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Category: Tax Planning

End of Year Charitable Giving

November 30, 2022

The holiday season is the time of year when we smile a little more, and really appreciate all that we have in our lives. We look forward to spending time with our loved ones, cookie exchanges, holiday shopping, and many other festive holiday activities. It is the season of giving and a great time to help those in need. Charitable giving not only benefits the community and the organizations dedicated to uplifting those who need it most, but it can also be a financial benefit to the donor by reducing certain tax liabilities. Planning with your financial advisor can help strategize how to incorporate charitable giving to fit your overall plan, ensuring that the causes most important to you and your family receive the benefits of your generosity.

There are several ways to reduce your tax liability through charitable giving.  The most well-known way is to donate with cash, and when gifted to a qualified public charity, you can deduct up to 50% of your adjusted gross income. However, tax breaks can be limited when donations are in small amounts, so it may not be the most effective tool when you have larger tax obligations.

An alternative to cash donations is to gift publicly traded stocks and securities.  When held over one year, this strategy could decrease, or possibly eliminate, capital gains tax and effectively increase the amount given to charity by up to 20%. Furthermore, you can claim a fair market value deduction for the year the stock was gifted.

Additional non-cash donations can include real estate, privately held business interests, and assets such as life insurance. These can be donated directly or held in a Donor-Advised Fund. “Donor-advised funds have become increasingly popular, primarily because they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribution of charitable gifts.”[1]

If you are over 72, you can use your Required Minimum Distribution (RMD) for charitable giving. Donating your RMD a great option if you do not need the funds; an RMD Donation is tax free up to $100,000 while reducing your income and tax liability.

Financial planning encompasses not only planning for tomorrow but building generational wealth and legacy planning for your loved ones. Charitable giving can be a beneficial tool to minimize your estate taxes when bequeathing inheritances to your heirs through the structuring of a charitable trust. A Charitable Lead Trust provides income to your qualified charity while you are living, and then passes the remaining assets down to your beneficiaries. A Charitable Remainder Trust is set up to allow you to take an immediate deduction of your donation, permits you to receive income while you are living, and then passes the assets to the charity upon your death. Each trust works to reduce the overall estate tax liabilities.

Charitable giving not only gives you the ability to make a difference in the causes that are most important to you, but it also provides benefits to you and your loved ones today and in the future. It is important to discuss all your options with your financial professional to understand the complexity of your personal situation and devise a plan that ensures your wishes are met.

*information is accurate as of 11/03/2022

Silverhawk Asset Management LLC, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Happy Holidays!

 

 

[1] https://www.investopedia.com/terms/d/donoradvisedfund.asp

https://www.forbes.com/sites/kristinmckenna/2021/08/23/how-to-donate-your-rmd-using-qualified-charitable-distributions/?sh=3b9ce5033b5e  

https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions#:~:text=You%20may%20deduct%20charitable%20contributions,limitations%20apply%20in%20some%20cases.

https://www.schwab.com/learn/story/charitable-donations-basics-

 

6 Facts About Taxes

March 1, 2022

Individual income tax returns for 2021 will be due April 18th, 2022. In preparation as we head into the tax season, here are some facts to consider.

 

  1. Where your tax dollars go.

In 2021, the federal government spent $6.82 trillion, which equals 30% of the nation’s gross domestic product. Three significant areas of spending make up the majority of the budget. Medicare accounted for $696.5 billion, or 10%. Defense spending made up $754.8 billion, or 11% of the budget, was paid for defense and security-related international activities. Seventeen percent of the budget, or $1.1 trillion, was paid for Social Security, which provided monthly retirement benefits averaging $1,497 to 46 million retired workers.

 

  1. How long you should keep tax documents.

The IRS provides the following recommended timelines for retaining financial documents:

  1. You should keep your tax records for three years if #4 and #5 below do not apply to you.
  2. You should keep records for three years from the original filing date of your return or two years from the date you paid your taxes. Select whichever is the later date. This is if you claimed a credit or refund after you filed your return.
  3. You should keep your records for seven years if you claimed a loss from worthless securities or a bad debt deduction.
  4. You should keep your records for six years if you failed to report income that you should have, and the income was more than 25% of the gross income listed on your return.
  5. Keep records indefinitely if you do not file a return.
  6. You should keep employment tax records for at least four years after the due date on the taxes or after you paid the taxes. Select whichever is later.

 

  1. Tax brackets for 2021 individual income tax returns.

NOTE: These tax rates are scheduled to expire in 2025 unless Congress acts to make them permanent.

 

  1. Tax brackets for 2022.

When it comes to taxes, it’s always a good idea to plan ahead. In November 2021, The Internal Revenue Service announced that it is boosting federal tax brackets for 2022 due to faster inflation. Below is a breakdown of the new thresholds for the seven tax brackets in 2022:

10%: Single individuals earning up to $10,275 and married couples filing jointly earning up to $20,550.

12%: Single filers earning more than $10,275 and married couples filing jointly earning over $20,550.

22%: Single filers earning more than $41,775 and married couples filing jointly earning over $83,550.

24%: Single filers earning more than $89,075 and married couples filing jointly earning over $178,150.

32%: Single filers earning more than $170,050 and married couples filing jointly earning over $340,100.

35%: Single filers earning more than $215,950 and married couples filing jointly earning over $431,900.

37%: Single filers earning more than $539,900 and married couples filing jointly earning over $647,850.

 

  1. Standard deductions.

Here is an overview of the standard deductions since 2019, including the standard deduction for the 2021 tax season:

For 2022, the IRS is increasing standard deductions due to faster inflation:

The standard deduction for married couples filing jointly will rise 3.2 percent to $25,900 next year for the 2022 tax year, an increase of $800 from the prior year. The standard deduction for single taxpayers and married individuals filing separately rises to $12,950 for tax year 2022, up $400 from tax year 2021. For heads of households, the standard deduction will be $19,400, up $600.

 

  1. You can still contribute for the 2021 tax year.

If you have not already contributed fully to your individual retirement account for 2021, April 15 is your last chance to fund a traditional IRA or a Roth IRA. Please call us if you have any questions about setting up or contributing to a traditional or Roth IRA.

 

Sources: IRS.gov, SSA.gov

This information is for general purposes only and is not to be relied upon or considered as financial or tax advice. It is recommended that you work with your tax professional to complete your tax returns based on your unique situation.

 

Call us if you’d like to speak with us about tax planning or to contribute to an IRA. 

You can reach your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you.

 

Your 2022 Financial To-Do List

January 25, 2022

Things you can do for your financial future as the year unfolds.

What financial, business, or life priorities do you need to address for the coming year? Now is an excellent time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:

Can you contribute more to your retirement plans this year?

In 2022, the contribution limit for your own Roth or traditional individual retirement account (IRA) is $6,000 ($7,000 for those age 50 or older making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA. With a traditional IRA, you can contribute if you (or your spouse if filing jointly) have taxable compensation, but income limits are one factor in determining whether the contribution is tax-deductible or not.

Limits for workplace 401(k) plan contributions have increased for 2022. Workers who are younger than age 50 can contribute a maximum of $20,500 to a 401(k) in 2022. If you’re age 50 and older, you can add an extra $6,500 per year in “catch-up” contributions, bringing your total potential 401(k) contributions for 2022 to $27,000.

Do you need to start planning for RMDs?

Only traditional, taxable retirement accounts are subject to RMDs. Once you reach age 72, you must begin taking required minimum distributions (RMDs) from traditional IRAs (and traditional 401(k)s) in most circumstances. Withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income and, if taken before age 59½, may also be subject to a 10% federal income tax penalty.

NOTE: Employer match amounts are pretax and not distributed tax-free during retirement, so they will most likely be subject to RMDs even if you have elected a Roth plan at work.

Roth IRA accounts are generally not subject to RMDs, although inherited Roth IRA accounts must now be emptied within 10 years of inheritance. In order for Roth IRA accounts to qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA withdrawals must meet a five-year holding requirement and occur after age 59½. After holding a Roth IRA account for five years, you can withdraw any contribution amount (money you have put in) for any purpose at any age.

Should you consider Roth conversions or rollovers?

If you are five to 10 years away from retirement, you may want to ask your financial advisor and tax professional if it would be beneficial to begin converting or rolling over some of your traditional, taxable retirement account funds into Roth IRAs, which might save you on income taxes for the long-term. Remember, you will have to pay income taxes in the year/s that you do rollovers or conversions.

It is highly recommended that you work with tax experts on these rollovers or conversions as they cannot be undone.

Should you make a charitable gift?

You may be able to claim a charitable gift deduction on your tax return, provided you follow the Internal Revenue Service guidelines. The paper trail can be important here. If you give cash, you should consider documenting it. Some contributions can be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation.

Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.

Can you take a home office deduction for your small business?

If you are a small business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with the tax rules as they relate to home-based businesses.

Should you change your withholding?

Consider adjusting your withholding amount if any of these factors apply to you:

  • You tend to pay the federal or state government at the end of each year.
  • You tend to get a federal tax refund each year.
  • You recently married or divorced.
  • You have a new job, and your earnings have been adjusted.

We recommend that you consult your tax, human resources, and/or accounting professional before modifying your withholding status.

Did you get married in 2021?

If so, it may be an excellent time to review the beneficiaries of your retirement accounts and other assets. The same goes for your insurance coverage. If you are preparing to have a new last name in 2022, you may want to get a new Social Security card. Additionally, retirement accounts may need to be revised or adjusted.

Will there be tax impacts for any upcoming important transactions?

Are you preparing to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way in 2022? Do you anticipate selling an investment that is held outside of a tax-deferred account?

      

Vow to practice sound financial habits in 2022. And don’t be afraid to ask for help from professionals who understand your individual situation. If you have any questions, call us! You can reach your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you.

 

Keep in mind, this article is for informational purposes only and not to be construed as financial or tax advice, nor is it a replacement for real-life advice based on your unique situation. Tax rules are constantly changing, and there is no guarantee that the tax landscape will remain the same in years ahead. You should always consult with a tax professional when making decisions that impact taxes.

 

Sources:

https://www.kiplinger.com/retirement/retirement-plans/traditional-ira/603958/traditional-ira-contribution-limits-for-2022

https://www.kiplinger.com/retirement/retirement-plans/401ks/603949/401k-contribution-limits-for-2022

https://www.schwab.com/ira/roth-ira/withdrawal-rules

 

 

Your Year-End Financial Checklist

December 28, 2021

The end of the year can help remind us of last-minute things we need to address as well as the goals we want to pursue and get serious about. To that end, here are some aspects of your financial life to contemplate as this year leads into 2022. 

Your investments. Set up a meeting to review your investments with your financial professional. You’ll want to come away from the meeting with an understanding of your portfolio positions and a revisit of your asset allocation based on your age, desires and personal circumstances. Remember, asset allocation and diversification are approaches to help manage investment risk, they do not guarantee against stock market drops or equities losses. Make sure your portfolio reflects your desire for protection and safety as well as growth.

Your retirement strategy. You may want to consider contributing the maximum to your retirement accounts—this may be a great time to decide on making catch-up contributions if you are 50 or older. It’s also a good idea to review any retirement accounts you may have through your work to see if your selections are still suitable for you. If you are getting close to retirement, you’ll want to start considering your Social Security filing strategy in advance, since that will dovetail with your overall retirement income plan.

Your tax situation. It’s a good idea to check in with your tax or legal professional before the year ends, especially if you have questions about an expense or deduction from this year. Also, it may be a good idea to review any sales of property as well as both realized and unrealized losses and gains. Look back at last year’s loss carryforwards. If you’ve sold securities, gather up cost-basis information. As always, bringing all this information to your financial professional as well as your tax professional is a smart move.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts and make any desired cash gifts to family members. The annual federal gift tax exclusion allows you to give away up to $15,000 in 2021, meaning you can gift as much as $15,000 to as many individuals as you like this year. Such gifts do not count against the lifetime estate tax exemption amount, as long as they stay beneath the annual federal gift tax exclusion threshold. Besides outright gifts, you can explore creating and funding trusts on behalf of your family. The end of the year is also a good time to review any trusts you have in place. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, it’s important to work with a professional who is familiar with the rules and regulations.

Your life insurance coverage. The end of the year is an excellent time to double-check that your policies and beneficiaries are up to date. Don’t forget to review premium costs and beneficiaries and think about whether your insurance needs have changed. Several factors could impact the cost and availability of life insurance, such as age, health, and the type of insurance purchased, as well as the amount purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, you may pay surrender charges, which could have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Finally, don’t forget that any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Life events. Here are some questions to ask yourself when evaluating any large life changes in the last year: Did you happen to get married or divorced this year? Did you move or change jobs? Did you buy a home or business? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All these circumstances can have a financial impact on your life as well as the way you invest and plan for retirement and wind down your career or business.

Keep in mind, this article is for informational purposes only and is not a replacement for real-life advice. Make certain to contact a tax or legal professional before modifying your tax strategy. The ideas presented are not intended to provide specific advice.

If you would like to discuss your year-end checklist items, please give us a call. You can reach out to your private wealth advisor at Silverhawk Private Wealth by calling 480.296.0200. We have offices across the United States to serve you.

 

 

RMDs Are Back for 2021

April 27, 2021

RMDs, or Required Minimum Distributions, are withdrawals that are required by the IRS each year out of your traditional retirement accounts like 401(k)s and IRAs starting at age 72. The money that you have to take out annually by December 31st at midnight is taxed based on your income tax rate for that tax year.

Some retirees forget about RMDs when planning for retirement, and don’t realize how big the tax bite may be for them. This year, because of the pandemic, the CARES Act suspended the RMD for the 2020 tax year in an effort to help retirees avoid withdrawing money from accounts when the market was down.

(An RMD is calculated based on the closing balance of the account at the end of the previous year. When the markets drop significantly, the RMD represents a much higher percentage of a diminished portfolio and that reduces the ability to recover from big losses.)

In 2021, the RMD will be back. As an example, a 75-year-old man with a traditional IRA worth $100,000 will have to withdraw $4,367 this year.

Roth 401(k) Plans

Roth 401(k) plans, which are funded with after-tax dollars, are subject to the same RMD rules that traditional 401(k) and IRA plans are. The amounts are calculated using the same IRS life expectancy tables and account holders must begin taking them after they turn 72. (One exception is if you continue working after age 72 for the company that sponsors the plan and you don’t own more than 50% of the company.)

The difference is that Roth 401(k) withdrawals are usually not taxed.

You can avoid taking the minimum distributions entirely by rolling a Roth 401(k) into a personal Roth IRA, which is not subject to RMD rules.

2020 RMDs Without Penalty, But With Taxes

As part of the CARES Act, the IRS allowed COVID-related withdrawals from traditional retirement plans up to $100,000 without penalty in 2020 for those who were impacted by the pandemic. Income taxes were due on those withdrawals, which could be paid over a three-year period. Those who can afford to can pay the withdrawals back this year (or over a three-year period) can get the taxes back by filing amended tax returns.

Those Who Just Turned 72—It’s Complicated

The SECURE Act of 2019 raised the age when RMDs must begin to age 72. If you turned 70-1/2 in 2019, the old rules applied—your first RMD should have been due April 1st, 2020. However, because the CARES Act suspended RMDs, the new due date was April 1, 2021 for those individuals.

For retirees who turned 72 in 2020 or will turn 72 this year, you can take your RMD at any point in 2021, or even delay it up until April 1, 2022. But if you choose to delay it, you will owe two RMDs in 2022, which could put you into a higher tax bracket.

You should check with your tax professional before making decisions about RMDs, because there are strict rules about which accounts must be withdrawn from and stiff penalties for mistakes—to the tune of taxes owed plus an additional 50%!

 

To discuss your retirement plan, including RMDs, please call us. We are happy to discuss ideas with you and/or your tax professional. Please contact your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

This article is provided for educational purposes only and its content should not be relied upon for tax advice. As always, check with your tax professional or attorney for specific tax advice related to your situation.

Source:

https://www.cnbc.com/2021/03/01/required-minimum-distributions-on-retirement-plans-are-back.html

2021 Limits for IRAs, 401(k)s and More

November 24, 2020

Numbers to know for the new year.

On October 26, the Treasury Department released the 2021 adjusted figures for retirement account savings. Although these adjustments won’t bring any major changes, there are some minor elements to note.

 

401(k)s. The salary deferral amount for 401(k)s remains the same at $19,500, while the catch-up amount of $6,500 also remains unchanged.

However, the overall limit for these plans will increase from $57,000 to $58,000 in 2021. This limit applies if your employer allows after-tax contributions to your 401(k). It’s an overall cap, including your $19,500 (pretax or Roth in any combination) salary deferrals plus any employer contributions (but not catch-up contributions).

 

Individual Retirement Accounts (IRA). The limit on annual contributions remains at $6,000 for 2021, and the catch-up contribution limit is also unchanged at $1,000. This total includes traditional IRA (pre-tax) and Roth IRA accounts or a combination.

 

Deductible IRA Contributions. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income.

For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.

 

Roth IRAs. Roth IRA account holders will experience some slightly beneficial changes. In 2021, the Adjusted Gross Income (AGI) phase-out range will be $198,000 to $208,000 for couples filing jointly. This will be an increase from the 2020 range of $196,000 to $206,000. For those who file as single or as head of household, the income phase-out range has also increased. The new range for 2021 will be $125,000 to $140,000, up from the current range of $124,000 to $139,000.

 

QLACs. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract is still $135,000 for 2021.

 

Although these modest increases won’t impact many, it’s natural to have questions anytime the financial landscape changes. If you’re curious about any of the above, please call your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

 

Sources:

https://www.irs.gov/newsroom/income-ranges-for-determining-ira-eligibility-change-for-2021

https://www.forbes.com/sites/ashleaebeling/2020/10/26/irs-announces-2021-retirement-plan-contribution-limits-for-401ks-and-more/

 

 

What is a Roth Conversion?

September 25, 2020

To understand what a Roth conversion is, you must first understand some of the basics about the different types of retirement accounts, called “qualified accounts.”

  • Pensions

Also called defined-benefit plans, pensions are paid for by employers. They have largely gone away for Americans in the private sector starting with the passage of three laws during the Reagan administration, the Tax Equity and Fiscal Responsibility Act passed in 1982, The Retirement Equity Act of 1984, and The Tax Reform Act and Single Employer Pension Plan enacted in 1986.

The lack of pensions is one reason why it’s important for people to create their own retirement income plans.

  • 401(k) Accounts

Defined-contribution plans, including 401(k)s and similar plans, rely on an employee to elect to contribute a percentage of their salary in order to save for retirement. Contribution amounts are usually taken out of an employee’s check on a “pre-tax” basis, and sometimes a company will add a “matching” amount based on the percentage the employee contributes, often based on an employee’s length of service.

A 401(k) plan generally has a limited list of fund choices. The maximum an individual can contribute to a 401(k) in 2020 is $19,500 per year, or $1,625 per month, not including the employer’s matching amount.

For traditional 401(k)s, no taxes are due on 401(k) accounts until the money is withdrawn. Ordinary income taxes are due upon withdrawal at the account owner’s current tax bracket rate, and withdrawals are mandatory starting at age 72. NOTE: Roth 401(k)s are available at some companies, and contributions for those are made on an after-tax basis.

  • Traditional IRA Accounts

An IRA—Individual Retirement Account—is a type of account which acts as a shell or holder. Within the IRA, you can invest in many different types of assets. You can choose between CDs, government bonds, mutual funds, ETFs, stocks, annuities—almost any type of investment available. You can open an IRA account at a bank, brokerage, mutual fund company, insurance company, or some may be opened directly online.

For 2020, you can contribute up to $6,000 to an IRA, plus an additional $1,000 catch-up contribution if you reach age 50 by the end of the tax year. Traditional IRA contributions are typically made with pre-tax dollars, which gets accounted for on your tax return in the year you choose to make the contribution. Depending on your income level, sometimes traditional IRA contributions can also be tax-deductible. Traditional IRA withdrawals are treated as ordinary income and taxed accordingly, and withdrawals are mandatory starting at age 72.

  • Roth IRA Accounts

Like a traditional IRA, a Roth IRA is a type of account which acts as a shell or holder for any number of different types of assets. The difference is that Roth IRA contributions are made with after-tax dollars.

Withdrawals are not mandatory for Roth IRAs, but you can withdraw funds tax-free as long as you follow all rules, which include having the account in place for at least five years. Those age 59-1/2 or older can withdraw any amount—including gains—at any time for any reason, and can also leave Roth IRA accounts to their heirs tax-free—beneficiaries just have to withdraw all the money within 10 years of the account holder’s death.

For people under age 59-1/2, as long as they have had their Roth IRA account in place for five years or longer, they can withdraw any amount they have invested at any time—but not the gains or earnings. If they withdraw the gains or earnings, they may have to pay ordinary income taxes plus a 10% penalty on those, with some exceptions, such as first-time homebuyer expenses up to $10,000, qualified education and hardship withdrawals, which may avoid the penalty but still require tax be paid on any amount attributed to earnings.

Roth IRAs offer the potential for tax-free retirement income as well as tax-free wealth transfer to heirs. Essentially, with a Roth IRA, your interest, dividends and capital gains which accumulate inside it are tax-free as long as you follow all Roth IRA withdrawal rules.

For 2020, you can contribute up to $6,000 depending on your income, plus an additional $1,000 catch-up contribution if you reach age 50 by the end of the tax year. However, Roth IRAs have income restrictions that may disqualify higher-income people from participating. The income restrictions on Roth IRA accounts are not always a barrier to conversions—a perfectly legal tax strategy called a “backdoor Roth IRA conversion” can be accomplished as long as all IRS rules are followed.

Roth Conversions

Because of the many Roth IRA tax advantages, some people may benefit from converting some of the money in their taxable 401(k) and/or traditional IRA accounts into tax-free Roth IRAs. Conversions are a taxable event in the year they are done, and they cannot be undone, so it is important to work with a qualified advisor to run anticipated tax savings calculations to see if they make sense. Additionally, there are complex tax rules which must be adhered to in regard to the ratio of taxable to non-taxable amounts held in IRAs.

If you have a low-income year due to a job loss or cutback, or you are five to 10 years away from retirement, you may benefit from a Roth conversion, or a series of them at today’s lower tax bracket rates, set to revert back up to 2017 levels for the 2026 tax year.

There are basically three ways to do Roth conversions according to Investopedia:

1) A rollover, in which you take a distribution from your traditional IRA in the form of a check and deposit that money in a Roth account within 60 days.

2) A trustee-to-trustee transfer, in which you direct the financial institution that holds your traditional IRA to transfer the money to your Roth account at another financial institution.

3) A same-trustee transfer, in which you tell the financial institution that holds your traditional IRA to transfer the money into a Roth account at that same institution.

Whatever method you use, you will need to report the conversion to the IRS using Form 8606 when you file your income taxes for the year and follow all rules. Roth conversions are complex and you should seek expert tax guidance.

 

Let’s talk. Please contact your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

 

This article is for informational purposes only and should not be used for financial or tax advice. Future tax law changes are always possible. Be sure to consult a tax professional before making any decisions regarding your traditional IRA or Roth IRA.

Sources:
https://protectpensions.org/2016/08/04/happened-private-sector-pensions/)
https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/can-you-deduct-401k-savings-from-your-taxes-7169/.
https://www.nerdwallet.com/blog/investing/how-much-should-i-contribute-to-a-401k/.
https://www.debt.org/tax/brackets/
https://www.investopedia.com/terms/b/backdoor-roth-ira.asp#
https://www.investopedia.com/roth-ira-conversion-rules-4770480
https://www.kitces.com/blog/roth-ira-conversions-isolate-basis-rollover-pro-rate-rule-employer-plan-qcd/

How Rich Do You Have to Be in Order to Retire?

August 24, 2020

Even though perceptions have changed during the pandemic with more Americans now saying they need less money to feel rich1, when it comes to retirement, most people are still unclear about how much they will need to have saved before they can quit their jobs.

The answer to that question is different for every person.

Here are some of the things you need to think about in order to get a realistic retirement number in mind.

 

What do you want to do during retirement? Where will you live?

Different people have different retirement goals and visions. You may not realize that you need to answer lifestyle questions before you can answer the “how much do I need” question.

Think about it this way. A single woman downsizing into a tiny home in a rural community to enjoy hiking in nature is going to need to have saved up a lot less money than a couple who wants to buy a big yacht, hire a crew and travel around the world docking at various international ports. A man who wants to spend all his time woodworking in his garage in the Midwest will need a smaller nest egg than a power couple collecting art and living in a penthouse in New York.

Most people are somewhere in the middle of these extremes. Yet answering these questions for yourself is very important both financially and emotionally for everyone entering retirement. You don’t want to end up feeling lost or bored not working—you want to feel that you are moving forward into a phase of life that is rewarding to you. And you certainly don’t want to run out of money because you miscalculated.

Take some time to get specific about your needs and desires. Will you want to spend holidays with family or friends? Start an expensive new hobby like golf? Take a big vacation every year? (The pandemic will end eventually!) Visit your grandchildren who live across the country multiple times? Go out to eat every day?

Based on your goals and objectives for your retirement lifestyle, your financial advisor will help you prepare a realistic monthly budget, adding in calculations for inflation through the years.

Once you’ve developed your monthly budget, it can be compared against your Social Security benefit to give you a good idea of how much additional monthly retirement income you will need to generate from your savings. From there, your advisor can come up with strategies to help you create income from savings, and then give you a realistic figure that you will need to have saved up before you retire.

But in addition to your retirement lifestyle, there are a couple of other things that need to be considered.

 

How is your health?

Nearly every retiree looks forward to the day they can sign up for Medicare. But Medicare is not free; the standard Part B premium for 2020 is $144.60 per month2 for each person. Your premiums for Medicare are usually deducted right from your Social Security check.

If you elect to purchase additional coverage through Medicare Advantage, Medigap and/or prescription drug plans, your premiums will cost more. And there will still be deductibles to meet and co-pays you will owe.

Some estimates for health care expenses throughout retirement are as high as $295,000 for a couple both turning 65 in 2020!3

Even worse, keep in mind that this figure does not include long-term care expenses—Medicare doesn’t cover those after 100 days.4

 

Have you planned for taxes?

It’s not how much money you have saved, it’s how much you get to keep net of taxes.

When designing your retirement plan and helping you calculate how much you need to save, your advisor will take into consideration an important piece of the puzzle—taxes. Tax planning is often different than the type of advice you get from your CPA or tax professional when you do your tax returns each year. Tax planning involves looking far into the future at what you may owe later, and finding ways to minimize your tax burden so you will have more money to spend on things you enjoy doing in retirement.

Different types of accounts are subject to different types of taxation. “After-tax” money that you invest in the stock market can be subject to short- or long-term capital gains taxes. Gains accrued on “after-tax” money that you have invested in a Roth IRA account are not taxed due to their favorable tax rules. Interest paid on “after-tax” money in savings, CDs or money market accounts is taxed as ordinary income, although this usually doesn’t amount to much especially with today’s low interest rates.

What your financial advisor will be most concerned about is your “before-tax” money held in accounts like traditional IRAs or 401(k)s which are subject to ordinary income taxes when you take the money out, which you have to do each year starting at age 72 per the IRS. (These mandatory withdrawals are called required minimum distributions.)

If “before-tax” money like 401(k)s are where the bulk of your savings is held, you will want to run projections to calculate how much of a bite income taxes will take out of your retirement, especially since tax brackets will go back up to 2017 levels5 beginning in January of 2026. There may be steps you can take now to help you lower your taxes in the future.

 

Please contact us if you have any questions about your retirement. Please contact your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

 

Sources:

1 https://www.financial-planning.com/articles/americans-now-say-they-need-less-money-to-feel-rich

2 https://www.medicare.gov/your-medicare-costs/medicare-costs-at-a-glance#

3 https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

4 https://longtermcare.acl.gov/medicare-medicaid-more/medicare.html

5 https://taxfoundation.org/2017-tax-brackets/

IRS Delays 1031 Exchange and Opportunity Zone Deadlines Amid COVID-19 Pandemic

April 21, 2020

1031 Exchanges

The Internal Revenue Service has issued Notice 2020-23 which extends the deadlines for taxpayers to invest capital gains in a 1031 exchange and qualified opportunity zone fund due to the coronavirus (COVID-19) pandemic.

Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified timeframe. After an investment property is sold, investors typically have 45 days to identify the replacement property and 180 days to complete a transaction.

Taxpayers now have until July 15, 2020 to identify and/or purchase a replacement property for 1031 exchanges with deadlines due on or after April 1, 2020.

Opportunity Zones

Regarding opportunity zones, the Tax Cuts and Jobs Act of 2017 established this program to stimulate economic development in distressed low-income communities by offering potentially significant tax benefits to investors that make long-term investments in these areas. Capital gains qualify for beneficial treatment under the law as long as they are invested within 180 days of the gain being realized.

Taxpayers now have until July 15, 2020 to elect to invest capital gains into a qualified opportunity fund if the original 180-day period expired on or after April 1, 2020.

Please note that this is different from the usual disaster extension that only provides for an extra 120 days.

Here are two examples to illustrate the current extension.

Example 1:  Exchange began April 1, 2020. The 45th day (to identify property) is May 16, 2020, which is now extended to July 15, 2020. Taxpayer must close on replacement property by Sept 28, which is the 180th day after April 1.

Example 2: Exchange began Dec 31, 2019. The 45th day (to identify property) is Feb 14, 2020. The identification period is not extended because it is before April 1. (The 180th day to close on replacement property would have been June 28, which would have been extended to July 15, 2020.)

 

This remains a fluid situation and we will provide any clarification or changes that the IRS issues, if any. As always, exchangers should speak with their tax advisors to determine if they are eligible for an extension.

 

Call Us!

Please contact Paul Mershon at (602) 315-9348 / paul@silverhawkfinancial.com  or Joe Laux at (480) 326-2362 / joe@silverhawkfinancial.com or Nicholas Fisher at (973) 735-7924 nicholas@silverhawkfinancial.com  TODAY!

We look forward to speaking to you soon.

 

Read more information about the 1031 Exchange / Delaware Statutory Trust process on our website.

Sources:
https://thediwire.com/wp-content/uploads/2020/04/IRS_Notice_20-23.pdf
https://thediwire.com/irs-delays-opportunity-zone-and-1031-exchange-deadlines-amid-covid-19-pandemic/

Clearing Up Confusion About RMDs

February 25, 2020

Last month, we posted information about how the SECURE Act has increased the age for required minimum distributions (RMDs) from 70-1/2 to 72 starting this year, 2020.

If you turned age 70-1/2 in 2019, your RMDs were required for the 2019 tax year, and WILL BE required for 2020, 2021 and every year from now on.

For everyone turning 70-1/2 in 2020, your RMDs will not be required until the year you turn 72, even if you have received notification from your custodian to the contrary.

Because the law was passed and became effective within two weeks of passage, automated computer notifications and settings have not been changed yet. Call us if you have any questions!

 

LET’S MEET ABOUT YOUR ESTATE PLAN

Remember that inherited “stretch IRAs” have been shortened to 10 years in many circumstances due to the passage of the SECURE Act.

Let’s get together and discuss how this may affect your current estate plan, what burdens your heirs may face, and what we need to do now in conjunction with your estate attorney.

 

SECURE ACT CHANGES FOR EMPLOYEES AND EMPLOYERS

  1. PART-TIME EMPLOYMENT ELIGIBILITY

Unless there is a collectively-bargained plan in place (such as a union agreement), you may be eligible for your employer’s 401(k) or similar retirement benefit plan even if you work part time. If you have worked for your employer for one year consecutively for at least 1,000 hours, or for three consecutive years for at least 500 hours (roughly 25 work-weeks of 20 hours per week), you will be eligible.

  1. ANNUITY OPTIONS IN 401(k) PLANS

Even though employers were already allowed to offer annuities in their 401(k) plans, only about 9% of them did. The SECURE Act shifts the burden of legal liability away from employers who offer annuities in their plans; you will need to be diligent about examining them before choosing. (We can help you with this.) The DOL will require standardized monthly retirement income projections to help you compare; they are expected to issue guideline regulations about this in the coming months.

  1. ANNUITY PORTABILITY

Within a retirement plan, an annuity portability requirement has been added by the SECURE Act. If an annuity offering is removed from a 401(k) plan menu, you will be able to roll that annuity investment over into your own IRA with no penalty.

  1. FOR EMPLOYERS

The SECURE Act raised the tax credit for employers to $15,000 to set up, administer and educate employees about retirement plan changes over a three-year period. (NOTE: Employer contributions to 401(k) plans have been and still are tax deductible.) There is a new tax credit of $500 per year for automatic enrollment of employees into a company’s 401(k) plan—and the cap for auto enrollment has been raised from 10% to 15% of wages.

 

If you have any questions about this information, please don’t hesitate to call your private wealth advisor at Silverhawk Private Wealth. We have offices across the United States to serve you.

480.296.0200
info@silverhawkfinancial.com

 

 

 

Sources:
https://www.plansponsor.com/in-depth/getting-secure-acts-lifetime-income-provisions-right/
https://humaninterest.com/blog/part-time-employees-secure-act/
https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
https://www.cnbc.com/2019/07/03/if-annuities-come-to-your-401k-savings-plan-heres-what-to-know.html
The SECURE Act is a complex new law still being analyzed and assessed by industry experts. IRS clarifications may follow. The information in this article is provided for general information and educational purposes only. It is not designed nor intended to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in or refrain from a particular course of action.
Do not rely on this information for tax advice. Check with your CPA, attorney or qualified tax advisor for precise information about your specific situation.
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