tax planning Archives - New Century Investments https://www.newcenturyinvestments.com/tag/tax-planning/ Knowing Money Matters Mon, 03 Mar 2025 19:27:50 +0000 en hourly 1 https://wordpress.org/?v=6.1.10 https://www.newcenturyinvestments.com/wp-content/uploads/2021/12/cropped-Financial-Advisor-New-Century-Investments-Fort-Worth-TX-Fav-32x32.png tax planning Archives - New Century Investments https://www.newcenturyinvestments.com/tag/tax-planning/ 32 32 Tax Planning: Minimizing Your Tax Burden https://www.newcenturyinvestments.com/tax-planning-minimizing-your-tax-burden/ https://www.newcenturyinvestments.com/tax-planning-minimizing-your-tax-burden/#respond Mon, 03 Mar 2025 19:27:50 +0000 https://www.newcenturyinvestments.com/?p=5930 Tax Planning: Minimizing Your Tax Burden Introduction Tax planning is the art of tax and finance nerds. The goal of tax planning is to minimize the amount of taxes you pay by examining tax laws and strategizing. Retirement Contribution To begin, one of the most strategic ways to reduce your taxable income is to max out your retirement accounts. In 2024, the contribution limit is $7,000. Consider that someone made $50,000 a year and contributed $7,000 to a traditional IRA. Their adjusted gross income would become $43,000 on which they would be taxed. The money they contributed would then grow tax-deferred until withdrawn. Tax Loss Harvesting Tax loss harvesting is another tax planning strategy that involves investments. The goal is to use your portfolio’s losses to offset capital gains. Imagine an individual who had $10,000 in long-term capital gains. There would be a tax liability according to what tax bracket they fall into. If they decided to sell underperforming assets carrying $10,000 in long-term capital losses, the losses would offset the gains, and the tax liability would be 0. Maximizing Deductions Deductions include certain categories of outflowing money that can be subtracted from your gross income to lower the amount of your income that is taxed. This could be student loan interest, mortgage interest, contributions to retirement or health savings accounts, medical expenses, or charitable contributions. It is important to pay attention to tax brackets and the standard deduction, especially in years when the standard deduction is higher, or years that the tax brackets have widened. The more you can deduct from your income and the lower tax bracket you can fall into, the more tax relief you will find. Roth Conversions Converting the pre-tax savings in a Traditional IRA to a Roth IRA will allow you to reap tax-free withdrawals in retirement. This strategy is helpful for entrepreneurs, or anyone who has uneven income streams. During years of lower income there is a tax advantage, because more shares can be converted for the same amount and same potential tax bill. Charitable Contributions These contributions are great for lowering your adjusted gross income. For anyone over the age of 72 who is taking a Required Minimum Distribution, you can direct these funds to pay to a qualified charity. This is helpful if you do not need the additional income but want to lower your tax bill. Conclusion Taking the time to learn these strategies yourself or consulting a professional to help you is worth the time and investment. You never know how much money you can save with a little bit more knowledge about tax laws and planning strategies.   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips. SUBSCRIBE NOW!

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]]> Tax Planning: Minimizing Your Tax Burden

Introduction

Tax planning is the art of tax and finance nerds. The goal of tax planning is to minimize the amount of taxes you pay by examining tax laws and strategizing.

Retirement Contribution

To begin, one of the most strategic ways to reduce your taxable income is to max out your retirement accounts. In 2024, the contribution limit is $7,000. Consider that someone made $50,000 a year and contributed $7,000 to a traditional IRA. Their adjusted gross income would become $43,000 on which they would be taxed. The money they contributed would then grow tax-deferred until withdrawn.

Tax Loss Harvesting

Tax loss harvesting is another tax planning strategy that involves investments. The goal is to use your portfolio’s losses to offset capital gains. Imagine an individual who had $10,000 in long-term capital gains. There would be a tax liability according to what tax bracket they fall into. If they decided to sell underperforming assets carrying $10,000 in long-term capital losses, the losses would offset the gains, and the tax liability would be 0.

Maximizing Deductions

Deductions include certain categories of outflowing money that can be subtracted from your gross income to lower the amount of your income that is taxed. This could be student loan interest, mortgage interest, contributions to retirement or health savings accounts, medical expenses, or charitable contributions. It is important to pay attention to tax brackets and the standard deduction, especially in years when the standard deduction is higher, or years that the tax brackets have widened. The more you can deduct from your income and the lower tax bracket you can fall into, the more tax relief you will find.

Roth Conversions

Converting the pre-tax savings in a Traditional IRA to a Roth IRA will allow you to reap tax-free withdrawals in retirement. This strategy is helpful for entrepreneurs, or anyone who has uneven income streams. During years of lower income there is a tax advantage, because more shares can be converted for the same amount and same potential tax bill.

Charitable Contributions

These contributions are great for lowering your adjusted gross income. For anyone over the age of 72 who is taking a Required Minimum Distribution, you can direct these funds to pay to a qualified charity. This is helpful if you do not need the additional income but want to lower your tax bill.

Conclusion

Taking the time to learn these strategies yourself or consulting a professional to help you is worth the time and investment. You never know how much money you can save with a little bit more knowledge about tax laws and planning strategies.

 

Matt’s Corner

Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.
<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">

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]]> https://www.newcenturyinvestments.com/tax-planning-minimizing-your-tax-burden/feed/ 0 Making a Difference with Your IRA: The Power of Qualified Charitable Distributions https://www.newcenturyinvestments.com/making-a-difference-with-your-ira-the-power-of-qualified-charitable-distributions/ https://www.newcenturyinvestments.com/making-a-difference-with-your-ira-the-power-of-qualified-charitable-distributions/#respond Tue, 30 Jul 2024 21:30:33 +0000 https://www.newcenturyinvestments.com/?p=5827 Making a Difference with Your IRA: The Power of Qualified Charitable Distributions   As we journey through life, many of us look for ways to give back to the community and support the causes we care about. For those who have reached the age of 70½, there’s a powerful tool available: the Qualified Charitable Distribution (QCD). Not only does this strategy allow you to contribute to charitable organizations, but it also offers a unique financial benefit—minimizing your taxable income.   Understanding Qualified Charitable Distributions   A QCD is a direct transfer of funds from your Individual Retirement Account (IRA) to a qualified charitable organization. This isn’t just a generous act; it’s a savvy financial move. When you reach a certain age, you must start taking Required Minimum Distributions (RMDs) from your IRA, which are typically subject to income tax. However, by opting for a QCD, the amount donated is excluded from your taxable income. This can significantly reduce your tax burden, especially if you’re already receiving Social Security benefits or paying Medicare premiums.   Who Can Benefit from QCDs?   To qualify for a QCD, you need to be at least 70½ years old. This isn’t just a random age—it marks a point in life where individuals often reassess their financial plans and charitable giving. You can make QCDs from various types of IRAs, including Traditional, Rollover, Inherited, SEP (inactive plans only), and SIMPLE (inactive plans only) IRAs. While Roth IRAs aren’t typically used for QCDs because they aren’t subject to RMDs, under specific circumstances, they can be considered.   The beauty of QCDs lies in their simplicity and generosity. You can donate up to $105,000 per year (adjusted for inflation), and if you’re married and file jointly, your spouse can also make a QCD of up to the same amount. This means a couple could potentially exclude up to $210,000 from their taxable income annually.   The Tax Perks of QCDs   One of the most appealing aspects of QCDs is the tax advantage. Unlike other charitable contributions, QCDs do not require you to itemize deductions, making them accessible even if you take the standard deduction. This is particularly useful given the recent tax law changes, which increased the standard deduction and made itemizing less common.   Moreover, by reducing your taxable income, QCDs can help lower the amount of Social Security benefits subject to tax and even reduce Medicare premiums. This dual benefit of giving back while keeping more of your income can be a compelling reason to explore this option.   Navigating the Rules and Requirements   To ensure your QCD qualifies for the tax benefits, the funds must be transferred directly from your IRA to the charity. This means you can’t withdraw the money and then donate it—it has to go straight to the organization. The receiving charity must be a 501(c)(3) organization eligible to receive tax-deductible contributions. Unfortunately, not all organizations qualify, so it’s essential to verify that the charity you’re supporting meets the criteria.   When you make a QCD, it will be reported as a normal distribution on IRS Form 1099-R, but remember, the amount isn’t taxed. However, since the donated amount is excluded from income, you can’t claim it as a charitable deduction. Proper documentation and acknowledgment from the charity are crucial for compliance and peace of mind.   Strategic Charitable Giving   For those who don’t need their full RMDs for living expenses, QCDs offer a way to fulfill their RMD obligations while supporting worthy causes. This is especially beneficial for individuals who prefer not to see their income tax bill rise due to mandatory distributions.   Recent legislative changes have also expanded the possibilities for QCDs. Starting in 2023, you can use QCDs to fund certain types of charitable trusts and annuities, up to a one-time maximum of $50,000. This addition provides more flexibility in how you can structure your charitable giving.   Getting Started with QCDs   If you’re considering a QCD, the first step is to contact your IRA custodian. They will guide you through the process, including any specific forms or procedures required. Each financial institution might have slightly different requirements, so it’s important to follow their instructions carefully to ensure everything is set up correctly.   Consulting with a tax advisor is also highly recommended. The rules around QCDs can be complex, and a professional can help you navigate the specifics, ensuring that both your IRA and the charity meet all the necessary qualifications. They can also assist in optimizing your giving strategy to align with your financial and philanthropic goals.   A Legacy of Giving   Qualified Charitable Distributions offer a unique opportunity to make a difference in the world while managing your financial future. By understanding the benefits and rules, you can use this strategy to reduce your taxable income, support causes close to your heart, and leave a legacy of generosity. Whether you’re looking to minimize your tax liability or simply wish to give back in a meaningful way, QCDs are a valuable tool in your charitable giving arsenal.   Contact Us   As you consider the benefits of Qualified Charitable Distributions and how they can enhance your charitable giving strategy, remember that thoughtful planning can make a significant impact. If you’re curious about how QCDs can fit into your financial and philanthropic goals, or if you have any other questions, don’t hesitate to reach out. Let’s connect and explore the best ways to maximize your giving potential while securing your financial future. Feel free to contact us  for a personalized consultation or to share your thoughts and experiences with charitable giving. Together, we can make a difference and save on tax. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips. SUBSCRIBE NOW!  

The post Making a Difference with Your IRA: The Power of Qualified Charitable Distributions appeared first on New Century Investments.

]]> Making a Difference with Your IRA: The Power of Qualified Charitable Distributions

 

As we journey through life, many of us look for ways to give back to the community and support the causes we care about. For those who have reached the age of 70½, there’s a powerful tool available: the Qualified Charitable Distribution (QCD). Not only does this strategy allow you to contribute to charitable organizations, but it also offers a unique financial benefit—minimizing your taxable income.

 

Understanding Qualified Charitable Distributions

 

A QCD is a direct transfer of funds from your Individual Retirement Account (IRA) to a qualified charitable organization. This isn’t just a generous act; it’s a savvy financial move. When you reach a certain age, you must start taking Required Minimum Distributions (RMDs) from your IRA, which are typically subject to income tax. However, by opting for a QCD, the amount donated is excluded from your taxable income. This can significantly reduce your tax burden, especially if you’re already receiving Social Security benefits or paying Medicare premiums.

 

Who Can Benefit from QCDs?

 

To qualify for a QCD, you need to be at least 70½ years old. This isn’t just a random age—it marks a point in life where individuals often reassess their financial plans and charitable giving. You can make QCDs from various types of IRAs, including Traditional, Rollover, Inherited, SEP (inactive plans only), and SIMPLE (inactive plans only) IRAs. While Roth IRAs aren’t typically used for QCDs because they aren’t subject to RMDs, under specific circumstances, they can be considered.

 

The beauty of QCDs lies in their simplicity and generosity. You can donate up to $105,000 per year (adjusted for inflation), and if you’re married and file jointly, your spouse can also make a QCD of up to the same amount. This means a couple could potentially exclude up to $210,000 from their taxable income annually.

 

The Tax Perks of QCDs

 

One of the most appealing aspects of QCDs is the tax advantage. Unlike other charitable contributions, QCDs do not require you to itemize deductions, making them accessible even if you take the standard deduction. This is particularly useful given the recent tax law changes, which increased the standard deduction and made itemizing less common.

 

Moreover, by reducing your taxable income, QCDs can help lower the amount of Social Security benefits subject to tax and even reduce Medicare premiums. This dual benefit of giving back while keeping more of your income can be a compelling reason to explore this option.

 

Navigating the Rules and Requirements

 

To ensure your QCD qualifies for the tax benefits, the funds must be transferred directly from your IRA to the charity. This means you can’t withdraw the money and then donate it—it has to go straight to the organization. The receiving charity must be a 501(c)(3) organization eligible to receive tax-deductible contributions. Unfortunately, not all organizations qualify, so it’s essential to verify that the charity you’re supporting meets the criteria.

 

When you make a QCD, it will be reported as a normal distribution on IRS Form 1099-R, but remember, the amount isn’t taxed. However, since the donated amount is excluded from income, you can’t claim it as a charitable deduction. Proper documentation and acknowledgment from the charity are crucial for compliance and peace of mind.

 

Strategic Charitable Giving

 

For those who don’t need their full RMDs for living expenses, QCDs offer a way to fulfill their RMD obligations while supporting worthy causes. This is especially beneficial for individuals who prefer not to see their income tax bill rise due to mandatory distributions.

 

Recent legislative changes have also expanded the possibilities for QCDs. Starting in 2023, you can use QCDs to fund certain types of charitable trusts and annuities, up to a one-time maximum of $50,000. This addition provides more flexibility in how you can structure your charitable giving.

 

Getting Started with QCDs

 

If you’re considering a QCD, the first step is to contact your IRA custodian. They will guide you through the process, including any specific forms or procedures required. Each financial institution might have slightly different requirements, so it’s important to follow their instructions carefully to ensure everything is set up correctly.

 

Consulting with a tax advisor is also highly recommended. The rules around QCDs can be complex, and a professional can help you navigate the specifics, ensuring that both your IRA and the charity meet all the necessary qualifications. They can also assist in optimizing your giving strategy to align with your financial and philanthropic goals.

 

A Legacy of Giving

 

Qualified Charitable Distributions offer a unique opportunity to make a difference in the world while managing your financial future. By understanding the benefits and rules, you can use this strategy to reduce your taxable income, support causes close to your heart, and leave a legacy of generosity. Whether you’re looking to minimize your tax liability or simply wish to give back in a meaningful way, QCDs are a valuable tool in your charitable giving arsenal.

 

Contact Us

 

As you consider the benefits of Qualified Charitable Distributions and how they can enhance your charitable giving strategy, remember that thoughtful planning can make a significant impact. If you’re curious about how QCDs can fit into your financial and philanthropic goals, or if you have any other questions, don’t hesitate to reach out. Let’s connect and explore the best ways to maximize your giving potential while securing your financial future. Feel free to contact us  for a personalized consultation or to share your thoughts and experiences with charitable giving. Together, we can make a difference and save on tax.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

 

Matt’s Corner

Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.
<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">

 

The post Making a Difference with Your IRA: The Power of Qualified Charitable Distributions appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/making-a-difference-with-your-ira-the-power-of-qualified-charitable-distributions/feed/ 0 Effective Withdrawal Strategies to Make Your Money Last https://www.newcenturyinvestments.com/effective-withdrawal-strategies-to-make-your-money-last/ https://www.newcenturyinvestments.com/effective-withdrawal-strategies-to-make-your-money-last/#respond Mon, 01 Apr 2024 15:09:56 +0000 https://www.newcenturyinvestments.com/?p=5734 Managing your finances during retirement is crucial to ensure a comfortable and secure future. One key aspect of retirement planning is developing effective withdrawal strategies that can help your savings last throughout your golden years. In this article, we will explore some practical and proven approaches to maximize your retirement funds and maintain financial stability. Before implementing any withdrawal strategy, it is essential to have a clear understanding of your retirement expenses. Create a comprehensive budget that includes all your essential and discretionary expenses. This will help you estimate the amount of money you will need to withdraw from your retirement savings each year. The 4% rule is a widely accepted guideline for retirement withdrawals. According to this rule, you can withdraw 4% of your initial retirement portfolio balance in the first year and adjust subsequent withdrawals for inflation. This strategy aims to provide a steady income stream while preserving the longevity of your savings. A dynamic withdrawal strategy involves adjusting your annual withdrawals based on market performance and the value of your portfolio. This approach allows you to withdraw a higher percentage during prosperous market periods and reduce withdrawals during downturns. By adapting to market conditions, you can potentially extend the lifespan of your retirement savings. The bucket strategy involves dividing your retirement savings into different buckets based on time horizons and risk tolerance. The first bucket consists of cash or short-term investments to cover your immediate expenses. The second bucket holds medium-term investments, while the third bucket contains long-term investments with higher growth potential. By strategically withdrawing from each bucket, you can minimize the impact of market volatility on your retirement income. To ensure a stable income stream throughout retirement, consider incorporating annuities or other guaranteed income sources into your withdrawal strategy. Annuities provide regular payments for a specified period or for life, offering protection against market fluctuations and longevity risk. Retirement planning is not a one-time task. It is crucial to regularly review your withdrawal strategy and make adjustments as needed. Factors such as changes in expenses, market conditions, and life events should be considered when modifying your approach. Consulting with a financial advisor can provide valuable insights and guidance in this regard. Developing effective withdrawal strategies is essential for making your retirement savings last. By understanding your expenses, following established guidelines, and considering dynamic approaches, you can optimize your withdrawals and maintain financial stability throughout your retirement years. Remember to regularly review and adjust your strategy to adapt to changing circumstances. With careful planning and prudent decision-making, you can enjoy a financially secure and fulfilling retirement. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips. SUBSCRIBE NOW!  

The post Effective Withdrawal Strategies to Make Your Money Last appeared first on New Century Investments.

]]> Managing your finances during retirement is crucial to ensure a comfortable and secure future. One key aspect of retirement planning is developing effective withdrawal strategies that can help your savings last throughout your golden years. In this article, we will explore some practical and proven approaches to maximize your retirement funds and maintain financial stability.

Before implementing any withdrawal strategy, it is essential to have a clear understanding of your retirement expenses. Create a comprehensive budget that includes all your essential and discretionary expenses. This will help you estimate the amount of money you will need to withdraw from your retirement savings each year.

The 4% rule is a widely accepted guideline for retirement withdrawals. According to this rule, you can withdraw 4% of your initial retirement portfolio balance in the first year and adjust subsequent withdrawals for inflation. This strategy aims to provide a steady income stream while preserving the longevity of your savings.

A dynamic withdrawal strategy involves adjusting your annual withdrawals based on market performance and the value of your portfolio. This approach allows you to withdraw a higher percentage during prosperous market periods and reduce withdrawals during downturns. By adapting to market conditions, you can potentially extend the lifespan of your retirement savings.

The bucket strategy involves dividing your retirement savings into different buckets based on time horizons and risk tolerance. The first bucket consists of cash or short-term investments to cover your immediate expenses. The second bucket holds medium-term investments, while the third bucket contains long-term investments with higher growth potential. By strategically withdrawing from each bucket, you can minimize the impact of market volatility on your retirement income.

To ensure a stable income stream throughout retirement, consider incorporating annuities or other guaranteed income sources into your withdrawal strategy. Annuities provide regular payments for a specified period or for life, offering protection against market fluctuations and longevity risk.

Retirement planning is not a one-time task. It is crucial to regularly review your withdrawal strategy and make adjustments as needed. Factors such as changes in expenses, market conditions, and life events should be considered when modifying your approach. Consulting with a financial advisor can provide valuable insights and guidance in this regard.

Developing effective withdrawal strategies is essential for making your retirement savings last. By understanding your expenses, following established guidelines, and considering dynamic approaches, you can optimize your withdrawals and maintain financial stability throughout your retirement years. Remember to regularly review and adjust your strategy to adapt to changing circumstances. With careful planning and prudent decision-making, you can enjoy a financially secure and fulfilling retirement.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

 

Matt’s Corner

Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.
<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">

 

The post Effective Withdrawal Strategies to Make Your Money Last appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/effective-withdrawal-strategies-to-make-your-money-last/feed/ 0 Essential Tax Preparation Tips: Streamline Your Process and Maximize Returns https://www.newcenturyinvestments.com/essential-tax-preparation-tips-streamline-your-process-and-maximize-returns/ https://www.newcenturyinvestments.com/essential-tax-preparation-tips-streamline-your-process-and-maximize-returns/#respond Thu, 11 Jan 2024 16:23:04 +0000 https://www.newcenturyinvestments.com/?p=5719 Tax planning is a crucial aspect of personal finance that often goes overlooked. It involves strategically organizing your financial affairs to minimize tax liabilities and maximize savings. By taking proactive steps to optimize your tax situation, you can significantly enhance your financial well-being. This article explores the importance of tax planning and highlights its benefits in achieving long-term financial goals. Tax planning allows individuals and businesses to legally reduce their tax burdens. By understanding the tax code and utilizing available deductions, credits, and exemptions, you can optimize your tax situation. This can result in substantial savings, allowing you to retain more of your hard-earned income. Effective tax planning can help you allocate your resources more efficiently. By strategically structuring your investments and utilizing tax-advantaged accounts such as IRAs or 401(k)s, you can minimize the impact of taxes on your investment returns. This enables you to grow your savings faster and achieve your financial goals sooner. Tax planning plays a vital role in retirement preparation. By considering the tax implications of different retirement accounts and withdrawal strategies, you can optimize your income during retirement. This ensures that you have sufficient funds to support your desired lifestyle while minimizing unnecessary tax liabilities. For entrepreneurs and business owners, tax planning is essential for maximizing profits and minimizing tax liabilities. By understanding the tax implications of different business structures, deductions, and credits, you can optimize your business’s financial performance. This allows you to reinvest in growth, expand operations, or reward employees while minimizing the impact of taxes. Tax laws are subject to change, and staying informed is crucial. Engaging in tax planning helps you stay ahead of any legislative changes that may affect your financial situation. By regularly reviewing your tax strategy and adjusting it to align with new regulations, you can ensure ongoing tax efficiency and avoid any penalties or surprises. Failing to plan for taxes can lead to costly mistakes. Late payments, missed deductions, or improper filing can result in penalties and unnecessary financial burdens. By engaging in tax planning, you can avoid these errors and ensure compliance with tax laws, saving both time and money. Tax planning is a fundamental aspect of financial management that should not be overlooked. By proactively managing your tax situation, you can minimize liabilities, maximize savings, and achieve your long-term financial goals more efficiently. Whether you are an individual or a business owner, seeking professional advice from a tax advisor or financial planner can provide valuable insights and help you navigate the complexities of the tax system. Start planning today and reap the benefits of a well-optimized tax strategy for a brighter financial future. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips. SUBSCRIBE NOW!  

The post Essential Tax Preparation Tips: Streamline Your Process and Maximize Returns appeared first on New Century Investments.

]]> Tax planning is a crucial aspect of personal finance that often goes overlooked. It involves strategically organizing your financial affairs to minimize tax liabilities and maximize savings. By taking proactive steps to optimize your tax situation, you can significantly enhance your financial well-being. This article explores the importance of tax planning and highlights its benefits in achieving long-term financial goals.

Tax planning allows individuals and businesses to legally reduce their tax burdens. By understanding the tax code and utilizing available deductions, credits, and exemptions, you can optimize your tax situation. This can result in substantial savings, allowing you to retain more of your hard-earned income.

Effective tax planning can help you allocate your resources more efficiently. By strategically structuring your investments and utilizing tax-advantaged accounts such as IRAs or 401(k)s, you can minimize the impact of taxes on your investment returns. This enables you to grow your savings faster and achieve your financial goals sooner.

Tax planning plays a vital role in retirement preparation. By considering the tax implications of different retirement accounts and withdrawal strategies, you can optimize your income during retirement. This ensures that you have sufficient funds to support your desired lifestyle while minimizing unnecessary tax liabilities.

For entrepreneurs and business owners, tax planning is essential for maximizing profits and minimizing tax liabilities. By understanding the tax implications of different business structures, deductions, and credits, you can optimize your business’s financial performance. This allows you to reinvest in growth, expand operations, or reward employees while minimizing the impact of taxes.

Tax laws are subject to change, and staying informed is crucial. Engaging in tax planning helps you stay ahead of any legislative changes that may affect your financial situation. By regularly reviewing your tax strategy and adjusting it to align with new regulations, you can ensure ongoing tax efficiency and avoid any penalties or surprises.

Failing to plan for taxes can lead to costly mistakes. Late payments, missed deductions, or improper filing can result in penalties and unnecessary financial burdens. By engaging in tax planning, you can avoid these errors and ensure compliance with tax laws, saving both time and money.

Tax planning is a fundamental aspect of financial management that should not be overlooked. By proactively managing your tax situation, you can minimize liabilities, maximize savings, and achieve your long-term financial goals more efficiently. Whether you are an individual or a business owner, seeking professional advice from a tax advisor or financial planner can provide valuable insights and help you navigate the complexities of the tax system. Start planning today and reap the benefits of a well-optimized tax strategy for a brighter financial future.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!

 

Matt’s Corner

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<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">

 

The post Essential Tax Preparation Tips: Streamline Your Process and Maximize Returns appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/essential-tax-preparation-tips-streamline-your-process-and-maximize-returns/feed/ 0 13 New Tax Numbers to Know for 2024 https://www.newcenturyinvestments.com/13-new-tax-numbers-to-know-for-2024/ https://www.newcenturyinvestments.com/13-new-tax-numbers-to-know-for-2024/#respond Thu, 30 Nov 2023 22:48:03 +0000 https://www.newcenturyinvestments.com/?p=5667 Things are changing in the New Year!  Gift Tax Exclusion The annual exclusion for gifts increases to $18,000 for calendar year 2024, up from $17,000 for calendar year 2023. Estate Tax Exclusion The estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023. Cafeteria Plans For taxable years beginning in 2024, the dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,200.             Cafeteria Plan Unused Amount Carryover Maximum For 2024, if the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $640.           Medical Savings Account This is a type of account available to participants in certain high-deductible Medicare plans. For taxable years beginning in 2024, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,800 and not more than $4,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,550. For family coverage, the term “high deductible health plan” means a health plan that has an annual deductible that is not less than $5,550 and not more than $8,350, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $10,200.             Qualified Small Employer Health Reimbursement Arrangement For taxable years beginning in 2024, to qualify as a qualified small employer health reimbursement arrangement, the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $6,150. This amount is $12,450 for family coverage.             Earned Income Credit For tax year 2024, the maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, up from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.           Alternative Minimum Tax Exemption For the Alternative Minimum Tax, the exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350. These amounts are $133,300 for married couples filing jointly, for whom the exemption begins to phase out at $1,218,700.             Eligible Long-Term Care Premiums Clients who have high enough medical bills to benefit from itemizing their medical expenses can include at least some of their private long-term care insurance premiums in their medical expense total. The amounts that can be included in the medial expense total vary by age, and this year they actually increased thanks to a number of factors that include (slightly) lower premiums for long-term care coverage. Here’s how the 2024 “includible” premium levels compare with the 2023 levels: 40 or under: will decrease to $470 from $480. More than 40 and up to 50: will drop to $880 from $890. More than 50 and up to 60: will fall to $1,760 from $1,790. More than 60 and up to 70: will decrease to $4,710 from $4,770. 70 and older: will fall to $5,880 from $5,960. For the Qualified Long-Term Care Insurance Contract or Life Insurance Contract Per Diem Limitation, the dollar limit on the benefits will decrease to $410 per day from $420 per day.             Itemized Deductions For 2024, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act, beginning in 2018 and set to sunset at the end of 2025.             Tax Rates For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly). The other rates are: 35% for incomes over $243,725 ($487,450 for married couples filing jointly). 32% for incomes over $191,950 ($383,900 for married couples filing jointly). 24% for incomes over $100,525 ($201,050 for married couples filing jointly). 22% for incomes over $47,150 ($94,300 for married couples filing jointly). 12% for incomes over $11,600 ($23,200 for married couples filing jointly). The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).             Personal Exemption The personal exemption for tax year 2023 remains at zero, as it was for 2022, as it was eliminated in the Tax Cuts and Jobs Act.             Standard Deduction The standard deduction for married couples filing jointly for tax year 2024 rises to 29,200, up from $27,700 for 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 from $13,850 for 2023. For heads of households, the standard deduction will be $21,900, rising from $20,800 for tax year 2023.   About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.   SUBSCRIBE NOW!  

The post 13 New Tax Numbers to Know for 2024 appeared first on New Century Investments.

]]> Things are changing in the New Year! 

  1. Gift Tax Exclusion

The annual exclusion for gifts increases to $18,000 for calendar year 2024, up from $17,000 for calendar year 2023.

  1. Estate Tax Exclusion

The estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.

  1. Cafeteria Plans

For taxable years beginning in 2024, the dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,200.

 

 

 

 

 

 

  1. Cafeteria Plan Unused Amount Carryover Maximum

For 2024, if the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $640.

 

 

 

 

 

  1. Medical Savings Account

This is a type of account available to participants in certain high-deductible Medicare plans.

For taxable years beginning in 2024, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,800 and not more than $4,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,550.

For family coverage, the term “high deductible health plan” means a health plan that has an annual deductible that is not less than $5,550 and not more than $8,350, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $10,200.

 

 

 

 

 

 

  1. Qualified Small Employer Health Reimbursement Arrangement

For taxable years beginning in 2024, to qualify as a qualified small employer health reimbursement arrangement, the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $6,150.

This amount is $12,450 for family coverage.

 

 

 

 

 

 

  1. Earned Income Credit

For tax year 2024, the maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, up from $7,430 for tax year 2023.

The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.

 

 

 

 

 

  1. Alternative Minimum Tax Exemption

For the Alternative Minimum Tax, the exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350.

These amounts are $133,300 for married couples filing jointly, for whom the exemption begins to phase out at $1,218,700.

 

 

 

 

 

 

  1. Eligible Long-Term Care Premiums

Clients who have high enough medical bills to benefit from itemizing their medical expenses can include at least some of their private long-term care insurance premiums in their medical expense total.

The amounts that can be included in the medial expense total vary by age, and this year they actually increased thanks to a number of factors that include (slightly) lower premiums for long-term care coverage.

Here’s how the 2024 “includible” premium levels compare with the 2023 levels:

  • 40 or under: will decrease to $470 from $480.
  • More than 40 and up to 50: will drop to $880 from $890.
  • More than 50 and up to 60: will fall to $1,760 from $1,790.
  • More than 60 and up to 70: will decrease to $4,710 from $4,770.
  • 70 and older: will fall to $5,880 from $5,960.

For the Qualified Long-Term Care Insurance Contract or Life Insurance Contract Per Diem Limitation, the dollar limit on the benefits will decrease to $410 per day from $420 per day.

 

 

 

 

 

 

  1. Itemized Deductions

For 2024, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act, beginning in 2018 and set to sunset at the end of 2025.

 

 

 

 

 

 

  1. Tax Rates

For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly). The other rates are:

  • 35% for incomes over $243,725 ($487,450 for married couples filing jointly).
  • 32% for incomes over $191,950 ($383,900 for married couples filing jointly).
  • 24% for incomes over $100,525 ($201,050 for married couples filing jointly).
  • 22% for incomes over $47,150 ($94,300 for married couples filing jointly).
  • 12% for incomes over $11,600 ($23,200 for married couples filing jointly).
  • The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).

 

 

 

 

 

 

  1. Personal Exemption

The personal exemption for tax year 2023 remains at zero, as it was for 2022, as it was eliminated in the Tax Cuts and Jobs Act.

 

 

 

 

 

 

  1. Standard Deduction

The standard deduction for married couples filing jointly for tax year 2024 rises to 29,200, up from $27,700 for 2023.

For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 from $13,850 for 2023. For heads of households, the standard deduction will be $21,900, rising from $20,800 for tax year 2023.

 

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!

 

Matt’s Corner

<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">
Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.

 

 

The post 13 New Tax Numbers to Know for 2024 appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/13-new-tax-numbers-to-know-for-2024/feed/ 0 The Importance of Tax Planning and Investments https://www.newcenturyinvestments.com/the-importance-of-tax-planning-and-investments/ https://www.newcenturyinvestments.com/the-importance-of-tax-planning-and-investments/#respond Tue, 28 Nov 2023 15:08:52 +0000 https://www.newcenturyinvestments.com/?p=5535 Navigating the financial landscape can be complex. However, two key aspects of any sound financial plan are tax planning and investments. Effective tax planning can significantly reduce your tax liability, ultimately freeing up more of your hard-earned money for other pursuits. Conversely, intelligent investment can allow your wealth to grow, potentially providing a future income stream or a safety net for unexpected expenses. Tax planning involves understanding your current tax position and making decisions to minimize the tax liabilities you may face. It’s a proactive approach, requiring careful consideration of tax law and various financial products available in the market. By utilizing tax-advantaged accounts, tax credits, and deductions, you can significantly reduce your annual tax bill. Investing, on the other hand, involves allocating resources in expectation of some future benefit. This could range from buying stocks in a promising company, purchasing real estate, or even starting your own business. The goal here is to create a return on your initial investment over time. These two aspects of financial planning, tax planning and investments, while distinct, are often intertwined. The tax implications of different investments must be considered, as they can significantly influence the net return. Simultaneously, certain tax strategies can be more effective when paired with specific types of investment. Thus, a coherent, synergistic approach to both tax planning and investments is essential to financial success. Creating a financial plan is just the first step towards achieving your financial goals. It’s important to regularly review and reassess this plan to ensure that it is still aligned with your current financial situation and future aspirations. This review process allows you to make any necessary adjustments and take advantage of new opportunities that may arise. One benefit of regularly reviewing your financial plan is the ability to identify areas for potential improvement. As your income, expenses, and overall financial situation change, so do your goals and priorities. By revisiting your plan on a regular basis, you can make sure that it is still in line with your current needs and aspirations. This could involve adjusting budget allocations, updating investment strategies, or making changes to your retirement plans. Additionally, regularly reviewing your financial plan allows you to stay informed about market trends and changes in tax laws. This knowledge can help you make more informed decisions about your investments and tax planning strategies. It also allows you to take advantage of any new opportunities or benefits that may arise. Regularly reviewing your financial plan is crucial for its effectiveness and your overall financial success. It allows for necessary adjustments to be made and ensures that you are taking advantage of all available opportunities. So, make it a habit to review your plan at least once a year, or more frequently if major life changes occur. Your future self will thank you for staying on top of your financial game. About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.  Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!   Matt’s Corner Want to receive insights delivered directly to your inbox? Subscribe to Matt’s Corner for more insights and financial planning tips.   Subscribe Now!  

The post The Importance of Tax Planning and Investments appeared first on New Century Investments.

]]> Navigating the financial landscape can be complex. However, two key aspects of any sound financial plan are tax planning and investments. Effective tax planning can significantly reduce your tax liability, ultimately freeing up more of your hard-earned money for other pursuits. Conversely, intelligent investment can allow your wealth to grow, potentially providing a future income stream or a safety net for unexpected expenses.

Tax planning involves understanding your current tax position and making decisions to minimize the tax liabilities you may face. It’s a proactive approach, requiring careful consideration of tax law and various financial products available in the market. By utilizing tax-advantaged accounts, tax credits, and deductions, you can significantly reduce your annual tax bill.

Investing, on the other hand, involves allocating resources in expectation of some future benefit. This could range from buying stocks in a promising company, purchasing real estate, or even starting your own business. The goal here is to create a return on your initial investment over time.

These two aspects of financial planning, tax planning and investments, while distinct, are often intertwined. The tax implications of different investments must be considered, as they can significantly influence the net return. Simultaneously, certain tax strategies can be more effective when paired with specific types of investment. Thus, a coherent, synergistic approach to both tax planning and investments is essential to financial success.

Creating a financial plan is just the first step towards achieving your financial goals. It’s important to regularly review and reassess this plan to ensure that it is still aligned with your current financial situation and future aspirations. This review process allows you to make any necessary adjustments and take advantage of new opportunities that may arise.

One benefit of regularly reviewing your financial plan is the ability to identify areas for potential improvement. As your income, expenses, and overall financial situation change, so do your goals and priorities. By revisiting your plan on a regular basis, you can make sure that it is still in line with your current needs and aspirations. This could involve adjusting budget allocations, updating investment strategies, or making changes to your retirement plans.

Additionally, regularly reviewing your financial plan allows you to stay informed about market trends and changes in tax laws. This knowledge can help you make more informed decisions about your investments and tax planning strategies. It also allows you to take advantage of any new opportunities or benefits that may arise.

Regularly reviewing your financial plan is crucial for its effectiveness and your overall financial success. It allows for necessary adjustments to be made and ensures that you are taking advantage of all available opportunities. So, make it a habit to review your plan at least once a year, or more frequently if major life changes occur. Your future self will thank you for staying on top of your financial game.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him on LinkedIn!

 

Matt’s Corner<img src="Why-I-Became-A-Financial-Advisor-Matt-Ward-CFP (3).png" alt="Matt Ward, CFP studying and analyzing stock markets">

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The post The Importance of Tax Planning and Investments appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/the-importance-of-tax-planning-and-investments/feed/ 0 The 1031 Exchange: Tax-Deferred Investing for Property Owners https://www.newcenturyinvestments.com/the-1031-exchange-tax-deferred-investing-for-property-owners/ https://www.newcenturyinvestments.com/the-1031-exchange-tax-deferred-investing-for-property-owners/#respond Mon, 19 Sep 2022 13:12:37 +0000 https://www.newcenturyinvestments.com/the-1031-exchange-tax-deferred-investing-for-property-owners/ Do you have an investment property? Do you wish you could find a way to sell it but not get stuck with the huge capital gains tax bite? Then look no further than the 1031 exchange! If you you like to defer the tax on your investment property then contact New Century Investments advisors to explore your options for a 1031 Exchange today! A Qualified Intermediary can help you today!

The post The 1031 Exchange: Tax-Deferred Investing for Property Owners appeared first on New Century Investments.

]]> The 1031 Exchange: Tax-Deferred Investing for Property Owners

Do you have an investment property? Do you wish you could find a way to sell it but not get stuck with the huge capital gains tax bite? I’m here to tell you that there is a way! Look no further than the 1031 exchange.

What is a 1031 Exchange?

The 1031 Exchange is a special provision of the tax code that allows an investor to defer taxes on the sale of a property by reinvesting the proceeds in a new property within a specific time frame. The 1031 Exchange is also known as a “deferred exchange,” because the taxes on the original sale are deferred until a later date. This can be a powerful tool for investors, because it allows them to keep more of their profits from the sale of a property. Also, the TCJA 2017 changed the rules allowing only real property to qualify for like-kind exchanges.

There are several rules that govern 1031 Exchanges, including:

1) The property being sold must be used for investment or business purposes.

2) The proceeds from the sale must be reinvested in a “like-kind” property.

3) The replacement property must be identified within 45 days of the sale of the original property.

4) The replacement property must be acquired within 180 days of the sale of the original property.

5) The taxpayer must have held the original property for at least one year.

6) The taxpayer must not have taken possession of the replacement property.

Summary

A 1031 Exchange is a great way to defer taxes on appreciated property. By reinvesting the proceeds into a new rental property, you can continue to grow your portfolio while keeping more of your money in your pocket. There are some important rules and timing constraints to be aware of, so consult with an experienced tax professional to ensure everything goes smoothly. Overall, the 1031 Exchange is a great way to save on taxes and keep your investment portfolio humming along.

Take the Next Step

Would you like to defer the tax on your investment property? Contact New Century Investments advisors to explore your options for a 1031 Exchange today!

Schedule meeting

Matt Ward, CFP®

817-238-6300

Matt.Ward@newcenturyinvestments.com

The post The 1031 Exchange: Tax-Deferred Investing for Property Owners appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/the-1031-exchange-tax-deferred-investing-for-property-owners/feed/ 0 I’m Never Too Busy to Help Someone You Care About https://www.newcenturyinvestments.com/im-never-too-busy-to-help-someone-you-care-about/ https://www.newcenturyinvestments.com/im-never-too-busy-to-help-someone-you-care-about/#respond Tue, 31 May 2022 14:45:46 +0000 https://www.newcenturyinvestments.com/?p=4133 I’m Never Too Busy to Help Someone You Care About Do you ever feel like that circus act where you have to keep a bunch of plates spinning at the top of tall sticks? I get it. Sometimes it can feel like we’re juggling a million different priorities and if we stop for a minute, they’re all at risk of falling. What are your most important “plates”? Family? Maybe health? Or your job?  While financial planning may not be high on your list, don’t underestimate its importance. Money affects every part of your life, and it can help you achieve the things that matter most. Managing money, however, often leads to stress and worry. That’s why a financial advisor can play one of the most prominent roles in a person’s life and financial future.  But how do you find an advisor you can trust and who will work with you for the long term? Searching for a financial advisor can be an overwhelming and intimidating process and one you shouldn’t take lightly. Knowing this, I am honored to have the opportunity to serve my clients and their families and friends.  If you haven’t yet shared me as a resource, I welcome the chance to connect with and get to know new clients who may benefit from my services. Your referrals are the highest compliment and an integral part of my firm’s continued growth. The New Century Investments Difference I’ve been fortunate enough to work with a wide range of clients who refer their colleagues, friends, and family members to me. I believe many people have referred others to me for a few different reasons: A personalized real-world approach. No two individuals’ financial service needs will be the same, which is why I take the time to outline a tailored strategy based on your specific needs, goals, and circumstances.  Strong relationships. I prioritize a hands-on client-centered approach, which has led to long-lasting relationships with many of my clients. I’m proud to serve as a go-to resource and support system when someone faces a tough decision or goes through a life transition. My clients also appreciate that keeping all their information completely confidential is a top priority of mine. A long-term commitment. I recognize that financial planning and investing is not a static process; life changes happen and investment objectives can shift over time. That’s why I provide ongoing guidance and support. Whether it’s saving for your children’s college education, planning for retirement, or preserving assets for future generations, I seek to provide the financial service resources and continuous management necessary to keep you working toward your goals. A dedicated advisor. As a seasoned professional, I strive to maintain a high-touch and personalized experience, and to help my clients simplify complex money decisions. With a dedicated professional on your side, I hope you can feel more confident as you navigate life’s challenges and planning opportunities. The People I Serve Best My desire is to partner with my clients and help carry their financial burdens, while aiming to make their wealth work for them—not the other way around. Because I endeavor to form trusted and close relationships with clients, I strive to work with people whom I believe I can best serve: business owners, pre-retirees, and retirees. While my clients come from a variety of backgrounds and professions, they most often want to delegate their financial matters to a professional they can trust. This helps simplify their lives so they can focus on what’s important to them.   Do You Know Someone Who Could Benefit From My Services? Our mission at New Century Investments is to provide trusted advice and exceptional personal service to those we serve. I am passionate about what I do, and I’m always working in the best interests of my clients. In fact, I’m currently working toward receiving my CPA certification so I can provide a higher level of service. When you have questions about your portfolio or strategies, reach out; I’m privileged to walk alongside you on your financial journey, supporting you and celebrating as you reach your goals.  If you are currently a client of mine and you have enjoyed working with me, I hope you will refer a friend, colleague, or family member who may benefit from my services. Consider sending this article to them, and if they’re interested in partnering with me, they can schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online.  About Matt Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals.  Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and  chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

The post I’m Never Too Busy to Help Someone You Care About appeared first on New Century Investments.

]]> I’m Never Too Busy to Help Someone You Care About

Do you ever feel like that circus act where you have to keep a bunch of plates spinning at the top of tall sticks? I get it. Sometimes it can feel like we’re juggling a million different priorities and if we stop for a minute, they’re all at risk of falling. What are your most important “plates”? Family? Maybe health? Or your job? 

While financial planning may not be high on your list, don’t underestimate its importance. Money affects every part of your life, and it can help you achieve the things that matter most. Managing money, however, often leads to stress and worry. That’s why a financial advisor can play one of the most prominent roles in a person’s life and financial future. 

But how do you find an advisor you can trust and who will work with you for the long term? Searching for a financial advisor can be an overwhelming and intimidating process and one you shouldn’t take lightly. Knowing this, I am honored to have the opportunity to serve my clients and their families and friends. 

If you haven’t yet shared me as a resource, I welcome the chance to connect with and get to know new clients who may benefit from my services. Your referrals are the highest compliment and an integral part of my firm’s continued growth.

The New Century Investments Difference

I’ve been fortunate enough to work with a wide range of clients who refer their colleagues, friends, and family members to me. I believe many people have referred others to me for a few different reasons:

  1. A personalized real-world approach. No two individuals’ financial service needs will be the same, which is why I take the time to outline a tailored strategy based on your specific needs, goals, and circumstances. 
  2. Strong relationships. I prioritize a hands-on client-centered approach, which has led to long-lasting relationships with many of my clients. I’m proud to serve as a go-to resource and support system when someone faces a tough decision or goes through a life transition. My clients also appreciate that keeping all their information completely confidential is a top priority of mine.
  3. A long-term commitment. I recognize that financial planning and investing is not a static process; life changes happen and investment objectives can shift over time. That’s why I provide ongoing guidance and support. Whether it’s saving for your children’s college education, planning for retirement, or preserving assets for future generations, I seek to provide the financial service resources and continuous management necessary to keep you working toward your goals.
  4. A dedicated advisor. As a seasoned professional, I strive to maintain a high-touch and personalized experience, and to help my clients simplify complex money decisions. With a dedicated professional on your side, I hope you can feel more confident as you navigate life’s challenges and planning opportunities.

The People I Serve Best

My desire is to partner with my clients and help carry their financial burdens, while aiming to make their wealth work for them—not the other way around. Because I endeavor to form trusted and close relationships with clients, I strive to work with people whom I believe I can best serve: business owners, pre-retirees, and retirees. While my clients come from a variety of backgrounds and professions, they most often want to delegate their financial matters to a professional they can trust. This helps simplify their lives so they can focus on what’s important to them.  

Do You Know Someone Who Could Benefit From My Services?

Our mission at New Century Investments is to provide trusted advice and exceptional personal service to those we serve. I am passionate about what I do, and I’m always working in the best interests of my clients. In fact, I’m currently working toward receiving my CPA certification so I can provide a higher level of service. When you have questions about your portfolio or strategies, reach out; I’m privileged to walk alongside you on your financial journey, supporting you and celebrating as you reach your goals. 

If you are currently a client of mine and you have enjoyed working with me, I hope you will refer a friend, colleague, or family member who may benefit from my services. Consider sending this article to them, and if they’re interested in partnering with me, they can schedule a complimentary introductory consultation by calling us at 817-238-6300, emailing Matt.Ward@NewCenturyInvestments.com​, or scheduling an appointment online. 

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

Matt graduated from Texas Tech University with a bachelor’s degree and is a certified financial planner™ and  chartered retirement planning counselor℠ professional. When he’s not working, you can find Matt hiking, playing the guitar, and spending time with his family. To learn more about Matt, connect with him today!

The post I’m Never Too Busy to Help Someone You Care About appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/im-never-too-busy-to-help-someone-you-care-about/feed/ 0 Market Perspectives & Taxes. A Common Myth about Cash https://www.newcenturyinvestments.com/market-perspectives-taxes-a-common-myth-about-cash/ https://www.newcenturyinvestments.com/market-perspectives-taxes-a-common-myth-about-cash/#respond Fri, 03 Dec 2021 19:00:50 +0000 https://www.newcenturyinvestments.com/?p=3857 Market Perspectives & Taxes. And A Common Myth about Cash   As we approach the end of the calendar year, the time for last-minute 2021 tax planning is here. Here are 4 ideas for saving on taxes in 2021: Donate to Charity1 (if you’re over 70 ½ you can donate from an IRA for tax savings) Consider funding an HSA (must have HDHP) Prepay Deductions2 Consider Business Expense Deductions With talk around inflation in the media these days, it inspired me to share this chart below. A common financial myth is that keeping money in your checking account (commonly referred to as keeping money in cash) is “ultra-safe.” From a volatility perspective, I might agree. You won’t see your money fluctuate. But from a wealth perspective, I mostly disagree that money kept in checking accounts is “ultra-safe.”   If you notice, cash has lost the most on every single 5+ year period. And, if you also notice, stocks have had the exact opposite effect. Stocks become less risky as time goes on. On every rolling 20-year period in stock market history, stocks have been up. Therefore, if you’re still working, you may consider keeping between 6-12 months in cash, depending on your situation. But if you’re retired, then it’s a different situation because you may not have other income. Distribution planning tells us that in retirement we should be more conservative. Now, let’s recap stock markets this year. In 2021, emotions fueled a stock market rally in the early part of the year. The rally cooled off by mid-spring and depending on the industry, some markets are down year-to-date. This is exactly why we diversify holdings and monitor performance. Nobody has the crystal ball to know exactly which investments are going to perform well into the near future. Therefore, prudence tells us that we should have several different investments. We consider investing as a form of “probabilities”, rather than a form of speculation. Unlike rolling the dice, investing involves analyzing market conditions, monitoring economic and tax law changes, studying fundamental characteristics, and looking for investments that are undervalued or poised for growth (but at a reasonable price). This increases our probability of success. We are not speculators. We are long-term investors. We believe that by weighting towards these fundamentals (among others), long-term performance will be rewarded. Reach out to our firm if you have any questions about saving on taxes or investments! 817-238-6300 Matt Ward *All tax planning and investment content is generalized. Specific situations will apply in determining eligibility.

The post Market Perspectives & Taxes. A Common Myth about Cash appeared first on New Century Investments.

]]> Market Perspectives & Taxes. And A Common Myth about Cash

 

As we approach the end of the calendar year, the time for last-minute 2021 tax planning is here. Here are 4 ideas for saving on taxes in 2021:
  1. Donate to Charity1 (if you’re over 70 ½ you can donate from an IRA for tax savings)
  2. Consider funding an HSA (must have HDHP)
  3. Prepay Deductions2
  4. Consider Business Expense Deductions
With talk around inflation in the media these days, it inspired me to share this chart below. A common financial myth is that keeping money in your checking account (commonly referred to as keeping money in cash) is “ultra-safe.” From a volatility perspective, I might agree. You won’t see your money fluctuate. But from a wealth perspective, I mostly disagree that money kept in checking accounts is “ultra-safe.”

 

If you notice, cash has lost the most on every single 5+ year period. And, if you also notice, stocks have had the exact opposite effect. Stocks become less risky as time goes on.

On every rolling 20-year period in stock market history, stocks have been up. Therefore, if you’re still working, you may consider keeping between 6-12 months in cash, depending on your situation. But if you’re retired, then it’s a different situation because you may not have other income. Distribution planning tells us that in retirement we should be more conservative.

Now, let’s recap stock markets this year.

In 2021, emotions fueled a stock market rally in the early part of the year. The rally cooled off by mid-spring and depending on the industry, some markets are down year-to-date. This is exactly why we diversify holdings and monitor performance. Nobody has the crystal ball to know exactly which investments are going to perform well into the near future. Therefore, prudence tells us that we should have several different investments.

We consider investing as a form of “probabilities”, rather than a form of speculation. Unlike rolling the dice, investing involves analyzing market conditions, monitoring economic and tax law changes, studying fundamental characteristics, and looking for investments that are undervalued or poised for growth (but at a reasonable price). This increases our probability of success. We are not speculators. We are long-term investors. We believe that by weighting towards these fundamentals (among others), long-term performance will be rewarded.

Reach out to our firm if you have any questions about saving on taxes or investments!
817-238-6300

Matt Ward

*All tax planning and investment content is generalized. Specific situations will apply in determining eligibility.

The post Market Perspectives & Taxes. A Common Myth about Cash appeared first on New Century Investments.

]]> https://www.newcenturyinvestments.com/market-perspectives-taxes-a-common-myth-about-cash/feed/ 0 The Best Place to Save for Long-Term Care Expenses https://www.newcenturyinvestments.com/3836-2/ https://www.newcenturyinvestments.com/3836-2/#respond Thu, 12 Aug 2021 19:00:09 +0000 https://www.newcenturyinvestments.com/?p=3836 The Best Place to Save for Long-Term Care Expenses Counterintuitively, vehicles offering tax-free withdrawals aren’t always the best for long-term-care savings. Article by Christine Benz The average tab for a year’s worth of nursing-home care rang in at nearly $106,000 in 2020, according to Genworth’s most recent Cost of Care report, and those costs are inflating at a roughly 4% rate. Given that the average duration of care is in the neighborhood of 2.5 years, as well as the fact that half of the population will need some type of long-term care during their lifetimes, many consumers are apt to confront some scary bills later in life. Whether they choose to receive care in an institutionalized setting is another matter: Given the tragic loss of life to the novel coronavirus in long-term-care facilities over the past year and a half, it’s a good bet that more and more older adults will opt for home-based care when the time comes and if they have the financial wherewithal to do so. Yet despite those onerous expense of long-term care, most consumers forgo insuring against long-term-care expenses: Just 7.5 million Americans had some type of long-term-care insurance in place as of 2020. People without large stores of assets will need to rely on Medicaid funding for long-term care, and indeed, Medicaid covers the majority of long-term-care costs in the United States today. At the other extreme, wealthy individuals who are forgoing insurance are banking on their own assets to carry them through–and praying they won’t have to. For the latter people self-funding long-term care–and I’m guessing a lot of Morningstar.com users fall into that camp–I like the idea of segregating long-term-care assets from the assets they expect to use for living expenses. That way, any conclusions about the retirement plan’s sustainability relate to the spending portfolio, not the long-term-care portion. But then a related question crops up: What’s the best receptacle to use for those earmarked long-term savings? Here’s a review of the key options. Note that for the purpose of this article, I’m focusing on pure savings vehicle and setting aside various insurance products, including annuities and life/long-term-care insurance and life/annuity hybrids. Traditional IRA In a few key respects, a traditional IRA is the ideal receptacle for long-term-care assets. Yes, withdrawals are taxable, to the extent that they consist of pretax contributions and investment earnings. But individuals incurring heavy long-term-care costs often easily exceed the threshold for deductibility of healthcare expenses. (In 2021, healthcare expenses that exceed 7.5% of adjusted gross income are deductible.) That means that the deduction can offset the taxes due on the IRA withdrawal. It’s also worth noting that most long-term-care costs are incurred later in life, when required minimum distributions (which apply to traditional tax-deferred accounts for people who are over age 72) apply. In other words, the money has to come out of the account and be taxed at this life stage anyway, and the medical expense deduction helps to ease the tax burden. Moreover, the fact that both company retirement plan assets and IRA assets can be rolled into an IRA upon retirement allows for a significant bulwark against long-term-care costs. On the other hand, withdrawing from an IRA will tend to be less advantageous for older adults who are taking light advantage of long-term-care services–for example, they’re hiring caregivers to help for a few hours per week at home. In that case, their long-term-care outlays may not meet the deductibility thresholds; pulling from vehicles with tax-advantaged withdrawals would be the better strategy. Roth IRA Even as withdrawals from traditional tax-deferred accounts can make sense during years of heavy long-term-care outlays (see above), withdrawals from Roth accounts will tend to be less beneficial during those years. That’s because Roth tax treatment is the reverse: Taxable dollars go in and the money comes out on a tax-free basis. Thus, even though an individual’s long-term-care expenses might readily exceed the IRS’ thresholds for deductibility of medical expenses, the Roth IRA withdrawals wouldn’t be taxable, meaning that the benefit deductions would likely fall by the wayside. Moreover, Roth IRA assets are often the most attractive for heirs to receive, so using those assets for long-term-care costs would reduce the amount of assets that would pass tax-free upon death. That said, Roth assets may be useful in years in which long-term-care outlays don’t exceed the threshold for the deductibility of medical expenses. Health Savings Account With the opportunity to make pretax contributions, grow investment earnings tax-free, and cover qualified healthcare expenses with tax-free withdrawals, HSAs offer unparalleled tax benefits. Assuming the HSA boasts good-quality investment options without a lot of extra costs, the ability to take a tax break both on the way in and on the way out of the account means that HSA investors’ take-home returns can be higher than investors’ in traditional tax-deferred or Roth accounts. Long-term-care expenses would generally be considered qualified healthcare expenses for tax-free IRA withdrawals. As is the case with Roth IRA withdrawals, however, an HSA’s tax benefits are almost too good in the context of long-term care. That’s because if you withdraw from an HSA and use the funds to cover long-term-care costs, you can’t also deduct those long-term-care expenses on your tax return. Of course, that’s true with any HSA deduction–to cover long-term-care costs or anything else. But that foregone deduction is particularly valuable in years of heavy long-term-care usage, when an individual’s healthcare costs may be by far the biggest bill, easily exceeding the threshold for deductibility of medical expenses. On the other hand, an HSA may be useful in the earliest stages of long-term care, when those outlays are relatively lighter. Additionally, HSA annual contribution limits may limit a saver’s ability to earn critical mass with the account, especially for those who are starting later in life. (And let’s be realistic: Few people start thinking seriously about the financial implications of long-term care before they’re 50.) Additionally, HSAs can be costly and may feature subpar investment options, though that problem can be readily circumvented. Finally, while HSA assets inherited by one’s spouse continue to enjoy their prodigious tax benefits, an HSA inherited by someone other than your spouse won’t be able to enjoy those same benefits. This would only be a problem if someone doesn’t use their HSA assets for long-term or other expenses during their lifetime, though, and therefore falls into the realm of “first-world problems.” Taxable Account Assets in a taxable account are taxed on an ongoing basis, assuming they’re making income and/or capital gain distributions. And when you sell appreciated securities in a taxable account, you’ll owe capital gains tax, either short-term or long-term. From the standpoint of withdrawals, taxable accounts fall between traditional tax-deferred accounts (most withdrawals dunned at ordinary income tax rate) and Roth accounts and HSAs (tax-free withdrawals). Selling appreciated securities from a taxable account will trigger capital gains tax, of course, but deductions for heavy healthcare and long-term-care outlays can be used to offset the tax bill associated with the sale. Of course, such taxable assets would also be appropriate to leave for heirs, who can take advantage of the step-up in cost basis upon the death of the original owner. Takeaways Ultimately, there’s no single right answer; indeed, this is yet another case for tax diversification. In years of relatively light outlays for long-term-care expenses, accounts offering tax-free withdrawals, such as HSAs, will be the most beneficial. In years of heavier outlays, withdrawing from vehicles that allow for the deductibility of medical expenses, such as traditional IRAs, will be the better strategy. Matt Ward, CFP® New Century Investments Matt.Ward@newcenturyinvestments.com 817-238-6300

The post The Best Place to Save for Long-Term Care Expenses appeared first on New Century Investments.

]]>

The Best Place to Save for Long-Term Care Expenses

Counterintuitively, vehicles offering tax-free withdrawals aren’t always the best for long-term-care savings.

Article by Christine Benz

The average tab for a year’s worth of nursing-home care rang in at nearly $106,000 in 2020, according to Genworth’s most recent Cost of Care report, and those costs are inflating at a roughly 4% rate. Given that the average duration of care is in the neighborhood of 2.5 years, as well as the fact that half of the population will need some type of long-term care during their lifetimes, many consumers are apt to confront some scary bills later in life. Whether they choose to receive care in an institutionalized setting is another matter: Given the tragic loss of life to the novel coronavirus in long-term-care facilities over the past year and a half, it’s a good bet that more and more older adults will opt for home-based care when the time comes and if they have the financial wherewithal to do so.

Yet despite those onerous expense of long-term care, most consumers forgo insuring against long-term-care expenses: Just 7.5 million Americans had some type of long-term-care insurance in place as of 2020. People without large stores of assets will need to rely on Medicaid funding for long-term care, and indeed, Medicaid covers the majority of long-term-care costs in the United States today. At the other extreme, wealthy individuals who are forgoing insurance are banking on their own assets to carry them through–and praying they won’t have to.

For the latter people self-funding long-term care–and I’m guessing a lot of Morningstar.com users fall into that camp–I like the idea of segregating long-term-care assets from the assets they expect to use for living expenses. That way, any conclusions about the retirement plan’s sustainability relate to the spending portfolio, not the long-term-care portion. But then a related question crops up: What’s the best receptacle to use for those earmarked long-term savings?

Here’s a review of the key options. Note that for the purpose of this article, I’m focusing on pure savings vehicle and setting aside various insurance products, including annuities and life/long-term-care insurance and life/annuity hybrids.

Traditional IRA

In a few key respects, a traditional IRA is the ideal receptacle for long-term-care assets. Yes, withdrawals are taxable, to the extent that they consist of pretax contributions and investment earnings. But individuals incurring heavy long-term-care costs often easily exceed the threshold for deductibility of healthcare expenses. (In 2021, healthcare expenses that exceed 7.5% of adjusted gross income are deductible.) That means that the deduction can offset the taxes due on the IRA withdrawal.

It’s also worth noting that most long-term-care costs are incurred later in life, when required minimum distributions (which apply to traditional tax-deferred accounts for people who are over age 72) apply. In other words, the money has to come out of the account and be taxed at this life stage anyway, and the medical expense deduction helps to ease the tax burden. Moreover, the fact that both company retirement plan assets and IRA assets can be rolled into an IRA upon retirement allows for a significant bulwark against long-term-care costs.

On the other hand, withdrawing from an IRA will tend to be less advantageous for older adults who are taking light advantage of long-term-care services–for example, they’re hiring caregivers to help for a few hours per week at home. In that case, their long-term-care outlays may not meet the deductibility thresholds; pulling from vehicles with tax-advantaged withdrawals would be the better strategy.

Roth IRA

Even as withdrawals from traditional tax-deferred accounts can make sense during years of heavy long-term-care outlays (see above), withdrawals from Roth accounts will tend to be less beneficial during those years. That’s because Roth tax treatment is the reverse: Taxable dollars go in and the money comes out on a tax-free basis. Thus, even though an individual’s long-term-care expenses might readily exceed the IRS’ thresholds for deductibility of medical expenses, the Roth IRA withdrawals wouldn’t be taxable, meaning that the benefit deductions would likely fall by the wayside.

Moreover, Roth IRA assets are often the most attractive for heirs to receive, so using those assets for long-term-care costs would reduce the amount of assets that would pass tax-free upon death.

That said, Roth assets may be useful in years in which long-term-care outlays don’t exceed the threshold for the deductibility of medical expenses.

Health Savings Account

With the opportunity to make pretax contributions, grow investment earnings tax-free, and cover qualified healthcare expenses with tax-free withdrawals, HSAs offer unparalleled tax benefits. Assuming the HSA boasts good-quality investment options without a lot of extra costs, the ability to take a tax break both on the way in and on the way out of the account means that HSA investors’ take-home returns can be higher than investors’ in traditional tax-deferred or Roth accounts. Long-term-care expenses would generally be considered qualified healthcare expenses for tax-free IRA withdrawals.

As is the case with Roth IRA withdrawals, however, an HSA’s tax benefits are almost too good in the context of long-term care. That’s because if you withdraw from an HSA and use the funds to cover long-term-care costs, you can’t also deduct those long-term-care expenses on your tax return. Of course, that’s true with any HSA deduction–to cover long-term-care costs or anything else. But that foregone deduction is particularly valuable in years of heavy long-term-care usage, when an individual’s healthcare costs may be by far the biggest bill, easily exceeding the threshold for deductibility of medical expenses. On the other hand, an HSA may be useful in the earliest stages of long-term care, when those outlays are relatively lighter.

Additionally, HSA annual contribution limits may limit a saver’s ability to earn critical mass with the account, especially for those who are starting later in life. (And let’s be realistic: Few people start thinking seriously about the financial implications of long-term care before they’re 50.) Additionally, HSAs can be costly and may feature subpar investment options, though that problem can be readily circumvented. Finally, while HSA assets inherited by one’s spouse continue to enjoy their prodigious tax benefits, an HSA inherited by someone other than your spouse won’t be able to enjoy those same benefits. This would only be a problem if someone doesn’t use their HSA assets for long-term or other expenses during their lifetime, though, and therefore falls into the realm of “first-world problems.”

Taxable Account

Assets in a taxable account are taxed on an ongoing basis, assuming they’re making income and/or capital gain distributions. And when you sell appreciated securities in a taxable account, you’ll owe capital gains tax, either short-term or long-term. From the standpoint of withdrawals, taxable accounts fall between traditional tax-deferred accounts (most withdrawals dunned at ordinary income tax rate) and Roth accounts and HSAs (tax-free withdrawals).

Selling appreciated securities from a taxable account will trigger capital gains tax, of course, but deductions for heavy healthcare and long-term-care outlays can be used to offset the tax bill associated with the sale. Of course, such taxable assets would also be appropriate to leave for heirs, who can take advantage of the step-up in cost basis upon the death of the original owner.

Takeaways

Ultimately, there’s no single right answer; indeed, this is yet another case for tax diversification. In years of relatively light outlays for long-term-care expenses, accounts offering tax-free withdrawals, such as HSAs, will be the most beneficial. In years of heavier outlays, withdrawing from vehicles that allow for the deductibility of medical expenses, such as traditional IRAs, will be the better strategy.

Matt Ward, CFP®
New Century Investments

Matt.Ward@newcenturyinvestments.com
817-238-6300

The post The Best Place to Save for Long-Term Care Expenses appeared first on New Century Investments.

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