Harvesting Losses in Volatile Markets

Contributed by: Robert Ingram, CFP®

In times of market volatility and uncertainty there are still financial strategies available as part of a sound long-term investment plan. One example to keep in the toolbelt can be the use of tax-loss harvesting. It’s when you sell a capital asset at a loss in order to reduce your tax liability.

While this sounds counter-intuitive, taking some measures to harvest losses strategically allows those losses to offset other realized capital gains. In addition, remaining excess losses can offset up to $3,000 of non-investment income, with remaining losses carrying over to the next tax year. This can go a long way in helping to reduce tax liability and improving your net (after tax) returns over time. So, how can this work?

Harvesting losses doesn’t necessarily mean you’re giving up on the position entirely. When you sell to harvest a loss you cannot make a purchase into that security within the 30 days prior to and after the sale.  If you do, you are violating the wash sale rule and the loss is disallowed by the IRS.  Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Tax-Loss Harvesting Strategies

• Sell the position and hold cash for 30 days before re-purchasing the position. The downside here is that you are out of the investment and give up potential returns (or losses) during the 30 day window.

• Sell and immediately buy a position that is similar to maintain market exposure rather than sitting in cash for those 30 days. After the 30 day window is up you can sell the temporary holding and re-purchase your original investment.

• Purchase the position more than 30 days before you try to harvest a loss. Then after the 30 day time window is up you can sell the originally owned block of shares at the loss. Being able to specifically identify a tax lot of the security to sell will open this option up to you.

Common Mistakes To Avoid When Harvesting

• Don’t forget about reinvested dividends. They count. If you think you may employ this strategy and the position pays and reinvests a monthly dividend, you may want to consider having that dividend pay to cash and just reinvest it yourself when appropriate or you will violate the wash sale rule.

• Purchasing a similar position and that position pays out a capital gain during the short time you own it.

• Creating a gain when selling the fund you moved to temporarily that wipes out any loss you harvest. You want to make the loss you harvest meaningful or be comfortable holding the temporary position longer.

• Buying the position in your IRA. This violates the wash sale rule. This is identified by social security numbers on your tax filing.

As with many specific investment and tax planning strategies, personal circumstances vary widely.  It is critical to work with your tax professional and advisor to discuss more complicated strategies like this. If you have questions or if we can be a resource, please reach out!

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

---

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Bob Ingram and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

The SECURE Act Changes the “Stretch IRA” Strategy for Beneficiaries

Contributed by: Robert Ingram, CFP®

It’s hard to believe that we’re nearly two months into the New Year. As people have had some time to digest the SECURE Act, which was signed into law in late December, our Center team has found that many clients are still trying to understand how these new rules could impact their financial plans. While several provisions of the Act are intended to increase retirement savers’ options, another key provision changes the rules for how non-spouse beneficiaries must take distributions from inherited IRAs and retirement plans.

Prior to the SECURE Act taking effect January 1st of this year, non-spouse beneficiaries inheriting IRA accounts and retirement plans such as 401ks and 403(b)s would have to begin taking at least a minimum distribution from the account each year. Beneficiaries had the option of spreading out (or “stretching”) their distributions over their own lifetimes.

Doing so allowed the advantages of tax deferral to continue for the beneficiaries by limiting the amount of distributions they would have to take from the account each year. The remaining balance in the account could continue to grow tax-deferred. Minimizing those distributions would also limit the additional taxable income the beneficiaries would have to claim.

What has changed under the ‘SECURE Act’?

For IRA accounts and retirement plans that are inherited from the original owner on or after January 1, 2020:

Non-spouse beneficiaries who are more than 10 years younger must withdraw all of the funds in the inherited account within 10 years following the death of the original account owner.

This eliminates the non-spouse beneficiary’s option to spread out (or stretch) the distributions based on his or her life expectancy. In fact, there would be no annual required distributions during these 10 years. The beneficiary can withdraw any amount in any given year, as long as he or she withdraws the entire balance by the 10th year.

As a result, many beneficiaries will have to take much larger distributions on average in order to distribute their accounts within this 10-year period rather than over their lifetime. This diminishes the advantages of continued tax deferral on these inherited assets and may force beneficiaries to claim much higher taxable incomes in the years they take their distributions.

Some beneficiaries are exempt from this 10-year rule

The new law exempts the following types of beneficiaries from this 10-year distribution rule (Eligible Designated Beneficiaries). These beneficiaries can still “stretch” their IRA distributions over their lifetime as under the old tax law.

• Surviving spouse of the account owner

• Minor children, up to the age of majority (however, not grandchildren)

• Disabled individuals

• Chronically ill individuals

• Beneficiaries not more than 10 years younger than the original account owner

What if I already have an inherited IRA?

If you have an inherited IRA or inherited retirement plan account from an owner that died before January 1st, 2020, don’t worry. You are grandfathered. You can continue using the stretch IRA, taking your annual distributions based on the IRS life expectancy tables.

Your beneficiaries of the inherited IRA, however, would be subject to the new 10-year distribution rule.

What Are My Planning Opportunities?

While it still may be too soon to know all of the implications of this rule change, there are number of questions and possible strategies to consider when reviewing your financial plan. A few examples may include:

• Some account owners intending to leave retirement account assets to their children or other beneficiaries may consider whether they should take larger distributions during their lifetimes before leaving the account to heirs.

• Roth IRA Conversions could be a viable strategy for some clients to shift assets from their pre-tax IRA accounts during their lifetimes, especially if they or their beneficiaries expect higher incomes in future years.

• For individuals age 70 ½ or older, making charitable gifts and donations directly from your IRA through Qualified Charitable Distributions (QCD) could be even more compelling now.

• Clients with IRA Trusts as part of their estate plan should review their documents and their overall estate plan to determine if any updates are appropriate in light of the this new 10-year rule.

It’s important to remember that your individual situation is unique and that specific strategies may not be appropriate for everyone. If you have questions about the SECURE Act or you’re not sure what these changes mean for your own plan, please don’t hesitate to contact us!

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

Things to Consider if You are Anticipating an Inheritance

Contributed by: Sandra Adams, CFP®

If you are like most clients, anticipating an inheritance likely means that something is happening, or has happened, to someone you love. Often this means dealing with the complexities of grief and loss, in addition to the potential stress of additional financial opportunities and responsibilities. Combining your past money experience and your relationship with the person you are losing or have lost can cause varying degrees of stress.

Based on our experience with clients who expect to receive an inheritance, we offer a few suggestions that will serve you well and help you avoid some of the common pitfalls:

• Avoid making big plans to upgrade your home, buy the fancy car, or take the exotic trips. In other words, don’t spend the money before you have it.

• Don’t let others pressure you into quick decisions or coax you into making purchases or gifts that you wouldn’t normally make.

• Don’t make any big purchases until you have taken the time to do more purposeful planning.

• Take an intentional time-out from decision-making. Give yourself the ability to grieve, and to make sure your head is clear and ready to make smart financial decisions.

• In the planning process, determine what will change, or has changed, for you since receiving the inheritance (income, savings, investments, expenses, home, etc.); this information will help guide your financial planning decisions with the inherited funds.

• Identify your current and future financial goals, then plan so that inherited funds help you meet those goals.

Even if you have a financial plan and are an experienced investor, receiving an inheritance can throw you for a loop from an emotional standpoint – and from a planning standpoint – when you rush to make decisions. If you have no experience with money, receiving an inheritance can seem completely overwhelming and stressful. In either case, having a financial planner – a decision partner to provide assistance, guidance, and a sounding board – can be invaluable. If you expect, or know someone who expects, an inheritance and could use some guidance, please contact us for assistance (Sandy.Adams@CenterFinPlan.com). We are always happy to help!

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

---

Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.

Keeping Your New Year’s Resolutions in 2020

Contributed by: Robert Ingram, CFP®

Set a goal to keep your goals. With the start of January, it’s that time of year again.  You’ve likely made one or more New Year’s resolutions whether it’s getting back to the gym, improving your financial life, or spending more time with family.

But sometimes the goals we set can be hard to commit to. We begin with the best intentions and later find that we’ve broken our resolutions within the first few months.  In fact, a U.S. News & World Report survey says as many as 80% of resolutions fail by the middle of February.

So, how can we be part of the 20% who succeed?  

Try these ideas:

• Keep your goals focused: You may have several things you wish to accomplish in 2020, but begin with no more than 3 goals.  Juggling too many can make it difficult to stay organized. Your energy and attention can only stretch so far. Focusing on fewer goals helps you prioritize what you value the most.

• Be specific: Saying “I want to lose weight” or “I want to save more for retirement” may be well-intentioned, but it’s not specific enough to wrap your mind around.  Instead, define your goals further by saying “lose 10 pounds over the next the 3 months” or “save an additional 5% of your income in your 401(k)”.

• Make them actionable and measurable: Now that your goals are specific, it’s time to make a plan.  If your goal is to lose weight, plan on going to the gym. Write down what days you’ll go and what exercises you’ll do. This allows you to quickly assess your progress and figure out what adjustments are necessary.

• Shorten the timeframe: Don’t risk losing motivation. Break down quarterly and monthly goals. Making progress more frequently makes goals more manageable, even if the wins are smaller. If your goal is to save money, look at your spending habits by the week or even the day. 

• Be accountable to a third party: Have someone hold you accountable or even motivate you. A family member, friend, colleague, or mentor could help. If your goals are financial, of course your planner can be your accountability partner…helping you establish goals and developing actionable steps.

Like any good plan, the best way to achieve success is to put it in writing, take action, and improve along the way. Wishing you a healthy and prosperous New Year!

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

New Year Financial To-Dos!

Contributed by: Kali Hassinger, CFP®

There's no better time than a fresh decade to begin making plans and adjustments for your future. Although we may think of the New Year as a time for "resolutions," it's important to focus on actionable and attainable goals, too. Instead of setting a lofty resolution without a game plan in mind, might I suggest that you consider our New Year Financial checklist below? If you get through this list, not only will you avoid the disappointment of another forgotten resolution in February, you'll feel the satisfaction of actually accomplishing something really important!

• Review your net worth as compared to one year ago, or calculate your net worth for the first time! Regardless of how markets perform, it's important to evaluate your net worth annually.  Did your savings increase or should you set a new goal for this year? If you find that you’re down from last year, was spending a factor?  There’s no better way to evaluate than by taking a look at the numbers!

• Speaking of spending and numbers, review your cash flow!  How much came in last year and how much went out?  Ideally, we want more coming in than is going out!

• Now, let's focus on the dreaded budget, but instead we’ll call it a spending plan.  Do you have any significant expenses coming up this year?  Be prepared by saving enough for unexpected costs. 

• Be sure to review and update beneficiaries on IRAs, 401(k)s, 403(b)s, life insurance, etc.  You'd be surprised at how many people don't have beneficiaries listed on retirement accounts. Some even forgot to remove their ex-spouse!

• Revisit your portfolio's asset allocation. Make sure your portfolio investments and risks are still aligned with your life, goals, and comfort level. I'm not at all suggesting that you make changes based on market headlines, but you want to be sure that the retirement or investment account you opened 20 years ago is still working for you.

• Review your Social Security Statement. If you're not yet retired, you will need to go online to review your estimated benefit. Social Security is one of the most critical pieces of your retirement, so be sure your income record is accurate.

Of course, this list isn't exhaustive. Reviewing your financial wellbeing is an in-depth process, which is why the final step is to set up a review with your advisor. Even if you don't work with a financial planner, at a minimum set aside time on your own, with your spouse, or a trusted friend to plan on improving your financial health (even if you only get to the gym the first few weeks of January).

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

---

Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

Retirement Plan Contribution Limits and Other Adjustments for 2020

Contributed by: Nick Defenthaler, CFP®

Last month, the IRS released updated retirement account contribution and income limit figures for 2020. Like the recent Social Security cost of living adjustment, these adjustments are minor, but certainly worth noting.

Employer Retirement Plans (401k, 403b, 457, and Thrift Savings Plans)

• $19,500 annual contribution limit (up from $19,000 in 2019)

• $6,500 “catch-up” contribution for those over the age of 50 (up from $6,000 in 2019, and the first increase since 2015 for this contribution type)

• Total amount that can be contributed to a defined contribution plan, including all contribution types (employee deferrals, employer matching and profit sharing), increases to $57,000 (up from $56,000 in 2019) or $63,500 for those over the age of 50 ($6,500 catch-up)

o   Consider contributing after-tax funds, if available and cash flow allows for it.

It’s also worth noting that contribution limits to Traditional IRAs and Roth IRAs were left unchanged moving into 2020 ($6,000 under age 50, $7,000 over age 50).

In addition to the increased contribution limits for employer-sponsored retirement plans, the IRS adjustments provide other increases that can help savers in 2020. A couple of highlights include:

Traditional IRA deductibility income limits:

Contributions to a Traditional IRA may or may not be tax deductible, depending on your tax filing status, whether you are covered by a retirement plan through your employer, and your modified adjusted gross income (MAGI). The deductible amount of your Traditional IRA contribution is reduced (“phased out”) as your MAGI approaches the upper limits of the phase-out range. For example:

• Single

  • Covered under an employer-sponsored retirement plan
    2020 phase out: $65,000 - $75,000

• Married filing jointly

  • Spouse contributing to the IRA is covered under an employer-sponsored retirement plan
    2020 phase out: $104,000 - $124,000

  • Spouse contributing is not covered by an employer-sponsored plan, but the other spouse is covered under an employer-sponsored retirement plan
    2020 phase out: $196,000 - $206,000

Roth IRA contribution income limits:

Whether or not you can make the maximum contribution to a Roth IRA depends on your tax filing status and your MAGI. The contribution you are allowed to make is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range.

• Single

  • 2020 phase out: $124,000 - $139,000

• Married filing jointly

  • 2020 phase out: $196,000 - $206,000

If your income is over this limit, and you cannot make a regular annual contribution, you might consider a popular planning tool known as the “back-door” Roth conversion.

As we enter 2020, these updated figures will be on the forefront when updating your financial game plan. However, as always, if you have any questions surrounding these changes, feel free to reach out to our team!

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

---

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to itsx own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Capital Gains Distributions from Mutual Funds

Contributed by: Kali Hassinger, CFP®

Each November and December, investment companies must pay out their capital gains distributions for the year. If you hold these funds within a taxable brokerage account, distributions are taxable events, resulting from the sale of securities throughout the year.

Investors often meet these pay-outs with minimal enthusiasm, however, because there is no immediate economic gain from the distributions. That may seem counterintuitive, given that we refer to these distributions as capital gains! 

When capital gains distributions from mutual funds are paid to investors, that fund’s net asset value is reduced by the amount of the distribution.

This reduction occurs because the fund share price, or net asset value, is calculated by determining the total value of all stocks, bonds, and cash held in the fund’s portfolio, and then dividing the total by the number of outstanding shares. The total value of the portfolio is reduced after a distribution, so the price of the fund drops by the amount of the distribution.

In most situations we recommend that our clients reinvest mutual fund capital gain distributions,  given this is right for the investor's individual financial circumstances. 

This strategy allows you to purchase additional shares of the mutual fund while the price is reduced. Although your account value will not change, because the distribution reduces the fund’s net asset value, you have more shares in the future. By incurring the capital gain, you are also increasing your cost basis in the investment. 

As a counter point, If you rely on the dividend for income it might make more sense to take the mutual fund dividend as cash and not reinvest.

If you own mutual funds in a taxable account and expect the distributions to be large, you should work with your financial planner and tax advisor to weigh the advantages and disadvantages of owning the investment and ultimately incurring the capital gain.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

---

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Raymond James and its advisors do not provide tax advice. You should discuss any tax matters with the appropriate professional. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

Planning for Retirement when Unexpected Events Occur

Contributed by: Sandra Adams, CFP®

This year, more than ever, I have found myself meeting with clients in the prime of their retirement planning years who have experienced some unexpected life events – events that might not normally be part of the retirement planning process.

What am I speaking of? I have had young pre-retirees experience terminal illnesses or become caregivers for spouses or family members, experience the loss of a spouse, experience divorce after a very long marriage but before retirement, and most recently, I have had some lose their long-time jobs with recent layoffs at companies like General Motors.

Losing a job is just one of many unexpected, pre-retirement events that can potentially throw savings goals and plans off course. Some may add that a very negative or extended stock market decline can also hinder retirement and, in most cases, is unexpected. As the old saying goes, you should always “expect the unexpected”.

What can you or should you do now to make sure that you can keep your retirement strategy on track, even if one of these unexpected events comes creeping into your life?

1. Plan Early and Update Often. Although many folks don’t like to think about it, start digging into how much you much income you will need in retirement. If your income projection is significantly less than you are bringing home now, what will change in retirement to make you need less income? Will you have significantly less debt? Will the activities you plan to do in retirement cost significantly less? Be realistic. Take stock on a regular basis of where you are towards your savings goals versus your needs, so that you stay on track and are able to update your strategy if you are not moving toward those goals.

2. Save, Save, and Then Save a Little More. When times are good, and while you can, stretch yourself to meet your savings goals. There is a delicate balance between spending to enjoy your life now and setting aside funds for your retirement. It makes sense to set significant retirement savings goals (especially if you didn’t start as early as you wanted to). And making it a habit to save more – even one percent each year – will help you reach or exceed your retirement savings goals. Other ways to get ahead can include allocating a portion of your annual raise or any bonus you might receive to retirement savings. Aim to save, save, and save a little more to put yourself in a position to absorb the unexpected.

3. Take Control of What You Can Control. While you cannot control what happens to the markets, your job (for the most part), or your health (other than eating right and exercising), there are things you can control. You can control your savings rate: You can be disciplined about saving, save regularly and continue to save more over time. You can save in the right places: You can attempt to max out your savings within your employer retirement savings plans on a tax-deferred basis, you can have a liquid cash emergency reserve fund of at least 3-6 months of expenses “in case” something unexpected comes up, and you can have an after-tax investment account and/or ROTH IRA (if your income tax bracket allows) in case a life event causes an earlier-than-expected retirement or a temporary unemployment situation. You can keep debt under control and plan to have as much debt paid off as possible going into retirement. Reducing fixed costs during retirement allows you to use your cash flow for wants versus needs, and provides you with greater flexibility if an unexpected event occurs.

4. Put Protections and Guardrails in Place. Planners like to call this “risk management”. We are talking about protection for contingencies, so they don’t sink your retirement ship. Having a reserve or emergency savings account is a good first step. But what else might you put in place? It’s important to have the right insurances – disability insurance, life insurance, and long-term care insurance. Continuing education and networking are also important protections – WHAT? Keep up your credentials and training, so that if your current job is phased out, you are prepared to quickly jump back on the horse and become re-employed. Many folks become complacent, and if something unexpected happens with their company or their role, are completely unprepared to seek new employment. Unfortunately, the U.S. Government Accountability Office estimates that older workers wait more than 40 weeks to become re-employed, so being prepared can make all of the difference.

5. Seek Good Advice. This is not a time to DIY. Way too many things can go wrong when it comes to a potential early retirement transition. Seeking the advice of a trained professional can help you find the best course of action. In most cases, assessing your specific situation and making the best possible decisions, especially when it comes to things like pensions, Social Security, and which accounts to tap for retirement income, can make a huge difference.

“The more things change, the more things stay the same” – Jean-Baptiste Alphonse Karr

When we do an initial financial plan for a client, we like to say that something will very likely change when the client walks out the door, and we will need to adjust the plan. Life happens. A financial plan must be fluid and flexible. And so must you, as someone who is planning for retirement. Unexpected events that happen just as you are reaching for the golden doorknob to retirement can be frustrating. But if you have expected the unexpected, planned for the contingencies, and have some spending flexibility built into your plan, you will be on your way to a long and successful retirement.

Sandra Adams, CFP®, CeFT™, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

---

Opinions expressed in the attached article are those of Sandra D. Adams and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax, and if taken prior to age 59 ½, may be subject to a 10% federal tax penalty. Roth 401(k) plans are long-term retirement savings vehicles. Like Traditional IRAs, contributions limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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

Webinar in Review: Year-End Tax and Planning Strategies

Contributed by: Robert Ingram, CFP®

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

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

•       Charitable giving in light of the recent tax law changes

•       Retirement planning tips and updates on 2020 contribution limits

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

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

• 3:00- Medicare Overview

• 6:30- Required Minimum Distributions (RMD)

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

• 22:00- Long Term Capital Gains Rates

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

• 34:00- Roth IRA Conversions

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

• 46:00- Employer Retirement Plans

• 49:00- Health Savings Accounts (HSA)

• 54:00- Gifting Ideas

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

---

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

Reducing Your Medicare Premium Surcharges

Contributed by: Robert Ingram, CFP®

For many clients with incomes above a certain level, Medicare premiums may be higher for Part B and Part D. As a Medicare recipient’s income exceeds specific thresholds, they may pay adjusted amounts in addition to the baseline Part B and/or Part D premiums.

Now, what if you have been paying these Medicare surcharges, but you experience a drop in your income? Can you also get your Medicare surcharge reduced? The answer is, possibly yes.

If you experience a change to your income because of certain life events, you can request that the Social Security Administration (SSA) review your situation and use your more recent income to determine what premium adjustment (if any) should apply. Examples of these life-changing events include:

• Work stoppage or work reduction

• Death of a spouse

• Marriage

• Loss of pension income

• Divorce or Annulment

• Loss of income-producing property

You might be asking yourself, “Why do I have to request this? Aren’t Medicare premiums automatically adjusted according to my income?”. A big reason for making the change request when you experience a qualifying change in income has to do with how and when the SSA measures your income.

Income-Related Monthly Adjustment Amount (IRMAA)

To determine whether your income makes you subject to an Income-Related Monthly Adjustment Amount (IRMAA) to the regular Medicare Part B or Part D premiums for the current year, the SSA looks at the income you reported to the IRS for the previous two years. This means that your Modified Adjusted Gross Income (Adjusted Gross Income with tax-exempt income added back) reported for 2017 determines your Medicare premiums for 2019. 

For individuals paying Part B premiums, for example, the standard premium in 2019 is $135.50 per month. However, the following table illustrates what you would pay in 2019 for Part B depending on your 2017 income.

For a couple who filed a joint return with income above $170,000 and up to $214,000 in 2017, each spouse paying for Medicare Part B may pay an additional $54.10 per month above the standard premium (a total of $189.60 monthly) in 2019. A couple with income that falls between $320,000 and $750,000 (or an individual filing single with income between $160,000 and $500,000) in 2017 could each pay an additional $297.90 above the standard premium, for a total of $433.40 per month in 2019.

If an individual (or couple) experienced a drop in income for 2019, it might normally take until 2021 for the Medicare premiums to reflect any reduction based on the 2019 income. Let’s say the couple who had reported income between $320,000 and $750,000 retires in 2019 and sees their income drop to an expected $165,000. The expected income falling within the $170,000 threshold could mean a difference of $297.90 per month (each!) in Medicare Part B premiums (from $433.40 to $135.50).

If a qualifying life event caused the drop in expected income, then filing a request with the SSA could mean a more immediate change in Medicare premiums, rather than waiting for the savings until 2021.

How do you request the premium surcharge reduction? 

If you think you have experienced a reduction in income due to one or more of the qualifying events, make your request to the Social Security Administration by submitting the Medicare Income-Related Monthly Adjustment Amount –Life-Changing Event form (form SSA-44).

Along with this form, you will also provide supporting documentation for your Modified Adjusted Gross Income and your life-changing event (see form SSA-44 instructions). Examples of supporting documentation may include items such as:

• Federal income tax return

• Signed statements from employers, pay stubs

• Certified documents for transfers of a business

• Marriage certificate

• Certified death certificates

• Letter or statement from pension administrator explaining a reduction/termination

For other disagreements with an IRMAA determination, you have the right to appeal. You can file an appeal online (socialsecurity.gov/disability/appeal) and select “Request Non-Medical Reconsideration”, file a Request for Reconsideration form, or contact your local Social Security office.

If you disagree with an IRMAA determination because your reported Modified Adjusted Gross Income is incorrect, you need to address the correction first with the IRS.

Because these Medicare surcharges are determined each year, you have opportunities to do more proactive income and tax planning leading up to and after Medicare enrollment. Employing different strategies that help control your Adjusted Gross Income could also help control potential Medicare premiums in future years. If you have questions about your particular situation, feel free to reach out to us!

• Want more information about Medicare? Check out The Center’s Medicare FAQ

• Looking for financial strategies and tax tips for year-end? Check out this webinar.

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