I hope you enjoyed a Merry Christmas and a wonderful New Year!

Let’s dive right in and look at the first quarter of 2023.

Our Strategy is Defensive 

As we enter 2023, for now we continue with a cautious bent. The bulls believe the Fed will relent on hiking interest rates in a weaker economy with declining inflation. They also hope either for a mild recession or even a Goldilocks scenario of a Fed cutting interest rates and an economy that has softened, not collapsed, leading way to recovery.

We see problems with this optimistic thesis.

First problem is market valuation. As measured by the S&P 500, investors are paying nearly $20 for every $1 of earnings. We worry they are paying too much: as high as a 35% premium to what it should be worth.

Secondly, the economy is weakening, but not (yet) enough for the Fed to cut rates. It is clear the Fed is closer to the end than the beginning of rate hikes. How many more is an open question. However, if history is a judge, even if the Fed were to cut rates, that does not necessarily mean risk assets should rally immediately.

Third, the rate of inflation is declining – for now. But supply constraints remain in many commodities (metals, agriculture, energy). China stopping COVID lockdowns in the near term means stronger international demand.  Wage growth is also high.  The Fed knows that if it lets up too soon, the inflation genie might return yet again.

Finally, earnings estimates for companies appear optimistic. Many Wall Street experts predict growth in 23 vs. 22. However, slower economic growth (even if it does not turn negative, which we think is debatable) and falling inflation puts pressure on top line (lower sales volumes) and bottom line (fixed costs, companies slow to lay off headcount). Market valuations on lower earnings might need to reset lower.

Your portfolios are positioned with a healthy level of T-bills with minimal interest rate risk, meaningful coupons, and virtually zero credit risk (US Government). Liquid alternative investments with return/risk profiles less dependent upon market direction are also key components. Equities remain at fairly low exposure. Cash is modest as T-bills offer meaningful yield and ample liquidity if and when it is prudent to rotate into other assets.

Your Strategy Should Be Emotional Clarity

2022 was truly a volatile year.

It was the first year in several when equities declined. 2022 was also the first in many years that both bonds and equities declined together. Investors with portfolios diversified beyond traditional stocks and bonds might have seen benefits to preserve capital for potential future market rallies. They lived to fight another day.

Yet people investing on emotion, not with a disciplined plan, lost.

Some people spent too much time watching screens (television, computer, or iPhone). They got hooked on the latest scheme advertised. They obsessed over greed. That is, until last year.

Once the bear market of 2022 arrived, they went from greed to panic mode. Most of these people lacked long term vision for their nest egg and a prudent Fiduciary advisor to guide them through the storm. Their emotion blinded them, and they sold out at bottoms. They seek short-term market timing rather than long-term planning. Time is their enemy along with their feelings of the day.

Other people forgot about avoiding the trap of “putting all your eggs in one basket.” They pulled their money out not because of lack of opportunity. Rather, they heard about the latest “hot” investment deal (real estate that allegedly “never” goes down?) and plowed their retirement savings into it.

They forgot about 2008-9 (even real estate can go down in value).

Clients who understand and work with us are resilient to the peaks and valleys of the market, popular television pundits, and the temptation to follow emotion. Instead, you have sought out expertise to reflect your own family’s long-term needs and risk tolerance. You have been wise to let us help you in broadening the net of investment opportunities to seek to help you accomplish your goals.

Because of your commitment, your portfolios will do more than just “live to fight another day”.

Tax Changes Are Keeping Us Busy

D.C. always keeps us busy. Of the 2 sure things in life, taxes constantly evolve. Your federal government yet again delivered on that promise.

Congress passed SECURE 2.0, a huge 300 piece of tax legislation. Here are some of the provisions that potentially might impact you the most:

1. RMD age for new retirees is delayed to 2023. That means new retirees only have to start taking Required Minimum Distributions when they turn 73. You get to delay when you start paying taxes on your retirement savings if you are a new retiree who does not need the distributions. Lower taxes and more time for your money to potentially grow might benefit you.However, if you are already currently subject to RMDs, you still need to continue taking RMDs.
2. SEP and SIMPLE plans now have a Roth option. This means your employer can offer you after-tax contributions to your plan. Contribution limits were increased for most retirement accounts.
3. More exceptions to the 10% penalty on early distributions. People who are terminally ill or disaster victims can withdraw money from their retirement assets without paying the extra penalty. However, keep in mind that taking money early from your retirement now might leave you less money for when you actually stop working later. Withdrawals are not tax exempt, plan careful for the amount taken from your retirement accounts.
4. Other provisions: lower RMD penalties (10% if IRS deems you forgot to take RMD and corrected in a timely manner) and allowance of rollovers from 529 plans to Roth IRAs.

Come talk to us if you or someone you know needs help in navigating the complexities of taxes.

We Prefer Liquid US Treasuries to Illiquid Bank CD’s

We have fielded a number of questions to the effect of “If the stock market is so bad, why don’t I just stick my money in the bank?”

I always tell my clients to have some money in the bank for current spending needs and a liquidity cushion in case life surprises with unexpected expenses (aka an emergency fund).

However, it’s the money beyond that level which becomes tricky.

To quote from our last newsletter 3 months ago: “For the first time in over a decade, US T-Bills might offer sufficient yield with minimal risk. They now offer a potential tool to diversify investors’ nest eggs.”

We have been investing quite a bit of your investments in short-term US Government T-Bills. This is because we have been cautious about most investments. Additionally, yields at roughly 4.5% are the highest they have been in over a decade.

Why not put it into, say, a bank CD? Well, in many cases, you might have a hard time finding as good a yield (with possible exception of certain “special” CD deals, but buyer beware and read below).

Once you put your money into a bank CD, you have 1 of 2 options. Either keep your money parked there (typically at least 1 year, if not more) if you want to get that interest. Otherwise, if you take it out sooner, you will be assessed a penalty. You might forfeit quite a bit of that interest.

Many annuities are even worse.  Not only do they lock your money up for years, but one also has to consider all the fees you pay to get in, stay in, and get out.

On the other hand, T-bills are liquid. If you have a cash need (or if we see better investment opportunity), we can sell out in a matter of minutes. You potentially earn the best of both worlds. If the bear market were to persist, we can continue investing in T-Bills. (Understand that rates are higher now, but that does not guarantee they will stay that way in the future. However, this is also true for banks and annuities.)  One potential upside from which you might benefit with us is the opportunity to switch to investments with higher returns without adding excess risk.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 1Q23 appeared first on AWM.

It can be an overwhelming process of gathering documents, filling out forms, and paying money to Uncle Sam.

To make things easier, here are five tips to help you prepare for filing your taxes:

1. Review your W-4 Annually.

Understand how your W-4 can impact your finances. The goal is to find the sweet spot: when you owe nothing to the IRS and they owe nothing to you.

Every time you get a big refund, you let the IRS use your money interest-free for an entire year. No thanks!

2. Self-employed? Be Vigilant.

Chances are, you probably don’t have automatic withholdings from your paychecks.

It’s important to estimate your tax liabilities and make quarterly payments. If you owe too much at the end of the year, the IRS can penalize you.

3. Extensions don’t apply to paying taxes.

If you’re not ready to file by April 15^th, you can get an extension for up to 6 months.

Be careful though, filing for an extension doesn’t mean you have an extra 6 months to cough up your tax bill.
All taxes are due by April 15^th.

4. Always be ready for an audit.

Being audited is a major headache that could cost you a lot of time and money.

Here’s what you can do to help yourself:

• If itemizing deduction, keep accurate records and receipts.
• Check your numbers, twice. A silly mistake can cost you in taxes, penalties, and interest.
• Deduct carefully. Claiming deductions can save you money, but if you do it wrong, prepare to pay.
• Value donations fairly. If you donate goods, it’s up to you to estimate their actual value and prove it to the IRS (if audited).
• Be realistic and average. When in doubt, avoid rounding up.

5. Deductions vs. Credits:

Tax deductions and credits can reduce the amount of taxes you pay. Deductions offset your taxable income, while credits give you dollar-for-dollar tax savings (if you qualify). Laws change often and it’s important to be informed.

Here are some examples of each:

• Deductions: Self-employment expenses, capital losses, charitable donations, interest on primary residence mortgage and/or student loans, etc.
• Tax Credits: Earned income tax credit, child tax credit, child and dependent care credit, premium tax credit, American opportunity tax credit, lifetime learning credit, etc.

Truth is, most of us don’t understand the tax code. That’s why working with an experienced professional is the best way to maximize deductions, focus on the right kinds of income, invest in tax-advantageous vehicles, and avoid big tax traps.

The post How Can I Prepare For Tax Season? appeared first on AWM.

A lot has changed since my last newsletter. Vaccine rollouts have allowed most businesses to resume life as normal.  June and July brought scorching temperatures and inflation. Summer is only halfway done.

Let’s jump into an investment update, an economic bubble, and some talk about taxes.

Investment Update

Since our last newsletter, we have turned slightly more defensive.  Risk management over chasing returns is the priority.

We have pared back somewhat investments with strong gains as well as those with higher risk and rotated your money into higher quality and liquidity names.  We also maintain positions in strategies that can benefit from higher commodity inflation.

Positives that cause us not to go totally bearish:

• Persistence in low-interest rates
• Banks have money to lend, yet consumers are not borrowing (yet)
• Earnings fundamentals near term should be decent

What has us worried (and leaning slightly defensive):

• Inflation – market thinks it “transitory”, but more supply bottlenecks crop up
• Asset bubbles – fixed income, stocks, residential real estate,
• Supply bottlenecks – commodities (food, energy, copper), computer chips, shipping containers
• Investor sentiment – retail is bullish, but corporate insiders are selling stock

We do not know the exact timing of when the market might take a pause or even have a significant pullback.  However, data and precedent suggest a possible correction might come in the second half of 2021. Regardless, we expect more volatility through the end of the year. Some of you might see more realized capital gains in 2021.

“A Bubble Is in the Eye of the Beholder”

Speaking of bubbles, many people can sense one.  But can you actually describe it?

Picture a business opportunity in the entertainment business that has been slammed by the pandemic.  Something that had been under pressure even in the past because more people could simply watch movies at home or on their phone or tablet.  Even with reopening, many people still hesitate to go to the movies for different reasons (including the high expense of tickets and food).

That business has financial challenges: debt to pay, a heavy expense base, struggling sales, rising cost of goods, and a higher cost of employment.

Now on top of it all, this business opportunity constantly asks for money from its stakeholders.  If they fail to give them money, they find other people willing to give it to them.  Plus, their existing stakeholders’ shares are diluted (in other words, their ownership is reduced/diluted).    And the business continues to struggle.

Does this sound like an alluring investment?

This describes one of the most popular stocks in the market today!  Retail investors have pushed it to become one of the best-performing stocks in 2021.  Other examples exist in today’s environment as well.

Now, do you see why this is a bubble?  It looks nice and shiny until it pops…

This is a small example of what we mean by the need for risk management.  (You do not own this stock in accounts we manage.) However, some people get excited by what they hear in the popular press and want to own it.

Update on Taxes

As previously mentioned in our last newsletter, taxes tend to be one of your biggest expenses.  We pay a lot of attention to taxes (and how to manage around them).  Here are some updates from last quarter:

1. Federal – nothing concrete has passed in DC in 2021. However, indications suggest capital gains taxes might still be moving up.  One definite change: temporary provisions related to the Covid lockdowns of 2020 (suspension of RMD’s, stimulus checks, bonus weekly unemployment) are gone or fading away.
2. Return of RMDs – speaking of covid-related relief, RMDs are back. We will make sure all required distributions are taken before the end of the year.
3. Child Tax Credits in 2021 – Taxpayers eligible for child tax credits might receive a boost in 2021.  Expanded child tax credit from $2,000 to $3,000 for children between the ages of 6 and 17 (and $3,600 for children under age 6).  You could receive part of the credit monthly in advance starting in July ($250 per month for children 6-17 and $300 for children under 6).The Child Tax Credit starts to be reduced for joint returns with AGI over $150,000 or $112,500 if filing as head of household.For more details, see https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-c-calculation-of-the-2021-child-tax-credit.
4. State taxes – Washington has already passed a de facto capital gains tax on long-term capital gains over $250k (excluding real estate and retirement assets). Wage and salary earners will begin paying into a state-administered Long Term Care fund in 2022.
5. Oregon has also seen a variety of new state and local tax increases for higher wage earners and businesses.
6. Bucking the national trend, Arizona has passed an effective reduction on income taxes, including a flat 2.5% tax and wider tax exemptions and deductions.

We are carefully watching and analyzing the changing trends in the economy and market.

Stay posted and keep an eye out for updates from me. Enjoy the rest of your summer.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 3Q21 appeared first on AWM.

1. Act Now.

Did you know you can contribute for 2020 until the tax filing deadline? That means you have until April 15^th to make your last contribution.

If you’re planning to contribute, get it done sooner rather than later. Avoid any last-minute problems and let your IRA grow faster.

2. Talk to Your Advisor About a Roth IRA Conversion.

If you have a traditional IRA, you can convert part of it to your Roth IRA.

Because tax laws are constantly changing, a conversion that didn’t make sense last year might do so in 2021.

While it might not be a great option for everyone, it is worth discussing with your tax specialist.

3. Know How to Move Your Money.

I can’t stress this enough. Know how to move your IRAs.

If you’re wanting to consolidate retirement accounts, make sure to roll over them to a like-titled account.

This will also avoid the 60-day and once-per-year rollover rule.

Do not accept a check in your name. Otherwise, you will owe taxes on that account immediately.

4. Update Your Beneficiary Designation.

Make sure your hard-earned money will be left to the right people. Family and friend dynamics change often.  Be sure to keep your beneficiary designation form up-to-date.

Recent changes like the SECURE Act could also impact your current beneficiary form. Spend some time making sure your wishes are accurately documented.

5. Use QCDs and Other IRA Tax Breaks.

IRA rules can be overwhelming, but make sure that’s not keeping you from options you might benefit from.

If you’re over 70 ½ and charitably inclined, you might consider a Qualified Charitable Distribution (QCD). First-time homebuyers might be able to use a portion of their IRA to help fund their down payment.

Take some time to learn what options you have available to you.

6. Plan for the Unexpected.

Our tax laws and IRA rules are constantly changing. I think we should expect more change in 2021 than in previous years.

Remember, IRS guidance on recent rule changes and a new administration and Congress could have a big impact on your IRA.

The bottom line? Plan ahead and work closely with a fiduciary professional who will seek out the best solutions to fit your situation.

The post How Can I Ramp Up My IRA in 2021? appeared first on AWM.

You know the process—gathering paperwork, sorting through receipts, and crunching the numbers.

Thankfully, there are a few ways to make this whole process easier. Consider if hiring a professional is a better option than filing your tax return yourself.

Hiring a Pro:

The bad news? You still have to organize your paperwork. They need information only you can provide. That said, working with a professional might save you time and provide more accurate returns. Professionals keep updated on the ever-changing tax laws and can often find benefits that are hard to unearth on your own.

Tax preparers vs. CPAs:

Tax preparers are trained to help people with their income tax returns. On the other hand, certified public accountants (CPAs) have passed a certification exam with a background in accounting and finance. Extra knowledge and education have perks, like preparing financial statements for businesses and individuals.

When do you need a pro?

• You lack time or patience.
• Your tax situation is complicated.
• You plan to itemize deductions.
• You had major life changes in the last year.
• You don’t trust yourself to check all the boxes.
• You own a business or multiple real estate holdings.

Doing it Yourself:

All the work will fall on you. It will take more time and research to make sure your returns are accurate and filed properly. If you’re one of the few people well-versed in tax law, this might be a good option for you.

Tax Software vs. the IRS website:

The IRS website allows you to download and print or request forms in the mail. They also offer a free online filing portal. These options are generally recommended for household incomes under $69,000, per the IRS website.

If your household income is over $65,000, it might be best to use tax filing software. Generally speaking, a more complex situation requires a fee-based program, which can range anywhere from $25-$100+ for state and/or federal filings. You might even have to file in multiple states.

When can you do it yourself?  

• You have the time and patience.
• Your tax situation is simple and straightforward.
• You feel comfortable navigating business-related tax forms.
• You’re comfortable hitting submit and want that control over your money.

Our goal is to educate clients and guide them towards success. Tax and Financial Planning go hand in hand.

Ready? Let’s Talk

The post Should You Pay Someone to Do Your Taxes? appeared first on AWM.

I hope you enjoyed a Merry Christmas and a wonderful New Year!

Our office is looking forward to what this new year will bring.

Quick Recap of 2020

A quick glance at your December statement might give you the impression that 2020 was smooth sailing. Unfortunately, that was not the case.

Do you remember the last time you were on a wooden rollercoaster? Your car trudges upward as you enjoy the view.  Suddenly, the track disappears!  You race towards the ground and fly around corner after corner.

That’s a good depiction of 2020.

Here’s a quick recap:

• Market started out with a bang in January
• Coronavirus hit the U.S. / world
• Market dropped nearly -40% from February to March
• Government went into rescue/bailout mode
• Treasury went on a money printing spree
• The Fed lowered rates and kept them at near-zero
• By 4^th quarter, markets recovered and ended positive

It’s important to look back on where we came from. For those of you with a Financial Plan in place, you were able to stomach the wild ride of 2020.

How We Manage Your Money

A client recently asked me how I managed their money, especially with so much volatility. How do I know when/what to sell and when/what to buy?

You might have seen a lot of activity on your accounts this last year. 2020 was a very challenging and unusual year.

We had to react quickly, stay vigilant, and be innovative to follow new trends in the economy. Things that worked before, stopped working, and vice versa.

Additionally, I have to make decisions for each of my clients based on their personal situation with the information I had.

My hope is to have enough information about each of my client’s finances to keep them on the right track.

The four big questions I try to answer are:

1. Do you need money to live off of your investments?
2. What kind of risk can you tolerate?
3. Where is the market going?
4. Are there any other factors I need to be aware of?

For those who have a very close relationship with us, we know where you stand and can act proactively for you, no matter what the market throws our way. Most of you have a Financial Plan in place and know what to expect during the good and rough seasons.

If you are still on the fence about scheduling a planning session, know that both you and we can benefit. I will be more informed of what your goals, needs, and plans are. You can have greater peace of mind knowing we have your back and will act in your best interest.

The more you share with us, the more beneficial it can be for you.

Who Benefits the Most? (*Hint* It is not necessarily how much you have!)

Our top clients who reap the most benefits from me do these 3 things:

• You engage with me because you see the value of getting the most out of us in a relationship.
• You share information so I am better informed on seeking to protect you and when to take opportunities.
• You introduce us to your other professionals so we can work as a team to optimize your planning strategies.

Clients who pay taxes can save money by having us explore and execute tax harvesting, Roth conversions, and RMD distribution strategies for you.

Do you know anyone who struggles with these roadblocks to financial success?  (See the sidebar below.).

What Happens When You Don’t Engage?

From my experience, clients are tempted to quickly become disengaged, passive, and lose sight of the big picture.

When we feel we’re missing information, we are forced to exercise caution, even for clients who could be taking more risks.

Disengaged clients can often experience fear and emotions without a plan to keep them grounded. Not willing to invest, because of fear, or staying out of the market because of emotions.

We serve you best when we are proactive. There is still time to engage and benefit more fully from working with us.

What to Expect in 2021:

1. The Market. Expect volatility – a new roller coaster ride?
2. A New Administration. Many things will change, including higher taxes and more regulations.
3. Taxes. Regardless of what happens in the market or the new administration, there will be tax changes. RMDs are back.

How Are We Watching Out for You?

We will be vigilant on investments and diversification, focusing on opportunities that will benefit from higher government spending.

Heading into 2021, we are less confident on things like fixed income that are dependent on interest rates staying low forever.

Inflation is also on the top of our minds.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 1Q21 appeared first on AWM.

I hope each of you and your loved ones are healthy and well. It has been an incredible year.

As we enter the fourth quarter, I want to touch on a few Issues where clients have sought our help.

Early Retirement

Several of our clients have had to make the hard decision to retire early, take a severance package, or even consider other employment options.

Here are some of the challenges they face:

• Getting close to retirement age
• Already had a scheduled retirement date
• Forced into an early retirement
• Given a choice and needed our help to figure out the best option(s)

No matter the situation, people who talked to us early on were able to plan for this huge change(s).

Some areas we focused on were Social Security, medical coverage, taxes, and cash flow planning.

We helped answer difficult questions like:

• How will retiring early impact my cash flow?
• When should I take Social Security?
• How will this impact my tax situation?

A lot of people wait to work on a plan because they’re busy and tomorrow is always an option. 2020 has taught us that tomorrow can come faster than one might think.

You might find yourself in a position where you have to make hard decisions and sacrifices.

We can’t predict the future, but we can help you prepare for possible outcomes and navigate the challenges. We’re here to help you make the best decisions amid uncertain times.

Upcoming November Elections

As the election draws nearer, we have been reviewing each portfolio and taking off appropriate risk. We don’t know what the election will look like and, depending on the outcome, the results could have severe consequences.

Knowing this, we have been strategizing possible scenarios to protect you. Right now, we have multiple scenarios to put in place once we know the election results.

Tax Planning

We have worked with many clients on tax planning this year. If you can afford it, we are encouraging our clients to consider doing more Roth conversions.

If you have not taken your RMD for 2020 yet and do not need it, remember, you are not required to.

There is much uncertainty going forward. We are watching the political environment and who will control the Senate and the House. Potential risks might include higher tax rates, big changes in the tax code, and a reduction in purchasing power.

Higher market volatility is also possible, which usually tends to generate higher capital gains.

Real Estate

I am becoming increasingly concerned with real estate.  Many markets appear overpriced, especially with commercial real estate.

Factors that are pumping up home prices include low-interest rates, nationwide exoduses from highly populated cities with high income taxes, cash offers, and buyers who are willing to trade financial security for a home.

We are carefully watching the real estate market.

Assisted Living

We have heard from a number of our clients in independent or assisted living that they have felt like prisoners in their rooms. Due to COVID-19 restrictions, many of them were looking for alternative options and the opportunity to regain their independence.

Some of our clients decided that moving would be the best option. We helped guide them and work through the financial challenges.

After a year like 2020, many people will reassess whether independent living, assisted living, and nursing homes are best for them or their loved ones. The pandemic showed that people in these facilities are not as safe as previously thought. Indeed, COVID-19 exposed that care facilities are the most at risk.

Summary

We are here for you. Please talk to us!

Maybe you want to share about changes in your life or concerns about taxes.  Perhaps you need help for yourself or a loved one regarding assisted living.   Whatever your situation, you deserve to understand your options (physical and financial).  We can help you plan your future.

We are being vigilant. There are a lot of moving parts that could impact whether we have a good market or a bad one. I don’t want to bore you with the technical details, but know we are considering different scenarios.

Let us help you plan and prepare in the midst of uncertainty.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 4Q20 appeared first on AWM.

Contributing to your IRA by April 15^th could lower your tax bill for 2019.

The annual contribution limits for IRAs (both traditional and Roth) for 2019 is $6,000 for any working individual under the age of 50. Those over the age of 50 can contribute up to $7,000 each year.

These contributions might lower your taxable income if you have earned an income. Here are a couple examples:

Let’s assume you are single and earn an adjusted gross income (AGI) of $60,000. If you contribute the maximum of $6,000, you will only pay taxes on $54,000 of your income.

If you’re married, filing jointly and have an AGI of $98,000, you can both contribute up to $12,000 ($6,000 each) for 2019. You will pay taxes on $86,000, assuming you make the maximum contributions allowed under the law.

Traditional IRA contributions are non-itemized deductions, which means you can claim them on your return.

However, there are limits for who can deduct their IRA contributions based on a few different factors:

1. If you make too much income, you might still be able to contribute to your IRA, but might be limited or disallowed deductions.
2. If you’re married and not covered by a retirement plan, your AGI limits are higher. It’s always good to check with your financial advisor or accountant for clarification on these limits.

For more information, you can visit irs.gov. I encourage you to speak with a fiduciary financial advisor and your tax specialist. They can help you maximize the deductions you qualify for and make the most of your tax returns for 2019.

Schedule Appointment

The post Contributing to Your IRA by April 15 Could Lower Your 2019 Tax Bill appeared first on AWM.

I could not agree more! Let’s learn from 2 of my friends (hypothetical Mike and Donna). These examples apply to people who are still working and those already enjoying retirement.

Solutions for High-Income Earners

Donna is 63 and earns a substantial income. Mike, on the other hand, is 71 and retired. Because Mike holds an IRA (with a large balance), he is required to take $100k in required minimum distributions (RMDs) each year and report that amount as taxable income.  This RMD can bump them up to a higher marginal tax bracket. Even though they don’t need the extra income, Mike must take the RMD or pay a substantial penalty.

Mike can make a Qualified Charitable Distribution (QCD)that potentially might lower their reported taxable income. As long as they stay below the IRS limits, this charitable gift satisfies Mike’s RMD and does not count as taxable income. This allows Mike and Donna to stay within their preferred lower tax brackets while doing good for their community.

If you don’t need the extra income and RMDs are pushing your income into a higher tax bracket, consider making a Qualified Charitable Distribution with all or a portion of the RMDs.

Ideas for Complex Tax Situations

Mike and Donna are high-income earners and have a complex tax situation. They are negatively impacted by new tax law changes, which limits their ability to achieve a tax reduction through itemizing their deductions.

Mike and Donna face a dilemma. They could donate to charity to balance out their tax benefits. But they are not ready to give away a large sum of money all at once.

A donor-advised fund might be a viable option. Mike and Donna can open a fund to optimize their tax deductions.  They can also direct how, when, and to whom their gift is distributed.

Keep What’s Yours

Mike is happily retired. He decided to roll his 401(k) and two IRAs into one retirement account to simplify his life. In November, Mike checked the remaining balance for RMDs on his newly consolidated account and took the distribution listed Yet he did not take enough in RMDs.

Mike just made a costly mistake, and the IRS will penalize him for it. He miscalculated his RMD’s because he neglected to add the RMD amounts listed on his other accounts.

This is a subtle but common mistake. It will cost him a 50% penalty on the remaining balance of the RMDs he didn’t take. Remember RMDs cannot be rolled over into the next year.

Would you want to pay an extra 50% penalty instead of spending it yourself?

Let Us Help You to Enjoy Your Holidays

Some of these options can be complicated and overwhelming. We would love to help you simplify your life.

The post How Can I Give More to My Loved Ones and Less to the IRS? appeared first on AWM.

Direct Transfer vs. 60-day Rollovers

• Direct Transfer – A direct transfer is sometimes called a “direct rollover”, depending on the context. The term “transfer” is used in the tax code when referring to IRAs, while “rollover” is used for other qualified plans. Either way, we’re always talking about distributions that are payable to another tax-deferred account, but never to the account holder. There are two ways to distribute your funds into another account:

1. 1. ACH/Wire Transfer – This is generally the preferred method since the account holder never touches the funds.
   2. Check Payment – In this case, the check is made payable to the recipient account and is handled through a custodian.

• 60-day Rollovers — Often referred to as an “indirect transfer,” a 60-day rollover is when a distribution is payable to an individual to be redeposited into an IRA or other retirement plans within 60 days. Partial rollovers are also allowed.

Consult with your financial advisor which is the best option for you and your situation.

Benefits of a Direct Transfer

Now that you understand the difference between the two ways of transferring assets from a retirement plan to an IRA, here are some benefits of choosing a direct transfer:

• Simplicity – You can’t really get much simpler than a direct transfer. Plus, with an ACH/wire transfer, there is less room for error.
• Once-per-year Rollover Rule – Direct transfers are exempt from this rule, which means you can make as many distributions from or to qualified retirement plans as you want.
• Withholding (in qualified plans) – Qualified plans are required to withhold 20% of distributions that are paid to the account holder. Direct transfers, however, are not subject to this 20% taxable income. This factor alone is worth considering when transferring your assets.
• Inherited IRAs – A direct transfer is the only way an account owner can transfer an inherited IRA to another institution. Any amount that is payable to the beneficiary immediately becomes taxable income. Unless the custodian makes an error, there is no way to “fix” this.
• Divorce – A direct transfer is the only way to distribute the awarded amount to an ex-spouse without tax penalties.
• Timing – While 60-day rollovers are subject to time constraints, direct transfers are not.
• IRS Relief – Unlike 60-day rollover issues, any problem that comes up with a direct transfer will automatically be exempt from taxes.

At the end of the day, if you want to transfer money from an IRA or other qualified retirement plans, a direct transfer is the best way to avoid most or all tax consequences.

Always speak with your fiduciary financial advisor for help with tax relief and the mechanics of transferring funds. This could get very complicated and you don’t want to make mistakes, especially irreversible ones.

If you don’t know where to start, I would love to help.

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