Financial Planning Opportunities To Consider Now | Trust Point
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Financial Planning Opportunities to Consider Now

Updated April 30, 2020

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

Trust Point hopes you and your family are safe and healthy. We want to provide some planning considerations that might be beneficial to you. Each individual has a unique situation. Therefore, please contact us with any questions and we can work together with you and your other trusted advisors to create a plan that meets your specific needs.

Paying Yourself First

Facts: You have not filed your 2019 taxes, you have not contributed to your IRA for 2019 or did not contribute the maximum and are not subject to income phase outs. The tax filing deadline is extended to July 15th so you can still make 2019 contributions while valuations are low.

Planning Opportunity: Contribute to your Traditional IRA or Roth IRA. The maximum 2019 (and 2020) contribution limit to both a Traditional IRA and Roth IRA is $6,000 plus an additional catch-up contribution of $1,000 if you are age 50 or older. Remember a direct contribution to a Roth IRA is subject to income phase outs. Also, the ability to make a deducible contribution to a Traditional IRA is based on income limits and whether you are covered by a retirement plan at work.

Gifts to Family or Friends

Facts: You are looking for a way to help out family or friends and reduce your estate. You have not made any gifts to them this year. You have quality stocks that have lost value due to the market decline.

Planning Opportunity: The IRS allows an individual to make an annual exclusion gift up to $15,000 per year to each gift recipient. If you hold individual securities that have decreased in value, one strategy is to make an in-kind gift of the securities. When the market rebounds, you have transferred all of the future growth to the gift recipient.

Keep in mind that the recipient will receive a carryover basis in the asset gifted. When the recipient sells the security, the recipient may have to pay federal capital gains tax and state income tax. If the gift recipient has an immediate financial need, a better strategy may be for the donor to realize the tax loss and gift cash. If you have assets with an unrealized capital gain, it may be beneficial for the recipient, who may be in lower tax bracket than you as the donor, to receive the asset in-kind, sell the asset and pay the tax.

On behalf of another, you may make payments of any amount directly to educational or medical institutions for services provided to another individual. These direct payments are not considered taxable gifts to you and the individual benefiting from the payment does not have report the payment as taxable income.

The Trifecta—Charity, Tax, Estate Planning

Facts: You have always been charitably inclined and itemize deductions on your tax return. In 2020, you are looking for opportunities to make a bigger impact and take advantage of the tax benefits as well as reduce your estate. You have some investments that have declined in value and will have a capital loss if sold.

Planning Opportunity: For individuals making cash gifts in 2020 to public charities and who itemize on their federal tax return, the CARES Act allows a tax deduction of up to 100 percent of the taxpayers Adjusted Gross Income (AGI). For those individuals wanting to obtain a longer term benefit, they can bundle this giving with the sale of securities currently at a loss to generate a capital loss carry forward bucket to offset against future capital gains. This strategy will significantly reduce their income tax for 2020 and possibly future years, provide gifts to charity today, and may reduce their taxable estate at death. Consult your tax preparer to understand the potential impact.

Pay Tax Today to Benefit Tomorrow

Facts: If you are approaching retirement and have experienced a reduction in income for 2020, have a large balance in a Traditional IRA and have been considering a Roth IRA conversion, this might be your year to start or add to a Roth IRA. If you are willing to pay the tax today at historically low rates, your tax exposure in retirement may be decreased. Additionally, beneficiaries do not pay income tax when inheriting Roth IRA assets.

Planning Opportunity: With the possible decline in value of your IRA through the first four months of 2020 converting a portion of your Traditional IRA to a Roth IRA can be a smart move from a tax standpoint. Though you will have to pay income tax on the conversion amount when filing your 2020 tax return, the future growth—including the rebound from these lows—will all be in a tax-free vehicle (the Roth IRA). Owners of Roth IRAs are not required to receive required minimum distributions at age 72 (or any age) so you can continue to experience tax free growth in retirement as well as tax free withdrawals when needed.

In addition, distributions from inherited Roth IRAs are tax free for the beneficiary. Conversely, distributions from Inherited Traditional IRA’s are considered ordinary income to the beneficiary. Converting a portion of your retirement accounts to a Roth IRA when market values are potentially low could be a great planning tool to move tax deferred dollars into tax free dollars. Consult your tax advisor to understand the potential impact.

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.