New Year’s Resolutions should include money goals. To make and achieve those financial goals could be more difficult this year with the COVID-19 pandemic still in full force. Just like many people make resolutions to lose weight in the new year, financial goals are just as important. To lose weight, we need to exercise more, eat less, and sleep better; for money health, we need to save more, spend less, and make smarter decisions.
1. Spend Less
Believe it or not, that has been a benefit of COVID-19 quarantines. Less travel, eating out, and money spent at the dry cleaners are just a few ways Americans have spent less money during the pandemic.
2. Save More
Do not just say ‘I want to save more in 2021.’ How will you save more? How much will you save? What will you do with the extra money you save? Saving for children’s college funds, putting away more in retirement savings, or paying off debt are all examples of goals for 2021.
3. Plan ahead
Did you know there are 53 Fridays in 2021? If you get paid bi-weekly, you could get 27 paychecks this year. Even if you aren’t getting that extra paycheck, now is the time to plan ahead. One way is to auto-draft. Set up a system to start the new year that will automate some of your paycheck into retirement, an emergency fund, or a college section 529 savings account. This will eliminate months that you forget to make the money transfer yourself.
As you achieve your 2021 financial goals, celebrate them! You deserve it and motivation to keep at it is key. If you have any questions about your money goals for 2021, don’t hesitate to reach out to Brien Smith at Brien@traditionswealthadvisors.com or 979-694-9100.
Source: Fidelity Viewpoints. 15 December 2020. https://www.fidelity.com/learning-center/personal-finance/2021-money-resolutions?ccsource=email_weekly
1. Excellent Opportunity for the Charitably Inclined
Deadline: December 31, 2020
For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity. Unlike other years where charitable gifts are limited, charitable donations made in 2020 to qualifying organizations are 100% deductible.
2. Pay Home Business Expenses Now to Lower Taxable Income
Deadline: December 31, 2020
“If you have a home business, now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar flips to 2021, you will lower your overall 2020 taxable income.” - Brooke Salvini, CPA/PFS member of the AICPA PFP Executive Committee
3. Self-Employed? Establish a Retirement Plan & Get Tax Benefits Today
Deadline: December 31, 2020 setup for certain plans, return due date for others
Self-employed? It is never too late or too soon to set up a retirement plan. Some plans must be established before December 31, but you can postpone funding until 2021 and still claim the tax benefit on your 2020 tax return.
4. Make Up Estimated Tax Shortfall with Increased Withholding
Deadline: Final 2020 company payroll submission by human resources (varies by company)
“If you find that your estimated tax payments throughout the year are coming up short of what you expect to pay for 2020 taxes, you are in danger of incurring penalties. Reach out to your human resources department to request an increase to the withholdings from your remaining 2020 paychecks to make up the difference ASAP. After you catch up, you can complete and submit a new Form W-4 to make your withholding more accurate so it is even throughout the year.” - Paula McMillan, CPA/PFS member of the AICPA PFS Credential Committee
5. Pandemic Loan Opportunity Coming to an End
Deadline: December 31, 2020
Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free from your 401(k)/IRA over three years. This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. But for small business owners affected by COVID costs/loss of revenue, it could be a valuable option.
6. Maximize Health Savings Account (HSA) Contributions
Deadline: April 15, 2021
If you have an HSA qualified health insurance plan, one way to lower your taxes is to contribute the maximum allowed in your HSA. HSA contributions can be deducted through payroll, but you can also make contributions directly to ensure the maximum is made. In addition to providing a tax deduction, HSA dollars carry over indefinitely and are yours even if you switch jobs or retire.
7. Leverage Your Losses to Protect Your Income from Taxes
Deadline: December 31, 2020
Now is a great time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is important to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year. Remember to coordinate your capital gain/loss harvesting strategy with your tax planning.
8. Don’t Miss Employer 401(k) Match Opportunities
Deadline: Deferred from last paycheck or December 31, 2020
Everyone with an employer that offers a 401(k) match should at least contribute the amount required to get the maximum match. If you aren't contributing enough to receive the full employer match, you should check on whether there may be a ‘catch up’ opportunity before year-end.
9. Maximize Roth Contribution Opportunities
Deadline: April 15, 2021
It might make sense to increase your contributions in order to take full advantage of this year’s opportunity to put away retirement savings dollars into your Roth IRA. You pay taxes at the time of contribution to a Roth IRA and then the Roth contribution remains in the account growing tax-free.
10. Review Beneficiary Designations
Deadline: Make it routine.
It is a good habit to annual review your beneficiary designations in case there are any changes year after year.
11. Gift Today to Reduce Future Estate Tax
Deadline: December 31, 2020
Don’t forget that you can give up to $15,000 to as many beneficences as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount.
12. Revisit Risk Tolerance and Portfolio Diversification
Deadline: Make it routine.
As the impact of COVID-19 continues to play out across the country, investors should weigh their risk tolerance and ensure they have ample cash on hand. Further, a tax-efficient financial plan that includes a diversified portfolio can give confidence that long-term financial goals will remain within reach through this period of extreme uncertainty.
Please contact Brien Smith, Brien@traditionswealthadvisors.com or 979-694-9100 for questions on any of the above financial planning tips.
Source: Wealthmanagement.com staff. 20 November 2020. https://www.wealthmanagement.com/retirement-planning/fourteen-financial-planning-tips-act-year-end/gallery?slide=2
Meet our newest Aggie intern, Sarah Mahoney. Sarah is class of 2021 and will graduate with a degree in Applied Mathematical Sciences-Actuarial Science and minors in Economics and Statistics. She grew up in College Station and has Aggie family members. Sarah never considered attending college anywhere else! Sarah would like her future career to focus on quantitative research in the financial sector.
Sarah is looking forward to her annual Christmas cookie exchange this holiday season. It’s always a fun surprise to see what everyone has made. Her favorite Christmas carol is Sleigh Ride and her favorite Christmas movie is How the Grinch Stole Christmas.
We are excited to welcome Sarah Mahoney to the TWA team! She brings a wealth of knowledge, hard work, and experience that will benefit the clients and employees at TWA.
Philanthropy and giving is on most of our minds as we wrap up the pandemic year of 2020. Nonprofits need help now just to keep their doors open. New tax laws and strategies can help you maximize tax breaks for yourself and have benefits for the charity. Here's what you need to know:
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, created several incentives for people to help charities right away, including a charitable deduction of up to $300 in 2020, even if you don't itemize. Otherwise, you generally need to itemize to take the charitable deduction. The CARES Act also helps people who are in a financial position to make very large gifts. In 2020, you can deduct cash gifts of up to 100% of your adjusted gross income, rather than the usual 60% limit. To qualify for this higher limit, the gifts must go directly to the charities, rather than to a donor-advised fund or private foundation. This can help wealthy people reduce their taxable income significantly in 2020, and it may also help retirees who have money to give but bump up against the income limits for the deduction.
Bunch Contributions and Donor-Advised Funds
Rather than making a steady stream of charitable contributions from year to year, it may be better to use a bunching strategy – give more and itemize in one year, and claim the standard deduction in other years. Even though this can help you tax-wise, you might not want to give all of the money to the charities at one time and then neglect them over the next few years. But bunching can work well if you have a donor-advised fund. These funds are offered by brokerage firms, banks and community foundations, and you can take the charitable deduction in the year you give the money to the donor-advised fund, but then you have an unlimited amount of time to decide which charities to support. Another benefit of the donor-advised fund is simplicity – you get one receipt for your tax records when you make the contribution and don't have to wait for a variety of paperwork from each of the charities.
Give Appreciated Stock
Many people just write a check to the charity, but you may get a larger tax benefit if you give appreciated stock. If you owned the stock for more than a year, you can deduct the value of the stock on the date you give it to the charity if you itemize. And even if you don't itemize, you can avoid having to pay long-term capital gains taxes on your profits, which could have cost up to 20% if you sold the stock first. With so much stock market volatility this year, you may want to donate the stock when it reaches a target price, rather than giving at a certain time of year.
Tax-free IRA Transfer
People who are age 70½ and older can give up to $100,000 per year tax-free from their IRA to charity, a procedure called a qualified charitable distribution or QCD. The gift counts as their required minimum distribution but isn't included in their adjusted gross income.
Research Your Charities
Scam artists have been out in full force to take advantage of the coronavirus pandemic. It's even more important now to check out charities before you give money, especially if they contact you first. You can look up charities at sites such as Charity Navigator and the Better Business Bureau's Wise Giving Alliance.
With so many options for giving, be sure to check with your financial advisor, Brien Smith, at Brien@traditionswealthadvisors.com or 979-694-9100, before finalizing your gift.
Source: Lankford, Kimberly. 21 August 2020. US News. https://money.usnews.com/money/personal-finance/taxes/articles/new-rules-for-charitable-giving
One of the greatest joys this holiday season can be gifting to loved ones or charities. Before gifting, there are some important things to consider to get the most out of your gift. Consider these questions before finalizing your gift:
How does gifting fit into my overall financial picture and financial health?
Does it make sense to give up this money?
Could it cause financial struggles or issues in the future?
What can you give?
According to the IRS Publication 526 Charitable Contributions, each person can give $15,000 to an individual. Which means a married couple could give $30,000 to each of their children or grandchildren. If you give a greater amount than the allotted annual giving, you will need to file a gift tax return. Click on the link above for more details and always check with a tax professional first.
Capital Gains Tax of the Gift Receiver
If you give cash, generally there are no income tax consequences for the recipient, though there could be gift and estate tax implications. If you give appreciated securities, the capital gains taxes can be significant. One example, say you give $15,000 cash to a grandchild. They get to keep the entire $15,000 and can choose how to use it. However, if your gift is $15,000 of a stock and the recipient sells the stock with a gain, after at least 1 year it becomes a taxable event. After the sale, the grandchild would owe a capital gains tax and possibly state taxes.
Trusts & Custodial Accounts
A trust is a legal document that can help expand your options when it comes to managing your assets—whether you’re trying to shield your wealth from taxes or pass it on to your children. Trusts are increasingly used by families from a range of economic backgrounds, not just the wealthy. Another positive aspect to a trust is that if set up correctly it can be protected from lawsuits, divorces, creditor claims, etc. Another option is a custodial account which allows you to make gifts to an account invested in the child’s name, and the assets in the account can be used for any expense for the benefit of the children.
There are positives and negatives to trust and custodial accounts. Your financial advisor can help you decide which is the most appropriate for your situation.
Give the Gift of Education
A 529 savings account can be a great gift for a grandchild. A big plus with this type of account is that you and your spouse can front-load 5 years worth of your annual exclusion gifts. Together, you could give 5 times the combined total of $30,000 for 2019, or $150,000, to each of your children or grandchildren. In addition, the 2017 tax cuts expanded 529 plans beyond college to now include the ability to fund up to $10,000 in K–12 tuition per beneficiary per year. Definitely consider giving the gift of education to a loved one.
A donor-advised fund (DAF) is a program of a public charity that allows donors to make contributions to the charity, become eligible to take an immediate tax deduction, and then make recommendations on distributing the funds to qualified charitable organizations. By making a large donation to the donor advised fund, you can claim a tax deduction in the year of the gift. However, the money does not need to be granted to a charity in the year you make the contribution. You can let the money grow and you can decide later how the money will be distributed.
Contact Brien Smith, Brien@traditionswealthadvisors.com or 979-694-9100 to help you get started building a holistic financial plan to reach your goals—which may also include strategies to make financial gifts to people and organizations that you care most about.
Fidelity Viewpoints. 3 December 2020. https://www.fidelity.com/learning-center/personal-finance/charitable-giving/giving-money
1) Open a no-penalty CD: Interest rates are falling, a fixed-rate no-penalty CD can be a great way to lock in rates. Talk to your bank, but usually your money need to stay in place for seven days. Once you pass that hands-off period, no-penalty CDs don’t charge a withdraw penalty for taking out your money before the CD term expires.
2) Plan for the holidays: Thanksgiving, Hanukkah, Christmas, and everything in between is right around the corner. Who is hosting? Who is attending, and what are they bringing? It is not too early to start planning. Keep in mind the COVID pandemic is still lurking and depending on where you live, cases are rising each day. Stay safe and consider a smaller or outdoor holiday gathering.
3) Maximize your retirement contributions: Whether it’s your 401(k) through your employer or an IRA, now is the time of year to think about topping off your retirement contributions. The 2020 limits for 401(k)s are $19,500 with an additional $6,500 allowed for those 50 and older. For Traditional and Roth IRAs, this year’s limits are $6,000, plus an additional $1,000 for those 50 and older. If you have some extra funds and can afford to put some money here, consider doing so. Your future self will probably thank you.
4) FSAs: use it or lose it: If you have a Flexible Spending Account (FSA) as part of your healthcare plan, you probably know that these are “use it or lose it” accounts. The maximum individuals could contribute for 2020 is $2,750. Start by figuring out what you contributed and what you’ve already used. Now, what’s leftover? Whatever it is, this is the time of year to use it up. Book that dreaded dentist appointment, see the dermatologist because you can, or stock up on some common over-the-counter meds. Double check with your insurer to see exactly which expenses are covered.
5) Donate to charity: Because you’re a good person and it’s always a good time to give back, right? Plus, if you do donate to charity it could also mean you get a tax deduction. A tax deduction effectively lowers your taxable income.
Questions? Don't hesitate to reach out to TWA's CEO, Brien Smith, at Brien@TraditionsWealthAdvisors.com or 979-694-9100.
Source: Goldman Sachs. 19 October 2020. https://www.marcus.com/content/marcus/us/en/resources/personal-finance/five-things-to-do-with-your-finances-this-fall
An e-mail to clients from TWA's CEO, Brien Smith, on November 6, 2020.
For the nation, 2020 has been one of the most difficult years in memory. We are grappling with COVID-19 and its fallout, economic upheaval, racial tensions, wildfires, hurricanes, a presidential election and a polarized electorate.
Despite this year’s difficulties, a strong economic recovery, record low interest rates, and an aggressive stance by the Federal Reserve have helped the major market indexes rebound from March’s steep sell-off.
But where do we go from here? What’s in store over the next four years? If we view the future through the lens of public or tax policy, visibility is extremely limited. Who will reside in the White House has yet to be determined.
If we narrow our scope and review the landscape through the lens of the investor and the market, I believe we can look to history for guidance and at least obtain some degree of clarity.
First, let me say this. No one has a crystal ball. Any stock market forecast that you may hear from analysts is simply an educated guess. They may get lucky for the right or the wrong reason. Or analysts might miss the mark by a wide margin. As we already know, even the smartest folks in the room do not know the future. Besides, we already know that consistently timing the market is nearly impossible.
A disputed election could create short-term uncertainty. Yet, emotional decisions made outside the boundaries of a well-crafted financial plan have rarely been profitable over a longer period.
Longer term, the economic environment, Federal Reserve policy and interest rates, corporate profits, and inflation trends have historically had the biggest impact on the broader market.
The country will remain divided after the final tally is known. But let’s not forget that the U.S. remains the world’s largest economy; it has the deepest and most transparent capital markets, and innovation isn’t likely to end.
We will face challenges in the days and years ahead. We have always faced challenges. But we are resilient, and I continue to believe that history is on the side of the United States of America.
7 financial planning steps you can implement today
The end of the year is fast approaching. As the calendar days march toward 2021, let’s keep in mind that there are several ideas we should review as you work to get your year-end financial house in order. While procrastination is tempting, remember how checking items off our to-do list always gives us a sense of accomplishment. Before we get started, remember the tips below are simply guidelines. Feel free to check with your tax advisor, as various nuances can crop up. As always, we would be happy to assist you.
1. Health care open enrollment has begun. If you obtain your health insurance through the Heath Insurance Marketplace, now is the time to purchase your health insurance for 2021.
This is the one time of year you can change your health insurance coverage or enroll. If you don’t act by December 15, you will miss out on coverage for 2021 unless you qualify for a special enrollment period. Plans sold during open enrollment start January 1, 2021.
2. On a similar note, open enrollment for Medicare has begun. You can sign up for Medicare health and drug plans between October 15 and December 7.
Decide if your coverage will meet your needs during 2021. If you like what you had this year and it is still available next year, you won’t need to take any action.
3. Did you max out your retirement accounts? You can put up to $6,000 into an IRA in tax year 2020; $7,000 if you are 50 or older. You will have until Tax Day to make a 2020 tax-year contribution. The sooner you contribute, the longer your assets can grow tax deferred.
Contributions to your 401(k) are automatically deducted from each paycheck. Contributions for tax year 2020 must be made by the end of the year to count against 2020 income.
The 401(k) contribution limit is $19,500 for 2020 and the catch-up limit is $6,500.
Your employer or plan administrator will let you know if you can adjust changes to your contribution this year. As we have said in the past, we strongly suggest that you contribute the minimum amount necessary to receive your entire employer’s match. It’s free money. Don’t leave free money on the table.
4. This year’s RMD wrinkle. If you are 72 (or turned 70½ before January 1, 2020), you are obligated to take a required minimum distribution (RMD) from your IRA. But this year is an exception.
Thanks to the CARES Act, the RMD is waived in 2020. This RMD waiver applies to everyone with a 401(k), IRA, 403(b) or 457(b) account. Owners of inherited IRAs may suspend RMDs for 2020, too.
If you took an RMD between January 1 and August 31, you were eligible to roll the funds back into your retirement account up until the August 31 deadline.
5. If you are over 70½, you may be eligible to transfer up to $100,000 from your IRA to a charity without paying taxes on the distribution. This is called a qualified charitable distribution or QCD. Moreover, a QCD satisfies the RMD requirement if certain rules are met.
6. Let’s consider “harvesting” tax losses. Do you own stocks, exchange-traded funds or mutual funds that are below the purchase price? If so, you may sell by the end of the year and offset up to $3,000 in ordinary income or capital gains.
However, please be aware of the “wash-sale” rule and treatment of long-term and short-term losses. The rule defines a wash sale as one that occurs when an investor sells a security at a loss and, within 30 days before or after the sale, buys a “substantially identical” stock or security. If so, the IRS disallows the loss.
Short-term capital gains occur when an asset that is sold was held for one year or less. Short-term capital gains are taxed as ordinary income. Long-term gains are taxed at a more favorable rate.
7. Consider converting your traditional IRA to a Roth IRA. Depending on the outcome of the election, tax rates may rise next year. Therefore, converting a traditional IRA into a Roth IRA this year would require taxes to be paid in 2020’s rate, but it would enable the account holder to withdraw funds without paying federal taxes at retirement.
Whether or not tax rates rise next year, a Roth IRA is an excellent retirement vehicle.
Let me remind you that these year-end financial planning steps are guidelines. One size does not fit all. The advice we recommend is tailored to your specific needs and goals. We would be happy to entertain any questions that you may have. We are simply a phone call or email away.
We have addressed various issues with you, but I have an open-door policy. If you have questions or concerns, let’s have a conversation. That is what I am here for.
As always, I am honored and humbled that you have given me the opportunity to serve as your financial advisor.
Your friend and advisor,
Brien L. Smith, C.F.P.® Practitioner
Wealth Manager/ Founder / Owner
celebrating 30+ years of service
Traditions Wealth Advisors, L.L.C.
2700 Earl Rudder Freeway S.
College Station TX, 77845
Retirement can be an exciting time in one’s life. Unfortunately, some find themselves in less than favorable circumstances due to unwise real estate moves. Avoid these mistakes if you are planning a move in your retirement.
5. Have a plan for the proceeds—If you make a nice profit from downsizing, consider what you will do with that extra money. Although purchasing a new car, or taking lavish vacations sound good, investing your proceeds may be just what the doctor ordered to be confident you have the retirement nest egg, you are looking for.
Check with the professionals before making your move. Contact Brien L. Smith, CFP® or Sarah D. Buenger, MPAS®, MSPFP, CFP® at 979-694-9100 or visit our website at www.TraditionsWealthAdvisors.com
(Kathy Massey 2020 BCSRAOR president)
1. We should have 15% pre-tax in our retirement plan but how much should we save post-tax in our IRA or saving accounts?
There is no single percentage that works for everyone but if you can save 15% in pre- and post-tax you are doing good. Other things to consider are to make sure you are contributing enough to get your employer’s full retirement match if you have a 401(k). Next, I would make sure you have three months worth of an emergency fund. Then I would max out your Roth IRA contribution. Finally, if you have any extra money left, then I would put it in savings.
2. In our volatile market, what is your suggestion for those that are already retired to make their retirement last longer?
Make sure you are meeting with your financial advisor to discuss this more in detail. Based on your age, you should be invested correctly to get you through the ups and downs of the market. Also, making sure that your expenses are low is the best way to make sure your retirement lasts. Even getting a part-time job so you don’t have to pull money from savings is another option.
3. My employer is no longer contributing to my 403(b) or 401(k). Should I stop contributing to my 403(b) or 401(k) and move those funds to an IRA instead?
The only way to roll over your 403(b) or 401(k) to an IRA is to leave your job or reach the age of 59 ½ (called an in-service distribution). You should keep contributing to your 403(b) or 401(k) even though you are frustrated that your employer is no longer contributing.
4. In January of 2020, I contributed the max of $7,000 to my Roth IRA. Now I won’t have enough earned income to contribute that amount. Is there a penalty? What should I do?
You’ll need to withdraw the excess amount plus their earnings, and you’ll want to do so before you file your taxes for 2020 next year to avoid a 6% penalty on the excess contribution. You’ll owe income taxes on the earnings (but not the amount you contributed). If you’re under 59 ½, you may owe a 10% early withdrawal penalty on the earnings, but again, not on your contribution.
5. I make less than $35,000 annually, have little in savings, and am 39 years old. What is the best IRA for me?
A Roth IRA is probably best for you. You won’t be able to deduct your contribution when you do your taxes, but all the money you put in there AND all the money you earn will be all yours tax-free when you retire. As far as choosing an account, look for low fees (aim for 0.25% annually or less) and no minimum deposit.
6. Does your IRA contribution affect how much you can contribute to an employer-sponsored account?
The $6,000 contribution limit (or $7,000 if you’re 50+) is the total limit for all IRAs that you have. Your IRA contributions don’t affect how much you can save in an employer-sponsored account, like a 401(k). So if you have both a traditional IRA and Roth IRA, you can only contribute $6,000 or $7,000 total between the accounts. If you have a 401(k), you can still contribute up to $19,500 in 2020 (or $25,000 if you’re over 50).
For questions or concerns regarding this article, contact Brien L. Smith, CFP® at Traditions Wealth Advisors Brien@TraditionsWealthAdvisors.com or 979-694-9100.
Source: Hartill, Robin. 29 September 2020. https://www.thepennyhoarder.com/retirement/retirement-questions/?aff_id=128&aff_sub3=/retirement/retirement-questions/_20201002_social-organic_Twitter