Tax Strategies

Impact of New Tax Laws on Your Financial Planning

Impact of New Tax Laws on Your Financial Planning

by | Sep 22, 2023 | Financial Advice, Investment Management, Tax Strategies

For many Americans, taxes are an essential consideration in their financial planning. As they should be! Because the tax code changes frequently, it’s critical to pay close attention to how they could impact your bottom line. ­­­­­­­­­

 

Although Congress hasn’t passed any new tax legislation in the last few years, tax law changes could still affect many taxpayers. For example, the passage of the Inflation Reduction Act and the SECURE 2.0 Act in 2022 introduced a number of new tax provisions—some of which we are just now seeing come into play.

 

For starters, under the current tax code, there are certain changes that occur automatically because they are indexed to inflation.

 

Plus, there are actually several key provisions from the Tax Cuts and Jobs Act (TC&JA) of 2017 that are scheduled to expire in the next couple of years which could throw a wrench in some of your financial plans.

 

And if those weren’t enough, the IRS is constantly issuing new rules on existing tax laws that can catch people off guard if they’re not paying attention.

 

But you want to know, “How do tax law changes affect me?”

 

Here are some of the key facets of your financial plan that could be affected by changes to the tax code over the next few years:

 

  1. Adjustments to Income Thresholds for Tax Rates

 

It’s always important to stay on top of the changing income thresholds that determine your tax rate. In most years, they are adjusted for inflation, making it possible for your adjusted gross income to be taxed at a lower rate. For example, for married couples filing jointly in 2022, the income threshold 22% tax bracket was $83,551 to $178,150. In 2023, it was adjusted to $89,451 to $190,750. So, if your 2023 income was roughly the same as your 2022 income, the threshold likely dropped you into the 12% bracket.[i]

 

  1. Possible Increase in 2026 Tax Brackets

 

The most significant change you will see regarding your tax bracket could occur starting in 2026 with the expiration of many provisions of the 2017 TC&JA. The sunset provision in the law means tax brackets will revert to their pre-TC&JA levels while decreasing the income thresholds, resulting in a significant tax hike unless Congress takes action.[ii]

 

For example, the current top tax bracket of 37% will revert to 39.6%, and the income threshold of $693,750 for joint filers will decrease to $470,700. There will be similar adjustments for all the tax brackets.[iii]

 

  1. Deductions and Credits

 

It’s important always to be aware of adjustments to the standard deduction, which increases yearly. The 2023 standard deduction for joint filers was increased to $27,700 from $25,900.[iv]

 

The Inflation Reduction Act extended tax credits for homeowners adding solar and wind power systems as well as energy-efficient water heaters through 2032. Tax credits have also been extended for the purchase of new and used electric vehicles through 2032.[v]

 

  1. Retirement Planning[vi]

 

The SECURE 2.0 Act made several changes to the tax code to enhance your retirement planning efforts. A big one is the additional delay in the starting age for Required Minimum Distributions (RMDs). Effective January 1, 2023, the threshold age to begin RMDs is raised to 73 from 72. It will gradually be increased to 75 by 2033. This allows you to delay distributions and defer taxes associated with them. However, it can also result in larger distributions over a shorter lifespan, resulting in larger tax liabilities.  

 

Another significant change is an upward adjustment to the annual catch-up contributions individuals 50 and older can make to workplace retirement plans—increased starting in 2023 to $7,500 from $6,500. Beginning in 2025, workers age 60 to 63 will be able to make catch-up contributions of up to $11,250 per year.  

 

  1. College Planning

 

Another SECURE 2.0 change offers a boost to college savers as it allows unused balances of up to $35,000 in 529 college savings plans to be transferred free of tax and penalty to a Roth IRA. To be eligible, 529 plans must be established for at least 15 years, and the fund transfer can’t exceed the standard Roth IRA contribution limit (currently $6,500 per year, $7,500 if age 50 or older).[vii]

 

  1. Estate and Gift Planning

 

Another expiring provision of the TC&JA is the unified estate and gift tax deduction increase, which nearly doubled from $11.2 million for couples to $22.3 million in 2018. The exemption has risen over the years due to inflation, reaching $24 million in 2023. When the provision expires in 2026, the exemption will be cut in half to $6.8 million. This will impact wealth transfer and lifetime gifting strategies.[viii]

 

 

Keeping Up with the Taxes

 

With a divided Congress until at least 2024, we believe it’s doubtful we’ll see any new tax legislation in the next few years. However, there are still plenty of changes due to automatic adjustments, expiring tax laws, and provisions added to non-tax legislation, such as the TC&JA and SECURE 2.0 Act, to make visiting with your financial advisor and tax professional at least once a year worthwhile.

 

Tax rules keep shifting, and let’s be honest, they can be a real headache to keep up with. From changes in how much we pay to what we can write off, there’s a lot to track. With some big rule changes coming up, it’s a smart move to check in and make sure you’re on the right path.

Want some peace of mind about your finances? Let’s chat! Schedule a call with our financial advisors now, and let’s make sure you’re set up for success.

 

[i] https://www.kiplinger.com/taxes/tax-brackets/602222/income-tax-brackets

[ii] https://www.kiplinger.com/taxes/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset#:~:text=The%20Tax%20Cuts%20and%20Jobs%20Act%20(TCJA)%20of%202017%20is,can%20help%20you%20get%20started.

[iii] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023

[iv] Ibid.

[v] https://www.cleanenergyresourceteams.org/inflation-reduction-act-what-you-need-know

[vi] https://www.cnbc.com/2023/01/03/3-changes-in-secure-2point0-for-required-minimum-distributions.html

[vii] https://stwserve.com/secure-act-2-0-allows-for-rollover-of-unused-529-plan-funds-to-a-roth-ira/

[viii] https://www.fidelity.com/learning-center/wealth-management-insights/TCJA-sunset-strategies

 

 

 

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.

Get Started

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.

How to Pay Fewer Taxes on Retirement Account Withdrawals

How to Pay Fewer Taxes on Retirement Account Withdrawals

by | Mar 21, 2023 | Financial Advice, Financial Planning, Investment Management, Tax Strategies

Where there is income, there will be tax. So, it’s no surprise that building a successful retirement income plan will have a lot to do with how much tax you will pay on your account withdrawals.

 

In all honesty, planning for the “money-out” phase of retirement is often more complicated than the “money in” phase. That’s why it’s often likened to climbing Mt. Everest—because 80% of injuries occur not on the way up, but on the way down.

 

So how do you limit your tax liability to improve your odds of retirement success? Here are a few considerations to get you started.

 

First, understand how your retirement income will be taxed.

 

It is much easier to shield your money from taxes during your retirement plan’s accumulation phase than in the distribution phase. That’s because, as you start receiving income in retirement, the IRS can come at you in ways you may not have considered.  An income source on the left will affect the tax treatment on the right and could affect your Medicare and Social Security in the background. Like we said, there are a ton of moving parts.

 

What this means is that what you see on the surface, as far as your retirement account balances and your projected cash flow from these accounts, may be different from what you actually get. So many retirees are blindsided with lower-than-expected cash flows because they weren’t prepared for how their income would be taxed.

 

  • Ordinary income taxes on withdrawals.

 

The money accumulated in your 401(k) or IRA is worth less than the amount stated on your account statement. That’s because, after all the years of tax-deferred accumulation in those accounts, the IRS is waiting in the wings to get its share. That happens as soon as you start taking distributions, which are taxed as ordinary income. 

 

So, if you have accumulated $500,000 in your 401(k) or IRA, here is what it would be worth after taxes:

 

$325,000 if you’re in the 35% tax bracket

$315,000 if you’re in the 37% tax bracket

 

Understanding where you stand on an after-tax basis is crucial in planning your distributions, so they have the most negligible impact on your tax bracket. It also puts you in a position to consider strategies that can help mitigate the impact of taxes. 

 

  • Requirement minimum distributions: If you think you can avoid taxes by not taking distributions, the IRS forces you to take withdrawals starting at age 73 through the required minimum distribution (RMD) rules, whether you need the income or not. This can have the effect of pushing you into a higher tax bracket, increasing your tax liability. However, with that understanding, you can explore strategies to mitigate its impact. 

 

  • Social Security “tax torpedo”: Not only are withdrawals from tax-deferred accounts fully taxable, but they can also trigger the Social Security “tax torpedo,” which exposes as much as 85% of your Social Security benefits to ordinary income taxes. 

 

Then, choose strategies for controlling taxes in retirement.

 

Knowing what they know now in terms of retirement income taxation, many retirees would probably have chosen a different strategy that included allocating more of their retirement contributions among post-tax accounts that generate tax-favored capital gains or a Roth IRA for its tax-free withdrawals (which are is not considered provisional income included in the Social Security tax calculation). 

 

However, retirees knocking on retirement’s door still have an opportunity to develop an income strategy that can effectively minimize their taxes and stretch their assets further into the future. 

 

Tax-Efficient Withdrawal Strategies: An essential strategy for reducing taxes on retirement account withdrawals is implementing a tax-efficient withdrawal strategy. This involves withdrawing funds from taxable accounts before tax-deferred accounts, which can help reduce tax liabilities with a more favorable capital gains tax. It’s essential to work with a financial advisor to determine the best approach for your situation.

 

Consider a Roth IRA conversion: While contributions to a Roth IRA are not tax-deductible as with traditional IRAs, withdrawals are tax-free. A Roth’s tax-free income in retirement can lower your overall taxes in several ways, not only increasing your cash flow but also extending your retirement capital further into the future. 

 

  • The tax-free income will not push you into a higher tax bracket, as would taxable withdrawals from a tax-deferred qualified retirement plan.
  • The tax-free income will not count towards the stealth Social Security tax torpedo on excess earnings.
  • There is no required minimum distribution rule for a Roth IRA, enabling you to keep growing your retirement capital tax-free. 

 

The tax code allows individuals who otherwise don’t qualify for a Roth IRA to fund a traditional IRA or 401(k) plan and then convert it to a Roth. There is no income limit or limit on how much or how many times you convert. 

 

When you do convert, it triggers a tax on the conversion amount because it is treated as a taxable distribution. For example, if you transfer $10,000 from a tax-deferred qualified retirement account to a Roth, that amount is added to your adjusted gross income (AGI) and taxed at your federal tax rate. 

 

 If you have $100,000 in a traditional IRA, it can be converted all at once. However, considering the tax implications, it may be better to convert portions of it over several years. 

 

Qualified Charitable Deduction to Offset RMDs: A Qualified Charitable Deduction is a direct, tax-free transfer of funds from your IRA to a qualified charitable organization. To be eligible, you must be at least 73 and ready to take your first RMD. It’s a direct transfer, so the check must be payable to the charitable organization by December 31 to qualify. If married, you and your spouse can each transfer up to $100,000 tax-free from your IRA each year, even if it exceeds your RMD.

 

The QCD is unavailable for 401(k) plans, SEPs, or SIMPLE IRAs. However, if you roll any of those plans into an IRA, it becomes QCD eligible. 

 

These strategies have tax implications, and everyone’s tax situation is different. You should always consult a qualified professional tax advisor to discuss your specific tax situation and how these tax reduction strategies apply to your situation. 

 

 

Find the Plan That’s Right for You

At Platt Wealth Management, we like to encourage our clients to dream, plan, and do. Don’t let an underdeveloped tax strategy get in the way of “doing” all you’ve dreamed and planned for.

If you’re in need of a financial guide to help you make your way through the “money in” and/or “money out” stages, we would love to see if we’re a good fit. Simply schedule your complimentary phone consultation to discuss your opportunities. 

 

 

 

 

 

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.

Get Started

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.

How to Make a Last-Minute IRA Contribution for the 2022 Tax Year

How to Make a Last-Minute IRA Contribution for the 2022 Tax Year

by | Mar 5, 2023 | Financial Advice, Tax Strategies

It’s a new year, and the book has closed on 2022. But, those still looking for a way to reduce their 2022 tax bill and accelerate their retirement savings have a planning opportunity available, which is to make an individual retirement account (IRA) contribution before the tax filing deadline of April 18, 2023.

 

Reduce Your Tax Bill

 

Unlike most other tax deductions, which must be recorded before the end of the calendar year, the IRS allows tax-deductible IRA contributions to be made up until the tax filing deadline. Those eligible can contribute up to $6,000 or $7,000 for those 50 or older (contributions limits increase to $6,500 and $7,500 for the 2023 tax year).

 

As you or your preparer work on your tax return, you can plug in an IRA contribution to see exactly how much your tax bill will decline. For eligible taxpayers, contributions to a traditional IRA can be deducted from your taxable income, resulting in immediate tax savings. For example, if you are in the 24 percent tax bracket, a $6,000 contribution will reduce your taxable income by the same amount, resulting in a tax savings of $1,140 ($6,000 x 24 percent).

 

Beware of IRA Income Limits

 

Anyone can contribute to an IRA, even if they participate in an employer-sponsored retirement plan. The issue is whether you’re eligible to deduct the full amount of your contribution or not.

 

If you and your spouse don’t have access to a workplace retirement plan, you can deduct the full amount of your traditional IRA contribution.

 

If you and your spouse have access to a workplace retirement plan, the deductibility of your contribution is phased out above certain income levels. For example, single filers may take the full deduction if their income is $68,000 or less. For incomes between $68,000 and $78,000, the deduction is phased out and unavailable for incomes of $78,000 or more. For married filers, the income threshold is $109,000 to $129,000. (IRA income thresholds are increased in 2023).

 

If only you or your spouse has access to a workplace retirement plan, the income limits increase to $204,000 to $214,000 for 2022.

 

Compare the Advantages of a Traditional and Roth IRA

 

While using an IRA tax deduction to reduce your tax bill is appealing, you may want to compare the advantages of a traditional IRA vs. a Roth IRA. If your taxable income places you in a lower tax bracket in 2022, contributing to a Roth IRA may make more sense. You won’t get a tax deduction, but unlike a traditional IRA, the earnings in a Roth are not taxed when you withdraw them. Depending on your circumstances, a Roth IRA could generate more after-tax cash flow in retirement. If you earn less than $144,000 as a single filer or $214,000 as joint filers, you are eligible to contribute to a Roth IRA for 2022.

 

Make Sure You Apply Your IRA Contribution to the Correct Year

 

It’s not uncommon for people to make an IRA contribution for the prior year but accidentally apply it to the current year. When you make an IRA contribution, you are asked by the IRA provider if you want to use it for the prior year or the current year. If you check the wrong box, you will not receive the tax deduction for 2022. If that does happen, you can go to your IRA custodian and complete a form to reclassify for the prior year.

 

Is a Last-Minute 2022 IRA Contribution Right for You?

 

All major money moves have consequences. What’s right for one investor may not be ideal for another. Accordingly, your decision to make a last-minute traditional IRA or Roth IRA contribution will have tax and retirement planning implications that should be discussed with your advisors.

 

Don’t have a retirement plan yet? Not confident in your current retirement plan? Or simply need a retirement plan check-up? No matter where you are in your retirement planning journey, our team can help. Simply schedule an appointment with one of our trusted advisors to discuss your opportunities today.

 

 

 

 

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.

Get Started

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.

Didn’t Prepare for Your Taxes Very Well Last Year? Here’s What to Do Now

Didn’t Prepare for Your Taxes Very Well Last Year? Here’s What to Do Now

by | Mar 5, 2023 | Financial Advice, Financial Planning, Tax Strategies

Taxes are no fun. In fact, they might join root canals at the top of the list of “least favorite things to do with your time,” which is why many folks tend to wait until the last minute to deal with tax-prep related responsibilities.

 

While it feels great just to get them done and out of the way, you may have missed some things in haste that could have produced a better outcome or decreased the chance of errors. Luckily, it can be different this year. All it takes is some mindful choices, a little organization, and perhaps a financial advisor partner to see better outcomes in the future.

 

Check Your Tax Withholding for the Upcoming Year

 

Federal income tax is a pay-as-you-go-tax, which means you pay the tax as you earn income during the year. In order to determine how much you pay out of each paycheck, you are asked to adjust your withholding amount on your W-4. Filing status, number of withholding allowances claimed, and additional withholding all affect how much is withheld from each paycheck. One way to avoid a surprise tax bill at the end of the year is to make sure you aren’t withholding too little throughout the year. To check and change your withholding, you need to review and possibly complete a new Form W-4 and submit it to your employer.

 

Avoid Triggering Major Tax Events

 

One of the ways many folks end up with a large tax bill at the end of the year is by liquidating assets that carry hefty capital gains taxes on them. Just last year, we worked with a client who inherited a lump sum from her mother and liquidated a significant amount of money to put a down payment on a house. But, because she wasn’t working with any type of financial or tax advisor at the time, she wasn’t aware of the tax liability that would result from doing so.

 

A good rule of thumb to keep in mind is this: if it looks like income, it will be taxed. There are moves that we could have made with this client (if she had been working with us at the time) to help her avoid this huge tax bill in the first place, but let it just go to show that major money moves, more often than not, come with major tax consequences. Always consult with a financial advisor before receiving funds or liquidating assets for income.

 

Get Organized

 

Keeping all your important tax documents in one place can make it much easier to coordinate with your accountant or CPA when the time comes. Below is an annual checklist you can use to start getting organized today.

 

  • Gather Your Personal Information

 

Your best source for your personal information is last year’s tax returns. They have Social Security numbers for you, your spouse, and your dependents. Note any changes that need to be applied to this year’s returns, such as additional dependents or an address change. They’re also good as a starting point for identifying all your deductions and credits. If you’re starting with a new CPA or accountant to help you, they’ll require this to get started.

 

  • Gather Your Income Documents

 

W-2 forms. You should receive your W-2 form by January 31, either through the mail or electronically.

 

1099 forms. You should receive a 1099 form for various sources of income, including 1099-MISC for any contract work you’ve done, 1099-K for income received by third parties, such as PayPal, 1099-INT for interest earned, and 1099-DIV for any dividends received.

 

Letter 6419-Advanced Child Tax Credit. If you received advanced child tax credit payments, you need to compare the amount you received during 2021 with the amount you are allowed to claim on your 2021 return. If you received less than the amount you are eligible for, you can claim a credit for the remaining amount on your return. If you receive more than you’re eligible for, you may need to repay all or a portion of the excess amount.

 

  • Gather Records and Receipts for Deductions

 

Generally, you can only claim deductions if they can be documented. This can be the most time-consuming part of tax preparation, but it can be worth it if it means lowering your tax bill. Unless you think your total deductions will exceed the standard deduction ($12,550 for individuals or $25,100 for joint filers in 2021), you don’t have to worry about itemizing your deductions on Schedule A. If your total deductions were close to the standard deduction last year, it may be worth running through them this year to see if any additional deductions could bring you over the top.

 

One place to look for additional deductions is with sales taxes. While you don’t need to keep sales receipts for claiming the standard sales tax deduction (based on IRS formulas), any sales taxes paid on large items, such as a car, home renovation, appliances, can be claimed on top of that.

 

A note regarding charitable deductions: The charitable deduction limit increase allowed under the CARES Act has been extended to 2021 deductions. That means you can claim charitable giving deductions up to 100% of your Adjusted Gross Income (AGI) on cash donations.

 

As always, your charitable contributions must be documented to claim them.

 

In addition, the above-the-line deduction for charitable deductions has also been extended to 2021. So, if you don’t itemize, you can still claim up to $300 ($600 for joint filers) of charitable donations on your 1040 form.

 

Other above the line deductions that can be claimed even if you don’t itemize:

 

  • IRA contribution
  • Health savings account contributions
  • Self-employment expenses
  • Moving expenses for military members
  • Student loan interest payments
  • Educator expenses

 

  • Estimated Tax Payments

 

If you make federal estimated tax payments, have your record of payments handy. This will help you and/or your tax preparer ensure all the bases are covered.

 

The tax preparation checklist may apply to most taxpayers, but every situation is different. If you are a business owner, you will need to follow most of the same steps in preparing to file your Schedule C. By taking the time and effort to thoroughly prepare for filing, you’ll cut down on the time involved in completing your taxes online. If you file your taxes with a tax preparer, you’re likely to save on fees.

 

Work with a Professional Financial Advisor

 

When it comes to taxes, you don’t know what you don’t know. And with the ever-changing tax code, there is A TON of stuff you wouldn’t know if you weren’t in the thick of it every day. That’s why we always remind our clients that tax planning is an integral part of wealth planning, and should be top of mind year-round, not just during tax season.

 

At Platt Wealth Management, we work with clients not only on financial life planning and investment management, but tax strategy, as well. We also collaborate with their tax professionals to help ensure all the bases are covered year-round. That way, when tax time rolls around, we don’t encounter any costly surprises.

 

If this sounds like the type of partner you’d like to have in your corner, we encourage you to schedule a complimentary consultation over the phone or virtually via Go-to-Meeting. Or, you can call the office directly at 619.255.9554. We serve clients locally in San Diego, California and virtually throughout the country. We look forward to meeting you.

 

 

 

 

 

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.

Get Started

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.

How to Take Advantage of the Inflation Reduction Act

How to Take Advantage of the Inflation Reduction Act

by | Oct 31, 2022 | Financial Advice, Financial Planning, Lifestyle, Tax Strategies

Have you considered switching to a more energy-efficient vehicle or perhaps adding solar panels to your home? How about a new water heater? With inflation on the rise, you may have been holding off on some of these larger purchases, but the government incentives passed with the Inflation Reduction Act may just cause you to reconsider.  

 

Following politics, especially in today’s divided times, isn’t everyone’s favorite pastime, so you may not be keenly aware of the opportunities made available by the passage of the Inflation Reduction Act.  Changes to Medicare and the Affordable Care Act seem to grab the most spotlight, but you would be remiss to ignore the other main components of the legislation: energy and climate. Starting in 2023, several tax credits will be available for Americans who switch to greener energy sources.

 

For a more in-depth look, here are three ways you can take advantage of the Inflation Reduction Act (IRA):

1. Electric Vehicles

Many Americans have started considering moving to an electric vehicle after gas prices hit record numbers. If you’re one of them, the time to buy may be now. The IRA adds incentive by offering tax credits up to $7,500 on a new electric vehicle and up to $4,000 on a used one placed into service after Dec. 31, 2022.

 

Even if you weren’t already thinking about getting an electric vehicle, you may want to change your mind. It seems the writing is on the wall for gas-powered cars, as California just banned the sale of new gas-powered cars by 2035 and even Ford is shifting to electric vehicle production. And you have time. The tax credit runs through December 2032.

2. Home Efficiency Updates

Homeowners looking to upgrade their home(s) may want to take advantage of the two tax credits and two rebate programs available for certain upgrades.

 

Installing energy-efficient insulation or exterior doors and windows are worth a 30% tax credit up to $1,200 per year. If you update or install heat pumps, heat pump water heaters, or biomass stoves and boilers, the cap increases to $2,000. There is also a 30% tax credit for installing solar panels or other renewable energy sources like wind, geothermal, and biomass fuel. To be eligible, projects have to be finished after Jan. 1, 2023 and before 2034, and, like all tax credits, the savings can only be realized once you file your income tax return.

 

In addition, the IRA established rebate programs that offer either up to $8,000 or up to $14,000 but you have to make 150% or less than your area’s median income, which is established by the U.S. Department of Housing and Urban Development. The HOMES Rebate Program covers upgrades that increase your home’s overall efficiency via upgrades, such as solar panels or new windows. The High-Efficiency Electric Home Rebate Act (HEEHRA) offers rebates for switching to electric appliances and doing other electric retrofitting like:

  • Electric stoves, cooktops, ranges, ovens, and clothes dryers
  • Electric wiring
  • Heat pump water heater
  • Heat pump for space heating and cooling
  • Insulation, air sealing, and ventilation

3. Prescription Drugs

Of course, the health care portions of the bill could help as well. For those old enough to be on Medicare, the IRA puts a $2,000 per year cap on out-of-pocket prescription drugs. This won’t take effect until 2025, so even those about to retire should keep their eyes open for ways to save, especially if you are diabetic. The IRA caps insulin costs at $35 a month.

Need Help?

We know that you’re used to us handling your investments and helping you with the most efficient tax strategies, but all major money decisions affect your financial plan—even if it’s just making some home or vehicle upgrades.  That’s why we want you to be aware of these incentives. They won’t last long, and we’d like you to take advantage if you wish. At Platt Wealth Management, we’re always here to help, even for life’s simpler decisions, like these.

 

 

 

 

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.

Get Started

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.

How Rising Interest Rates Could Impact Your Finances

How Rising Interest Rates Could Impact Your Finances

by | Aug 10, 2022 | Business Advisor, Economic News, Financial Advice, Financial Planning, Investment Management, Tax Strategies

As expected, the Federal Reserve is holding firm to its policy of hiking short-term rates in an effort to cool inflationary pressures. Generally, these small, incremental rate increases don’t immediately impact consumers. The fed rate is the rate the Treasury charges banks for the use of money overnight. When the Fed raises its short-term rate, the banks will increase the rate they charge borrowers, so consumers may experience a slight uptick in borrowing costs.

 

The more significant impact on consumers comes from an increase in long-term rates (Treasury bonds), which have also seen an uptick this year, impacting mortgage rates, variable loan rates, credit card interest, savings account rates, and certificates of deposits.

 

Here are the ways higher interest rates can impact your finances and some steps to take to mitigate their effect.

 

 

Higher Mortgage Rates

 

After hovering near historic lows for several years, mortgage rates jumped past 5% for the first time in more than a decade. With Treasury bond yields expected to inch higher, mortgage rates won’t be far behind.

 

Rising interest rates won’t impact you if you currently hold a fixed-rate mortgage. However, if you have plans to refinance your loan, now would be the time to do it because there’s no predicting how high rates could climb.

 

If you hold an adjustable-rate mortgage, your interest costs will increase, so now may be your best opportunity to lock in a reasonable, fixed rate.

 

Higher Consumer Debt Costs

 

Credit cards and other types of consumer loans also carry variable rates, which can be expected to increase with rising interest rates. Keep in mind, variable rates on consumer loans tend to adjust once per year, while credit card rates can change at any time.

 

Your best bet is often to pay down high interest, variable debt as quickly as possible to avoid swift changes to your payment. Some lenders offer personal loans with fixed rates for loan consolidation as an option to explore. You could also look for 0% balance transfer opportunities, though that would only be a temporary solution.

 

Good News for Savings Deposits

 

Savings accounts are already seeing yield increases. However, unlike rates on consumer debt, which lenders are quick to raise when interest rates rise, rate hikes on savings accounts tend to be smaller and less significant. Still, accounts that were recently yielding as low as 0.025% have jumped to as high as 1.0%. While it’s still relatively low, it’s an improvement. If interest rates continue to increase, you can expect yields on your savings to follow suit.

 

The Impact of Rising Rates on Investments

 

Bonds

 

Rising interest rates affect different types of investments in different ways. For example, bonds are almost always negatively impacted by rising interest rates. That’s because rising rates force bond yields up, which decrease bond prices. However, if you hold a bond to maturity, you will receive the entire value when you redeem it. If you sell bonds in this environment, you will likely receive less than their par value. General rule of thumb: When interest rates decrease, bond prices should increase again.

 

Stocks

 

The impact of rising interest rates on stocks can vary depending on the industry or market sector. Stocks of companies with a lot of debt don’t perform as well because they will have higher borrowing costs. Because interest rates are increasing as a result of higher inflation, the bottom line of some companies suffers because of the higher cost of producing or selling goods and services. However, well-established, well-managed companies with big brands, dominant market positions, and low or no debt can perform well in a high-interest and inflationary environment.

 

Diversification is Key

 

As always, the key to successful investing in any interest rate environment is to ensure you are well-diversified with a mix of different asset classes. Because it’s difficult to know which asset class will outperform another at any given time, owning assets with low correlation to one another helps to minimize volatility. For example, historically, stocks and bonds have a low correlation, so it is good to have a mixture of both in your portfolio.

 

Time to Reassess Your Personal Finances

 

Although many people have never experienced it, rising interest rates are a normal part of the economic cycle. For more than three decades, borrowers have benefited from declining rates (not so much for savers). Now the cycle is turning to where savers will benefit over borrowers.

 

Keep in mind that economic cycles can last for years or even decades, so it is essential to maintain some flexibility so that you can make adjustments to your finances that can mitigate adverse effects while capitalizing on positive ones.

 

At Platt Wealth Management, we understand that the rising rate environment is new for many younger investors and may bring up some (not so fond) memories for our older ones. But, rising rates aren’t all bad and simply need to be accounted for in your financial planning.

 

As always, we are here to answer any questions or address any concerns you might have about this rising rate environment. Our goal is to support you through these ebbs and flows in the economic cycle so you stay honed in on what is most important to you on your financial journey. 

 

 

 

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