Due Diligence

Everyone saving for retirement knows being proactive is very important. Having healthy retirement savings can help you live comfortably in your golden years. As stewards of our clients’ wealth, we get great satisfaction helping parents and grandparents contribute to their loved ones’ lives by properly gifting funds to a retirement account (if the loved one has earned income and qualifies). Funding retirement accounts at younger ages can increase the chances of a better funded and more comfortable financial situation during retirement.

You can contribute to a 2024 IRA until the tax filing deadline of April 15, 2025. The annual contribution limit for 2024 has increased to $7,000, or $8,000 if you are age 50 or older. Your ability to use a Roth IRA contribution can be limited based on your filing status and income (see box in this report). Now is a good time to consider making your 2024 retirement contributions.

Traditional IRAs

A traditional IRA (Individual Retirement Arrangement) is a way in which individuals can save for retirement and receive tax advantages. Traditional IRAs come in two varieties: deductible and nondeductible. Contributions to a traditional IRA may be fully or partially deductible, depending on your circumstances (i.e., taxpayer’s income, tax-filing status and other factors) and generally, amounts in a traditional IRA (including earnings and gains) are not taxed until distribution.

A clear advantage of traditional IRA accounts is the benefit of deferring taxes on all dividends, interest and capital gains earned inside the IRA account and the potential for annual tax-free compounding. This may allow an IRA to have a faster growth rate than a taxable account.

Roth IRA

A Roth IRA is an IRA that is subject to many of the same rules that apply to a traditional IRA with some major exceptions. Unlike traditional IRAs which can be tax deducted, you cannot deduct contributions to a Roth IRA. Some Roth IRA advantages include:

• If you satisfy the requirements, qualified distributions can be tax-free.
• You can leave funds in your Roth IRA for your entire lifetime.
• Beneficiaries inherit your Roth IRAs tax-free, if account requirements have been satisfied.

Many investors know and understand that the largest benefit of the Roth IRA is its tax-free withdrawal of contributions, interest and earnings in retirement, but Roth IRAs can be a powerful part of good estate planning.

Click here to download a PDF of this report.

Communication and planning have always been essential when attempting to transfer wealth efficiently. Tax planning can also play a significant role for larger estates. Currently, the federal estate tax laws are very generous, however, when the 2017 Tax Cuts and Jobs Act (TCJA) rules expire at the end of 2025, that might not be the case. We believe in proactive tax planning and waiting until the tail-end of these time constrained rules could cost you. We like to be ahead of changes, especially when it comes to potentially major tax liability.

The Tax Cuts and Jobs Act (TCJA)

Starting in 2018, the TCJA doubled the estate and gift, and GST tax exclusion amount. As our chart shows, this exclusion has moved from $5.49million for an individual in 2017, all the way up to $13.61 million in 2024. For couples in 2024, the tax exclusion is $27.22 million.

The doubled amount sunsets, or expires, on December 31, 2025. For high-net-worth individuals, this could affect wealth transfer strategies. As the tax law presently stands, the current lifetime estate and gift tax exemption will revert to pre-TCJA levels and will be cut in half and adjusted for inflation on January 1, 2026. With current inflation statistics, this could bring the amounts to around $7 million for individuals and $14 million for couples in 2026.

While many Americans do not need to worry about this sunsetting tax law, as their net worth does not meet the minimum, it is still important that they have estate planning documents to help transfer assets and wealth to their loved ones efficiently. Also, some states have estate tax transfer taxes that start at much lower levels than the federal amount. For those who are close to the potential after sunset federal limits, but not there yet, they should watch the growth of their net worth to stay on top of it. Wealthy individuals and families should not procrastinate, and we recommend planning now to ensure preparedness for the pending drastically reduced limits.

In this article we want to provide you with valuable information. However, navigating estate planning can be challenging and difficult, so checking with both your estate planning professional and financial professional is always advised. We are always available if you have any questions regarding your personal financial situation.

Click here to download a PDF of this report.

Helpful Information for Filing 2023 Income Taxes and Proactive Tax Planning for 2024

Tax planning should always be a key focus when reviewing your personal financial situation. One of our goals as financial professionals is to identify as many tax saving opportunities and strategies as possible for our clients. We believe that a proactive approach to looking at your tax situation can lead to better results than a reactive approach. We hope you find this report helpful.

This special report reviews some of the broader tax laws along with a wide range of tax reduction strategies. As you read this report, please take note of each tax strategy that you think could be beneficial to you. Not all ideas are appropriate for all taxpayers. We always recommend that you address any tax strategy with your tax professional to consider how one strategy may affect another and calculate the income tax consequences (both state and federal). Remember, tax strategies and ideas that have worked in the recent past might not even be available under today’s new tax laws. Always attempt to understand all the details before making any decisions—it is always easier to avoid a problem than it is to solve one.

Please note: Your state income tax laws could be different from federal income tax laws. Visit https://tax.findlaw.com for a wide range of information and links to tax forms for all 50 states.  All examples mentioned in this report are hypothetical and meant for illustrative purposes only.

Income tax is a large revenue source for the United States government. While tax rates have changed many times, since the 1860’s, the United States has used a “progressive” tax code. A progressive tax code means that people who make more money are taxed at a higher rate than those who make less money. Our progressive tax system works by placing earners through different brackets according to how much money they make. The dollar amounts define your tax brackets and there are differing tables depending on your filing status (single, married, etc.). This matters in determining your marginal tax rate.

Understanding Marginal Tax Rates

Determining your tax bracket is not as simple as just adding up your total income and checking a tax table. Taxpayers need to calculate their income (which can be sometimes referred to as their “adjusted gross income”) and then adjust for any deductions to find their final taxable amount.

Click here to download a PDF of this report.