Smart Moves to Make the Year You Retire

So you’ve decided to hang ‘em up? Congratulations!  Retirement is an extremely personal decision and is made for a multitude of reasons.  Many of our clients have had the ability to retire for several years, however, they have now reached a point where the weekly grind isn’t as enjoyable as it once was.  There are probably thousands of things running through your head.  What will life look like without work?  How will I spend my days?  Where do I/we want to travel?  Do I want to work part-time or volunteer?  With so many emotions and thoughts, it can be easy to miss good opportunities to really maximize your final year of full-time work. How do you get the most “bang for your buck” in your final year of working full-time?

Maximizing your employer retirement contribution (401k, 403b, etc.)

If you aren’t doing so already, do your best to maximize your company retirement plan contribution.  If you are retiring mid-year, adjust your payroll deduction to make sure you are contributing the maximum ($24,000 for those over the age of 50 in 2015) by the time you retire.  If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can put the max into the plan.  This will most likely be the final year you will be in the highest tax bracket of your life, you really want to take advantage of this and get the maximum tax benefit. 

“Front-load” your charitable contributions

If you are charitably inclined and plan on making charitable gifts, even into retirement, you might consider “front-loading” your donations.  Think of it this way – if you are currently in the 25% tax bracket and you will drop into the 15% bracket when retired, donating in which year will give you the most tax savings by making a donation?  The year you are in the higher bracket, of course!  So if you donate $5,000/year to charity, consider making a contribution for $25,000 while you are in the 25% bracket (ideally with appreciated securities).  This would satisfy five years worth of donations and save you more on your taxes.  As I always tell clients: When you save more money on your tax bill by gifting efficiently, you give less to the IRS’ and more to the organizations you care about!

Explore your health care options

This is typically a retiree’s largest expense.  How will you and your family go about obtaining medical coverage upon retirement?  Will you continue to receive benefits on your employer plan?  Will you go on COBRA?  Will you be age 65 soon and enroll in Medicare?  Are you retiring young and need to obtain an individual plan until Medicare kicks in?  No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take to ensure you don’t go without coverage and that it’s as affordable as possible.  With recent changes in health care, we are positioning more and more clients in a way to qualify for health care premium subsidies under the Affordable Care Act (“Obamacare”). For more information on how you might qualify, take a look at Matt Trujillo’s recent blog on this topic.

With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult and sometimes confusing retirement topics and decisions.  Ideally, seek out the help of a Certified Financial Planner (CFP®) to give you the comprehensive guidance you need and deserve!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. 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. 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. C14-041996

Unrealized Capital Gains? Consider Gifting Stock Instead of Cash

One of the most tax-efficient ways to give a financial gift to your favorite charity is with long-term appreciated securities.  While gifts of cash are easy to make by simply writing a check, don’t overlook the potential benefits of gifting stock that has gone up in value.  By considering both options, you may be able to increase the tax benefit and make the most of your year-end tax planning and gifting goals. 

Here are four tips to consider:

1. If you own stock investments (held longer than 12 months) with unrealized capital gains, the best way to give may be with a portion of stock rather than an all cash donation.  By gifting stock, you receive a deduction for the market value and reduce future capital gains tax liability.  

2. If you own stock with short-term gains (owned for less than 12 months) the strategy is not optimal because your tax deduction will be limited to the amount you paid for the shares. 

3. If you think the gifted stock still has upside potential, you can use the cash you would have otherwise donated to replace the shares of stock you donated.  This will reset the stock cost basis to the current market value, reducing future capital gains tax liability.

4. If you are holding taxable investments that have lost ground, it may be preferable to sell the investment, claim a capital loss, take the charitable deduction and gift the cash.  In this scenario, the combined tax deductions may make this strategy a winner.

Making the Call between Gifting Cash or Appreciated Stock 

If you are looking to support organizations important to you and maximize your tax benefits, it is important to consult with your tax advisor and include your financial planner to make the most of your tax planning and lifetime gifting goals.  

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

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 Center for Financial Planning, Inc. and not necessarily those of Raymond James. C14-036845

An Easy Guide to Year-End Tax Planning

With the end of the year fast approaching, tax planning is top of mind for many clients.  At The Center, we are proactive throughout the entire year when it comes to evaluating a client’s current and projected tax situation, but now is typically the time most people really start thinking about it.  We like to share this simple checklistthat we feel is very user friendly and a good guide to evaluating your tax situation for the year.  Let’s be honest, does anyone feel like they don’t pay ENOUGH tax?  Most clients want to lower their tax bill and be as efficient with their dollars as possible. 

Questions to Consider

Here are some questions we ask clients that could ultimately help save money at tax time:

• Are you currently maximizing your company retirement account (401k, 403b, Simple IRA, SEP-IRA, etc.)?

  • These plans allow for the largest contributions and are deductible against income

    • In our eyes, this is often the most favorable way to reduce taxes because it also goes towards funding your retirement goals! 

    • How are you making charitable donations?  Are you writing checks or gifting appreciated securities?

      • Gifting appreciated securities to charity allows you to avoid paying capital gains but still receive a charitable deduction – a pretty good deal if you ask me!

        • Donor Advised Funds are a great way to facilitate this transfer and are becoming increasingly popular lately because of the ease of use and flexibility they provide for those who are charitably inclined – take a look at Matt Trujillo’s recent blog on this great tool.

        • Should I be contributing to an IRA?  If so, should I put money in a Traditional or Roth?

          • These are fantastic tools to help fund medical and dependent care costs in a tax-efficient manner

            • HSAs can only be used, however, if you are covered under a high-deductible health plan and FSAs are “use it or lose it” plans, meaning money contributed into the account is lost if it’s not used throughout the year – take a look at the blog I wrote earlier this year that goes into greater detail on the advantages and disadvantages of HSAs and FSAs

This is a busy time of year for everyone.  Between holiday shopping, traveling, spending time with family, and completing year-end tasks at work, taxes can get lost in the shuffle.  We encourage you to check out the link we’ve provided that will hopefully give you some guidance with your personal tax situation.  Although we are not CPAs, tax planning is something we feel is extremely important.  We would love to hear from you if you have any questions or ideas you’d like to discuss with us!

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Raymond James financial advisors, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. C14-037860

Are Donor Advised Funds Right for You?

Many people are charitably inclined and like to give money to churches or synagogues (among others) throughout the year.  At The Center, we fully support these efforts, but are always conscious of the most tax efficient ways in which our clients can give to their favorite charities.   One option that we often consider is a Donor Advised Fund. 

Charitable Giving

In order to take advantage of this charitable vehicle, an individual must open an account with the fund, and deposit cash, securities or other similar financial instruments.   By taking this approach, you can set funds aside--even if you aren’t sure exactly where you want them to go-- and still take the tax deduction in the year that the donation was made. 

Who Should Consider this Strategy?

An example of where a strategy like this might make sense is if you are in your peak earning years, but approaching retirement in the next 3-5 years.  You might need the charitable deduction more now than you would in retirement when your income would probably be less and your tax liability lower.

For illustrative purposes, let’s assume that Joe and Jane Smith are 58 years old and are employed with a taxable income of $300,000.  This places them squarely in the 33% marginal tax bracket. However, in retirement, they anticipate they will only need $140,000 of taxable income to sustain their desired standard of living. This would place them in a 25% bracket.  Every year Joe and Jane like to give about $10,000 to their church.  A donor advised fund may make a lot of sense for Joe and Jane because, if they know they are going to make the gifts anyway, they can set the money aside now and take advantage of the tax deduction at a 33% marginal rate as opposed to a 25% rate.

As always, be sure to consult with a qualified financial professional before incorporating any of these ideas into your own personal financial plan.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

This material is being provided for information purposes only and is not a complete description of all information necessary for making a decision, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. Consult a tax or legal professional for any specific tax or legal matters. C14-034226

Holiday Financial Conversations for the Generations: Children

 The hustle and bustle of everyday life does not always give us the chance to have meaningful conversations with our children about money and charitable giving.  The long holiday vacation is the perfect time to have these conversations, but does any child want to spend school break listening to lesson from their parents? 

Some ways to sneak in teachable moments around money and giving this season: 

• Keep extra change with you when you are out shopping and have your children donate to the Salvation Army red kettles.  Have a conversation about where the money goes and how it helps.
• While shopping for Christmas gifts, have your children pick out an extra toy to give to Toys for Tots or other charitable organization. Again, talk about where the toy is going.
• As part of your family holiday tradition, consider adopting a family to provide Christmas or Hanukkah gifts.  Have a conversation about helping others to have a holiday that they might not otherwise have.
• After your children have opened their gifts, ask them to go through their old toys and clothes to find those that they have outgrown.  These gently-used items can be donated to an organization for others to use and enjoy.

These are just a few ideas to help you instill the spirit of giving in your children this holiday season; to teach them that this time is as much about giving as receiving.

In my next blog, I will provide tips for talking to your teenage children about preparing for college funding.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Leaving a Legacy

 There are many ways to make your mark in the world today.  Some give of their time and talents through volunteering and others give financially to the causes near and dear to their hearts  Consider a hypothetical couple that wants to preserve their legacy and give to four organizations that they would like to help succeed, we’ll call them Dick and Jane. Dick and Jane have been good savers throughout their working years. Fortunately, they accumulated enough assets to care for their own retirement needs with a high expectation of having a surplus, regardless of what financial markets deliver for their remaining years. In a recent annual review meeting, Dick and Jane determined that it was time to make financial contributions to some of area institutions that they feel are benefitting the larger society. Essentially, they wanted to help ensure these organizations are around to enrich other lives like they have their own. 

Suppose Dick and Jane could comfortably gift $50,000 each to four organizations; Detroit Institute of Arts, Michigan Opera Theatre, Michigan Nature Conservancy, and the Detroit Symphony.  Each of these organizations contributed to their well-being and they may consider it is time to “give back”.  Working together, we may be able to identify securities in their portfolio that could help maximize their contributions as discussed in this prior blog .  If Dick and Jane would like their gifting to remain anonymous, they could consider establishing a Donor Advised Fund (as I discussed in a recent blog) to facilitate the donations. In the end, Dick and Jane can make tax leveraged gifts benefitting four organizations with the hopes that these groups will continue to enrich the lives of Michigan residents.  As a fellow Michigander and financial planner, it would be rewarding to see them leave their mark. 

If you are planning to leave a legacy, here are 4 Steps to get you started:

1. Determine your financial ability to give financially – never give away a dollar that you might need for your needs
2. Research possible organizations
3. Determine the most tax efficient manner to give – preferably appreciated securities
4. Enjoy knowing that you have made a significant contribution to society

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The illustration above is hypothetical.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

Giving Charitably and Doubling Your Tax Benefit

 Many of you are inclined to make large charitable contributions by writing a check.  If the cash is not already sitting in cash, you many need to go to your taxable investment account to determine what to liquidate to create the cash for the donation.  Sure, this can provide you with an itemized deduction to potentially decrease your taxable income*, but might there be a way to make an even bigger impact on your current and future tax liability?

If you hold appreciated stocks or mutual funds in a taxable investment accounts, why not try to avoid paying capital gains tax when you sell to create the cash for your charitable donation?  Did you know that most charitable organizations, including churches and synagogues, can accept a donation of shares of a stock or mutual fund as a gift?  And did you know that in donating this way, you  can avoid paying capital gains tax on a security, and so can the qualified non-profit receiving organizations? 

So, by using an appreciated security, not only can you avoid capital gains tax that could be significantly higher than the 15% top rate we’ve had in recent years, but you may retain the right to use the value of the security donated as an itemized deduction. Double bonus!  (Triple bonus if this also allows you to tax-efficiently reduce an over-weighted position in your portfolio).

Before you write that big check to your favorite charity, consult your financial planner and tax advisor to see if opportunities exist to double your tax benefit by using appreciated securities instead.

This is how the capital gains rates look under the American Taxpayer Relief Act:

0% Capital Gains: 

Those in the 15% marginal tax bracket ($36,250 single filers/$72,500 married filing jointly)

15% Capital Gains:

Those in the 25%, 28%, 33%, or 35% marginal brackets

Those over $200,000/$250,000 but below $400,000/$450,000 are subject to the Medicare surtax, which means that effectively capital gains (and qualified dividends) are taxed at 18.8%

20% Capital Gains:

Those in the 39.6% marginal bracket ($400,000/$450,000).  Because of the Medicare surtax, this means that effectively, capital gains (and qualified dividends) are taxed at 23.8% (and up to 26% during the personal exemption and itemized deduction phase outs).

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

*Note that the American Taxpayer Relief Act of 2012 implemented a phase out of itemized deductions for taxpayers with taxable income of over $250,000 for single filers/$300,000 married filing jointly.

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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James.  You should discuss any tax or legal matters with the appropriate professional.