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Retirement Account Tax Changes for 2021

Retirement Account Tax Changes for 2021

Every year brings new tax rules and updates, so it’s important to take a quick look at retirement tax changes for 2021. Find out about possible tax increases. Manage your tax liability by using your retirement accounts and other tax deductions. 

Tax Changes for Standard Tax Deductions

 

The standard deductions increase slightly due to inflation adjustments, to $12,550 for single filers and $25,100 for married filing jointly. Thanks to the TCJA, you’re still limited to only $10,000 in state and local tax deductions.

While the tax rates remain the same as the previous year, the good news is that the income brackets have been adjusted slightly upward compared to 2020. The top rate of 37% applies to singles making over $523,600 and joint filers with incomes over $628,300. 

Capital gains tax income brackets have also been revised upwards, with 0% tax liability for singles making up to $40,400 and MFJ up to $80,800. The top rate of 20% is levied on singles with an income of $445,850 and joint filers earning at least $501,600.

Similarly, their hasn’t been much tax change to the retirement account and contribution landscape for 2021. Unfortunately, there were no inflation adjustments in contribution amounts to your employer retirement plan compared to last year. 

However, the income levels at which phasing out and eliminating deductible or Roth contributions to an IRA increased slightly for 2021. This increase is good news for anyone who may be interested in allocating funds to an IRA in addition to maximizing their employer plan.

 

Required Minimum Distributions Tax Changes (RMDs)

 

You don’t have to start taking RMDs from a qualified retirement account until the year you turn 72. As a reminder, you’ll have RMDs from your employer retirement plan, including Roth 401(k), but not from your Roth IRA.

You can still delay taking your first distribution until April 15 of the following year, but after that, you must take your RMDs by December 31 each year. If you delay your first year’s RMD, you’ll have two to satisfy the year you turn 73. For that reason, we usually don’t recommend it, but you may have a unique situation in which delaying your first RMD would benefit you tax-wise.

The government waived 2020 RMDs due to the coronavirus. Unless there’s a different announcement, the requirements are back in force for 2021, erasing those tax changes in 2020.

However, you can potentially avoid paying the income taxes on an IRA by using a Qualified Charitable Distribution. Withdrawals from your Traditional IRA up to $100,000 that are contributed to a qualified charity are tax-free. The funds must go directly to the organization without making a pit stop at your bank account along the way, and a QCD can’t be used on a 401(k) or employer plan.

 

IRA contributions and other tax changes

 

If your employer doesn’t offer a retirement plan, you can contribute up to $6,000 in either a Traditional or Roth IRA. There is an additional catch-up of $1,000 for those age 50 and older. While their may not be many tax changes, you can change your contributions if you are not maximizing those now.

If your employer does have a retirement plan, whether or not you choose to take part in it, your ability to make a deductible Traditional IRA contribution or Roth IRA contribution is capped at certain income limits. 

Remember, however, that you can always kick in nondeductible Traditional IRA funds up to the contribution limits. You’ll need to keep good records of what is deductible and what is not for determining the tax status of withdrawals later.

  • Deductible Traditional contributions
    • Begin to phase out at incomes of $66,000 if filing single/$105,000 for married filing jointly (for the person covered by an employer plan).
    • Not allowed at incomes over $76,000 single/$125,000 married filing jointly.
    • Begin to phase out at $198,000 for married filing jointly for the person who is not covered by an employer but whose spouse is) and not allowed above earnings of $208,000.
  • Roth IRA contributions
    • The maximum contribution is permitted for singles whose income is less than $125,000 and those married filing jointly with income less than $198,000.
    • Contributions decline as incomes rise and reach zero for singles making at least $140,000 and couples filing jointly above $208,000.
  • Married filing separate
    • Whether contributing to a Traditional IRA or a Roth, an income of over $10,000 prevents IRA contributions if employer plans cover you.

 

No tax changes on contributions to employer retirement plans (other than SEP/SIMPLE IRAs)

 

If you have a 401(k), 403(b), 457, or Thrift Savings Plan (TSP), your salary deferral contribution limit remains at $19,500. Workers over age 50 can also add a $6,500 catch-up for a total of $26,000.

However, some plans don’t limit you to just the salary deferral and employer match. The total annual 401(k) contribution limit is $58,000 for those under 50 and $64,500 over 50. Potentially, if your plan allows, you can then add after-tax money to your 401(k) plan on top of your match and salary deferral. If you’re unsure, ask HR or the third-party administrator (TPA) on the plan.

We explained in an earlier post how this works, but here’s a shorter version for illustrative purposes. Suppose you’re under age 50, so you set aside the maximum of $19,500. Your employer adds a $2,500 match, so you have contributed a total of $22,000. If the plan allows, potentially, you could add in another $36,000 after-tax, which would grow tax-deferred inside the 401(k). 

After-tax contributions into your employer plan can later be rolled into a Roth IRA, in what’s known as a Backdoor or Mega Roth. Investors who, because of their income, cannot contribute to a Roth IRA may find this technique valuable. So while there are not many tax changes, you can open new accounts or structure your retirement accounts to maximize you tax savings.

 

Health Savings Accounts (HSAs)

 

While these aren’t technically retirement accounts, you can use HSAs to bolster your nest egg. Unlike flex savings accounts or FSAs, they roll over from year to year. If you don’t use them for medical expenses, you can save them later, and the money grows tax-deferred.

These limits apply to the total contribution; that is, employer + employee, not employee alone. There’s also a slight difference in the $1,000 catch-up provision compared to what you find on retirement plans because the additional allowance is for workers age 55 and older.

  • Self only 
    • $3,600 contribution limit
    • $1,400 minimum deductible
    • $7,000 out-of-pocket maximum
  • Family plan 
    • $7,200 contribution limit
    • $2,800 minimum deductible
    • $14,000 maximum out-of-pocket

Want to talk about how to maximize your tax savings and what accounts you should set up to reduce your tax liability? Feel free to give us a call at (619)255-9554 or send us an email to set up an appointment.

 

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Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Why you should be tax-loss harvesting

Why you should be tax-loss harvesting

Tax losses can be constructive when it comes time to add up what you owe Uncle Sam. Especially when you’re in a high tax bracket and especially in years where you have gains that you’d like to offset.

Losses need to be realized before the end of the year, December 31, to qualify for that tax year. There are a few other things that you need to know to take full advantage of them.

 

What is tax-loss harvesting?

If you have an investment that’s lost value compared to its basis, selling it at a tax loss allows you to offset other capital gains in your portfolio. You can even use some losses against your income. If you have more losses than gains, you can use an additional $3,000 more tax loss to offset your income. Carry the remainder forward into future tax years, known as a carry-forward loss.

After freeing up cash in the portfolio from the sale, you can buy another similar security. Or use the money available to rebalance your portfolio back to its intended allocation.
Tax-loss harvesting doesn’t work for your tax-deferred accounts, so only your taxable brokerage account provides you this opportunity.

 

Beware the wash-sale rule when tax-loss harvesting

The IRS doesn’t let investors take a capital loss of one security against the same security gain. The wash-sale rule prevents you from buying a substantially similar investment (or even an option to do so) within 30 days of the date the loss was realized by selling the security.

It’s critical to remember that the 30-day period applies before the sale in addition to after the fact. If you’re planning to buy a similar investment, you’ll need to do so more than a month before you sell the one for a capital loss.

Even if you don’t want to reallocate your portfolio, you can still purchase a security that’s like the original investment but not substantially similar to avoid falling afoul of the wash-sale rule. Investors often buy a mutual fund or ETF in the same sector as the stock they sold to maintain the same allocation.

 

Costs of tax-loss harvesting

If you’re planning to harvest losses every time the market drops, tax prep will be much more difficult. Remember that you probably have shares at different cost bases within your investment because you bought them at different times.

You’ll need to have records of the basis of every share so that you can sell the correct shares to generate the loss. This is why tax-loss harvesting can be very costly in terms of actually carrying out the program!

Given the costs of trading, make sure that the loss you’re going to harvest is of greater value than the expense. If you want tax-loss harvesting to be a part of your plan, you should do it more than once a year in December before the deadline.

Instead, consider rebalancing more than once a year. As you identify securities that you need to sell to rebalance back to your allocation, you may spot some opportunities to take losses.

 

Harvesting losses for improving your portfolio

Taking capital losses is especially important if you end up realizing short-term gains. The short-term capital tax rate is the same as your ordinary-income rate, so it’s best to avoid them whenever possible. The long-term capital gains tax ranges from 0 to 20%, depending on your income. Selling a purchase within twelve months of buying is considered short-term, and 12 months plus is long-term.

When it comes to the mechanics of your tax return, like-losses are applied against like-gains first. Long-term losses offset the long-term gains, and then short-term losses offset short-term gains. If you have more losses in one category and gains in another, the remaining loss offsets the gains.

For example, suppose you have $20,000 in capital losses, half short-term and half long-term, to offset $15,000 in capital gains, also half-and-half. The long-term $10,000 loss offsets the $7,500 long-term gain, with an excess of $2,500 in losses. The short-term $10,000 offsets the $7,500 short-term gain, again with an excess of $2,500, so you now have $5,000 of losses.

If you’re married filing jointly, you can take up to $3,000 of these losses this year on your income tax. (For singles and filing separately, it’s $1,500.) That means you have $2,000 to carry forward into the next tax year.

 

Tax-loss harvesting when you don’t have capital gains to offset

You still reduce your taxes by taking capital losses because up to $3,000 can be used against your income tax every year. By reinvesting your “harvest savings” back into the portfolio, you can accumulate a bit more to compound for the next few years.

Suppose you’re in the 30% tax bracket, and you have $3,000 of capital losses you could take. The immediate savings is $3,000* 30%, which is how much you’d otherwise pay in tax, or $900. Reinvesting that amount every year for the next twenty years, assuming a reasonable average rate of return of 6%, would result in an accumulation of about $35,000.

 

Other tax-loss harvesting considerations

Be careful when considering capital losses against gains on mutual funds. At the end of the year, most funds pay out capital gains distributions, in addition to making others throughout the year.

While you can use capital gains to offset long-term realized gains on mutual funds, they can’t be used against short-term distributions. Those are treated as ordinary dividends, and the mutual fund company will identify which is which.

You’ve probably already figured out that this strategy works best in high marginal tax brackets. If you take a year off with no income, that’s not likely to be the right time to wield this particular tool. Younger investors who are not in the high tax brackets yet may not see much benefit.

If you’ve invested your whole portfolio in index funds, you’re not going to squeeze many tax reductions out of your tax-loss harvesting. Because these funds are not actively managed, most of the securities are held for the whole year (or longer), with very few sales to generate either a gain or a loss.

However, if you invest in actively managed funds or ETFs, or stocks, you may find more opportunities to decrease your tax burden. Turnover in actively managed funds tends to be high, and all the buying and selling generates the potential for capital gains and losses.

Note that you don’t have much control over the gains that mutual funds distribute because an equal share is portioned to every owner of shares. You also generate gains or losses when you sell the fund yourself. By contrast, stocks are entirely within your control.

Are you interested in learning more about tax-loss harvesting for your portfolio? Please feel free to give us a call at 619.255.9554 or email us to set up an appointment.

 

 

 

Are you interested in tax savings by tax-loss harvesting?

It might be time to check and see if your investments are exposed to excessive taxes. An experienced Financial Advisor can help you navigate the complexities of investment management, advantage opportunities and avoid costly mistakes. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Everything You Need to Know About RMD’s

Everything You Need to Know About RMD’s

As Ben Franklin said, “… [n]othing is certain but death and taxes.” Required Minimum Distributions (RMDs) are the method the IRS uses to ensure that you pay some taxes on your pretax retirement savings. They’re pretty straightforward, but there is a catch here and there.

 

What accounts are subject to RMDs?

To paraphrase George Carlin, Uncle Sam loves you and he needs money! Required withdrawals are generally only taken from retirement accounts that have pretax funds in them, with one exception. Because you haven’t yet paid any taxes on that money, you need to start taking money out to provide the government with some income tax revenue.

Traditional IRA, SEP and SIMPLE IRAs, and 401(k)-like accounts, such as TSP and 403(b)s, are subject to required minimum withdrawals. However, if you reach RMD age while you’re still working at the company whose 401(k) you currently contribute to, you don’t need to start taking them as long as you own less than 5% of the company. If you have 401(k)s from previous companies, however, you’ll need to take RMDs from them.

Since you paid taxes on your Roth contributions, you won’t have to take any money out of your Roth IRA. That’s for both contributions and conversions, because either way you already paid your taxes. Roth conversions often make sense in certain years with lower tax brackets, and to “fill up” your tax bracket. You get the added benefit of reducing the size of your Traditional account and thereby reducing required income in addition to accumulating more tax-free money.

The one exception for Roth accounts is for 401(k)s and similar employer retirement accounts (though not SEPs and SIMPLEs). Roth 401(k)s are subject to the same rules as the Traditional 401(k). Even though it’s after-tax money, RMDs are still the rule. Unless you’re still working for the company whose 401(k) you’ve been contributing to, in which case you don’t have to begin at age 72.

It’s easy to avoid this particular complication. Just roll your Roth 401(k) money into a Roth IRA instead. A direct rollover has no tax consequences, and you’ll eliminate the RMD from that account.

 

How much am I required to take out?

Fortunately, you’re not the one who has to calculate the amount! The financial institution that holds your retirement account will tell you how much you need to withdraw. If you have multiple accounts, the institution calculates the amount for each account.

The requirement is based on the account balance as of the previous December 31 and your life expectancy factor taken from IRS tables. The beginning requirement is usually around 4% of the balance, and the percentage increases as you age.

 

Which accounts can I use to satisfy the RMD requirement?

The money must come from a pretax retirement account in your name. The IRS doesn’t keep track of the individual amount that you owe, just the aggregate amount.

For example, suppose you have three IRAs at different brokerage firms. The RMDs are $2,000 on one, $3500 on another, and $1500 on the third so the total withdrawal is $7,000. You can take the entire amount from one account or split it up between them all, whichever makes sense for your financial plan.

We recommend consolidating accounts, especially retirement accounts. Fewer accounts makes keeping track of your RMDs much easier. If you miss a withdrawal, the penalty is pretty steep.

 

When do I have to start my RMD’s?

For many years, the starting age was 70 ½. That was changed during the last administration to age 72, and RMDs were waived for the 2020 tax year in the CARES Act, due to the coronavirus.

If you are age 72 or older you need to start your distributions (subject to the caveats noted in question 1). For the first year of RMDs, you can delay your distribution until April 1 of the following year. For every other year, you’ll need to make the withdrawal by December 31 of that year.

It’s usually not a good idea to delay your first withdrawal. If you don’t take it in the year you turn 72, then you’ll have two required withdrawals the next year: the one you were supposed to take at age 72 plus your RMD for age 73. The option is available to you in case there is some reason that it makes sense.

 

Is there any way I can avoid RMDs?

There’s no legitimate way to avoid the required withdrawals once you’re age 72 and no longer working for the company you were contributing to. However, you can avoid paying taxes on up to $100,000 of your RMD by using the Qualified Charitable Deduction or QCD.

Sending a withdrawal from your retirement account directly to the qualified charity of your choice satisfies your distribution requirement, but you don’t owe taxes since it’s a charitable donation.

The QCD strategy only works if the money comes from an IRA, because it doesn’t count from an employer retirement plan. In addition, the funds must leave the IRA institution and be sent immediately to the charity (a nonstop transfer). Any donation that makes a stop at your bank account loses QCD eligibility.

 

What if I don’t take my RMDs for the year?

The IRS levies a pretty hefty penalty of 50% of the RMD if you elect not to take it out, or on the portion that you didn’t withdraw if you did take some out.

Unless you can prove that you didn’t know you had to take it and you never received the notification from your financial institution, you’ll owe that penalty.

 

What happens if I die in the year I start my RMDs?

Your beneficiaries are required to take the required withdrawals by the end of the year (December 31), even if it’s the year you turned 72. Each of the beneficiaries has to take their proportional share, no matter if another beneficiary takes more than their share.

For example, suppose your RMD is $1,200 and you have four beneficiaries. Each one must take $300 before December 31, even if another beneficiary already took out the full $1200.

If your beneficiary is a trust or the estate, the trust (or estate) must make the withdrawal before December 31.

If you have questions about consolidating your accounts or potentially reducing your RMD exposure, please give us a call at 619.255.9554 or send us an email to set up an appointment.

 

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Vacation Homes and Taxes: 4 Things You Need to Know Before You Buy

Vacation Homes and Taxes: 4 Things You Need to Know Before You Buy

Your vacation home may be taxed differently than your primary residence, depending on how you use it. Will you be using it as a second residence, a rental property or an investment property? There are advantages and disadvantages to each with different rules from lenders and the IRS. It’s important to know the rules for vacation homes and taxes before you buy, to see if the costs make sense.

While the IRS draws a firm line between a residence and an investment property, lenders have a looser definition of what “second home” really means. You could have more than one “second” home. Each lender has its own rules about whether it will finance a property used at least partially for rental income. In general, they prefer to lend money for personal residences as opposed to investment properties.

Here’s a guide to making sure you know what kinds of financial issues, including taxes, you may encounter on your second home that might not have appeared with your first.

 

1. If your vacation house is not rented out but remains a residence for you and your family, taxes are levied like they are for your primary residence.

 

Mortgage interest may be tax-deductible

 

As long as you bought your house before 12/15/2017, you can deduct mortgage interest up to $750,000 of mortgage debt. You can do the same for a certain amount of home equity loan interest when you use the money to improve the property. 

You can only take the mortgage interest deduction if you’re itemizing. Therefore, if you’re married filing jointly, you’ll need to get over the $24,000 standard deduction hurdle to take it.

 

Local and state real estate (property) taxes may be tax-deductible

 

In theory, state and local taxes (SALT) are deductible from your federal return. However, the Tax Cuts and Jobs Act of 2017 limited SALT deductions to $10,000. 

 

If you’ve already reached this limit on your primary home, then you have no more room for deductions on your second home. But if you haven’t, you might get some tax relief from your vacation home.

 

2. If your vacation house is used for rental property and not entirely personal use, the taxation will likely change.

 

In the IRS parlance, a “second home” is different from an “investment property” and likewise is taxed differently. If you claim a property as a second home, you must live in it at least some of the time (during the taxable year. An investment property is one you don’t live in. 

 

Second homes qualify for mortgage interest and real estate tax relief, whereas investment properties don’t. On the other hand, maintenance and other expenses can be deducted for investment properties but not for personal residences. That includes the entire property tax bill, not the $10,000 SALT limit on a second home.

 

 

3. A second home used for personal and rental use can change characterization according to how many days you use it for each purpose during the calendar year.

 

If you rent your vacation home for 14 days or fewer during the tax year, you do not owe taxes on the rental income.

 

Otherwise, the income is characterized as taxable. Expenses related to a rental property, including property management, are deductible against the revenue. You can deduct the expense of utilities and any maintenance that’s performed. You can even deduct the cost of a new roof from your taxes. 

 

You can also take a depreciation deduction, but be aware it may later be recaptured when you sell. The deduction is limited to the percentage of time during the year that you rented the home out.

 

Although you can’t take a loss on a second home, you can take losses on an investment property to offset income.

 

Tax considerations of using your vacation home as a residence and a rental

 

If the home is used both as a personal residence and as a rental property, the costs must be divided between the two. One of two conditions must be met to be considered personal property and qualify for the mortgage interest/property tax deductions. And it has to be the one that would require a greater number of days you lived in the house.

 

The conditions are either you live in the house for at least 14 days during the year, or you use it at least 10% of the time you rent it out. 

 

For example, suppose you rent your house out for 150 days during the year. If you don’t spend at least 15 days living in it, the house will be considered investment property and taxed accordingly. If you lived there for 14 days, you would meet the first condition, but not the second with its higher residency requirement.

 

None of these periods have to be consecutive; you could have a two-week stay plus a few three-day weekends here and there in between rentals if you like. The aggregate number of days you live in it during the year is what counts. 

 

While this expense division is technically true for all types of residences, it’s more common with second homes than primary ones.

 

4. Whether you use the property as a second home or at least partially as an investment property also affects taxes when you sell it.

 

Depending on when you bought your second home, you may qualify for the residential capital gains exclusion when you sell an appreciated property. There’s no exclusion when it’s used as an investment property, and you might be subject to depreciation recapture as well.

If you bought it before 2008, you’re able to use the capital gains exclusion as long as it’s a second home and not an investment property. You may recall that you’re allowed to exclude a certain amount of the capital gain from your taxes on the sale of your residence. The exclusion is $250,000 when filing singly and $500,000 when you file jointly. In expensive real estate locations like San Diego, the exclusion can save you a lot of money on your taxes if you’re eligible.

But it’s your second home, not your primary. (Or you may have been treating it as an investment property until now.) The way to get around the residency requirement is to move into the home for at least two of the five years preceding the sale. That will allow you to characterize the property as a residence and take the exclusion.

 

 How tax depreciations work on a vacation home

 

Investment properties are eligible for a tax deduction for depreciation every year to offset rental income. When you sell it, the deductions are subject to recapture. You can avoid it in the year of sale by performing a 1031 exchange with another property, which delays recapture.

 

Depending on your tax situation, one form of tax relief (taxable interest and SALT deductions, capital gains exclusion) might be more attractive than the other (expense deductions, property taxes). The characterization isn’t set in stone, so you may find that one is more advantageous now and elect to make a different choice later.

 

If you’d like to talk about how a second home might affect your financial situation, please give us a call at 619.255.9554 or send us an email to set up an appointment.

 

 

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Estate Exemption Expiration

Estate Exemption Expiration

Today, it’s hard to believe that in 1997 you could only exempt $600,000 from estate taxes. When a person died, heirs would pay tax on anything above $600,000 at the (then) maximum 55% tax rate. The estate situation is very different today. The Internal Revenue Service just announced that for anyone dying in 2021, the inflation-indexed exemption would be $11,700,000 per person. Any unused amount from the first spouse to die can be used later by the surviving spouse. Also, the maximum estate tax on amounts above that threshold has dropped to a 40% rate.

 

The Tax Policy Center estimates that only about 0.1% of the estimated 2.7 million people expected to die in the coming year will have to pay any estate taxes at all. There has never been a year when the government has reduced the estate tax exemption in the history of estate taxes.

 

 

Changes to the estate exemption

 

All of that could end in four years unless Congress passes an extension. The current exemption sunsets at the end of 2025, at which point the exemption would automatically drop back to what it was before 2018—back to $5 million indexed to inflation. We may not have to wait that long. President-elect Joe Biden’s tax plan calls for reducing the estate tax exemption amount to $3.5 million. The plan would also increase the top rate for the estate tax to 45%.

 

 

How the Biden plan would change the estate exemption

 

The Biden plan would dramatically reduce the exemption. This change would pull a lot more people into estate tax territory. It is uncertain the measure would pass in its current form, and it seems unlikely that it would affect the 2021 tax year. But the prospect of a change has set people talking to their financial advisors about gifting to heirs under today’s very generous exemption, under the (reasonable) assumption that there would be no walk-back for any actions taken under current tax law. Besides, families can put several relatively complicated estate tax strategies into place, which allow them to keep control of their assets if needed in retirement. At the same time, heirs receive increases in value tax-free. Tax experts are quietly telling their clients to plan now rather than later.

 

 

Planning for the estate exemption or possible changes

 

 

Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route.

 

Discover. Where are you and where do you want to be?

During our meeting, we discuss your goals and concerns before we start gathering data. The financial facts and figures are important, but it’s not the whole story. We learn about your values and dreams, as well as what keeps you up at night, so that we can serve you better.

 

Create. How can you get to where you want to be?

We develop a customized financial plan that shows where you are in relation to where you want to be. We present different scenarios that show the impact of your options so you can choose how to accomplish your goals in a way that is meaningful to you and how you want to live your life. We also stress test the scenarios to see how your plan will hold up to challenges like lower returns or higher inflation.

 

Execution. What are you willing to do to get there?

A plan has no value if it’s not implemented. You choose the scenarios and options that are right for you, and we act as your accountability partner to ensure the plan is implemented. We break the actions into manageable steps and help you prioritize so you’re not overwhelmed.  We also work with your attorneys, accountants, and other professionals as needed.

 

Monitor. What happens when life happens to your plan?

We stay engaged with you because life happens, both good and bad. Fluctuating markets, career changes, liquidity events, changes in the laws, and health concerns can impact your plans. Ongoing proactive planning can keep you on track toward your

 

If you’d like to see some financial plan scenarios for your retirement or estate planning, please give us a call at 619-255-9554.

We would love to explore your possibilities with you.

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