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Often, people view estate planning through a narrow lens, thinking it’s only about what happens to their property and assets after they’re gone. While the tax-efficient transfer of your assets to the people and organizations you designate is an important component, estate planning encompasses so much more. First and foremost, it’s about protecting your lifestyle and the people you care about during your lifetime. It answers critical questions, including: Who will have the legal authority to act on your behalf if you’re unable to do so, due to an accident or illness? Who will manage your assets and make important healthcare and end-of-life decisions on your behalf? And how will your legacy be carried out now and after you’re gone?
Ask yourself: If a crisis occurred today, would your loved ones have the knowledge and legal authority to follow through and act on your behalf? Without the right legal documents in place, it can be hard—if not impossible—for those you appoint to carry out their obligations and responsibilities. To protect yourself and loved ones, plan to meet with an estate planning attorney who can help you draw up important legal documents, including:
To learn more about how estate planning can help you live your best life, while protecting the people and things you care about most, call the office to schedule time to talk.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
While understanding basic financial concepts, such as saving, investing and budgeting, is important at any age, it’s critical for those nearing or living in retirement. That’s because retirement marks a major shift from a lifetime of accumulating assets during your working years, to how you will use those assets to create a tax-efficient income stream to support your lifestyle for the next 20 or 30+ years.
That requires a comprehensive approach to protecting and growing your assets to support your desired lifestyle. Mastering financial basics, including how to budget, avoid scams, and manage income and debt can also help you accomplish other important retirement goals, such as remaining independent longer.
Whether you’re looking to brush up on a single topic or enroll in a course on financial management, consider the following resources, available at no cost to you.
If you have questions about managing your finances, we’re happy to help. Call the office to schedule time to talk.
How would you pay for an unanticipated home or car repair, medical emergency, or other expense? A recent study indicates that fewer than 4 in 10 Americans have enough savings to pay for an unexpected $1,000 expense in cash. The rest would have to borrow, use a credit card or take out a personal loan.1 The ability to pay for unexpected expenses without incurring debt is among many reasons why retirees need adequate cash reserves. Cash reserves or emergency savings play a significant role in helping to protect your income and your assets in retirement, by helping you:
What If You Haven’t Saved Enough?
The general rule of thumb for cash reserves is to set aside three to six months’ worth of living expenses. How much you will need may differ based on your personal circumstances and lifestyle goals. Whether you need to boost or replenish cash reserves in retirement, there are several ways to do so.
If you have questions about maintaining optimal cash reserves in retirement, call the office to schedule time to talk.
After years of juggling competing responsibilities and obligations during your working years, retirement should be a breeze, right? You’ll finally have the time to do all of the things you put on the backburner during your working years, or while raising a family. So, why do so many people find themselves busier than ever and just as stressed as they were in their working years? According to time management experts, managing an abundance of time can be as challenging as managing a scarcity of time because it requires you to prioritize what really matters to you.1
If you’re looking for ways to create a more intentional life in retirement, consider the following tips:
Shortly after the pandemic hit, the CARES Act was passed in March 2020, allowing those age 72 or over to waive their required minimum distributions, or RMDs. While that resulted in a significant reduction in taxable income for many retirees in 2020, RMDs are back this year, along with the potential tax burden and steep penalties (50% of the required distribution amount) for those who fail to take them by year end. In addition, many retirees, especially those who did not take RMDs last year, may be subject to higher distribution amounts this year, due to higher account balances. That makes it even more important to have a strategy in place for managing RMDs.
RMDs are commonly used to supplement income received in retirement from guaranteed income sources, such as Social Security or a pension. You can choose to take RMDs on a regular schedule throughout the year, such as monthly, quarterly or semiannually, or once a year as a lump sum. However, it’s important to remember that distributions from qualified retirement accounts are taxable, so if you choose not to have taxes automatically withheld, you’ll need to set money aside to pay any taxes owed on your distributions.
Should You Take Regular Distributions or a Lump Sum?
Many people find it easier to manage their income and expenses in retirement by taking distributions throughout the year. In addition to providing regular cash flow, regular installments can help ensure that you receive a range of prices for the assets you sell, which may provide some stability during periods of increased market volatility. Regularly scheduled distributions can also help retain the benefits of tax-deferred compounding in your retirement account(s) throughout the year, versus taking a lump sum withdrawal at the beginning of the year. If you don’t need the regular income, waiting until year-end to take a lump sum distribution may also help bolster tax-deferred growth, as your money remains invested in your account(s) throughout the year. However, because markets fluctuate over time, there is no guarantee that account values will be higher or lower at the time you take your distribution(s). In addition, taking a large lump sum withdrawal may also create the need to rebalance your portfolio.
Managing Your Tax Burden
There are many ways to help manage taxes associated with RMDs. Those who may not need the income from an RMD, and are seeking to avoid taxable distributions, may choose to make a qualified charitable distribution (QCDs). A QCD allows you to donate up to $100,000 annually directly from a traditional IRA to an eligible charitable organization without counting that amount as taxable income. Instead, it would count toward your RMD and reduce the taxable amount of your mandatory withdrawal. Other options for managing taxes on income in retirement may include a Roth IRA conversion, which requires paying taxes on any amounts converted in the year assets are converted. (Roth IRA accounts are not subject to RMDs). Since these strategies are complex and may have significant tax consequences, it’s important to meet with your tax and financial professionals before taking action.
If you have questions, call the office to schedule time to talk about your retirement income strategy.
The COVID-19 pandemic has up-ended many norms and routines from family and social gatherings, to community activities, how we shop, and how we access services, such as healthcare and transportation. That’s a lot of change to digest in a relatively short period of time. It’s no wonder that separate surveys conducted by researchers at the Boston University (B.U.) School of Public Health and Johns Hopkins University found that the prevalence of depressive symptoms (B.U.) and “serious psychological distress” (Hopkins) reported during the COVID-19 pandemic were triple the level measured in 2018. According to the B.U. study, these rates were higher than those seen after other large-scale traumas like September 11 and Hurricane Katrina.1
If you’re feeling somewhat off-kilter, consider the following steps to help restore a sense of balance in your life.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
Will your tax bracket change in 2021? Each year the tax rate schedules are adjusted for inflation. That could result in your income being subject to a higher or lower tax rate in the new year. It’s especially important to check your tax bracket for this year if your taxable income was lower in 2020, due to:
For tax year 2021, the top tax rate of 37% will apply to income above $523,600 for individuals ($628,300 for married couples filing jointly), compared to income above $518,400 for individuals ($622,050 for married couples filing jointly) in 2020.
The Standard Deduction Increases in 2021
The standard deduction increases to $12,550 for single filers ($25,100 for married couple filing jointly) for tax-year 2021, up from $12,400 ($24,800 for couples) for 2020.1 Taxpayers over age 65 taking the standard deduction receive even more. For single filers age 65 and older, the standard deduction increases by $1,700 to $15,750. Joint filers can increase the standard deduction by $1,350 each for a total of $27,800 if both joint filers are age 65 or over. Keep in mind, if you’re considering itemizing on your 2020 or 2021 returns, your total tax deductions will need to exceed the amount of your applicable standard deduction for that tax year to make itemizing worthwhile.3
Taxes are one of the biggest risks to income in retirement. Having a plan in place to manage your tax bill in retirement is critical to helping to ensure your income will last as long as you will need it.
If you have questions about tax-smart strategies for managing your income in retirement, call the office to schedule time to talk.
If you’re suffering from pandemic fatigue, you’re far from alone. The distribution of the first COVID-19 vaccines in December marked a major milestone in the fight to end the global pandemic. However, public health experts urge patience, warning that it could take until the summer or fall to administer the vaccine to enough Americans to achieve herd immunity. In the meantime, here are five ways to help boost your emotional and physical health to maintain a positive outlook in the months ahead.
As colleges and universities grapple with reopening during the COVID-19 pandemic, a growing number of college students and their parents find themselves struggling to pay tuition costs. In fact, a recent study found that nearly half of all college undergraduates said they need to “figure out a new way to pay for school” due to the impact of the pandemic on their finances.1
Fortunately, there are a number of tax-smart ways for parents and grandparents to help family members pay for college. However, before reaching into your own pocket, look into programs designed to help. These include emergency cash grants under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as well as the ability to apply for or appeal an existing federal student aid application, if financial circumstances have changed.
Remember, if you are in or nearing retirement, it’s important to find the right balance between providing assistance and maintaining your own safety net, so you’re not over-extending yourself at a time when portfolio values may be impacted by ongoing market volatility. Next, determine the right tax-smart strategy for your situation, which may include one of the following.
Consult your tax and financial professionals before implementing these or other strategies. To learn more, call the office today to schedule time to talk.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan.
The pandemic has given rise to a number of new scams designed to part you from your money. One of the latest involves phony contact tracers. While contact tracing is considered an important tool for helping to contain the spread of COVID-19 in communities, the Federal Trade Commission (FTC) warns of a growing trend where scammers are pretending to be contact tracers.
How It Works
According to complaints received by the FTC, as well as a number of state and city officials throughout the country, a typical scam may unfold as follows:
How to Avoid the Scam
According to the FTC, legitimate contract tracers may ask you for your name, address, health information and the names of people and places you have visited. The agency says real contact tracers need health information, not money or personal financial information. The FTC offers the following tips for avoiding phony contact tracers:
For more information about contact tracing in your area, visit your state health department’s website.
Tax planning is an integral part of a comprehensive financial plan designed to help you meet multiple goals and priorities and keep more of what you earn from your various income sources and investments. While tax planning is a year-round activity, no time is more critical than the end of the year to make sure you’re taking advantage of opportunities to manage your tax burden. That’s especially true this year, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a significant economic aid package signed into law in March 2020.
The CARES Act provides an opportunity for those subject to required minimum distributions (RMDs) to waive them this year, which can substantially reduce the amount of your income that is subject to taxes in 2020. It also provides a unique opportunity for those who will take the standard deduction to take an above-the-line deduction of up to $300 for individuals ($600 for a married couple filing joint returns) for cash donations to charitable organizations. For those who will itemize, the CARES Act removes the 60% of adjusted gross income (AGI) limitation for most cash gifts to public charities for 2020. That means you can offset up to 100% of your income this year with charitable contributions. Contributions in excess of this amount can be carried forward for five years subject to the 60% of AGI limit in those years. It’s important to note that both of these provisions under the CARES Act only apply to cash contributions and are not available for contributions made to donor advised funds or gifts to 509(a)(3) supporting organizations.
Don’t forget about other legislation passed in recent years. Among other provisions, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019, repealed the maximum age for traditional IRA contributions and increased the age to begin taking RMDs from 70 ½ to 72. However, it also eliminated the “stretch IRA” for non-spouse beneficiaries. With certain exceptions, beneficiaries are now required to withdraw assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder, which can have important estate planning implications. Finally, the Tax Cuts and Jobs Act of 2017 ushered in numerous changes, including a shift in tax brackets that resulted in lower tax rates for many individual taxpayers. While most of the provisions under the TCJA remain in effect through 2025, it’s important to note that the income floor for unreimbursed medical expenses for those who itemize is scheduled to return to 10% in 2021, unless Congress acts to extend it.* The TCJA reduced the floor to 7.5% for 2017 and 2018, and it was later extended to 2019 and 2020. If you’re close to exceeding this floor, now is the time to think about accelerating expenses for applicable elective procedures and equipment into 2020.
To learn more about tax laws impacting your planning, meet with your tax professional or contact the office anytime to talk about tax-smart financial planning and investment strategies.
*Information is accurate as of publication date.
There’s no question that 2020 has been an exceptional year. The global pandemic, economic crisis and a contentious U.S. election have combined to make this year one for the history books. With the end of the year in sight, now is the time to take steps to shore up your finances to enter the new year on a firm footing. Use the list below as you work closely with your tax and financial professionals to help identify the best strategies for your situation.
Wealth transfer and legacy planning