Is My Pension Subject to Michigan Income Tax?

Contributed by: Nick Defenthaler, CFP®

It’s hard to believe, but it’s been nearly seven years since Governor Snyder signed his budget balancing plan into law in 2011, which became effective January 1, 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 $50,509 if filing single, or $101,019 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 65, born in 1953) and Tina (age 70, 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. 

While this taxing benefits law angered many, I do think it’s important to note that it’s a very common practice for states to impose a tax on retirement income.  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 1 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.  Often, there are strategies that could potentially reduce your overall tax bill by being intentional on how you draw income once retired.  If you’d ever 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. 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to  be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The above is a hypothetical example for illustration purposes only.

Explaining the What is the “Restore” Option for Pensions, Part 3 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

Selecting your pension benefit option as you near retirement could quite possibly be the largest financial decision you ever make.  If you’ve received a breakdown of the various ways you can elect to have your pension benefits paid and you’re feeling overwhelmed, you are certainly not alone!  In many cases, employers give you the option to select from upwards of 30 different options that have various survivor benefits, lump-sum payouts, Social Security bridge payments and more.  Is your head spinning yet? 

One of the more appealing pension options that our team is seeing more and more of is the “restore” option.  The restore feature of a pension is a way to protect the person receiving the pension if their spouse dies before them.  If that were the case, the restore option allows the retiree to “step-up” to the higher single/straight life payment.  Similar to the survivor benefit, the restore option is another layer of “insurance” to protect the retiree from being locked into a permanently reduced pension benefit if their spouse pre-deceases them. 

Let’s take a look at an example of the restore feature:

Tom (age 61) is retiring from XYZ Company in several months.  Tom would like to evaluate his pension options to see which payment would be best for him and his wife Judy (age 60).  Tom has narrowed it down to 3 options:

Option 1:

• $45,000/yr single/straight life (no survivor benefit)

  • Payment would cease upon Tom’s passing – $0 to Judy

Option 2:

• $41,000/yr 50% survivor option

  • Judy would receive a $20,500/yr benefit during her lifetime if Tom pre-deceases her

 Option 3:

• $40,200/yr 50% survivor option with “restore” feature

  • Judy would receive a $20,500/yr benefit during her lifetime if Tom pre-deceases her

  • Tom would step-up to a $45,000/yr benefit (straight/single life benefit figure) if Judy pre-deceases him

The more Tom and Judy have discussed their overall financial plan; they are not comfortable selecting the single/straight life option and risking Judy not receiving a continuation of benefits if Tom pre-deceases her.  However, because Judy has had some health issues in the past, they feel the 50% restore payment option makes more sense for their situation because it is very possible that Judy will die before Tom.  They are comfortable with an $800/yr reduction in payment to have the “insurance” of Tom stepping up to the higher single/straight life option if he survives Judy. 

While the restore option for Tom and Judy seems to make perfect sense, there truly is no a “one size fits all” pension option that works for everyone.  Every situation is very unique and it’s important that you evaluate your entire financial picture and other sources of retirement income to determine which pension option is right for you and your family.

Click to see part 1 of pension blogs How to Choose a Survivor Benefit for Your Pension and part 2 What You Need to Know About Pension Benefit Guaranty Corporation or PBGC

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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. Any opinions are those of Nick Defenthaler, CFP© and not necessarily those of Raymond James. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 

WEBINAR IN REVIEW: Retirement Income Planning: How Will You Get Paid in Retirement?

Contributed by: Nick Defenthaler, CFP®

One of most common questions I hear from clients as they approach retirement is, “How do I actually get paid when I’m no longer working?” It’s a question that I feel we as planners can sometimes take for granted.  Because we are helping hundreds of clients throughout the year with their retirement income strategy, we can sometimes forget that this simple question is often the cause of many sleepless nights for soon-to-be retirees.   

Saving money throughout your career can be simple, but certainly not easy. Prudent and consistent saving requires a tremendous amount of discipline. However, if you elect the proper asset allocation in your 401k and you’re a quality saver, in most cases, accumulating really doesn’t have to be all that difficult.  However, when it comes time to take money out of the various accounts you’ve accumulated over time or have to make monumental financial decisions surrounding items such as Social Security or which pension option to elect, the conversation changes. In many cases, this is a stage in life where we frequently see those who have been “do it yourselfers” reach out to us for professional guidance. 

The first step in crafting a retirement income strategy is having a firm grip on your own personal spending goal in retirement. From there, we’ll sit down together and evaluate the fixed income sources that you have at your disposal. Most often these sources include your pension, Social Security, annuity income or even part-time employment income. Once we have a better sense of the fixed payments you’ll be receiving throughout the year, we’ll take a look at the various investable assets you’ve accumulated to determine where the “gap” needs to be filled from an income standpoint and determine if that figure is reasonable considering your own projected retirement time horizon. Finally, we need to dive into the tax ramifications of your income sources and portfolio income. If you have multiple investment or retirement accounts, it’s critical to evaluate the tax ramifications each account possesses. 

Make sure you listen to the replay of our webinar “Retirement Income Planning: How Much Will You Get Paid In Retirement?” for additional tips and information on how you might consider structuring your own tax-efficient retirement income strategy.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. 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. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.

What You Need to Know About Pension Benefit Guaranty Corporation or PBGC, Part 2 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

In many cases, the decision you make surrounding your pension could be the largest financial choice you’ll make in your entire life.  As such, the potential risk of your pension plan should be on your radar and factored in when ultimately deciding which payment option to elect.  This is where the Pension Benefit Guaranty Corporation comes into play.

The Pension Benefit Guaranty Corporation or “PBGC” is an independent agency that was established by the Employee Retirement Income Security Act (ERISA) of 1974 to give pension participants in plans covered by the PBGC guaranteed “basic” benefits in the event their employer-sponsored defined benefit plans becomes insolvent.  Today, the PBGC protects the retirement incomes of nearly 40 million American workers in nearly 24,000 private-sector pension plans. 

Municipalities, unions and public sector professions are almost never covered by the PBGC.  Private companies, especially larger ones, are usually covered (click here to see if your company plan is).  Each year, companies pay insurance premiums to the PBGC to protect retirees.  Think of the PBCG essentially as FDIC insurance for pensions.  Similar to FDIC coverage ($250,000) that banks offer, there are limits on how much the PBCG will cover if a pension plan fails.  It's important to note that in most cases, the age you happen to be when your company’s pension fails is the age the PBGC uses to determine your protected monthly benefit. 

For example, if you start receiving a pension at age 60 from XYZ company and 5 years later, XYZ goes under when you’re 65, your protected monthly benefit with the PBGC would be $5,2420.45 – assuming you are receiving a straight life payment (see table below).  As we would expect, the older you are, the higher the protected monthly benefit will be due to life expectancy assumptions.    

*chart is from Pension Benefit Guaranty Corporation website

When advising you on which pension option to choose, one of the first things we'll want to work together to determine is whether or not your pension is covered by the PBGC.  If your pension is covered, this is a wonderful protection for your retirement income if the unexpected occurs and the company you worked for ends up failing.  If you think it will never happen, let’s not forget 2009 when many unexpected things occurred in the world such as General Motors filing for bankruptcy and Ford nearly doing the same.  If your pension is not covered, we'll want to take this risk into consideration when comparing the monthly income stream options to a lump sum rollover option (if offered). 

While PBCG coverage is one very important element when evaluating a pension, we’ll also want to analyze other aspects of your pension as well, such as the pension’s internal rate of return or "hurdle rate" and various survivor options offered. 

As mentioned previously, the decision surrounding your pension could quite possibly be the largest financial decision you ever make.  When making a financial decision of such magnitude, we’d strongly recommend consulting with a professional to ensure you’re making the best decision possible for your own unique situation.  Let us know if we can help!   

Be sure to check out our pension part 1 blog How to Choose a Survivor Benefit for Your Pension posted April 5th and our next blog Explaining What the “Restore” Option is for Pensions posted May 10.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog 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. Any opinions are those of Nick Defenthaler, CFP© and not necessarily those of Raymond James. This is a hypothetical example for illustration purpose only and does not represent an actual investment. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

How to Choose a Survivor Benefit for Your Pension, Part 1 of a 3 Part Series on Pensions

Contributed by: Nick Defenthaler, CFP®

If you’re married and eligible to receive a pension upon retirement, chances are you will be making an election for a survivor benefit before you start collecting. What should you choose when it’s time to elect your payment option?

As a quick refresher, when a pension has a survivor benefit attached to it, the income stream the pension provides goes through the lifetime of you and your spouse. Depending on the level of the survivor benefit, you could see a large discrepancy in the payment amount that the pension ultimately provides while both spouses are still alive. 

For example, the monthly payment a 100% survivor benefit provides will be much lower than the monthly payment a 25% survivor benefit would provide. This is because the 100% survivor option offers a guaranteed continuation of full benefits to the surviving spouse as compared to only a 25% continuation of benefits. In reality, a survivor benefit is an “insurance policy” on your pension! The reduction in monthly benefits by having a survivor option is like the “monthly premium” on that insurance policy.

Case Study

Let’s take a look at an example of how selecting a survivor option could vary depending on your family’s unique, personal situation:

Nancy (age 65) and Steve (age 64) are evaluating Nancy’s pension options as she approaches retirement in a few months. Unfortunately, Nancy has had heart issues over the years and does not have longevity in her family. Steve on the other hand, is in great shape and plans on living into his nineties.  Below are the pension options Nancy has to choose from:

• 100% Survivor Option

  • $42,000/year to Nancy: Steve would receive $42,000/year if Nancy dies first

• 50% Survivor Option

  • $46,000/year to Nancy: Steve would receive $23,000/year if Nancy dies first

• 25% Survivor Option

  • $48,000/year to Nancy: Steve would receive $12,000/year if Nancy dies first

• Straight-Life Option (No Survivor Benefit)

  • $50,000/yr to Nancy: No continuation of payments for Steve when Nancy dies

Due to Nancy’s health issues, the straight-life option would likely not be advisable. There is a very high likelihood that Nancy pre-deceases Steve so they would not want to select an option that would provide zero continuation of benefits, especially considering the size of the pension payment. In a similar vein, Nancy and Steve are not comfortable with Steve only receiving 25% of Nancy’s pension if she passes before him, primarily due to Nancy’s health issues.  At this point, they have narrowed their options down to the 100% survivor or 50% survivor benefit election.  

Because Nancy is a number cruncher, we created a spreadsheet to analyze the value of maintaining a larger survivor benefit, assuming she pre-dececeases Steve at various ages:

While it’s all well and good that Steve would receive a higher continuation of benefits if Nancy passes before him under the 100% survivor option, we have to remember that there is a “cost” to this pension option ($4,000/yr lower payout compared to the 50% survivor option). However, as the table above shows, it does not take long at all for Steve to “break even” on the cost of the $4,000/yr “insurance premium”. 

After reviewing the numbers in detail, Steve and Nancy decided to elect the 100% survivor option.  They arrived at this decision primarily because of Nancy’s reduced life expectancy. In addition, if she does die before Steve within the first 15 years of retirement (a very likely possibility), it only takes several years for the larger survivor benefit to make up for the lower pension payment Nancy would have received during her life, especially taking into consideration Steve’s good health.  

As you can see from our example, many factors come into play when selecting a pension benefit and survivor option. While it might be human nature to ask which option is best, unless we have the proverbial crystal ball to look into the future and see what life has in store for us over the next 30+ years, it’s impossible to provide a concrete answer.

When evaluating pension options, my number one goal as a fiduciary advisor is to provide a sound recommendation that aligns with your own personal situation and retirement goals. If our team can be a resource for you in evaluating your pension decision, please feel free to reach out to us.  

See Part 2 of the series, What You Need to Know About Pension Benefit Guaranty Corporation or PBGC. Part 3 Explaining the What is "Restore" Option for Pensions I invite you to listen to a replay of my webinar from April 24th at 1:00 pm on Retirement Income Planning: How Will You Get Paid in Retirement?  

The case study and accompanying chart have been provided for illustrative purposes only. Individual cases will vary

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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Nick Defenthaler, CFP® Will Play in the United Cerebral Palsy Benefit Hockey Game

Contributed by: Nick Defenthaler, CFP®

For the second year in a row, I will be lacing up the skates to play for the United Cerebral Palsy (UCP) ‘Pucksters’ as we take on the Detroit Red Wing Alumni. This is the 18th year for the charity hockey game, which will benefit United Cerebral Palsy Detroit and will take place at the St. Mary’s Arena in Orchard Lake, MI. Over the years, this amazing event has raised nearly $400,000 for the disabled community and their families! 

I discovered this great event while meeting with a client who is very involved within UCP Detroit and like me, still plays hockey each week with friends. When he and his wife asked me to be a part of the roster to play the Red Wing Alumni team, I was thrilled. Not only could I help support a worthy cause, I could also skate alongside many of the athletes I grew up watching play as a kid. I’ll never forget lining up next to NHL Hall of Famer, Dino Ciccarelli at last year’s game and telling him, “You know, you were one of my favorite players on the Wings when I was growing up. I hope that makes you feel old”. We both had a good chuckle and he gave me a friendly jab as the puck dropped at the faceoff. That was a pretty cool moment for someone like me who has grown up to live and breathe Red Wing hockey. 

Event Information:

• Date: Saturday, March 24, 2018

• Location: Orchard Lank St. Mary’s Ice Arena – Orchard Lake, MI

• Game Time: 4pm sled hockey game, 6pm game vs. Detroit Red Wings Alumni

• Tickets: Only $10/person or $30 for a family up to 5 members, kids under 5 are free

• Visit: skatewithoutlimits.org for more information!

If you would like to read more about my story and my fundraising goals for the event, please click here.  I hope to see some familiar faces in the stands once again this year cheering on the UCP Pucksters!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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Links are being provided for informational 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.

Market Pull Backs: Painful in the Short Term, Normal in the Long Run

Contributed by: Nick Defenthaler, CFP®

As I’m sure you’ve noticed as of late, global markets have not been very cooperative with investors. It almost seems like a broken record from past market declines when you turn on the television or read the paper and the majority of headlines you see and hear about are market driven – many with a “doom and gloom” sentiment. While market declines are rarely a fun thing to experience, they are normal, virtually unavoidable and come with the territory if you want to be invested long-term with the goal of growing your portfolio. To be honest, I think we’d be more nervous if they didn’t occur! Pullbacks like we’re experiencing right now tend to bring things back to reality a bit and keep markets in check. Although some pain can be felt short-term, typically investors are rewarded for going through such rollercoasters when things eventually improve. 

Check out the graph below provided by JP Morgan which tells an intriguing and comforting story over the last three and a half decades. Since 1980, every single year experienced a market pull back at some point which averaged -14.2%. However, over the course of those 35 years, 27 of them ended the year in positive territory! I really think this helps to put things in perspective when the markets get rocky, like we’re currently experiencing.    

This chart is for illustration purposes only. Past performance is not a guarantee of future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

Also keep in mind that the chart above is for a 100% stock index. When you utilize a more diversified, balanced portfolio strategy, like the majority of our clients, the effect typically means less volatility which in turn translates into less potential upside required to get back to where we were before the selloff. To use a baseball analogy, we’re focused on hitting singles and doubles because those are what usually lead to actually scoring runs. Those who swing for the fences and hit occasional home runs or grand slams are usually the ones who have the most strike outs and worst batting averages. 

The bottom line is this – while market pullbacks can make us nervous and uneasy, they’re a completely normal part of the market cycle. As an investor, staying true to a disciplined investment process and keeping your long-term goals in mind should help get you through the difficult times and put you in a strong position when things recover.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Diversification and asset allocation do not ensure a profit or protect against a loss.

Tax Reform Series: Changes to Charitable Giving and Deductions

Contributed by: Nick Defenthaler, CFP®

The Tax Cuts and Jobs Act (TCJA) is now officially law. We at The Center have written a series of blogs addressing some of the most notable changes resulting from this new legislation. Our goal is to be a resource to help you understand these changes and interpret how they may affect your own financial and tax planning efforts.

If you’ve heard the charitable deduction is going away under the Tax Cuts and Jobs Act of 2017, you are certainly not alone – this is a common misconception under our new tax code.  To be perfectly clear, gifts to charity are certainly still deductible!  However, depending on your own tax situation; your deduction may not provide any tax savings due to the dramatic increase in the standard deduction moving into 2018: 

Standard Deduction vs. Itemizing Deductions

Think of the standard deduction as the “freebie deduction” that our tax code provides us, regardless of our situation.  If you add up all of your eligible deductions (state and local tax, property tax, charitable donations, medical expenses, etc.) and the total happens to exceed the standard deduction, you itemize.  If they fall short, then you take the standard deduction.  Pretty simple, right?

With the standard deduction nearly doubling in size this year, many of us who have previously itemized deductions will no longer do so.  Let’s take a look at how this change could impact the tax benefit of your charitable donations:

Example

Below is a summary of Mark and Tina’s 2017 itemized deductions*:

• State and Local Taxes = $6,600

• Property Tax = $6,000

• Charitable Donations = $5,000

• Total = $17,600

Because the standard deduction was only $12,700 for married filers in 2017, Mark and Tina itemized their deductions.  However, the only reason why they were able to itemize was due to the $5,000 gift they made to charity.  If they didn’t proceed with their donation, they simply would have taken the standard deduction because their state and local tax along with property tax ended up being only $12,600 – $100 shy of standard deduction for 2017 ($12,700).  Their gift to charity created a tax savings for them because it went above and beyond the amount they would have received from the standard deduction!

For the sake of our example, let’s assume Mark and Tina had the same exact deductions in 2018.  It will now make more sense for them to take the much larger standard deduction of $24,000 because it exceeds the total of their itemized deductions by $6,400 ($24,000 – $17,600).  In this case, because they are taking the standard deduction, there was no direct “economic benefit” to their $5,000 charitable donation. 

*This is a hypothetical example for illustration purposes only. Actual investor results will vary.

Planning Strategies

Because many clients who previously itemized will now take the larger standard deduction, reaping the tax benefits for giving to charity will now require a higher level of planning.  For clients who are now taking the standard deduction who are charitably inclined, it could make sense to make larger gifts in one particular year to ensure your charitable deduction exceeds the now larger standard deduction. Or, if you’re over the age of 70 ½, the Qualified Charitable Distribution (QCD) could be a gifting strategy to explore. Of course, we would want to dig deeper into this strategy with you and your tax professional before providing any concrete recommendations. 

For most of us, the number one reason we give to charity is to support a cause that is near and dear to our heart.  However, as I always like to say, if we can gift in a tax efficient manner, it just means additional funds are available to share with the organizations you care deeply about instead of donating to Uncle Sam. 

Don’t hesitate to reach out to us for guidance surrounding your gifting strategy, we are here to help!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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Check out our other Tax Reform articles:

Changes to Federal Income Tax Brackets

Changes to Standard Deduction, Personal Exemption, Misc. Deductions, and the Child Credit

Changes to Investments and the Financial Market

Changes to State and Local Tax Deduction

Changes to Mortgage Interest Deduction (including Home Equity Loans and LOC Implications)

Changes to Estate Tax Planning in 2018 and Beyond

Changes to Medical Deductions

Changes to Business & Corporate Tax, and Pass-Through Entities

The information contained in this blog 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, 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 Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. 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. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

 

Webinar in Review: Year-End Tax Planning

Contributed by: Nick Defenthaler, CFP®

On November 14th, Melissa Joy, CFP® and I hosted The Center’s annual Year-End Tax Planning Opportunities and Strategies webinar which continues to be one of our best attended discussions throughout the year.  In 2016, Melissa and I hosted the webinar two days after the presidential election and this year, the presentation was held several days after the latest GOP tax reform proposal.  Needless to say, it’s been a great chance for our team to share timely updates with clients and strategic partners! 

If you weren’t able to attend the webinar live, we’d encourage you to check out the recording below.  Here are a few key points and takeaways from our discussion:

Potential Tax Reform Highlights  

• Moving from seven tax brackets down to three or four: 12%, 25%, 35% and 39.6%

• Elimination or caps on popular deductions:  State and local taxes, medical expenses, student loan interest, mortgage deduction cap, property tax cap

• Larger standard deduction (almost doubling from $12,700 for married filers to $24,000)

• Repeal of Alternative Minimum Tax (AMT)

• Corporate tax reduction (moving down to 25%)

• Estate tax exemption (almost doubling from $5.5M to $11M, with the goal of repealing the estate tax completely within 6 years)

2018 Updates

• Social Security Cost of Living Adjustment (COLA), Medicare premium adjustments, retirement plan contribution and income limit adjustments, etc.)

Retirement Planning   

• Evaluate your savings rate moving into the new year and if you’re not maxing out your 401k ($18,500 or $24,500 if over the age of 50), consider increasing your savings percentage by 1% - 2% each year

• Work with your advisor to determine if the Traditional (pre-tax) or Roth (after-tax) retirement vehicles makes sense for your situation given your current and projected future tax bracket  

Charitable Giving

• Consider utilizing a Donor Advised Fund to gift appreciated securities from a brokerage account – allows you to take a tax deduction and also avoid paying capital gains tax

• Consider utilizing the Qualified Charitable Distribution (QCD) if you’re over the age of 70 ½ - allows you to gift funds directly to charity from your IRA

Investment Planning  

• Review your allocation before year end to see if your mix between stocks and bonds is appropriate for your situation

• Consider the asset location of your portfolio to potentially improve after-tax returns

• Consider proactive planning such as tax-loss harvesting

As mentioned during the webinar, don’t forget to check out our Year-End Planning Opportunities guide in the resources portion of our website.  This guide acts as a helpful tool to help organize your financial picture before year and also provides further insight on retirement planning strategies to consider as well as a detailed overview of proposed tax reform.  Please feel free to contact your financial planning team at The Center with any questions or concerns, we’re here to help.

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Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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This information is being provided for educational purposes only and is not intended as specific tax or investment advice. 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.

Our New Financial Planner: Bob Ingram

Contributed by: Nick Defenthaler, CFP®

The Center recently welcomed a new team member: Bob Ingram.  With nearly 15 years of experience in the profession, Bob is thrilled to join a team where he can collaborate with other professionals to further enhance his role as a financial planner. 

Prior to joining The Center, Bob helped clients achieve their financial goals at a large, national investment and financial planning firm. 

In addition to meeting with clients, Bob will be an active member within The Center’s Financial Planning Department.  If Bob looks familiar, it might be because you’ve seen him speak on various personal finance and investment related topics as the “Money Man” for Detroit’s WXYZ Channel 7. 

Bob is not only excited to join our team, but happy to be on yours as well.  Next time you’re in the office, stop by and say hi to our growing team!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.