Advanced Estate Strategies for Surviving Spouses

Contributed by: Matt Trujillo, CFP®

You will need to consider the disposition of your assets at your death and any tax implications. Statistically speaking, women live longer than men. Wives will likely have the last word about the final disposition of all the assets accumulated during marriage. You'll want to consider whether these concepts and strategies apply to your specific circumstances.

Transfer Taxes

When you transfer your property during your lifetime or at your death, your transfers may be subject to federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. (The top estate and gift tax rate is 40%, and the GST tax rate is 40%.) Your transfers may also be subject to state taxes.

Federal Gift Tax

Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $17,000 (in 2023) per recipient. Married couples can effectively make annual tax-free gifts of up to $34,000 (in 2023) per recipient. You can also make tax-free gifts for qualifying expenses paid directly to educational or medical services providers. And you can also make deductible transfers to your spouse and charity. Individuals can transfer $12,920,000 free of estate, gift, and GST tax during their lives or at death in 2023.  

Federal Estate Tax

Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and charity. Again, up to $12,920,000 (in 2023) is protected from taxation.

Portability

The estate of someone who dies in 2011 or later can elect to transfer any unused applicable exclusion amount to their surviving spouse; this is called "portability". The surviving spouse can use this deceased spousal unused exclusion amount (DSUEA) and their own basic exclusion amount for federal gift and estate tax purposes. For example, if someone died in 2011 and the estate elected to transfer $5,000,000 of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of about $17,920,000 ($12,920,000 basic exclusion amount plus $5,000,000 DSUEA) to shelter transfers from federal gift or estate tax in 2023.

Federal Generation-Skipping Transfer (GST) Tax

The federal GST tax generally applies if you transfer property to someone two or more generations younger than you (for example, a grandchild). The GST tax may apply in addition to any gift or estate tax. Similar to the gift tax provisions above, annual exclusions and exclusions for qualifying educational and medical expenses are available for GST tax. You can protect up to $12,920,000 (in 2023) with the GST tax exemption.

Indexing for Inflation

The annual gift tax exclusion, the gift tax and estate tax basic exclusion amount, and the GST tax exemption are all indexed for inflation and may increase in future years.

Income Tax Basis

Generally, if you give property during your life, your basis (generally, what you paid for the property, with certain up or down adjustments) in the property for federal income tax purposes is carried over to the person who receives the gift. So, if you give your $1 million home (purchased for $50,000) to your brother, your $50,000 basis carries over to your brother — if he sells the house immediately, income tax will be due on the resulting gain.

In contrast, if you leave property to your heirs at death, they get a "stepped-up" (or "stepped-down") basis in the property equal to the property's fair market value at the time of your death. So, if the home you purchased for $50,000 is worth $1 million when you die, your heirs get the property with a basis of $1 million. If they sell the home for $1 million, they pay no federal income tax.

Lifetime Giving

Making gifts is a common estate planning strategy that can minimize transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion, which lets you give up to $17,000 (in 2023) to as many individuals as you want, gift tax-free. As noted above, you can take advantage of several gift tax exclusions and deductions. In addition, when you gift property expected to appreciate, you remove the future appreciation from your taxable estate. In some cases, it may be beneficial to make taxable gifts to remove the gift tax from your taxable estate.

Trusts

There are a number of trusts used in estate planning. Here is a quick look at a few of them.

• Revocable trust: You retain the right to change or revoke a revocable trust. A revocable trust can allow you to try out a trust, provide for management of your property in case of your incapacity, and avoid probate at your death.

• Marital trusts: A marital trust is designed to qualify for the marital deduction. Typically, one spouse gives the other spouse an income interest for life, the right to access principal in certain circumstances, and the right to designate who receives the trust property at their death. In a QTIP variation, the spouse who created the trust can retain the right to control who ultimately receives the trust property when the other spouse dies. A marital trust is included in the spouse's gross estate with the income interest for life.

• Credit shelter bypass trust: The first spouse to die creates a trust sheltered by their applicable exclusion amount. The surviving spouse may be given interests in the trust, but the interests are limited enough that the trust is not included in their gross estate.

• Grantor retained annuity trust (GRAT): You have rights to a fixed stream of annuity payments for a number of years, after which the remainder passes to your beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

• Charitable remainder unitrust (CRUT): You retain a stream of payments for a number of years (or for life), after which the remainder passes to charity. You receive a current charitable deduction for the gift of the remainder interest.

• Charitable lead annuity trust (CLAT): A fixed stream of annuity payments benefits a charity for a number of years, after which the remainder passes to your noncharitable beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.

Life Insurance

Life insurance plays a part in many estate plans. Life insurance may create the estate in a small estate and be the primary financial resource for your surviving family members. Life insurance can also provide liquidity for your estate, for example, by providing the cash to pay final expenses, outstanding debts, and taxes, so that other assets don't have to be liquidated to pay these expenses. Life insurance proceeds can generally be received income tax-free.

Life insurance you own on yourself will generally be included in your gross estate for federal estate tax purposes. However, it is possible to use an irrevocable life insurance trust (ILIT) to keep the life insurance proceeds out of your gross estate.

With an ILIT, you create an irrevocable trust that buys and owns the life insurance policy. You make cash gifts to the trust, which the trust uses to pay the policy premiums. (The trust beneficiaries are offered a limited period to withdraw the cash gifts.) If structured properly, the trust receives the life insurance proceeds when you die, is tax-free, and distributes the funds according to the terms of the trust.

As you can see, this area can get very complicated very quickly, and in many cases, the various approaches have pros and cons. If you are considering employing one of these strategies or want more information on how they work, I encourage you to contact a qualified estate planning attorney for further guidance.

Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

Opinions expressed in the attached article are those of Matt Trujillo, CFP®, and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Q3 2023 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

The third quarter of the year has brought some downside volatility with it. While it can be concerning when opening your statement, it is important to remember that minor pullbacks are very normal throughout the year. August and September are, historically, the toughest months on average for markets, as shown by the chart below. The good news is that the last quarter of the year tends to be one of the strongest on average.

Over the past quarter, investor mood has shifted. The S&P 500 ended the quarter down 2.08%. A diversified portfolio ended the quarter down 2.63% if using a simple blended benchmark of (40% Barcap Aggregate Bond index, 40% S&P 500, and 20% MSCI EAFE International index). Quarters like this make it challenging to remember why you want to continue holding a diversified portfolio. Periods like that of 2000-2008 are a distant memory for most investors (and many have never experienced investing when U.S. markets and technology companies have struggled). If you dissect the returns of the S&P 500 year to date, you can see that most of the returns have come from the media dubbed “Magnificent Seven.” In reality, the remaining 493 companies in the S&P have contributed only about 2% of the positive 13% in year-to-date returns. The chart below shows how just these seven companies are responsible for most of the returns.

Source: Morningstar Direct

Maintaining a balanced approach to investing is important, as most of us are investing over a lifetime. While diversification may not always work over short periods of time, studies show it to be a successful strategy over the long term.

What contributed to volatility this quarter?

Higher intermediate and long-term interest rates have spelled trouble for equity valuations recently. The Federal Reserve (the Fed) did not raise rates in September but signaled that they are likely to raise one more time this year and are unlikely to cut rates in early 2024. This has caused longer-term bond rates to increase drastically over the summer (about 1%). We have continued to maintain our allocation to short-duration bonds, which has helped over that time period.

Higher interest rates contribute to equity volatility because investors view all asset classes through a risk/reward lens when determining where best to deploy money. When interest rates are low, investors are incentivized to reach for yield in equities as they pay an attractive dividend (more than treasury bonds were paying for a long time!). You also have the added upside potential of capital appreciation. When you can get interest above 5% in a money market or CD with extremely low risk, investors are less incentivized to invest money into equities, as most of the return needed to achieve long-term goals can be earned with little to no risk! Rates usually don’t stay elevated like this for very long. On average, the period between the last interest rate increase by the Fed and the first interest rate cut is nine months in historically similar periods. So don’t expect these high rates with no risk to stay around long.

Political brinksmanship is yet again holding the economy hostage to further both sides’ political agendas. The government averted a shutdown with only hours left but kicked the can down the road, so we may hear about this again in November. Like with the debt ceiling, we have been here before. The good news is, generally, shutdowns don’t coincide with recessions. There is a lot of noise and, usually, short-term volatility but not a longer-term impact on markets or the economy. The longest shutdown was 35 days at the end of 2018. While it created some temporary market fluctuation, it did not cause a larger economic issue. At that time, the economy contracted about .2% that quarter but got that back the following quarter because government employees get back pay once things open back up. Moody’s, the final of the big three debt ratings agencies to have the U.S. rated AAA, is questioning their AAA rating on U.S. government debt because of the behavior of the politicians. 

Economic Growth is slowing

While Taylor Swift’s Eras Tour is coming to a close and noticeably adding to the local GDP of the cities she performs in, the rest of the economy might be better described by her song “Death By A Thousand Cuts.”

The consumer is out of extra money (one can only buy so many $90 concert t-shirts). The chart below shows how families had stockpiled excess earnings and government transfer payments from the COVID shutdown but have spent this excess savings over the past two years.

The UAW strike will continue to impact numbers like the above chart. As the strike expands, so does the risk of increased shutdowns and layoffs spread throughout the economy. It remains to be seen how long the strike will continue and, thus, how much of a negative impact on GDP it will have. While this strike will have economic consequences, it is only one industry. While there could be spillover if it goes on long enough (for example, people may go out to eat less if they are on strike and not earning their full wages), the UAW strike shouldn’t single-handedly be the cause of a recession.

Home affordability will continue to be hurt by high-interest rates.

Student loan payments restart in October, pulling more money out of the consumer’s pocket.   

Jobs are strong, but job openings are pulling back.

These items, or something yet unknown, could be the tipping point for the economy to turn over into recession in early 2024. Most don’t realize we have already been in an earnings recession this year. This is classified as two or more quarters of contraction in earnings from the prior year. S&P 500 companies have experienced this as a whole this year. Equity markets are certainly spooked about this and are reacting accordingly now, even as the Fed tries to engineer a “soft landing.”

What is a soft landing?

In short, very rare. Ideally, the Fed will stifle GDP growth enough with higher rates to bring down inflation but not stifle so much that growth turns negative. Rather, it just slows down, avoiding a recession. They are counting on the strength of the labor market to remain, keeping the economy out of recession. Only time will tell if the Fed will need to keep rates higher for longer to put the inflation genie back in the bottle. They have come a long way in fighting inflation, as it was just a year ago that we were talking about 9% inflation, and now we are below 4%. The easy sources of inflation have been targeted and curbed (think supply chain shortages), so now it is time to let high interest rates work their magic throughout the economy.

Politics

The Speaker of the House, Kevin McCarthy, was ousted in a 216-210 vote, with 8 Republicans joining the unified Democratic vote. Patrick McHenry is serving as the temporary speaker, who is well respected in the house and should provide good leadership for now. Since we are well into the congressional term, proceeding without a formal leader shouldn’t be too disruptive to normal functioning as committees have already been formed and a rules process adopted. Electing a new speaker will, however, take valuable time away from working on funding the government past the November 17th deadline.

The media coverage is starting to pick up for the election in 2024. Undoubtedly, headlines will only pick up later this year and throughout next year. While there is no shortage of negative headlines during an election year, they tend to be positive for markets. Markets don’t care which party controls the white house. I think many view Republicans as being more pro-business and assume that returns will be far better than when a Democrat holds the office, but that isn’t true. The S&P 500 has gone up regardless of who holds the office most of the time. This is because markets focus far more on what is going on with the economy than on politics. American companies find ways to be innovative and successful regardless of who is leading the country.    

While all of this noise can create market volatility, keeping your long-term goals in mind is more important than ever. We do not generate future forecasts; rather, we trust in the journey of financial planning and a disciplined investment strategy to get us through the more challenging times and stay the course. We appreciate the continued trust you place in us and look forward to serving your needs in the future.

Please don’t hesitate to contact us for any questions or conversations!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Any opinions are those of the Angela Palacios, CFP®, AIF® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. 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. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Elements of a Roth Conversion

Contributed by: Kelsey Arvai, CFP®, MBA

We’ve just entered Autumn, and the new year is around the corner, making this the ideal time to consider a Roth Individual retirement account (IRA) conversion to save on future taxes. A Roth Conversion is a financial maneuver that allows you to convert funds from a Traditional Individual Retirement Account (IRA) or pre-tax funds into a Roth IRA or future tax-free funds. There are several important considerations and potential tax implications.

Stated another way, a Roth Conversion involves taking some or all the funds from your Traditional IRA and moving them into a Roth IRA.

Tax Impact: Before doing a Roth Conversion, it’s crucial to understand the tax implications. The amount you convert will be added to your taxable income for the year the conversion occurs. In other words, you’ll need to pay income taxes on the converted amount in the year of the conversion. It’s important to consider what tax bracket you are in. You could pay a large upfront federal and state tax bill depending on the conversion size.

Additionally, when your adjusted gross income is boosted, you might pay higher Medicare Part B and Part D premiums or lose eligibility for other tax breaks, depending on your situation.

Future Tax Benefits: The primary benefit of a Roth Conversion is that once the money is in the Roth IRA, future qualified withdrawals (including earnings) are tax-free. Tax-free withdrawals are especially advantageous if you expect your tax rate in retirement to be higher. Typically, a partial or full Roth Conversion is more attractive in lower-earning years because there could be a smaller upfront tax liability. It may be beneficial for you to lock in lower rates now before they sunset in 2026 (the highest federal income tax bracket rate may move from 37% to 39.6% unless there are changes from Congress).

Timing: It’s important to consider your financial situation and whether you have the cash on hand to pay the taxes. If you choose to pay taxes from the converted fund, you may erode the long-term benefits of the conversion. A longer investing timeline is preferred because there’s more time for tax-free growth to offset the upfront cost of the conversion. Remember the five-year rule, which requires investors to wait five years before withdrawing converted balances without incurring a 10% penalty, with the timeline starting on January 1st of the year of the conversion. Without proper planning, you could deplete your savings or trigger an IRS penalty, so working with your Financial Advisor and Tax Advisor is essential. Contact us if you have questions or want to check if this strategy is a good fit!

Kelsey Arvai, CFP®, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

Opinions expressed in the attached article are those of Kelsey Arvai, MBA, CFP®, and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Another Way to Make Retirement Purposeful for You

Contributed by: Sandra Adams, CFP®

One of our Center values is Education and Personal Growth. Continuously learning and growing in our personal and professional lives is core to what we are and what we do. It is also something we incorporate into conversations with clients as they think about what might make their retirements meaningful to them. 

Beyond knowing that clients are financially prepared for their retirement, we want to help make the next stage of their lives as purposeful and satisfying as possible. Part of that is helping clients explore hobbies, volunteer activities, travel, and learning that will fulfill them and make their lives full.  

Locally, there are several universities that can help fulfill the need of those looking to continue to learn and grow personally in retirement. We have three universities in Michigan that have been named Age-Friendly Universities – Michigan State University, Eastern Michigan University, and Wayne State University. In particular, Wayne State University offers a 75% tuition reduction to students 60 or older and sponsors the Society of Active Retirees, a 1,200-member lifelong learning community. Its volunteer force includes 300 persons 50 and up, and more than half of its faculty and 40% of staff are 50 or older. The WSU Institute of Gerontology also has an extensive research portfolio on aging, having received $54 million in funding for aging issues since 2015.

If you are interested in learning more about Wayne State University’s Age-Friendly University benefits, click here. And if you are interested in learning more about the Society for Active Retirees, click here. If you are interested in having a conversation about exploring other options for developing your own purposeful retirement, please reach out to one of our planners at The Center to start that conversation today.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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, CFP® and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

Can I Avoid IRMAA Surcharges on Medicare Part B and Part D?

Contributed by: Nick Defenthaler, CFP®, RICP®

In 2023, Medicare Part B premiums for 95% of Americans will be $164.90/mo. However, the other 5% will have to face what’s known as the Income Related Monthly Adjustment Amount or IRMAA and pay higher Part B and D premiums. Each year, the chart below is updated, and in most cases, premiums increase gradually with inflation, as do the income parameters associated with each premium tier.

Source: Medicare.gov

Receiving communication that you’re subject to IRMAA and facing higher Medicare premiums is never a pleasant notification. With proper planning, however, there are strategies to potentially avoid IRMAA both now and in the future.

But first, let’s do a quick refresher on the basics

Medicare bases your premium on your latest tax return filed with the IRS. For example, when your 2023 Part B and D premiums were determined (likely occurred in October/November 2022), Medicare used your 2021 tax return to track income. If you are married and your Modified Adjusted Gross Income (MAGI) was over $194,000 in 2021 ($97,000 for single filers), you’re paying more for Part B and D premiums aka subject to IRMAA. Unlike how our tax brackets function, Medicare income thresholds are a true cliff. You could be $1 over the $194,000 threshold and that’s all it takes to increase your premiums for the year! As mentioned previously, your Part B and D premiums are based off of your Modified Adjusted Gross Income or MAGI. The calculation for MAGI is slightly different and unique from the typical Adjusted Gross Income (AGI) calculation as MAGI includes certain income “add back” items such as tax-free municipal bond interest. Simply put, while muni bond interest might function as tax-free income on your return, it does get factored into the equation when determining whether or not you’re subject to IRMAA.

Navigating IRMAA with Roth IRA conversion and portfolio income 

Given our historically low tax environment, Roth IRA conversions are as popular as ever. Current tax rates are set to expire in 2026, but this could occur sooner, depending on our political landscape. When a Roth conversion occurs, a client moves money from their Traditional IRA to a Roth IRA for future tax-free growth. When the funds are converted to the Roth, a taxable event occurs, and the funds converted are considered taxable in the year the conversion takes place. Because Roth IRA conversions add to your income for the year, it’s common for the conversion to be the root cause of an IRMAA if proper planning does not occur. What makes this even trickier is the two-year lookback period. So, for clients considering Roth conversions, the magic age to begin being cognizant of the Medicare income thresholds is not at age 65 when Medicare begins, but rather age 63 because it’s that year’s tax return that will ultimately determine your Medicare premiums at age 65! 

Now that there are no “do-overs” with Roth conversions (Roth conversion re-characterizations went away in 2018), our preference in most cases is to do Roth conversions in November or December for clients who are age 63 and older. By that time, we will have a clear picture of total income for the year. I can’t tell you how often we’ve seen situations where clients confidently believe their income will be a certain amount but ends up being much higher due to an unexpected income event.

Another way to navigate IRMAA is by being cognizant of income from after-tax investment/brokerage accounts. Things like capital gains, dividends, interest, etc., all factor into the MAGI calculation previously mentioned. Being intentional with the asset location of accounts can potentially help save thousands in Medicare premiums.

Ways to reduce income to potentially lower part B and D premiums

Qualified Charitable Distribution (QCD) 

• If you’re over 70 ½ and subject to Required Minimum Distributions (RMD), gifting funds from your IRA directly to a charity prevents income from hitting your tax return. This reduction in income could help shield you from IRMAA. 

Contributing to a tax-deductible retirement account such as a 401k, 403b, IRA, SEP-IRA, etc.

• Depositing funds into one of these retirement accounts reduces MAGI and could help prevent IRMAA.

Deferring income into another year 

• Whether it means drawing income from an after-tax investment account for cash flow needs or holding off on selling a stock that would create a capital gain towards year-end, being strategic with the timing of income generation could prove to be wise when navigating IRMAA. 

Accelerating business expenses to reduce income 

• Small business owners who could be facing higher Medicare premiums might consider accelerating expenses in certain years, which in turn drives taxable income lower if they’re flirting with IRMAA. 

Putting IRMAA into perspective 

Higher Medicare premiums are essentially a form of additional tax, which can help us put things into perspective. For example, if a couple decides to do aggressive Roth IRA conversions to maximize the 22% tax bracket and MAGI ends up being $200,000, their federal tax bill will be approximately $30,000. This translates into an effective/average tax rate of 15% ($30,000 / $200,000). However, if you factor in the IRMAA, it will end up being about $1,700 total for the couple between the higher Part B and D premiums. This additional "tax" ends up only pushing the effective tax rate to 15.85% - less than a 1% increase! I highlight this not to trivialize a $1,700 additional cost for the year, as this is real money we're talking about here. That said, I do feel it's appropriate to zoom out a bit and maintain perspective on the big picture. If we forgo savvy planning opportunities to save a bit on Medicare premiums, we could end up costing ourselves much more down the line. However, not taking IRMAA into consideration is also a miss in our opinion. Like anything in investment and financial planning, a balanced approach is prudent when navigating IRMAA – there is never a "one size fits all" solution. 

Fighting back on IRMAA

If you've received notification that your Medicare Part B and D premiums are increasing due to IRMAA, there could be ways to reverse the decision. The most common situation is when a recent retiree starts Medicare and, in the latest tax return on file with the IRS, shows a much higher income level. Retirement is one example of what Medicare would consider a "life-changing event," in which case form SSA-44 can be completed, submitted with supporting documentation, and could lead to lower premiums. Other "life-changing events" would include:

• Marriage

• Divorce

• Death of a spouse 

• Work stoppage

• Work reduction

• Loss of income producing property 

• Loss of pension income 

• Employer settlement payment 

Medicare would not consider higher income in one given year due to a Roth IRA conversion or realizing a large capital gain a life-changing event that would warrant a reduction in premium. This highlights the importance of planning accordingly with these items.

If you disagree with Medicare's decision in determining your premiums, you have the ability to have a right to appeal by filing a "request for reconsideration" using form SSA-561-U2.

Conclusion

As you can see, the topic of IRMAA is enough to make anyone's head spin. To learn more, visit the Social Security Administration's website dedicated to this topic. Prudent planning around your Medicare premiums is just one example of much of the work we do for clients that extends well beyond managing investments that we believe add real value over time. 

If you or someone you care about is struggling with how to put all of these pieces together to achieve a favorable outcome, we are here to help. Our team of CERTIFIED FINANCIAL PLANNER™ professionals offers a complimentary "second opinion meeting" to address your most pressing financial questions and concerns. In many cases, by the end of this 30-45 minute discussion, it will make sense to continue the conversation of possibly working together. Other times, it will not, but our team can assure you that you will hang up the phone walking away with questions answered and a plan moving forward. We look forward to the conversation!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

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

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Planning for Medicare

Contributed by: Center for Financial Planning, Inc.®

Here it is again…time for changing leaves, cooler weather, and open enrollment for Medicare. Medicare coverage is an important decision, and we suggest reviewing your coverages on an annual basis.

Sign up today for our upcoming seminar on Monday, October 2nd hosted by Sandy Adams, CFP® of Center for Financial Planning, Inc., and presented by Cynthia Brown of Powers Financial Benefits, LLC, an independent agent, that provides details on Medicare, open enrollment, and what is important for 2023. And feel free to check out the replay from last year’s presentation below!

Raymond James is not affiliated with and does not endorse Cynthia Brown or Powers Financial Benefits, LLC. Center for Financial Planning, Inc.® is an Independent Registered Investment Advisor. Investment advisory services are offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC.

Secure Act 2.0 Roth Catch-up Change Delayed

Contributed by: Kali Hassinger, CFP®, CSRIC™

In late 2022, Secure Act 2.0 was passed by Congress with the intention of expanding access to retirement savings. The package requires retirement plans to implement many changes and updates based on the new rules. Of the nearly 100 provisions within Secure Act 2.0, only a few went into effect in 2023, and many changes were scheduled to become effective in 2024.

One of these provisions would require future retirement plan catch-up contributions (those ages 50 and over) to be categorized as Roth for participants who earned more than $145,000 in the prior year. Although more employer-sponsored retirement plans have included access to Roth savings over the years, not all plans offer that option to participants. With the new rule, they would either need to offer Roth savings to all employees or remove the option to make catch-up savings contributions for future years.

As the fall open enrollment period for 2024 is quickly approaching, many plan administrators and participants were waiting for guidance on implementing and monitoring this change for 2024. In late August, the IRS announced a two-year delay or “administrative transition period,” meaning that plans don’t need to implement this change until 2026.  

For those retirement plan participants who are 50 and older and contributing more than the base savings amount ($22,500 for 2023), pre-tax catch-up contributions can continue for 2024 and 2025 as they have in the past. For retirement plans that aren’t already offering a Roth savings option, they won’t need to make any changes yet!  

We are monitoring this and future changes as information and guidance are released on Secure Act 2.0 provisions. As always, we are here to help if you have questions on how this could affect you and your financial plan! 

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and 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 letter 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 Kali Hassinger, CFP®, CSRIC™, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statement, 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, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. 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. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

The Dangers of Ignoring Financial Planning When You're in a Couple

Contributed by: Sandra Adams, CFP®

In an ideal world, a committed couple would be on the same page about most of the important things in life, especially about their financial future. Not only would they be on the same page, but they would equally participate in the planning process — all the way through the process. So, what happens when one partner is not engaged in the planning process — whether it be lack of interest in the process at all, or lack of engagement and/or follow-through once a plan has been completed? And what can be done, if anything, to make sure the couple and their plan are successful?

If both partners have been involved in going through at least an initial planning process, this is a good first step. This means that the couple has worked through the steps of establishing common goals, gathered their common financial information, and worked with a financial planner to review the analysis regarding how the assets and income they have may work to fulfill their specific goals, both now and in the future. These couples likely worked with the planner to establish at least an initial set of action steps to start working towards meeting their short- and long-term goals in the key areas of their financial plan.

Why One Partner May Be Unengaged:

Here is where there is usually a disconnect — where the less engaged spouse likely becomes unengaged. Once the initial financial plan is complete and the action steps are in place, the less engaged spouse may check out for various reasons:

• They may decide they don’t see the full value of the financial plan;

• They may get too busy with “life” and not make the financial plan a priority; or

• They may not see themselves in the “financial” lead role in the relationship and be simply delegating the action items to their more financially savvy spouse (whether or not this makes sense remains to be seen.)

If one of the partners is not involved in the planning process at all, this can be an even harder situation to address. When one partner is not engaged in the process at all, it is hard to discuss, set, and include common goals in the planning process. If one partner goes ahead with a plan, it can be one-sided or incomplete if done without the unengaged partner. The plan will lack input from one partner and may, in fact, be missing important information about assets, employment benefits, and/or future income resources if the participating spouse isn’t privy to all of the couple’s collective financial resources. Not having a financial plan that both partners have participated in putting together will be one that is lacking in some way — whether it be a lack of information or resources or a lack of input or agreement on current or future goals.

Why You Should Move Ahead Anyway:

Why might someone decide to move ahead with the financial planning process even if their partner is hesitant to participate in the process? In my experience, there are clients who have wanted to do planning for years and haven’t been able to get their partner on board. They may finally decide that they need to move forward, with or without their partner, for fear that they will end up without a plan and completely unprepared for the future. In addition, they may have had an experience as a caregiver for an older adult parent or watched someone they are close to go through the process of becoming a widow or widower and decide they want to be prepared if either of these major life transitions ever happens to them. For these clients, the personal experience of seeing others go through major life transitions without proper planning may compel them to want to plan more urgently than their partner.

What are some actions that a couple can take if one is more engaged than the other in the financial planning process so that their plan can be successful?

1. Come to a base agreement that a financial plan is needed. If you can come to a common agreement that a financial plan is needed, even if one of you is more enthusiastic about it than the other, that can be okay. If you can come to an agreement about who will take charge of scheduling a meeting with an advisor, collecting and organizing the information, scheduling appointments, etc., that is the first step. It is best if both partners will agree to participate in the full process, even if one takes the lead. This is the best way to ensure that you agree to and set common goals.

2. Set a regular “date” with your partner to discuss and review your finances. This blocks out time on your common schedules to concentrate on just your plan when you are working on preparing for the initial financial plan, and then can be helpful when you are working on the action items following your plan. This helps with the issues related to partners who get busy with life and can’t seem to make finances a priority.

3. Find a financial advisor that you feel you can trust and can delegate to. For those who have trouble with follow-through, or again, for those who have trouble carving out time, having a trusted professional to whom they can delegate to make sure that the plan gets carried out fully can be valuable and worth the cost.

As with many things in a relationship, partners aren’t always 100% on the same page or always rowing in the same direction all of the time. Finances are one of the most important issues a couple faces, and being in lock-step as much as possible is important. If a couple can find a way to work together in some way to complete and follow through on the financial planning process, even if one of the two takes the lead, but both participate, the process can still be a successful one.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James.

Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

When to Use Your Emergency Fund

Contributed by: Sandra Adams, CFP®

Who actually has an emergency fund? “For those age 50 and up, it’s typically those who work with a financial advisor”, says Sandy Adams, CFP®. “The general population is bad at this. It’s particularly important to have an emergency fund as you get closer to retirement”, she says.

Read the full AARP article HERE!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. 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 Sandy Adams, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Raymond James is not affiliated with AARP.

The History of Labor Day

Contributed by: Kelsey Arvai, CFP®, MBA

We celebrate Labor Day to recognize the contribution and achievements of American workers. It unofficially marks the end of summer and is traditionally observed on the first Monday in September.

The history of Labor Day is somewhat grim. At the height of the Industrial Revolution, in the late 1800s, the average American worked 12-hour days and seven days a week to scrape together a decent living. To emphasize the dire working and living conditions, children as young as five or six worked in mills, factories, and mines across the country.

Most workers faced unsafe working conditions with insufficient access to fresh air, sanitary facilities, and break time. Because of this, labor unions first appeared in the late 18th century. Workers began organizing strikes and rallies to protest poor conditions and compel employers to renegotiate hours and pay. On September 5, 1882, 10,000 workers took unpaid time off to march from City Hall to Union Square in New York City, holding the first Labor Day parade in US history.

The “workingmen’s holiday” caught on in other industrial cities, and many states passed legislation recognizing it. Congress legalized the holiday 12 years after workers in Chicago went on strike to protest wage cuts and the firing of union representatives.

We can thank our labor leaders for the fact that we get to enjoy weekends off, a 40-hour work week, sick days, and paid time off. Thousands of Americans have marched, protested, and participated in strikes to create fairer, more equitable labor laws and workplaces – and still do today. So kick back, relax, and enjoy your long weekend!

Kelsey Arvai, CFP®, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Kelsey Arvai, MBA, CFP® and not necessarily those of Raymond James.