General

How Charitable Giving Can Help Fulfil Your Required Minimum Distribution

Posted by John Charles Kernodle on October 21, 2021  /   Posted in General

The golden years come with much more fun than just early bird specials, senior discounts, and a subscription to AARP. It’s time to finally enjoy and reap the benefits of your life’s work. Now that you’re (likely) in retirement, you may also be thinking of ways that you can give back or leave a legacy behind after you’re gone. Thankfully, there are a variety of ways that you can do this and enjoy additional benefits. If you’re 72 or older, you’re in luck, thanks to a creative way that allows you to give back and also fulfill your Required Minimum Distribution.

What is the Required Minimum Distribution (RMD) you ask? According to the IRS, “ Your required minimum distribution is the minimum amount you must withdraw from your account [IRA, 401(k), 403(b) and/or other defined contribution plans] each year.1” This previously took effect at the age of 70 ½ but has since been changed to 72 years old. The percentage and amount that you need to withdraw is based on age and distribution period. The IRS provides a nice little worksheet to help find the percentage that needs to be withdrawn2. It is important to note that your RMD is a collective, total amount that can be withdrawn from any of your defined contribution accounts. This means that if you have an old 401(k) and an IRA, you do not need to withdraw from both accounts. Your withdrawal can be from either one (or both) of your accounts, so long as the total withdrawal adds up to the required amount.

Defined contribution plans like those listed above are tax-exempt during your contributing years. At 72, you must begin withdrawing from these accounts, at which time you would typically begin paying taxes on your withdrawals. However, there is a creative tactic you can use to your advantage. Should you choose to make a charitable donation directly from a defined contribution account, you have the ability to fulfill your RMD needs. Plus, the donation is tax exempt. This would allow you to save a little, while also doing good at the same time. Additionally, this does not have to be done all at once or specifically at the end of the year. You are free to make the distribution(s) throughout the entire calendar year.

If you’re interested in learning more about how you can use your Required Minimum Distribution for charitable giving, the Strathmore Capital Advisor team is here to help. Contact us to learn more and start giving today.

How Biden’s New “American Families Plan” Tax Proposal Might Affect Your Financial Plan

Posted by John Charles Kernodle on September 28, 2021  /   Posted in General

Earlier in the year, President Biden proposed the Families Act, giving us a hint into what changes may be in store should a bill be passed. Now, however, Democrats on the House Ways and Means Committee have released their official tax proposals, providing much more insight into what the potential changes could entail and more importantly, how they might affect your financial plan.

Here are some of the key parts of that proposal.

1. Increased Tax Rates

As promised—and in keeping with the Biden Administration’s original proposed American Families Plan—the bill would include several tax increases, including those centered around the oft-mentioned $400,000 income mark:

  • First, the Bill lowers the amount of income needed to qualify for the top tax bracket to $400,000 for individuals and $450,000 for married couples.
  • On top of that, it proposes to reinstate the 39.6% top marginal tax rate, which was recently lowered 37% by the 2017 Tax Cuts and Jobs Act.
  • The legislation also increases the top capital gains rate to 25%.
  • And finally, it will apply a 3% surtax for ultra-high earners with over $5 million of income.

The Bottom Line: Putting aside the tax increases for corporations, individuals in the $400,000–$500,000 income range will perhaps see the most significant effect from these proposed changes, as their jump in tax percentage will be the highest. However, the fact remains that all those in the top tax bracket will feel the new taxes to some extent. Nonetheless, it may help to work with your advisor to better understand exactly how the changes will affect you and update your financial plan accordingly.

2. Closing Perceived “Loopholes”

Within the plan, an emphasis was also placed on closing perceived “loopholes” in the tax system. Notably, these include several changes to Traditional and Roth Investment Retirement Accounts (IRAs).

Changes to Roth Include:

  • Prohibiting Roth conversions of after-tax funds in retirement accounts;
  • After-tax 401(k) contributions will no longer be able to be converted to Roth, effective 2022; and
  • Prohibiting all Roth conversions for those in the top income tax bracket.

Traditional IRAs will see two new rules for high-income taxpayers with more than $10 million of aggregated retirement account assets, including:

  • A prohibition on making new IRA contributions;
  • A new Required Minimum Distribution of 50% of the combined balances above $10 million and 100% of combined balances above $20M; and
  • Income associated with “carried interests” would be taxable at the ordinary income tax rate rather than the current law, which is set to the more preferred capital gains rate of 20 percent.

The bottom line: With several changes to the law around retirement accounts, a shift in strategy may be needed to keep some of your retirement investments optimized. It is important you speak with your financial advisor about how these changes may affect your financial plan and what your plan should be moving forward.

3. Estate Law Changes

The proposed bill also contains significant tax changes to estate law. A few notables include:

  • A 50% reduction in the estate and gift tax exemption. This reduction, however, will also coincide with an increase to the special valuation reduction for real property used in family farms and businesses from $750,000 to $11.7 million.
  • Intentionally Defective Grantor Trusts (IDGTs) are now included in their grantors’ estates.
    Grantor trusts would be included in the estate, including some Irrevocable Life Insurance Trusts (ILITs), Spousal Lifetime Access Trusts (SLATs) and Intentionally Defective Grantor Trusts (IDGTs).
  • Any sale between an individual and their own grantor trust will be treated as the equivalent of a third-party sale, and any transfers out of a grantor trust will be considered a taxable gift.

The Bottom Line: As with the changes to retirement accounts, these new estate laws may prompt some changes to your current financial or estate plan. Be sure to reach out to your financial advisor to see what those changes might be.

Sources:

  1. https://files.taxfoundation.org/20210513123909/Details-and-Analysis-of-Tax-Proposals-in-President-Biden%E2%80%99s-American-Families-Plan.pdf
  2. https://www.bkd.com/alert-article/2021/09/house-ways-means-committee-proposes-tax-increases

Are You Aware of the Child Tax Credit Changes?

Posted by John Charles Kernodle on August 03, 2021  /   Posted in General

New changes thanks to the American Rescue Plan Act – but just for 2021

The Child Tax Credit was introduced through the Taxpayer Relief Act of 1997 and it was a $500-per-child nonrefundable credit to provide tax relief to families. And over the past 20+ years, there have been a dizzying number of modifications that have increased the value of the tax credit as well as expanded its availability.

Well in 2021 – and only for tax year 2021 – thanks to the American Rescue Plan Act of 2021, there have been additional changes that will help families receive advance payments starting this summer. Here is what you should know (taken directly from the IRS).

The Child Tax Credit for Tax Year 2021 Only

“The expanded credit means:

  • The credit amounts will increase for many taxpayers.
  • The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
  • The credit will include children who turn age 17 in 2021.
  • Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.

Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.

Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.

The IRS will provide more information about advance payments soon.”

What Should You Do?

Taxes are complicated enough, so make sure you consult your tax professional for guidance, especially with respect to whether or not you qualify.

And make sure you talk to your financial advisor in order to confirm that the tax decisions you make are consistent with your overall financial plan.

Source: irs.gov

Social Security: Is Your Age a Retirement Numbers Game?

Posted by John Charles Kernodle on July 27, 2021  /   Posted in General

When preparing for your retirement, think about how much income you may need each year to fund the lifestyle you want. To help maintain your living standard, you may need to save enough money to supplement other sources of retirement income, such as a company pension and/or Social Security. It is also important to be aware of how your age factors into your retirement decisions. Here are some important age milestones to consider:

Age 55. If you take an early retirement, quit, or are otherwise terminated from employment, you can generally withdraw money from 401(k), 403(b), and profit-sharing plans without being subject to a 10% Federal income tax penalty for early withdrawals. As specified in IRS Publication 575, the following apply: you must reach age 55 by December 31 of the year you leave the workforce; money must be distributed to you from your employer’s plan and cannot be transferred to an Individual Retirement Account (IRA); early withdrawals are subject to the plan’s provisions; and only money from your last employer’s plan qualifies (not funds from previous employers). You may take early distributions from a traditional IRA without penalty, provided you receive “substantially equal periodic payments.” Since certain rules govern this provision, be sure to consult a qualified tax professional.

Age 59½. Generally, you can withdraw money from traditional IRAs and qualified retirement plans after the age of 59½ without being subject to the 10% tax penalty, if plan-specific qualifications are met. Ordinary income tax is due if your contributions were tax deductible. No income tax or penalty applies to distributions from a Roth IRA, provided you have reached age 59½ and have owned the account for at least five tax years.

Age 60. Widows and widowers may be eligible for Social Security benefits. For the most up-to-date information, visit the Social Security Administration’s website at www.ssa.gov.

Age 62. Some companies may allow retirement at 62 with full pension plan benefits. This is also the earliest age for receiving regular Social Security benefits, but the benefit amount is permanently lower than its potential maximum.

Ages 62–64. For those who are working and collecting Social Security benefits while younger than full retirement age—the age at which an individual is eligible to receive full Social Security benefits—the earnings threshold is $18,960 for 2021. One dollar in benefits is withheld (a “give back”) for every $2 earned above that amount. A portion of benefits may also be taxed as income based on a complex formula that includes wages and tax-exempt income.

Age 65. Many company pension plans provide full benefits at this age. However, the age may vary by the company plan. Medicare eligibility also generally begins at age 65.

Ages 65–67 (or the year in which full retirement age is attained). Traditionally, full retirement age was 65. However, for those born between 1938 and 1959, full retirement age has been rising incrementally, and for those born in 1960 or later, the age for receiving full benefits is 67. The lower earnings threshold amount still applies for years prior to full retirement age, and a second earnings threshold rule applies for the year in which full retirement age is attained.

For those who are working and receiving Social Security benefits, there is a benefit give-back in 2021 of $1 for every $3 over $50,520 earned in the months prior to attaining full retirement. Once full retirement age is attained, the earnings threshold no longer applies, and a portion of benefits may be taxed as income based on a complex formula that includes wages and tax-exempt income.

Age 70½. Required minimum distributions (RMDs) from qualified retirement plans, such as a 401(k) or IRA, must generally begin by April 1 of the calendar year following the year in which you reach age 70½. Roth IRAs, however, are not subject to the age 70½ mandatory distribution rules.

You have worked many decades to accumulate assets to prepare for enjoyable “golden years.” Be sure to consult with qualified tax and financial professionals to help you stay on track to achieving your retirement goals.

Taylor Faw Joins Strathmore as Chief Compliance Officer

Posted by John Charles Kernodle on January 27, 2021  /   Posted in General

Taylor FawStrathmore Capital Advisors is pleased to welcome Taylor Faw to our team as Chief Compliance Officer.

Prior to joining Strathmore, Taylor was a Lead Compliance Associate with Fairview Investment Services, LLC in Raleigh, North Carolina. He worked with a variety of investment advisers and investment companies to develop, implement, and maintain compliance programs and initiatives. Before working for Fairview, Taylor served as an Assistant Attorney General in the Enforcement Division of the South Carolina Securities Division. With the Securities Division, he focused on cases involving more advanced technological aspects, including market manipulation and digital assets. Taylor has a deep passion for informing and educating individuals to help them better succeed within their industry.

Taylor received his BS in Business Administration from the University of South Carolina’s Darla Moore School of Business in 2011. He also received his JD from the University of South Carolina School of Law in 2014.  He has previously served on the South Carolina Bar’s Judicial Qualification Commission, as well as the Enforcement Technology, Investment Adviser Training, and Enforcement Zones Project Groups with the North American Securities Administrators Association (NASAA).

As CCO at Strathmore Capital Advisors, Taylor will oversee all compliance-related initiatives such as annual statements, audits and reviews, marketing and social media, as well as growing his passion for educating others within the space.

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