Category: General

If you had to think about every breath you took, you wouldn’t have much time to do much of anything else.

That’s because breathing is an automated system for your body that supports your life.

At AVID Planning, our goal is to automate our financial systems so that they run without you having to give any brainpower to them. So often, we see investors making a lot of manual decisions with their money.

They pay bills manually, organize their cash flow manually with each paycheck, and manually move money to savings or other earmarked financial goals.

The truth is that the more “hands-on” you have to be in your finances, the less progress you’re likely to make. Every decision you make to move toward your goals is a chance to make mistakes, which adds to the pressure with every new opportunity that comes up.

This can be incredibly tiring for investors. On average as humans, we make an estimated 35,000 decisions each day.

When you have to make additional decisions about your finances, you’re likely to slip up.

Instead of funneling money toward savings, you might decide to make a purchase (like a car, or a boat) that derails your debt repayment goals.

When you automate these actions by putting systems in place, you’re reducing the total number of decisions you have to make about your money. Your goals are achieved on autopilot, and you aren’t giving yourself the opportunity to make mistakes.

Automation and systems in your financial life can also help you to free up creativity, time, and emotional bandwidth to pursue other exciting opportunities. You may be spending less time worrying about your money and your financial goals, so you’re able to perform better at work, which may lead to a future promotion. Or maybe you’re just able to spend an extra hour or two each week with your family, playing board games and connecting.

Either way – reducing the amount of time you have to spend on mindless tasks that could be automated through financial systems that are uniquely designed to help you achieve your goals is a win.

At AVID Planning, we work to help our clients create unique-to-them systems that automate their finances and put them on the path to achieving the goals that matter most to them.

Want to learn more? Click here to contact us today.

How to Invest in Your Health in 2022

Healthcare is one of the essential parts of life’s financial and personal journey. Many have not yet utilized all the financial tools that may help. 

Health Savings Accounts (HSAs)

An HSA gives you a tax-exempt savings account to pay for your healthcare expenses. The money you don’t spend in one health plan year rolls over to the next. You are also enrolled in an HDHP (High Deductible Health Plan), in which your insurance company will only pick up the tab for significant healthcare expenses (including types of preventive care, maternity care, and pediatric primary care). 

A large draw for many are the tax benefits inherent to HSAs:

• Contributions through an employer are always pre-tax.
• You can invest the funds after your account balance reaches a certain level.
• Distributions for qualified health expenses aren’t taxable. 

Unlike a Flexible Spending Account (FSA), which is funded with pre-tax dollars but must be used by a specific deadline, HSA contributions can remain in your account to be used for future medical bills at any time. In short, this means there is no “use it or lose it” penalty.¹ 

Keep in mind that if you spend your HSA funds for non-qualified expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for non-qualified expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

HSA Contribution Limits Are Adjusted Annually for Inflation

For 2022, the self-only contribution limit is $3,650 or $7,300 for families. This is a $50 increase for individuals and a $100 increase for families from 2021. The contribution limit includes contributions from both employers and employees (or family members).

These adjustments are rounded to the nearest $50 to account for inflation rates, which are determined using the Consumer Price Index for All Urban Consumers.²

How to Use Your HSA

The IRS or your HSA provider are great sources when getting started. For example, the IRS recently issued a reminder that at-home COVID-19 tests, face masks and sanitizing wipes can all be purchased or qualify for reimbursement through an HSA. In addition, the IRS offers an interactive assessment tool that can take the guesswork out of what qualifies as an HSA-friendly expense.³

In the traditional insurance plan, you pay high premiums up front; in the HDHP, you pay lower premiums and essentially assign the savings to your own healthcare expense account. 

Flexible Spending Accounts (FSAs)

With an FSA, you deduct pre-tax dollars out of your salary to pay qualified medical expenses. You can designate an FSA for your healthcare expenses or those of a dependent. But most FSAs are “use it or lose it”—at the end of the plan year, the money left in the account doesn’t roll over into the following year. Employees tend to minimally fund FSAs, although they can be used in conjunction with HSAs.

Consolidating Medical Procedures

If your medical expenses are more than 7.5% of your Adjusted Gross Income (AGI), you may be able to use them to cut your tax bill. This includes payments to doctors, dentists, surgeons, mental health practitioners and other medical bills. It can also extend to hospital care, nursing home care, additional programs, prescription drugs, insulin, and more. For some, this incentivizes consolidating eligible medical procedures within a single tax year rather than spreading them across multiple years when they might not meet the threshold.

If you’re considering this option, you will want to keep good records because you need to itemize these through Schedule A on your tax return. Ultimately, it may be a good idea to schedule your treatments carefully, as you will only be able to claim costs accrued in the same year. There’s no carry-over. If you can arrange them so that your charges amount to the necessary portion of your AGI, it can be to your advantage when tax time comes.⁴

Whether you consider taking on an HSA, FSA or consolidating your medical procedures, it may be helpful to reach out to a financial professional to talk about these options ahead of the new year.

1. https://www.marketwatch.com/story/how-to-plan-and-pay-for-healthcare-costs-in-retirement-11617641824
2. https://www.irs.gov/pub/irs-drop/rp-20-43.pdf
3. https://www.irs.gov/help/ita/can-i-deduct-my-medical-and-dental-expenses
4. https://www.nerdwallet.com/article/taxes/medical-expense-tax-deduction

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

The AVID team needs your help!

AVID Chat #60 is quickly approaching, and as we look ahead to 2022, we’d love to hear your feedback. Our goal is to always be improving the AVID experience for clients, colleagues, and friends. In this short survey, we’re asking you to anonymously let us know what type of topics you want to hear more about, what sort of content medium you prefer, and how often you’d like to hear from us.

Please complete the survey by clicking here.

Have questions?

We’re here to help!

Reach out to us by clicking here. 

Estate planning is an often complex financial process that nearly all investors should consider. It includes reviewing legal and tax implications, investment strategies and personal questions to ensure your estate is set up efficiently. 

As we ring in 2022, let’s look at some of the most important estate planning documents you should have prepared. 

Wills & Trusts

When you think about considering estate planning in 2022, one of the most important documents to consider is your will or trust. A will is a document that spells out your wishes regarding the distribution of your assets and care of any dependents if needed. A trust is a tax-advantaged way to arrange ownership of your assets and allows a third party to hold these assets on behalf of a beneficiary.

Both of these documents are usually part of a well-crafted estate plan because they have different focuses. By preparing these important documents, you can help protect your legacy and make the transition of assets easier when you are gone.

There are also two subsets to these documents: living trusts and living wills. 

What is a Living Trust?

A living trust is a legal document that places your assets in a trust while you are alive and also designates where these assets will go upon your death. Some investors choose to also implement a living trust into their estate planning strategy because it is revocable (meaning that it can be changed), and it may allow your estate to bypass probate, which can be a long and costly process. 

What is a Living Will?

You can also set up a living will, which is a directive to physicians that explains your end-of-life medical care preferences. If you are unable to communicate, a living will helps doctors and family members make decisions about your care based on what you would prefer (e.g., CPR, mechanical ventilation, tube feeding, organ donation).

In your living will, you may also specify a healthcare power of attorney, which is an agent who can make important healthcare decisions on your behalf.

Beneficiary Designations

A will or trust explains how you would like your assets distributed among beneficiaries, so it’s also important to update your beneficiaries as you build your estate plan. You should have a contingent beneficiary stated on all insurance and retirement accounts, as well as contingent beneficiaries stated in your will or trust. The new year is a great time to review your beneficiaries as things can change (e.g. marriage or divorce, kids and grandkids, new in-laws, etc.) and having an outdated estate plan can be a recipe for disaster. 

If no beneficiary is stated, your estate may end up in the hands of the court, which can be an impersonal way to handle your assets because a judge has no familiarity with your wishes. 

Power of Attorney

Power of attorney (POA) is given to the agent or person you designate to act on your behalf and oversee your will if you are unable to do so. It’s important to designate POA because if you don’t, the court may decide how your will and assets should be managed. 

You don’t have to give POA to a family member, either. You can choose a trusted friend or financial advisor to act as the agent of your will, especially if they have a strong financial and estate planning background.

Letter of Intent

A letter of intent might cover other details that aren’t included in a will, such as funeral arrangements or a decision for a particular asset. Unlike a will, most letters of intent aren’t legal documents, but they provide supplemental information for your estate and the more information you have for your beneficiaries, the better. A letter of intent can help supplement gaps in a will and answer questions your beneficiaries or probate court might have. 

These are just a few of the important documents you should consider adding to your estate planning strategy in 2022. Talk with your financial advisor about everything you need to know when getting your estate in order. 

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

It’s easy to notice when gas prices go up, because they’re posted everywhere you go. Often, people will talk about gas prices as a sign of inflation because it’s such prevalent information that everyone can relate to. However, if you look at how gas prices raise and fall, they often come close to averaging out when you consider inflation and other environmental factors. Currently, gas prices are close to $3.33 — slightly above the “average” on this diagram:

Often, people become stressed over things like gas prices, inflation, or the “latest” individual stock that’s being lauded as the best new thing for investors to incorporate into their portfolio. The foundation for this stress isn’t usually because their financial life is directly impacted by the price of gas, or by the latest stock that’s skyrocketing.

They feel overwhelmed because between the mainstream media and other financial news outlets focusing on specific topics intensely, people develop an acute awareness of them and are often afraid that they’re missing out on something incredible.

However, this is most often not the case.

Let’s look at individual stocks as an example. Many stocks from companies that would be considered relatively successful, like Stitch Fix or Zoom, hit the ground running with a huge gain in the stock market, only to plummet shortly after going public.

If you had a large percentage of your portfolio concentrated in these newly-public companies when they were at a high but didn’t sell before they came back down, you’d be in a tough situation where the majority of your portfolio was tied up in a stock that fluctuated wildly in a short period of time.

This is where the importance of a financial plan comes into play. When it comes to your investments (and your long-term strategy), it’s important to remember that you’re running a race that’s unique to you. Your portfolio should be balanced, and geared toward your specific goals and retirement horizon. Yes, your long-term investment strategy should account for inflation. But you can’t shift everything in your strategy each time the price of gas fluctuates because (as shown in the chart above), that happens constantly.

Partnering with a financial planning team to help act as a sounding board when financial news leaves you feeling anxious can help. Reach out to us today by clicking here: https://avidplanning.com/contact

It’s never too early to start looking at your tax obligations for the coming tax season. The information in this article is for the 2022 tax year, which most taxpayers will file in 2023.

The seven 2021 tax rates themselves didn’t change (they are the same as those in effect for the 2021 tax year); however, the tax bracket ranges were modified based on inflation. Because of this, it’s possible you could be in a different tax bracket for 2022 than the last time you reported your taxes, even if your income has not changed.¹

Reminder: Tax Brackets Are Marginal

The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are a single filer who made $40,125 in 2021, your first $10,275 will be taxed at 10 percent. The next portion of your income will be taxed at an increased rate; from $10,276 to $41,775, your tax rate will be 12 percent. 

As your income increases, you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your income. 

Why Would My Tax Bracket Be Different? 

The IRS regularly adjusts tax brackets to take inflation into consideration. This is because, with inflation, people will face higher prices, meaning the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket, or credits and deductions are reduced. In this scenario, an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.¹

2021 Tax Brackets 

Without further ado, here are the 2022 tax brackets according to your filing status and income from the IRS.¹

10% Tax Rate

• Single Individuals: from $0 to $10,275
• Married Individuals Filing Jointly: from $0 to $20,550
• Heads of Households: from $0 to $14,650
• Married Individuals Filing Separately: from $0 to $10,275

12% Tax Rate

• Single Individuals: from $10,276 to $41,775
• Married Individuals Filing Jointly: from $20,551 to $83,550    
• Heads of Households: from $14,651 to $55,900
• Married Individuals Filing Separately: from $10,276 to $41,775

22% Tax Rate

• Single Individuals: from $41,776 to $89,075
• Married Individuals Filing Jointly: from $83,551 to $178,150       
• Heads of Households: from $55,901 to $89,050
• Married Individuals Filing Separately: from $41,776 to $89,075

24% Tax Rate

• Single Individuals: from $89,076 to $170,050        
• Married Individuals Filing Jointly: from $178,151 to $340,100
• Heads of Households: from $89,051 to $170,050
• Married Individuals Filing Separately: from $89,076 to $170,050

32% Tax Rate

• Single Individuals: from $170,051 to $215,950    
• Married Individuals Filing Jointly: from $340,101 to $431,900        
• Heads of Households: from $170,051 to $215,950
• Married Individuals Filing Separately: from $170,051 to $215,950

35% Tax Rate

• Single Individuals: $215,951 to $539,900
• Married Individuals Filing Jointly: from $431,901 to $647,850
• Heads of Households: from $215,951 to $539,900
• Married Individuals Filing Separately: from $215,951 to $323,925

37% Tax Rate

• Single Individuals: over $539,901    
• Married Individuals Filing Jointly: over $647,851   
• Heads of Households: over $539,901
• Married Individuals Filing Separately: over $323,926

In addition to the tax inflation adjustments, the IRS also altered standard deductions. While the above rates and brackets are at the federal level, different states might have varying brackets and rates.

1. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Paying off debt is a major financial accomplishment, and while it might take some patience, there are a few good strategies to help you get ahead of your debt and not fall behind. 

Two of the most common debt repayment strategies are the avalanche and the snowball methodologies. Let’s learn about both to help you understand how they can help you pay off debt. 

What is an Avalanche Debt Repayment Strategy?

An avalanche debt repayment strategy is a slow-but-steady way to pay off your debt in which you set aside a debt repayment amount every month, make the minimum payments on all your debts and then use the leftover money to pay off your higher-interest debt as quickly as possible.

For example, let’s say you have $5,000/month to devote to paying off debt and you have the following debts:

• $12,000 of credit card debt with a 19% APR.
• An $8,000 car loan with a 4% APR.
• $15,000 in student loans with a 3% APR.

With the avalanche repayment method, you would make the minimum payments on the car loan and the student loans and use the rest of the earmarked funds to pay off the credit card debt as soon as possible because it has the highest APR. 

With this method, you can potentially save on interest because you are paying off the most expensive loans first. 

What is a Snowball Debt Repayment Strategy?

A snowball debt repayment tackles one debt at a time, starting with the smallest loan so you can get it off your plate sooner. In the above scenario, you would pay off the car loan first since you owe the smallest amount, then tackle the rest of the debt. 

This strategy may seem appealing for individuals who want to see the results of their actions sooner, but you may end up paying more in interest because you may have the high-interest loans for longer. 

Avalanche vs Snowball Debt Repayment: Which is Better?

Both avalanche and snowball debt repayment options are great ways to encourage people to pay off debt, and they both have their pros and cons. The strategy that’s right for you will depend on your own unique financial situation, your loans, and your personality and motivations. 

Pros & Cons of Avalanche Debt Repayment

Here are some of the benefits and considerations for the avalanche debt repayment method:

Pros

• The main benefit of an avalanche debt repayment strategy is that you may save on interest. In the above example, you could potentially save hundreds of dollars compared to the snowball debt repayment because you are ridding yourself of the high-interest loan as soon as possible with extra funds. 

Cons

• The avalanche debt repayment strategy may be hard for individuals who are motivated by instant gratification. Because you are taking longer to pay off individual loans, it may feel like you aren’t making as substantial of progress. 

Pros & Cons of Snowball Debt Repayment

Here are some of the benefits and considerations of the snowball debt repayment method:

Pros

• Paying off debt feels great. Because this strategy focuses on smaller amounts first, it can be a good motivator for individuals who enjoy seeing their hard work pay off sooner. 

Cons

• Because this method focuses on smaller loans first, rather than loans that have the highest interest rates, it may end up costing more in the long run and extending the life of the loan because of the higher interest rates. For individuals who want to pay the least amount of interest as possible, the snowball debt repayment method might not be the best option. 

Whether you use the avalanche or snowball debt repayment method (or a mix of the two), paying off debt is a healthy and responsible financial strategy. If paying off debt is one of your financial goals, talk to your financial advisor to help create a realistic plan.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

December is Identity Theft Protection Awareness Month and we’re taking this month to share some ways you can help keep your identity safe.

In 2019, 14.4 million people were victims of identity theft.¹ Identity theft can happen in a number of ways: in-person, online, over email or on the phone. However it occurs, identity theft affects a large number of people per year.

Let’s learn about how you can protect your identity and sensitive information online and in-person. 

Tip #1: Don’t Assume Your Identity Will Never Get Stolen

No matter how careful you are with your personal information, never assume that you are immune to identity theft. According to a recent report, 47% of Americans experienced financial identity theft in 2020.² That’s nearly half of all adults, and that only includes the cases of identity theft that were properly reported. There could be other cases that were either never reported or never even discovered. 

There is so much data in today’s world that it’s impossible to keep yourself completely safe, but by understanding the risk of fraud, you can grasp how important it is to follow these and other cybersecurity tips. 

Tip #2: Use a VPN When Using Wi-Fi to Increase Data Protection

A virtual private network (or VPN) can help keep you safe when you’re browsing the web on Wi-Fi. A VPN creates an encrypted connection between your computer and the VPN server, meaning that all your internet usage is routed through this connection. Most VPN servers actually have multiple layers of encryption to help keep you and your information safe. Signing up for a VPN is easy and you can set one up on both your mobile device and your computer. Check out these comprehensive instructions from The Verge, a popular technology publication. 

VPNs also mask your IP address (which indicates where you are located and provides information about your computer) and personal information. 

Tip #3: Don’t Share Your Passwords or Use the Same Password for Multiple Sites

Hopefully this tip is common sense, but don’t share your passwords with others, especially people you don’t know. If you do need to share your password, use a password management site like Keeper or LastPass that allows you to share a record with someone without showing them the actual password. Or, change your password right after sharing it with someone. 

In addition to not sharing your password with others, don’t use the same password for multiple sites, especially if it contains identifying information such as your address, children’s names or pet names, etc. 

A strong password is long, contains a mix of upper- and lowercase letters, contains numbers and symbols, has no ties to your personal information, and doesn’t contain any dictionary words. 

Tip #4: Sign Up for 2-Factor Authentication

In addition to creating a strong password, always sign up for two-factor authentication when possible. Two-factor authentication (or 2FA) is an extra layer of protection for your login info. It usually requires you to sign in with your password and then use a second method to verify it’s you. For example, Google can send a unique code to your phone number or backup email address to confirm it’s really you trying to sign in. 

Tip #5: Be Careful About How Much Personal Information You Share on Social Media

In today’s world of posting everything from pictures of your grandkids to what you had for lunch on social media, it’s important to be aware of what personal information you are sharing online. Hackers can easily get information from your Facebook or Instagram profile and use it to hack into your other accounts. Never share your address, phone number, photos of personal IDs (passport, driver’s license, birth certificate, etc.) or full date of birth on social media.

We live in a very connected world, and it’s more important than ever to protect your information and your family’s information. Staying safe online and practicing these tips will help prevent you from falling victim to increasing identity theft scams.

1. https://www.iii.org/fact-statistic/facts-statistics-identity-theft-and-cybercrime
2. https://www.giact.com/aite-report-us-identity-theft-the-stark-reality/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Preparing for retirement just got a little more financial wiggle room. The Internal Revenue Service (IRS) announced new contribution limits for 2022.

Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.¹

For workplace retirement accounts such as a 401(k) or 403(b) the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500.¹

Eligibility for Roth IRA contributions has increased, as well. These have bumped up to between $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples.¹

Another increase was for Savings Incentive Match Plans for Employees (SIMPLE IRAs), which increases from $13,500 to $14,000.¹

If these increases apply to your retirement strategy, you may want to make some adjustments to your contributions. Where I can be of any help, I welcome the opportunity.

1. https://www.cnbc.com/2021/11/05/your-2022-401k-and-ira-contribution-limits.html

Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. 

Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Individual retirement arrangements (IRAs) are for retirement saving, right? Absolutely. Is that their only purpose? Not necessarily.   

Imagine using an IRA to save for a home purchase. 

Given current home values, yearly IRA contribution limits and the priority of amassing retirement savings, this would be a tall order for an adult. How about for a child, though? Could an IRA help them out?

This thought has led some families to open custodial Roth IRAs. 

You can start a Roth IRA on behalf of a child, as long as that child has “earned income” (income from a job in which they receive a W-2 or some kind of self-employment). The IRA belongs to the child, but until the child becomes an adult, you (or some other adult) act as the IRA’s custodian.^1,2 

The annual contribution limit for a Roth IRA is $6,000 (this limit may be adjusted upward in future years due to inflation). Now, say your kid has made $4,000 from freelance web design or serving lattes at the local coffeehouse…or working at your business. All $4,000 could go into that IRA. The amount your child accumulates may vary, of course, but whatever the amount, it may benefit from potential compounding over the next several years.³

You might want to consider this as a possible use for a Roth IRA.

What about taxes that come with withdrawing money? 

After-tax dollars can be contributed to Roth IRAs. Additionally, if the account is at least five years old, up to $10,000 of the account balance (including earnings) may be withdrawn without being taxed, as long as the withdrawn amount is used for a home purchase. This only applies if the IRA owner has not bought a home in the past two years. In doing this, you can avoid the 10% tax penalty that is normally associated with withdrawing assets from a Roth IRA before age 59½.^1,4  

Plans may change, though. 

When a child turns 18 (or 21, in some states), a custodial IRA started on their behalf is no longer custodial. They are now the legal owner of that IRA. In the future, will the idea of using IRA funds to buy real estate seem worthwhile? Maybe, maybe not.⁵

That young adult who now owns the account may elect to keep contributing to the IRA and use it as a retirement savings account. Or maybe the IRA is suddenly drained to enable the purchase of a new truck, fund a year abroad or pay for college. Choices will emerge, and parents and grandparents must be mindful of them. Also, when you withdraw assets from a tax-advantaged account, you are reducing not only the account balance, but the account’s potential degree of compounding for the future as well. 

Remember that a Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for five years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. Also, tax rules are constantly changing, and there is no guarantee that the tax treatment of Roth (or traditional) IRAs will remain the same.

1. https://www.nerdwallet.com/article/investing/why-your-kid-needs-a-roth-ira
2. https://www.forbes.com/sites/chriscarosa/2021/07/26/how-parents–grandparents-can-help-fund-a-child-ira/?sh=7ae122c4aed3
3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
4. https://money.usnews.com/money/retirement/iras/articles/how-to-use-your-ira-to-buy-a-house
5. https://www.businessinsider.com/roth-ira-for-kids

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Whatever your reason for giving this year, it’s important to know how your charitable contributions can impact your financial plan. In fact, being strategic and intentional in your 2021 contributions can create tax benefits for both you and your chosen charity.

Here’s how.

Research Charitable Organizations

Maximize the impact your monetary donation can have by selecting reputable and transparent organizations. A qualified charity will have 501(c)(3) status, indicating it’s federally recognized as a non-profit organization.

Third-party websites like Charity Navigator, Charity Watch and Give Well offer unbiased, independent ratings and evaluations of charitable organizations. These sites can offer important insights into how money donated is distributed. If you’re considering making a sizeable donation, it may be helpful to speak directly with the chosen charity to discuss how the gift will be utilized.

If you haven’t already, check with your employer about what opportunities they provide in regards to charitable giving. For example, some employers will match employee donations to certain organizations.

Consider Itemizing Your Deductions

To deduct charitable donations, you must itemize them on an IRS Schedule A form. To do this, you’ll need to keep track throughout the year of each donation made to a charitable organization. In most cases, the charity can provide you with a form to document your contribution. If the charity does not have such a form handy (and some do not), you may be able to use other forms of proof including:

• Receipts
• Credit or debit card statements
• Bank statements
• Canceled checks 

When reporting deductions, the IRS may want to know a few important details such as the name of the charity, the gifted amount and the date of your gift.

Remember, itemized deductions may only have tax benefits when they exceed the standard income tax deduction, so be sure to check on the standard deduction amount for your tax filing status.

Make Non-Cash Donations

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move. 

For example, you may wish to explore a gift of highly appreciated securities. Selling securities can lead to a taxable event. As an alternative, you or a financial professional can write a letter of instruction to a bank or brokerage, which can facilitate authorizing a transfer of shares to a charity.

This transfer can accomplish three things:

• You can manage paying the tax you would normally pay upon selling the shares.
• You may be able to take a current-year tax deduction for the full fair market value of the shares.
• The charity gets the full value of the shares, not their after-tax net value.

Utilize Your Life Insurance Policy

Do you have a life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment may become a deductible charitable donation – although deduction limits may apply.

If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit may be transferred out of your taxable estate, in any case.

You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications.

Whatever your situation, getting advice from a tax or financial professional can help you give wisely as the year comes to a close. If charitable giving is an important part of your financial plan, it’s important to make sure you’re getting the most value out of each donation.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

When it comes to compensation, many companies are now providing equity and stock-based benefits to their employees. Each type of benefit has its own set of rules, and it’s essential to understand the nuances of each type. One form of equity-based compensation is restricted stock units (RSUs).

Here’s what you need to know about this form of equity-based compensation.

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, accounting and financial professionals if you want more information about restricted stock units. 

What Are Restricted Stock Units (RSUs)? 

Restricted stock units (RSUs) are a promise from a company to gift a certain number of shares of company stock to an employee when certain time-based or performance-based conditions are met.1 Time-based conditions could require that the employee be at the company for a certain amount of time or be subjected to a vesting schedule.¹ Performance-based conditions could include when a company goes public, when a company is sold or acquired or when a company reaches specific growth and financial milestones.¹

RSUs hold no intrinsic value until they are vested, and the employee can access the stock just like any other stock they may own. Their value is based on the stock price at the date of delivery.^1,2 This can encourage employees to take ownership of their work, as the potential financial rewards are based on how well the company is doing. RSUs also incentivize employees to stay with a company, as a typical vesting schedule is around four years, meaning employees must stay that long before they are eligible to receive the benefit of their RSUs.^1,2

Restricted Stock Units vs. Restricted Stock Awards 

Restricted stock units are similar to Restricted Stock Awards (RSAs), with a few key differences. Both types of equity plans often require the employee to be fully vested to receive their compensation.³ In addition, similar to RSUs, RSAs could be granted when either time or performance-based goals are met.³

One of the most significant differences between RSAs and RSUs is that employees don’t pay for RSUs. Unless the stock price goes to zero, vested RSUs always have some value. However, if employees accept an RSA grant, they may be required to pay a purchase price for the grant. This means that there’s a risk that the company shares will be underwater for the employees if the purchase price for the employees is more than the shares are worth.³

There are also additional tax considerations with RSAs. If you have received an RSA, work closely with your tax professional to make sure you understand the implications before you accept or decline a grant.³

Restricted Stock Units (RSUs) vs. Stock Options

Some people confuse RSUs with stock options. Unlike RSUs, stock options let you purchase company stock at a specific—and usually discounted—price for a predetermined amount of time. Employees may need to be vested into this option, but employees will use their own funds to purchase company stock.¹

What Happens to Your RSUs If You Leave a Company? 

Job termination typically stops the vesting of RSUs immediately. While stock options end the vesting schedule early and may require you to exercise your options shortly after leaving, there is usually no such provision for RSUs. You should review all documentation with your financial advisor, legal professionals and tax consultants to ensure that you understand the ramifications of what’s being offered.⁴

Make sure to review the provisions for what would happen if you took a leave of absence, became disabled or died while holding RSUs. If your RSUs would transfer to your next of kin, ensure that you have a beneficiary established.⁴

Tax Considerations for RSUs 

RSUs are taxed like a regular paycheck. This means that they’re subject to federal income tax, Social Security taxes, Medicare and state/local taxes. You’ll also be expected to pay the taxes up front upon acceptance. Many employees choose to surrender some shares of the company stock to cover the associated taxes. It’s also important to establish a few plan options ahead of time so when you are fully vested in your RSUs, you have some objectivity in your decision making.⁴

Remember, working with your financial team is important to make sure you make the most of your RSU options. They are complex and can have a variety of financial and tax implications, so working with experienced guides as you navigate your options is invaluable.

1. https://www.morningstar.com/articles/1013338/what-are-restricted-stock-units
2. https://www.myopenadvisors.com/restricted-stock-units
3. https://www.fidelity.com/products/stockoptions/rstockawards.shtml
4. https://www.forbes.com/sites/brucebrumberg/2021/08/31/5-big-mistakes-to-avoid-with-stock-options-and-restricted-stock-units/?sh=fc8349c11adf

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.