New Guidelines May Help Retirees Retain More Savings

Contributed by: Josh Bitel, CFP®

In late 2022, the treasury department quietly updated life expectancy tables, reflecting that Americans are living longer and should have a longer time horizon for full distribution of retirement accounts.

When retirement accounts came into law via the Employee Retirement Income Security Act of 1974, required minimum distributions (RMDs) were established. This is an amount mandated by the IRS that individuals must take out of their retirement account each year (for those aged 72 and above) to avoid paying a stiff penalty. Two components make up the size of the RMD – the account holder's age and the account value. Generally speaking, the older an account holder is, the larger their distribution must be in relation to their account size (for example – assuming a $1,000,000 account, someone 72 years of age must distribute $36,496 by year-end, while an 85-year-old must distribute $62,500). These figures are gathered by taking your account balance and dividing it by your life expectancy factor, as dictated by the IRS (table shown at the end of this blog).

New RMD tables now reflect longer life expectancies, which means a reduction in yearly required distributions. So if you're someone who only takes out the minimum distribution every year, in theory, you can retain more of your savings in tax-advantaged accounts.

Of course, satisfying annual RMDs doesn't always mean taking your distributions and putting them into your bank account for spending. There are strategies available to reinvest these funds, avoid taxes by sending them to charities, and fund college savings plans, among other things to help you achieve your financial goals.

RMDs are truly in place so that account owners aren't able to defer their taxes indefinitely. Like anything else in the world of finance, it's best to fully understand the rules before making decisions. For this reason, you may be best suited to consult with a financial advisor to avoid any pitfalls.

Josh Bitel, CFP® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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 Josh Bitel, CFP® and not necessarily those of Raymond James. 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. Examples used are for illustrative purposes only.

Harvesting Losses in Volatile Markets

Contributed by: Kali Hassinger, CFP®, CSRIC™

During periods of market volatility and uncertainty, it's important to remain committed to our long-term financial goals and focus on what we can control. A sound long-term investment plan should expect and include a period of negative market returns. These periods are inevitable and often can provide the opportunity to tax-loss harvest, which is when you sell an investment asset at a loss to reduce your future tax liability.

While this sounds counter-intuitive, taking some measures to harvest losses strategically allows those losses to offset other realized capital gains. Any remaining excess losses are used to offset up to $3,000 of non-investment income. If losses exceed both capital gains and the $3,000 allowed to offset income, the remaining losses can be carried forward into future calendar years. This can go a long way in helping to reduce tax liability and improving your net (after-tax) returns over time. This process, however, is very delicate, and specific rules must be closely followed to ensure that the loss will be recognized for tax purposes.

Harvesting losses doesn't necessarily mean you're entirely giving up on the position. When you sell to harvest a loss, you can't purchase that security within the 30 days before and after the sale. If you do, you violate the wash sale rule, and the IRS disallows the loss. Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Tax-Loss Harvesting Strategies

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

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

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

Common Mistakes to Avoid When Harvesting

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

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

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

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

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

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 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 the Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James. 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.

The Secure Act 2.0 and Possible Changes Coming to Your Retirement Plan!

Contributed by: Kali Hassinger, CFP®, CSRIC™

The Secure Act, which stands for Setting Every Community Up for Retirement Enhancement, passed in late 2019. This legislation was designed to encourage retirement savings and make significant changes to how inherited retirement assets are distributed. We have written about the Secure Act a bit over the last two years or so (you can read some of our posts here, here, or here), and now, it seems Congress is considering some additional ways to encourage Americans to save for retirement. 

It is, of course, important to note that this is still being debated and reviewed by Congress. The House passed a version of The Secure Act 2.0 on March 29th, but the version that the Senate could pass is expected to differ and be revised before ultimately hitting President Biden’s desk. Some of the key changes that the House and Senate versions of the Bill include are highlighted below:

Automatic Retirement Plan Enrollment

• The new Secure Act would require employers with more than ten employees who establish retirement plans to automatically enroll new employees in the plan with a pre-tax contribution level of 3% of the employee’s compensation. A 1% increase in contributions would be required each year until reaching at least 10% (but not more than 15%) of the employee’s pay. Employees can still override this automatic system and elect their own contribution rate.

Boosting Roth Contributions

Roth Catch-up Contributions

• Catch-up contributions are available at age 50 and, as of now, can be either pre-tax or Roth, depending on what the employee elects. The Secure Act 2.0 could require that all catch-up contributions to retirement plans would be subject to Roth tax treatment. 

• In addition to the current $6,500 catch-up contribution amount at age 50, they could also allow an extra $10,000 catch-up contribution for participants aged 62 to 64.  

Roth Matching Contributions

•  There could be an option to elect that a portion (or all) of an employer’s matching contribution would be treated as a Roth contribution. These additional matches could be included as income to the employee.

Student Loan Matching

• An additional area of employer matching flexibility is associated with employees paying off student loans. While employer matches have traditionally only been provided in conjunction with the employees’ plan contributions, this would allow employers to match retirement plan contributions based on employees’ student loan payments. This would give some relief to those missing retirement plan contributions because of the burden of student loan repayment schedules.

Further Delaying Required Minimum Distributions

•  The original Secure Act pushed the Required Minimum Distribution age from 70 ½ to 72. The Secure Act 2.0 could continue to push that timeline back as far as age 75. The House’s version of the Secure Act would slowly increase the age in a graded schedule. In 2022, the new Required Minimum Distribution age could be 73, with the age increasing to 74 in 2029, and finally up to age 75 by 2032.

Another item on our watch list is related to the original Secure Act from 2019. The Secure Act limited those who could stretch an inherited IRA over their lifetime, and many became subject to a 10-year distribution ruling. The IRS is working to provide more specific guidance on the rules surrounding inherited IRA distribution schedules. Based on the proposed regulation, non-spouse beneficiaries who inherit a retirement account on or after the period when the original account owner was subject to Required Minimum Distributions would be subject to both annual Required Minimum Distributions and required to adhere to the 10-year distribution timeline.

If or when the Secure Act 2.0 is passed into law, we will be sure to provide additional information and guidance to clients, so be on the lookout for possible upcoming blogs and webinars related to this topic. We continuously monitor, discuss, and review these changes with clients and as a firm. If you have any questions about how the Secure Act 2.0 could affect you, your family, or your business, we are always here to help! 

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 report 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 information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion

Strategies for Retirees: Understanding Your Tax Bracket

Contributed by: Michael Brocavich, CFP®, MBA

Over the last few years, most Americans have seen lower taxes due to the Tax Cuts and Jobs Act put into effect in January 2018. With the increase in the standard deduction and lower tax rates, taking income from your retirement accounts has cost you less in taxes than in previous years. This has allowed retirees to do some strategic income and tax planning in the early years of retirement before they have to start taking Required Minimum Distributions ("RMD") from their Qualified Retirement Accounts.

First, it is important to look at some significant tax changes that came with the Tax Cuts and Jobs Act. The standard deduction for 2022 is $12,950 for single filers and $25,900 for married filing jointly. For married couples over the age of 65, there is an additional $1,300 deduction each. Add that all up, and joint filers who are both 65 or older will have a standard deduction of $28,500. That means that your first $28,500 of income will be federal tax-advantaged!

The current tax laws have reduced the 15% tax bracket rate to 12%. For married filing jointly, the top of the 12% tax bracket for 2022 is $83,550. That means that retirees aged 65 and older could potentially have up to $112,050 of adjusted gross income and remain in the lowest tax bracket. Understanding the tax laws and taking money from the proper accounts at the right time could help reduce your future taxes throughout retirement and reduce taxes significantly for your heirs.

Strategies for Retirees

1) Roth Conversions: If you are like most retirees, you do not have substantial assets in your Roth IRA, if you even have one at all. With income limits on Roth contributions and clients preferring to save in tax-deductible accounts first, many older taxpayers never opened Roth IRA's. The early part of retirement allows you to strategically take money from your IRA and convert it to a Roth IRA. There is no income limit or even minimum dollar amount requirements for Roth conversions. Still, you have to be aware that pulling money from your Traditional IRA and moving to your Roth IRA is taxable. By understanding your tax situation in retirement, you can move money into your Roth IRA and pay tax at lower rates than you potentially would later in retirement while building tax-advantaged assets and reducing your future RMDs (Required Minimum Distributions).

Common sense would tell you to try and take income and pay the least amount of taxes possible. This is prudent, but many retirees either forget about or do not truly understand their future RMDs and their impact on taxes in the future. With RMDs on Qualified Retirement Accounts at age 72, many retirees will be forced to withdraw more money from their Qualified Retirement accounts than they need and pay taxes on those distributions. You can take money strategically out of these qualified retirement accounts and convert the funds to Roth IRA accounts that do not have minimum distributions at 72. This, in turn, will reduce the values in your Qualified Retirement Accounts, reduce your future RMDs, and give you more tax-advantaged assets to use in retirement or to pass on to your heirs.

Investor Situation:

(This is a hypothetical example for illustration purposes only)

John and Cindy are now ready to retire at age 65 with a desired retirement income of $100,000. Typically it would be suggested that they take their Social Security at their full retirement age of 66 and use their taxable brokerage account for retirement income, delaying WD's from their IRAs till 70 1/2. In this scenario, their taxes could be as minimal as 85% or less of their Social Security. With a standard deduction of $28,500, their Federal Income Taxes would be only a couple thousand dollars or less depending on the capital gains they realized. What is not being considered is that with just a modest growth rate on their Qualified Retirement Accounts of 6%, when they reach 72, they could have an RMD of $85,000 - $90,000, giving them much more income than they need.

Suppose they were to delay taking Social Security to age 70 and do a Roth Conversion of $60,000 per year to top out their 12% tax bracket from ages 65 through 69. They could reduce their future RMDs to align with their retirement income needs, reduce their future taxes, and build a substantial tax-advantaged Roth IRA. In addition, they would also benefit from the delay in Social Security, giving them their maximum benefit assuming they have good longevity.

Base Scenario, no Roth conversions, SS at 66:

(Assumptions: Annual rate of return of 6.0% with a $100,000 per year income adjusted for inflation at 2.58% per year.  Social Security income uses a 1% COLA)

Utilizing Roth Conversion Strategy, $60,000 converted annually, SS at 70:

(Assumptions: Annual rate of return of 6.0% with a $100,000 per year income adjusted for inflation at 2.58% per year.  Social Security income uses a 1% COLA. This is a hypothetical example for illustration purposes only and does not represent an actual investment)

So let’s examine what happened here:

• Over their lifetime, they took $533,000 less in required minimum distributions by doing the conversions, much of which would have been taxed at the 22% tax rate vs. 12% rate;

• They are passing on $1,348,960 in Roth IRA assets to their children that can grow and never be taxed, if certain conditions are met;

• They are passing on $761,306 less in IRA assets to their children, which will be taxed over time at whatever rate applies to the children as adults; and

• In total, the heirs are getting an additional $164,000 than they would have had. The assets are also now positioned to be much more tax-efficient going forward.

2) Harvesting Tax Gains: For clients like above that have also been able to save not only in Qualified Retirement Accounts but also brokerage accounts, there may be an opportunity to harvest taxable gains in the first years of retirement as well. Another advantage of the 12% (formally 15%) tax bracket is that capital gains realized up to the top of the 12% bracket are not taxable to the account owner.

Brokerage accounts allow you to sell stocks or mutual funds that you have held for a long time with large gains in them. You can then use these highly appreciated funds for income in retirement or to rebalance your brokerage account to reduce risk and future taxes.

Combining the two strategies would create multiple advantages. Using your assets in your brokerage account for income in the first years while converting IRA assets to Roth IRA can potentially convert more money to a Roth while still staying in the 12% tax bracket. You will have to be aware of the amount of long-term capital gains, as the combination of those gains and your conversions could put some of your taxable income over the 12% tax bracket threshold.

Optimizing withdrawals in retirement is a complex process that requires a firm understanding of tax situations, financial goals, and how accounts are structured. However, the two simple strategies highlighted here could potentially help reduce the amount of tax due in retirement.

It is important to take the time to think about taxes and make a plan to manage withdrawals. Be sure to consult with a tax advisor and your financial planner to determine the course of action that makes sense for you.

Michael Brocavich, CFP®, MBA is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He has an extensive background in both personal and corporate finance.

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 Michael Brocavich, CFP®, MBA and not necessarily those of Raymond James.

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

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

Examples used are for illustrative purposes only.

Is My Pension Subject to Michigan Income Tax?

Contributed by: Nick Defenthaler, CFP®, RICP®

It is hard to believe, but it has been ten years since former Michigan Governor Rick Snyder signed his budget balancing plan into law, which became effective in 2012. As a result, Michigan joined the majority of states in the country in taxing pension and retirement account income (401k, 403b, IRA, distributions) at the state income tax rate of 4.25%. 

As a refresher, here are the different age categories that will determine the taxability of your pension:

1) IF YOU WERE BORN BEFORE 1946:

• Benefits are exempt from Michigan state tax up to $54,404 if filing single, or $108,808 if married filing jointly.

2) IF YOU WERE BORN BETWEEN 1946 AND 1952:

• Benefits are exempt from Michigan state tax up to $20,000 if filing single, or $40,000 if married filing jointly.

3) IF YOU WERE BORN AFTER 1952:

• Benefits are fully taxable in Michigan.

What happens when spouses have birth years in different age categories? Great question! The state has offered favorable treatment in this situation and uses the oldest spouse’s birthdate to determine the applicable age category. For example, if Mark (age 69, born in 1953) and Tina (age 74, born in 1948) have combined pension and IRA income of $60,000, only $20,000 of it will be subject to Michigan state income tax ($60,000 – $40,000). Tina’s birth year of 1948 is used to determine the applicable exemption amount – in this case, $40,000 because they file their taxes jointly. 

Taxing retirement benefits has been a controversial topic in Michigan. As we sit here today, Governor Whitmer is advocating for a repeal of taxing retirees – however, no formal proposal has been released at this time. The following states are the only ones that do not tax retirement income (most of which do not carry any state tax at all) – Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, Illinois, Mississippi, Pennsylvania, and Wyoming. Also, Michigan is one of 37 states that still does not tax Social Security benefits.

Here is a neat look at how the various states across the country match up against one another when it comes to the various forms of taxation:

Source: www.michigan.gov/taxes

Taxes, both federal and state, play a major role in one’s overall retirement income planning strategy. In many cases, there are strategies that could potentially reduce your overall tax bill by being strategic on which accounts you draw from in retirement or how you choose to turn on various forms of fixed retirement income. If you would like to dig into your situation to see if there are planning opportunities you should be taking advantage of, please reach out to us for guidance or a second opinion.

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.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Tax Diversification and Investment Diversification: The Limitations of Asset Location

Contributed by: Center Investment Department

Taxes throughout your lifetime are nearly impossible to predict, so tax diversification is almost as important as the decision to save itself. Taxes are the biggest enemy to retirement and one of your single most significant costs. Therefore, when you are establishing your career, your younger years are the most impactful time to start saving, as shown by the chart below. In this hypothetical example, an investor starting young (Consistent Chloe) has the potential to accumulate far more – teal colored line and ending portfolio value - than a person who waits until age 35 (Late Lyla) – purple colored line and ending portfolio value - to start saving.

Our younger years also offer us a unique opportunity to save in a Roth IRA (tax-free savings) account; however, this is when we are least likely to think of expanding our retirement income options. What if that growth you see in the example above happened all in a tax-free account? This can help you dodge the bullet of taxes later in life.

As we mature in our careers, our income (and tax brackets) naturally increase, and it often becomes more important to invest within tax-deferred accounts. In turn, this gets us tax deductions today that were not always important before.

In our later stages of saving, perhaps when considering early retirement or before social security and Medicare kick in, we would need to start saving into our taxable account buckets to have money readily available for current expenses. This would bridge the gap if accessing our tax-deferred buckets (usually the largest portion of our assets) come with too many strings attached, such as early withdrawal penalties.

So, we know it is important to save and diversify our tax buckets for savings, but are there differences in how we should diversify those asset buckets?

We have all heard that asset location can also be an important tool for diversification. This means placing portions of our investments in certain accounts because of the additional tax benefits that it provides. For example, placing taxable bonds in your tax-deferred accounts to shelter the ordinary income they spin-off or focusing on equities for high growth in our Roth accounts. This makes a lot of sense for someone in the accumulation stage; however, there needs to be even more careful thought applied for someone in or nearing retirement.

There is also such thing as too much of a good thing. Going to extremes and putting all of your bonds in tax-deferred accounts or all of your most aggressive positions in your Roth accounts can lead to some significant shortcomings. Diversifying your investments by tax buckets is important because it gives you the flexibility in any given year to draw from a certain tax profile based on your current situation and cash flow needs. What if you want capital gains only? Take from taxable investments. Need to remodel your house and take a large withdrawal but doing so could push you into a higher cap gains bracket? Take from your Roth. But what if you need to take from that Roth IRA and the markets have corrected 25% that year? In this case, you might be hesitant to take the money out because you want to give it time to experience the rally back that may be on the horizon. You get the picture of where issues could arise. Asset location is a great tool to mitigate taxes, but always be aware that some diversification may always be appropriate in each tax bucket.

It is important to properly diversify on many different levels, and a financial planner can help you do just that. If you have any questions on this topic or others, don’t hesitate to reach out!

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 the author and not necessarily those of Raymond James. 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. Examples used are for illustrative purposes only.

Important Information for Tax Season 2021

Contributed by: Lauren Adams, CFA®, CFP®

As we prepare for tax season, we want to keep you apprised of when you can expect to receive your tax documentation from Raymond James.

2021 Form 1099 mailing schedule

• January 31 – Mailing of Form 1099-Q and Retirement Tax Packages

• February 15 – Mailing of original Form 1099s

• February 28 – Begin mailing delayed and amended Form 1099s

• March 15 – Final mailing of any remaining delayed original Form 1099s

Additional important information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows custodians (including Raymond James) to extend the mailing date until March 15, 2022, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts, as well as holding company depositary receipts.

• Processing of original issue discount and mortgage-backed bonds.

• Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options.

If you do have a delayed Form 1099, we may be able to generate a preliminary statement for you for informational purposes only, as the form is subject to change.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

• Income reallocation

• Adjustments to cost basis (due to the Economic Stabilization Act of 2008)

• Changes made by mutual fund companies related to foreign withholding

• Tax-exempt payments subject to alternative minimum tax

• Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2021.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information here.

Special note for IRAs in 2021

Raymond James Trust Company of New Hampshire (RJTCNH) succeeded Raymond James & Associates, Inc. (RJA) as custodian of IRAs, effective September 7, 2021. Accounts that had reportable activity before and after the Raymond James custodianship change will be receiving two 2021 tax packages. The second package is not a duplicate of the first package.

• The first package contains reportable activity occurring from January 1, 2021 – September 3, 2021 under the RJA custodianship.

• The second package will contain reportable activity occurring from September 7, 2021 – December 31, 2021 under the RJTCNH custodianship.

Both tax packages contain a summary of assets page detailing the total of each asset at year-end. However, the total value of these assets will only appear on the RJTCNH package as it reflects the Fair Market Value that will be reported by NJTCNH to the IRS for your account. Please do not assume the second package is a duplicate of this package. The contribution and/or distribution summaries will be different as well as Forms 1099-R and/or 5498. All forms must be used when completing the 2021 tax return.

And don’t forget…

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return to your financial planner, associate financial planner, or client service associate upon filing. Thank you for your assistance in providing this information, which enhances our services to you.

We hope you find this additional information helpful. Please call us if you have any questions or concerns about the upcoming tax season.

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

How to Pick a Charity…During a Pandemic Part 3: Resources

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

Last time, we learned how to determine whether a nonprofit stuck to its mission with program indicators. However, what if you are pressed for time or lack the CPA relationships to help you through financial analysis? Well, you're in luck because there is help readily available at your fingertips, and I am going to show you where to look online. 

Helpful Vetting Resources

• GuideStar provides information on a charity's income, spending, mission, and executive salaries. They hold records for 1.8 million nonprofits registered with the Internal Revenue Service. Free parts of the website provide access to each organization's Form 990, the primary IRS filing document for nonprofits. Premium services offer more financial analysis.

• BBB Wise Giving Alliance produces reports about national charities, evaluating them against comprehensive Standards for Charity Accountability, and publishes a magazine, the Wise Giving Guide, three times a year.

• Charity Navigator applies analysis to each of its charities to come up with its star ratings (with four stars as the highest rank). The site focuses on financial health, accountability, and transparency.

• Charity Watch rates 600 charities with a grading system from A to F — and takes a watchdog approach towards exposing nonprofit abuses.

Pro Tip: If you decide to use a vetting site of your choice, look for sites that don't charge charities to be reviewed. his helps mitigate biased evaluation from vetting sites.

You made it to the end of the series! Hopefully, you feel empowered to choose an incredible nonprofit to support this year and that you had just as much fun reading the series as I had writing it. If you are interested in adding philanthropy to your financial plan, we have strategies to share with you. Feel free to email your Center planner with questions or contact@centerfinplan.com if you are new to The Center (we welcome you!).

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Make sure to check out part one of this blog series here, and part two of this blog series here!

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How to Pick a Charity…During a Pandemic Part 2: Commitment to the Mission

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

In part one of our "How to Pick a Charity...During a Pandemic" blog series, we discussed key documents to help identify a great nonprofit. In part two of our series, I'll show you how to determine whether money donated to nonprofits goes towards their programs & initiatives. 

On A Mission 

We understand a nonprofit is on a mission when they dedicate the majority of their resources toward implementing the programs that support the communities they aim to serve. While we generally assume the best of charities, sometimes a tiny voice in our minds ponders if our contribution actually helps people in need. Do our donations really support service programs? If you've ever heard that small voice, this number (with the help of your Certified Public Accountant, or CPA), can give you insight about a nonprofit's program spending habits:

The Program Expense Percentage, also known as The Program Efficiency Ratio, divides the organization's program expenses by the organization's total expenses. (Your CPA can use the charity's Form 990 to calculate this percentage.) 

While the program expense percentage varies by service provided and operating expenses needed to provide the service, experts recommend the percentage be at least 65%. In other words, 65% or more of the charity's resources (as evaluated by expenses) should be used for programming. If you can find two to three years of 990 forms for a nonprofit, you can determine spending trends. Charities that consistently underspend on their programs and services do not have as strong an impact on their charitable missions. 

Before we chop off any heads, it is also important to understand the nonprofit's program "stage".  For example, if the program is new or is trying to expand, more than ordinary operational expenses (staff hires, technology, etc.) may be required to catapult programming. Having data is great, but pairing data with accurate analysis is better.  Talk to the nonprofit about discrepancies, so your analysis is accurate.

Pro Tip: Pay attention to whether the charity practices "joint cost allocation". Joint cost allocation lumps fundraising with the charity's program expenses. This tactic blurs the line between resources spent on solicitation and service programs. If you bump into this practice, get clear about the type of charity you want to support. It may be appropriate for lobbying or public awareness organizations to use joint cost allocation, but you may not be able to deduct your donation to those types of organizations. On the other hand, joint cost allocation may be a red flag for service-based nonprofits.

Phone a Friend

I want to emphasize, rely on your support team to do the math for you. A CPA can help you crunch numbers as well as compare 990s to annual reports and financial statements. This is especially helpful if any of the documents are vague or missing information. If you need your gifting efforts to consider your tax or estate planning needs, ask your financial planner (that is why we are here!) for help.

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Make sure to check out part one of this blog series here!

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

How to Pick a Charity…During a Pandemic Part 1: Important Documents

While vetting a charity can be challenging in any environment, vetting a charity without interacting in person can be especially challenging. In this three-part blog series, I hope to share a few tips to help you pick and support amazing charities from the comfort of your home. 

Participate in The Center's Annual Toys for Tots Drive! Donate by December 17th.

Learn how The Center gives back throughout the year. 

Contributed by: Jaclyn Jackson, CAP®

Answering the Call 

According to a study done by the Urban Institute, nonprofits need our support more than ever. The study revealed 4 in 10 small charities experienced a dip in donations amid pandemic and economic concerns. Likewise, 29% of large nonprofits faced the same fate. The timing couldn't be worse as the demand for services provided by nonprofits has increased.

Luckily for nonprofits, the gifting season is here, and people across the nation open their hearts and pockets to wonderful nonprofits. Chances are, if you're reading this blog series, you're probably one of those soft-hearted individuals.

Let the Vetting Process Begin: Important Documents

You want to give wisely, and I want to support your efforts. Let's get started! In part one of this series, I'll outline the documents you'll need to assess a nonprofit. These documents are usually available on a nonprofit's website. However, you may have to do a little digging. Utilize navigation menus commonly found at the bottom of website homepages; go to the "about" page to find leads; use site search fields to search for reports by name.

1. Form 1023 - Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code: This tells you the organization is, in fact, a 501(c)(3) nonprofit. Aside from religious institutions (which have a different tax identification code), individuals most commonly support 501 (c)(3)s charities. Sometimes, nonprofits will provide their Employer Identification Number (EIN) instead of this form. You can use the number to confirm 501(c)(3) status on the IRS website.

2. Annual Report: Use this holy grail document to gain a comprehensive view of the nonprofit you're considering. Annual reports generally contain a charity's mission statement and focus, projects initiated (fundraising events, volunteer efforts, community programs), financial information, potential donors, and an account of significant contributions.

3. Form 990 - Return of Organization Exempt From Income Tax Form: Similar to how individuals tell the IRS about their financial activity, Form 990 provides the government and the public with a snapshot of the charity's activities for that year.

Bonus Documents

If you're thinking about giving a larger-than-normal contribution or becoming a long-term donor, inquire about the following policy documents. These items are not always on websites, so you may need to make an email request or call the nonprofit. 

• Code of Ethics or a Statement of Values: Company guidelines to help employees, volunteers, and board members make ethical choices and create accountability for those choices.

• Whistleblower Protection Policies: This shows a charity is open to hearing concerns or complaints about its practices by demonstrating that it values transparency and accountability practices.

• Governance Policies for nonprofit boards, internal controls, and conflict of interest policies help to ensure ethical leadership practices.

We've covered key documents to help you pick a great nonprofit. In part two of our series, I'll show you how to determine whether money donated to nonprofits actually goes towards programs & initiatives. 

Reminder: If you plan on donating this year, don't forget tax-advantaged opportunities extended to donors through the CARES Act:

• In addition to the standard deduction, non-itemizers can take an above-the-line deduction for $300 of charitable contributions per person. Joint filers can deduct up to $600. Additionally, itemizers can now deduct donations up to 100% of their AGI.

Are you working on your year-end tax planning? Check this out! Have questions? Don't hesitate to reach out: contact@centerfinplan.com.

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.