution prior to March 27 and were still within the 60 days since taking the distribution could have used the 60-day rollover rule to put their distribution back into their respective accounts, classifying it as a rollover.  However, this window was very limited.

In April, the IRS issued the first notice of guidance extending the 60-day rollover rule in 2020:

What qualified?

Distributions taken on or after February 1, 2020 could be rolled over into the retirement account.

When must the distribution be rolled over into the retirement account?

The later of

1. 60 days after receiving the distribution

2. July 15, 2020

This provided greater flexibility for individuals that had taken an RMD after January 31.  However, it still did not cover those that received an RMD in January.  Individuals that had already completed a once per year 60-day rollover within the last 12-months would also have been ineligible to use this rollover rule again to reverse their RMD.  In addition, this rollover window would not apply to non-spouse beneficiaries with inherited IRA accounts, since rollovers are not allowed for those accounts.

IRS Extends Rollover Deadline For All RMDs Made In 2020 To August 31st

In June, the IRS issued further guidance that essentially allows all RMDs that have been taken in 2020 to be repaid.  This IRS notice 2020-51 does the following:

• Rollover deadline has been extended to August 31, 2020 and covers RMDs taken any time in 2020.  This allows those who have taken RMDs as early as January to put the funds back into their retirement accounts by rolling over the funds if it is completed by August 31st.

• This rollover to reverse RMDs taken in 2020 does not count as part of the once per year 60-day rollover. This would allow individuals to use the rollover to prepay their RMDs regardless of whether they had already used a 60-day rollover within the last 12 months.

• Provides an exception allowing non-spouse beneficiaries to return RMDs to their Inherited IRAs in 2020.

A couple of points of note when considering repaying your RMDs taken this year

• The IRS notice 2020-51 only applies to distributions representing your Required Minimum Distribution amount.  Distributions other than your RMD amounts would be subject to the once per year 60-day rollover rule.

• If you had federal or state taxes withheld when you took your required minimum distribution, these amounts cannot be reversed and returned from the federal or state treasuries.  You could return your total gross RMD back to your retirement account, but it would have to be made out-of-pocket.  Any excess withholding would be resolved next year when you file your 2020 tax returns.

While reversing this year’s required minimum distributions may provide some great benefits such as potentially lowering your taxable income in 2020 or allowing for a Roth IRA conversion as an alternative, everyone’s financial situation and tax planning needs are unique.  For some folks, it could make sense to take RMDs if they expect higher income in the future that could fall in a higher tax bracket, for example.

Having a good conversation with your advisors can help you decide what is right for you.  As always, if you have any questions, please don’t hesitate to reach out!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

---

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Should I worry if my 401k savings are down?

Contributed by: Robert Ingram, CFP®

It can be scary when financial markets are volatile and selloffs happen. Understandably, many are concerned about how COVID-19 will impact the economy, our health, and our financial security. These fears and the volatile markets that follow can temp retirement savers to make drastic changes to their investment portfolios; some may even cease investing entirely. For example, if you watch your 401(k) continue to lose value, you may want to stop contributing. However, I’ll explain why you should stick with your current long-term savings and investment plan.

Why Its Beneficial to Keep Contributing

Contributing to a retirement plan like a 401(k) or 403(b) is still one of the best ways for most Americans to save and build wealth for retirement, particularly in times of economic uncertainty. 

• Tax Benefits 

  Contributions to most 401(k) plans are made pre-tax, meaning these amounts are excluded from your taxable income in the year they are made. This reduces your current income taxes. It also allows those savings to grow tax-deferred year-after-year until they are withdrawn.

  Employer plans that offer a Roth designated account (i.e. a Roth 401(k) or Roth 403(b)) can present a great opportunity for investing. Roth contributions are made after-tax, so those amounts do not reduce your taxable income like the 401(k) does. However, those savings grow tax-deferred. The withdrawals and earnings are tax-exempt, provided you are at least age 59 ½ and have held the account for at least 5 years. This tax-free growth can be a powerful tool, especially for individuals that may be in a higher income tax bracket in the future.

• Opportunity To Buy Low

  For investors that are still contributing to their plans, a downturn in markets actually presents an opportunity to invest new savings into funds at lower prices. This allows the same amount of contributions to buy more shares. As markets and economic conditions rebound, you will have accumulated more shares of investments that could grow in value.

• Matching Contributions

  Need another incentive to keep those contributions going? Don’t forget about opportunities to receive employer matching with retirement plans. If your employer offers a 401(k) match, you would receive additional savings on top of your own contributions. Let’s say your employer matches 50% on contributions you make up to 6% of your salary. By putting 6% of your income into your 401(k), your employer would contribute an extra 3%. That’s like earning a 50% return on your invested contributions immediately. Those extra contributions can then buy additional shares which can also compound over time. 

Should I Ever Consider Stopping Contributions?

Even in a booming economy and during the strongest bull market, it’s important to have a strong financial foundation in place before deciding to invest over the long-term. Having key elements of your day-day-finances as stable as possible is necessary as we navigate the incredible challenges created by COVID-19. A few examples include:

• Control Over Your Cash Flow

  Do you know exactly how much money you earn and spend? Understanding where your income exceeds your expenses gives you the fuel to power your savings. How secure is your employment? Are you in an industry directly or indirectly impacted by the economic shutdowns due to COVID-19? What would happen to your cash flow if you had a reduced income? If there are other expenses you could cut in order to maintain your contributions, you should still try to contribute. However, if you need every dollar possible to pay your bills, you would have no choice but to suspend your 401(k) contributions.

• Cash For Any Short-Term Needs

  Having cash reserves is a critical part of a sound financial plan. If an unexpected expense occurs or you had a loss of income, be sure to have cash savings to draw from rather than being forced to sell investments that may less valuable or to use credit cards with high-interest debt. If your savings is less than a month’s worth of normal expenses, you should consider focusing your efforts on reinforcing your cash reserve rather than on your retirement plan. Then, ideally, you should work towards building 3 to 6 months’ expenses for your emergency fund as you continue to save for retirement or other goals.

• Tackling Your Debt

  If you have high-interest rate debt that you are working to pay off and are unable to find additional savings in your budget to increase your payment amounts, it could make sense to redirect your retirement plan contributions to pay the debt down first. On the other hand, if your employer offers a company match, you should still consider contributing at least enough to get the full amount of matching dollars (remember that free money could see a return of 50% or more). You could then redirect any amounts you are contributing above that maximum match percentage.

Your situation and needs are unique to you. It’s important to work closely with a financial advisor when making decisions, especially in these incredibly difficult times.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

---

Keep in mind that investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results.

Webinar in Review: Year-End Tax and Planning Strategies

Contributed by: Robert Ingram, CFP®

With 2019 winding down and the holidays right around the corner, it’s understandable when our personal finances don’t always get our full attention this time of year. However, you should keep several important and timely tax and financial planning strategies top of mind before the year ends. During this 60-minute discussion, we will cover the following topics and more:

•       Tax planning strategies to consider for your investments and retirement accounts

•       Charitable giving in light of the recent tax law changes

•       Retirement planning tips and updates on 2020 contribution limits

If you weren’t able to attend the webinar live, we’d encourage you to check out the recording below.

There are time stamps provided so you can fast-forward to the topics you are most interested in.

• 3:00- Medicare Overview

• 6:30- Required Minimum Distributions (RMD)

• 12:00- Tax Reform Refresher & Income Tax Brackets

• 22:00- Long Term Capital Gains Rates

• 23:30- Efficient Charitable Giving & Donating Appreciated Securities

• 34:00- Roth IRA Conversions

• 41:00- Tax Efficient Investing & Tax Loss Harvesting

• 46:00- Employer Retirement Plans

• 49:00- Health Savings Accounts (HSA)

• 54:00- Gifting Ideas

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

---

Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While familiar with the tax provisions of the issues to be discussed, Raymond James and its advisors do not provide tax or legal advice. You should discuss tax or legal matters with the appropriate professional.

Retiring? Here’s How to Maximize Your Last Year of Work

Contributed by: Nick Defenthaler, CFP®

So you’ve decided to hang ‘em up – congratulations! Retirement is an extremely personal decision made for a multitude of reasons.

Some of our clients have been able to afford to retire for several years and have reached a point where the weekly grind isn’t as enjoyable as it once was. Probably dozens of thoughts are running through your head. What will life look like without work? How will I spend my days? Where do I/we want to travel? Do I want to work part-time or volunteer?

With so many emotions and thoughts churning, you might easily miss potentially good opportunities to really maximize your final year of full-time work. In this blog, I’ll touch on planning concepts you should consider to get the most “bang for your buck” as you close out your full-time career:

Maximizing Employer Retirement Plans (401k, 403b, etc.)

If you aren’t already doing so, consider maximizing your company retirement plan. If you are retiring mid-year, if appropriate, adjust your payroll deduction to make sure you are contributing the maximum ($25,000 for those over the age of 50 in 2019) by the time you retire. If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can max out the plan. Making pre-tax contributions to your company retirement plan is something you should consider.  

“Front-Load” Charitable Contributions

If you are charitably inclined and plan to make charitable gifts even into retirement, you might consider “front-loading” your donations. Think of it this way: If you are currently in the 24% tax bracket, and you will drop into the 12% bracket once retired, when will making a donation give you the most tax savings? The year you are in the higher bracket, of course! So if you donate $5,000/year to charity, consider making a $25,000 contribution (ideally with appreciated securities and possibly utilizing a Donor Advised Fund) while you are in the 24% bracket.

This strategy has become even more impactful given recent tax law reform and the increase in the standard deduction. (Click here to read more.) This would satisfy five years’ worth of donations and save you more on your taxes. As I always tell clients, the more money you can save on your tax bill by being efficient with your gifts, the less money in the IRS’s pocket and more for the organizations you care about!

Health Care

This is typically a retiree's largest expense. How will you and your family go about obtaining medical coverage upon retirement? Will you continue to receive benefits on your employer plan? Will you use COBRA insurance? Will you be age 65 soon and enroll in Medicare? Are you retiring young and need to obtain an individual plan until Medicare kicks in?

No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take so that you don’t lose coverage and your insurance is as affordable as possible. We have trusted resources to help guide clients with their health care options.  

Those are just a few of many things you should be thinking about prior to retirement. With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult, and often confusing, topics and decisions. Ideally, seek out the help of a Certified Financial PlannerTM (CFP®) to give you the comprehensive guidance you need and deserve!

Nick Defenthaler, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.

---

Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Generally, if you take a distribution from a 401k prior to age 59 ½, you may be subject to ordinary income tax and a 10% penalty on the amount that you withdraw, in addition to any relevant state income tax. Contributions to a Donor Advised Fund are irrevocable. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Efficient Tax Planning is Year-Round Work

Contributed by: Josh Bitel

While many of us focus this time of year on getting our tax returns done, year-round tax planning excites us number geeks! We really can’t control taxes, right? Well, not exactly. 

Of course, we can’t change the tax rates set by our government, but we can work collaboratively on financial decisions throughout the year that help ensure the greatest possible level of tax efficiency. Let’s look at a few examples:

EXAMPLE #1: FORD STOCK

Say you have a stock position in Ford purchased at $3 a share when “the sky was falling”. Because its worth has greatly increased, your unrealized gain amounts to $20,000. The stock has done so well, you might not want to part with it. You also don’t want to pay tax on that nice $20,000 gain. 

So consider this: If your taxable income falls within the 12% marginal tax bracket, chances are you would pay very little or possibly ZERO tax on the $20,000 gain. You could lock in that nice profit and potentially improve the overall allocation of your portfolio. 

This is a hypothetical example for illustration purpose only and does not represent an actual investment.

EXAMPLE #2: ROTH CONVERSION

Let’s take a look at another real-life example we often see. What if your income this year takes a significant drop, through a job loss, retirement, job change, or other move? Be sure to keep us in the loop, so that we can help you make pro-active tax planning decisions.

In this situation, a Roth IRA conversion could make a lot of sense if your income will fall into a lower tax bracket that you most likely will not see again. You would pay tax at a much lower rate, and moving Traditional IRA dollars into a Roth IRA for potential future, tax-free growth could create a monumental planning opportunity.   

SHARING YOUR TAX RETURNS

These are just two examples of the many factors we examine in your financial plan to make sure your dollars are efficiently taxed. You can help us do this work. Sharing your tax return early gives us a much better chance throughout the year to uncover strategies that may make sense for you and your family. 

Many of our clients have now signed a disclosure form allowing us to directly contact their CPA or tax professional to obtain copies of returns and to discuss tax-planning ideas. This saves you, as the client, the hassle of making copies or e-mailing your return – and we are all about making your life easier! 

Josh Bitel is a Client Service Associate at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

---

While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Bond woes: “Why do we own bonds if we think they aren’t going to do well in a rising rate environment?”

Contributed by: Center Investment Department

Hoping for capital gains is not a good reason why you should own bonds. Actually, owning or  buying bonds in this low and rising interest rate environment with the hope that you'll be able to sell them later at a higher price may not work out. BUT…just because you can’t sell this investment at a profit later does not make the investment a bad idea.

A great real life comparison is a car. We own a car to get our family and us from one place to another, hopefully safely. Many components go into the makeup of a safe driving automobile. The engine is key in making the car go. Stocks act much like the engine of a car.  They make our portfolios go/grow. But, would you ever drive a car that wasn’t equipped with brakes or an airbag? Brakes and airbags are similar to the bonds in our portfolio. Bonds help you control some of the risk of owning stock. For most people, the reason to own bonds is to slow down our bottom-line losses experienced in our portfolio during major market declines. Without this moderation (and sometimes even with it), investors tend to panic when stock prices fall.

So in a nutshell, “Why own bonds?”

They make the scary times less so. When the stock market experiences an extended decline, investors look around for where to turn. Cash and Bonds are usually the place they turn to.A volatile stock market can happen suddenly and unexpectedly. Waiting to add bonds until something happens means you are going to suffer much of the downside before you actually add them to the portfolio. You have to have already had them in the portfolio for them to help. Talk with your financial planner to make sure you have the proper amount of your portfolio invested in bonds so you can hang on to your investments through those difficult times. A portfolio makeup that allows you to stay the course over the long term is much more likely to get you to your destination!

---

https://www.marketwatch.com/story/why-bonds-are-the-most-important-asset-class-2015-06-10 Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Webinar in Review: Year-End Tax and Planning Strategies

Contributed by: Josh Bitel

In November of 2017, the Tax Cuts and Job Act of 2018 passed with numerous changes to our tax code. This year we provided a refresher on some of those changes as well as some planning opportunities to think about as 2018 wraps up.

If you weren’t able to attend the webinar live, we encourage you to check out the recording below. 

Check out the time stamps below to listen to the topics you’re most interested in:

• (04:20): New 2018 Marginal Tax Brackets

• (06:30): Highlights of the 2018 Tax Cuts and Jobs Act (TCJA) – comparing 2017 with 2018

• (14:24): Planning charitable gifts under the new tax law

• (19:15): Healthcare coverage overview – Health Savings Accounts (HSAs) and Medicare

• (25:30): Roth IRA conversions as an attractive planning opportunity

• (33:20): How to utilize your employer retirement plan most effectively

• (36:30): How we help mitigate taxes & tax efficient investing

• (41:30): Updates to gifting and intra-family gifting for 2018

Seven Summer Financial Planning Strategies

It is summer time! So, if you get a few minutes in between all of the outdoor activities here are 7 quick financial planning strategies to review.  As always, if we can help tailor any of these to your personal circumstances feel free to reach out.

By now you have heard there is a new tax law.  Because we will not experience the actual affects until next April, many of us are not sure how it applies to our specific circumstances.

1. Do a quick tax projection with your tax preparer and check your tax withholding. Many of us will have an overall tax decrease – but withholdings from our paychecks also went down. Do not get caught off-guard. More importantly, some folks will see higher taxes due to the new limitations on certain itemized deductions. Combine this with lower withholding and you have a double whammy (read: you will be writing a bigger check to the IRS).

2. Lump and clump itemized deductions. The standard deduction has increased to $24k for married couples filing jointly. In addition, miscellaneous itemized deductions have been removed completely. $10k cap. For some. Lumping charitable deductions in one year to take advantage of itemizing deductions and then taking the standard deduction for several years might be best.

3. Utilize QCD’s. If you are over age 70.5 and making charitable contributions, you should consider utilizing QCD. Don’t know what QCD stands for? Call us now.

4. Consider partial ROTH conversions to even out your tax liability. If you are retired, but not yet age 70.5 (when RMD’s start). Don’t know what an RMD is? Talk with us today! If you are in this group, multiyear tax planning may be beneficial.

5. Most estates are no longer subject to the estate tax given the current exemption equivalent of $11.2M (times 2 for married couples). However, income taxes remain an issue to plan around. One of my favorites: Transfer low basis securities to aging parents and then receive it back with a step up in basis. If you think you might be able to take advantage of this let us know.

6. Review your distribution scheme in your Will or Trust. Are you using the old A-B or marital/credit shelter trust format? Do you understand how the increased exemption affects this strategy?

7. How should high-income folks prioritize their savings?
   Are you in the new 37% marginal bracket? If so, consider contributing to a Health Savings Account IF eligible. Next, consider making Pretax or traditional IRA/401k contributions. However, if you reasonably believe that you will be in the highest marginal tax bracket now AND in retirement – then the ROTH may be suggested. Know that for the great majority of us this will not be the case. Meaning, we will be in a lower bracket during our retirement years than our current bracket. Next, use Backdoor ROTH IRA contributions. If your employer offers an after tax option to your 401k plan, take advantage of it. You can then roll these funds directly into a ROTH. Next, consider a non-qualified annuity that provides tax deferral of earnings growth followed by taxable brokerage account.

If you have not received a copy of our 2018 Key Financial Data and would like a copy let us know! 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc.® and is a contributor to national media and publications such as Forbes and The Wall Street Journal and has appeared on Good Morning America Weekend Edition and WDIV Channel 4. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), mentored many CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

---

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Tim Wyman and not necessarily those of Raymond James. Investments mentioned may not be suitable for all investors. Unless certain criteria are met, Roth IRA owners must be 591⁄2 or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 591⁄2, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.