On-Demand: Wealth Management Webinar Series | Part III

What we're going to close up is just finish up with some annual reminders of things that people at different demographics might want to be thinking about related to themselves and their family. What we have here is basically potential year-end planning strategies to consider. Again, some may apply and some may not to your particular situations. There are a couple of business related ideas. Again, as I said, what we're really going to focus on today is more on the personal side of things, but you'll see here I'm going to go over these one by one as an init, as an initial thing, but the fact is that most of these are going to be individually related.

On the income tax bracket, on the upper left hand corner, we're talking about managing income tax brackets, review that. We also want to make sure that you're appropriately withholding the income tax in the right amount. Evaluating state income and estate taxes. Again, some things, reducing AMT liability, lowering taxable income that you might want to think about as a business owner for closely held businesses. Also, on the business side considering potentially non-qualified deferred compensation plans.

Again, we're not going to dig deep into those. Then we're going to look into investment portfolios. We're going to talk about recognizing capital gains and or losses and what the disadvantages are of doing those things. We're going to review strategies to avoid the wash glass sales, and we'll actually show you how to do that if you're so inclined. Again, from a business standpoint, you might want to consider executive compensation provisions for some of your highly paid executives. We're also going to include in that particular segment, rebalancing portfolios and things you should be thinking about prior to the year-end.

Then we're going to circle back to retirement planning, making sure you're funding your retirement accounts properly, different kinds that there are. We're going to bring up health savings accounts or HSAs as they're known in our world. We're going to talk about ideas about funding Roth accounts for children, and then weighing the age-old question, do I convert, do I not convert into a Roth? We want to make sure we're talking about reviewing beneficiary designations. Does it make sense to take retirement account distributions and how that impacts our taxable scenario at the end of the year, and we'll touch on Social Security and Medicare.

The last subject's going to be talking about wealth transfer and legacy planning related to making annual gifts. Should we be funding 529 plans? What about charitable giving, qualified charitable distributions from IRAs? What can we do about that that may be a tax advantage for ourselves? We have a couple of topics to talk about advanced planning for some high net worth clients and that's really it. We're going to get going. Marc, thank you for joining us today, of course.

Marc Scudillo: I appreciate that, Larry. Thank you very much. As you're going through this and seeing these different topics, what's resonating to me, Larry, is that we're dealing with this towards the end of the year, and that's to enable us to really catch up and get certain things done, because post-December 31st, it's too late from a tax per perspective. But many of these topics you'll also find is that it's not something that you should wait till the end of the year to review, address and discuss amongst your spouse and amongst your professionals that you're utilizing as well.

Larry Seigelstein: Absolutely. Thank you, Marc. Marc, before we get into this, we're going to be talking about income tax, which is a first of our topics, but I thought before we dive in, we should show the folks, just as a reminder what the current tax brackets are, the charts. We shared the chart with everybody. As we all know, we start at 10%, we know the greats are gradual or progressive, if you will, and we hit a maximum of 37%, but with income above $650,000 or so, just to remind people where they are and where we stand as of 2020.

Marc Scudillo: Next year, it's going to be actually going up. people will get a little bit of a tax break going into next year.

Larry Seigelstein: Absolutely, yeah. As we'll talk about a lot of the things we're looking at now, we're going to revisit next year at this time too because there are some changes that have been made and some adjustments on limits, et cetera. We should also Marc, probably discuss, review the itemized deductions as they will also play into the discussion today as well. As a reminder, the standard deduction today is really significantly higher, right Marc, than it was prior to the Tax Cuts and Job Act.

Marc Scudillo: That's right.

Larry Seigelstein: That number has really risen from approximately 12,000 to almost $26,000 as we see on this slide. But because of that, more people are actually filing their tax returns with the standard deduction versus the itemized these days, actually approximately 85% of the payers are claiming that standard deduction today. That could change next year, but we never know what happens. The other aspect on the right hand side here is the itemized deductions.

There's four primary deductions on your Schedule A for people, for 2022. There's the medical expenses and that's only if they exceed 7.5% of people's adjusted gross income. There's also SALT, which stands for state and local taxes. That really caps at a maximum of $10,000 per year. There's mortgage interest that we have to deal with. Actually, what happens is it's kind of a negative thing for people at higher income tax or higher income tax states, because of the drop in those mortgage states because of the caps that are associated with that as well. There's itemized deductions for charitable gifts based on what type they are.

Marc Scudillo: Then, we'll touch base a little bit more on the charitable side in the next couple of slides too, later on.

Larry Seigelstein: Absolutely. Really the first planning strategy and probably the one that's the broadest is to either raise a way to raise and or lower your adjusted gross income between now and the end of the year. Let's start with a higher income. What do we want to do, Marc? Well, we want to make sure that we can increase, if we're in a higher tax year, we want to try to increase our retirement plan contributions as much as we can to maximize that as a way of lowering our overall taxable income.

We also want to consider charitable giving that will also aid in that matter. We want to talk about recognizing capital losses to offset set capital gains. We'll talk about that again in a little while, and if possible, maybe we'll kind of defer if we can retire account distributions to try to not have us move into a higher marginal tax bracket. But Marc, what about those folks who were maybe experiencing lower income and/or lower tax year?

Maybe because their business was impacted by COVID or maybe they're in between jobs. What things should we consider for them? We could try to, if they happen to be in a company that has ESOs or they might want to exercise stock options or accelerate some income recognition. They might want to, just like the opposite of the higher tax year, maybe they want to delay tax deduction activities, businesses might want to delay past your business expenses and you might want to recognize capital gains to make it potentially at a lower taxable marginal rate.

The other thing we're going to touch on more deeply is Roth conversions. If you are in a lower taxable bracket, yes, some looked at this years ago when the AGI limitations were waived and/or eliminated, some passed on it, some did it, but it's worth looking at again and we'll spend some time on that. There might be a partial conversion, a full conversion, et cetera. But if we could do something there and be able to realize some of those gains while we're in a lower tax bracket, obviously that could be advantageous.

Marc Scudillo: Sometimes just some examples, Larry, of the lower tax bracket years include when someone might be, like you said, in between jobs we've seen when it's a retiree or even someone, I had an example where client was on disability for a little bit, was receiving tax-free income for a couple of years through disability and then that was an opportunity then to take advantage of those lower taxable years to realize some of the income in other sources while he was at that low bracket.

Larry Seigelstein: Absolutely. Thank you, Marc. Those are definitely things to think about. The other thing that we should tell people that we want to consider is if they did experience a life event that could potentially change their filing status. If you got married or unfortunately if you had a divorce this year, if there was the birth of a child, if there was god forbid of death in the family, these are things that could potentially work with your CPA that might change your filing status.

We talked about withholding taxes, obviously we're always going to recommend that make sure you are appropriately having your taxes withheld. Work with your CPA to make sure that that is being done properly. Especially for those folks out here who are non-W2 employees. If you're taking distributions, make sure they're either doing your estimates, your quarters, whatever you're doing, to make sure that you don't have this huge surprise tax impact come April of 2023. But aside from federal tax considerations, you don't want to forget about state tax as well.

We are seeing that more and more folks out there are realizing the impact of the total state tax liability, particularly those people, and I happen to be one of them, who live in the red states where you talk about California, New York, New Jersey, et cetera, because of the fact with the deductions of the $10,000 and that being capped with state income tax, a lot of people are making moves out of these states to find more tax advantage states. Now those other states are in gray, you'll see them, there's about seven of them. My colleague Marc is down in one of them right now.

People are making the move and it's something we want you to consider and think about as the year comes to a close, and actually of course next year. But before you jump and head down to Florida and change states for income tax reasons, you really should learn how that particular state handles, whether it be capital gains, Social Security rates, selling of a business, et cetera. A lot of us know about the six months and a day rule, but Marc and I want to remind everybody that it's more than that.

It's not as simple as that. Okay. There are various factors that are involved to prove to the IRS that you are really domiciled in that state. Okay, where do you fly out of when you're traveling overseas? Where do the kids go to school currently? Where is your current employer based? Things change a little bit more obviously with remote work, but that's a consideration. Where's your medical team? Where's your golf club membership? All these things are things that you'll have to prove and consider when making a potential move to change domiciles.

Marc Scudillo: One of the advantages and working within an accounting practice, all of this needs to be done in conjunction with your tax advisor, it makes the most sense, making sure that you're checking off all of those lists. Really, the IRS wants or the states want to ensure that really you're planting your flag of where you live with all of the relationships that go alongside that in that state. The doctors, your gym, things of that nature, you're voting, all of that is done in the state that now you call your residence.

Larry Seigelstein: Absolutely. Aside from, Marc, obviously all the things that are listed here that we know about, but it goes even beyond these things. It's a compilation of all these things. We're going to move on here. I'm going to pass it over to Marc who's going to talk about our second chapter, which is really pertaining to investment activity, investment portfolios.

Marc Scudillo: Perfect. Larry, thank you. I appreciate it. Now, we're getting towards the end of the year and we're going to have information of tax filing, 1099s that we're going to be seeing based upon the different underlying investments that you own. Larry, when we're meeting up with individuals and we're helping them with this planning around the investment side of the house, one of the things that we need to take into consideration is the capital gains.

Those capital gains could come from not only the sale of an actual individual stock, but people often forget that the capital gains that are inherent within things like mutual funds could be pretty large, especially since we've had such a large run up in the markets over the last eight, nine years, really even longer, 11 years. Now it's come back some, but there's still all that built up internal gains that people might be saying, well wait a second, this year I had a loss in my mutual fund, but I'm still getting capital gain tax. Why is that? Well, that's because of the inherent appreciation within that mutual fund shares. That when there is a transaction that you'll, you'll be realizing those gains along the way.

Larry Seigelstein: Marc, I just want to add even that you're right. You're referring to things like dividends, interest, even potentially rents or royalties if people are getting paid. These are all being included in that kind of pool.

Marc Scudillo: One of the areas that you want to focus on though is if you have control, saying that if I'm going to have income, if I'm going to have capital gains, how do I push it to the lower income tax bracket versus being included in my ordinary income at a higher tax bracket potentially. Here's the tax rates for long-term capital gains and qualified dividends for this year. 15% for the married filing jointly.

You see the range of income, 83,000 up to roughly 517,000 of income, and then single individuals 41,000 up to 459,000, almost 460,000, and then 20% over and above those amounts. One thing to keep in mind is that we cannot forget that there's the net investment income tax and IIT net, which applies to anyone that's over $250,000 of AGI married or $200,000 as a single filer, which basically increases each of those 15% and 20% rates respectively by another 3.8%. Things to keep in mind along the way. What are some of the areas that you could try to avoid is the wash sale rule.

You don't want to sell something for a loss and then buy it right back just because you're doing it for tax purposes, the IRS doesn't allow you to do that. But what you could do is sell that individual security or holding a mutual fund, sell it for the loss, and then you could repurchase it after 30 days and then you're able to buy it on the 31st day. What you could also do is buy twice the amount and do tax lot accounting where you're going to sell the original lot, but the only time that you could do that again is November 29th, because you still have to wait for that position for 30 days.

You can't do that anytime prior post November 29th. Well, you could also consider, which happens quite frequently, if you can sell a position and then buy something in a compatible type of position. I often use them from one clothing retailer to another. Another might be selling Merck and buying Pfizer as an example, but you could also do the same concept in purchasing ETFs or some of the funds in the same sector or segment of the marketplace. It gives you the exposure, so you're not out of the market when you sell to realize those losses.

At this stage, people should be certainly looking for what we call tax loss harvesting opportunities. This is where you're saying, well, I have these gains that I've realized from maybe a sale of a business, from a sale of a piece of property, or what have you, how do I minimize those gains that I've already realized this year? Well, look to your portfolio to see if there's any losses that you could harvest. To stay true to your portfolio strategy, you could utilize some of these techniques to stay consistent. Another asset.

Larry Seigelstein: I would just point out that when we work with our clients, and we should emphasize the point, it doesn't mean that we don't believe in those positions, but we are taking advantage of the fact that they're undervalued right now. It's part of, and we'll talk about this later, about rebalancing the portfolio where we take advantage of tax loss harvesting. That we can do, when the opportunities are right, it does help mitigate future capital gains and tax impacts. It's something people should be thinking about at this time of the year.

Marc Scudillo: Yeah, you're absolutely right. That ties right into Larry, exactly what we're saying on this next slide here is the rebalancing, right? You should be looking at your portfolio throughout the year to see if it still meets your needs, your risks and the guidelines that you're put in place to meet your goals. But you want to make sure that you're also looking at it saying, well, if I have this allocation, keeping it at a simple example of 50% stocks and 50% bonds, this is one of those unique years where actually both segments of the markets went down. But that's another seminar that we'll have and go over that. But the reality is that stocks have gone down greater than bonds.

If you had done nothing and normal circumstances, whatever normal is nowadays, whereas your portfolio might have become out of position where you now have 45% in stocks and 55% in bonds, well you need to address that drift that occurred in your portfolio to get you back to a 50-50 allocation. But you want to make sure that that 50-50 allocation is still the right allocation for you, so you create these investment guidelines that should be designed with the concept in place to make sure that you're staying on track towards your goals. Doing that, so you can accomplish your goals with the least amount of risk along the way. But you also want to look at rebalancing because when you start breaking it down into the segments, there might be segments of the markets that either had outperformed.

And in these marketplaces there are segments of the markets that have outperformed and there are other segments that have significantly underperformed. You want to really look at your portfolio's volatility to see if there's an opportunity to take advantage of those swings in the different segments, what we call colors of the markets. You want to have lots of colors, but you want to make sure that you're staying disciplined to the investment policy guidelines that you created. By doing so, what happens is that you want to try to avoid what we call the emotions of the investing.

As the markets are going down now many, many people are saying, well, maybe I should be getting out of the market. Maybe I shouldn't be reallocating and deploying some of my cash into the segments that have been so beaten up. Well, from an emotional point, that absolutely makes sense, right? Because it's uncomfortable. You're seeing this segment of the portfolio going down and you're saying, you're going to want me to buy into that and I just bought into it and it just went down again. But the reality is that it did go down and you're buying that, as long as you have a quality type strategy in place, you're buying it at a lower price.

Then when the markets turn around, those pieces of your portfolio that you've just done in more of the depressed segment of the market cycle are the ones that give the greatest gains in the future. Conversely, I'm going to wait until I see something, right? What is it that they're looking to see when they're back? They want to see that there's more stability, they want to see that the markets turned around a little bit. Those types of aspects. Again, we go to a greater depth that some of our other segments of our webinars, basically turn out to be that you're going to wait until the market goes up to buy then and we want to try to avoid that kind of emotion of the market along the way.

Some additional considerations when you're doing the rebalancing, like we just spoke about before, is that if we're rebalancing, maybe we could harvest some losses to offset any of the gains during the rebalancing. We should also look at other sources of funds like cash, other pieces of the portfolios, other types of investments that you have to see how that ties into the overall rebalancing, if there's an opportunity to take advantage of the drop in the market. We often speak about asset allocation, having all those colors of the markets to diversify yourself and keep the risks low by the diversification.

But when it comes to taxes, we also want to take into consideration asset location. There's some pieces of the portfolio, some investment styles that might have more transactions or sales within itself that'll create more tax consequences along the way. Well, when you see those types of investments, those are the best investments to have possibly inside your retirement account, so you're avoiding those tax transactions that are happening within that type investment strategy. We call that asset location, having the right asset allocation and the right asset location along the way there.

This is not just a year-end topic, this is something that should be done on a periodic basis throughout the year and it should be done without the emotions. The markets have gone down strongly at a certain point in time and it was time for me to rebalance, but I don't feel comfortable doing it right now, because the market's going down. Well, that's exactly why you're rebalancing is to take advantage of that market volatility, so you can buy those things that are low and sell those things that are up in your portfolio. And let's make sure that you're doing it in a way that is within a range of your portfolio and that you understand what the pros and cons are along the way.

Larry Seigelstein: Marc, what I was going to say from a human emotion standpoint, what you're talking about is it's counterintuitive to the way that we think, right? Because it is uncomfortable, we don't understand why when something's going up, why don't we continue that ride? Well, because of the fact that we need to rebalance. I always think about if people are Ted Lasso fans out there, I think it was season two, he said if you're doing something and it's uncomfortable, you're probably doing it right.

Marc Scudillo: That's exactly right.

Larry Seigelstein: Okay, so we're going to be moving right along. We're going to be talking about the next segment, which is the retirement planning aspect. We talked about earlier in the intro about making sure that we are appropriately funding our 401ks, et cetera. Now we realize some companies do provide a match, some companies don't even have designated corporate retirement plans, but let's make sure those who do have 401K and a retirement plan, that you're at least contributing up to the minimum of the match, which would be the minimum.

We're working with our clients, we'd really like you to defer as much as you possibly can to take advantage of the benefit, number one, and also to the opportunity to lower your taxable income based on those contributions into these deferred retirement plans. As we go down to the schedule here, you'll see just as a review, in traditional IRA, you know your maximum is $6,000 for those over the age of 50 you have additional catch up of $1,000.

The Roth IRA, for those folks who are unfamiliar with it, well it's a different tax treatment, so there's no immediate tax benefit, it still grows tax deferred, but upon retirement you are, if you take distributions, number one, you're not going to be taxed. But number two, you also do not have to take what's called required minimum distributions, which again is something we'll talk about later. Again, those who have, whether you're working in the academic world or the medical world, there's 403b's, traditionally we know about the 401ks, our limits on those are $20,500. Again, for those who are over the age of 50 years old and additional catch up, 6,500. Now we're really at $27,000 per year.

We would emphasize to people that no matter what demographic you are, time goes fast. You say I might start next year, I'll do it two years from now, I can't afford to do it. We will always urge you to think about what you can put in now and maybe stretch it a little bit, because over time, you're going to see the power of compound interest and the poor and the portfolio growing. Because before you know it, you're going to be at a certain phase where it's going to be distribution phase and you're going to look back in the rear view mirror and said, I shoulda, I woulda, I coulda. We emphasize and urge that you try to take advantage of that right now. For those people.

Marc Scudillo: Larry, with that said, if I could just add to that is that, so we have a few weeks left, a few payroll systems left right now. For those that have not contributed as much as they think that they maybe could have or should have, you have some time to catch up. What does that mean? Maybe you're going to utilize more of your take home pay now and if you have excess reserves of cash, let's say to help carry you for the next couple of weeks, couple of months, that'll be a good source to be able to reduce your taxes.

People are coming to us and saying, what else can I do right now? I need to lower my tax bracket, I just had an XYZ event take place, what could I do? Well, keep some of that excess cash from that event that just took place aside and push more money from your paycheck into the retirement plans right now. You have a limited timeframe to do that, so that's an opportunity for you to consider right now.

Larry Seigelstein: Marc, it's a great point. Real life example, literally on a meeting yesterday with somebody who said their business wasn't up to where it was the prior year and they have not been able to contribute. Yet, they anticipated revenue coming in the month of December and that's exactly what we advise them. As long as there's the excess liquidity and the cash flows coming in, you could put X amount in to maximize it for the year. It's a great point for people out there. Now, for some people who do not have the corporate retirement plan, there's something called a SEP, which is a simplified employee pension plan.

Those limitations, those are usually scheduled C people who are getting 1099s, things like that, you could put up to $61,000 per year into those types of plans and defined contribution plans as well. Now Marc and I, we work with our team, and again, this isn't always, today's not really about business for business owners out there, just something to plant into a seed is there's an opportunity even beyond these defined contributions plans or defined benefit plans where you could really maximize putting in significant amount of dollars that will serve two purposes. One, it will obviously drop down your taxable income in a significant way, but also will help accelerate your retirement benefits for down the road.

Marc Scudillo: Besides enhancing the retirement plans at the corporate level, there's people that are part of this, participants that are part of this webinar that are various ages and so on. When we're looking at these different pieces, we often get questions as to should I be looking at a Roth or should I be utilizing something else along the way? The traditional or Roth, that's a debate that's out there that we often find ourselves in. Some of the general concepts.

If we're in a lower tax bracket, the concept is to utilize a Roth, so that when you're in a higher tax bracket later on, that money that you receive will be tax free. It's that play on the tax brackets and that's an individual by individual basis as to whether it makes sense to do the Roth for that purpose. Additionally, another advantage of the Roth though we often see is that if you have time on your side, you have a significant amount of compounding effect on a tax-free nature. Usually the younger you are, the better A Roth option is also for that compounding effect.

Second is that if you think that your retirement assets that you're putting away, there's going to be excess capital. I have enough money, I'm saving a lot of money and this money that I'm setting aside is excess capital, that's going to be passed on to my heirs. Well, a Roth might be a great vehicle to transfer over to your heirs as well. They'll have to take out required minimum distributions, but it's grown tax free for them and then also for yourself as well as for them into the future until they have to take it out.

Then some of the questions that we often get is that, well then if it's a Roth then it's a traditional, can I do both? Well, yeah, you could split it up, but the cap is still... One question that's coming in right now is actually, if we can only make 20,500 a year, can you max out the 401K plan and in addition, another 401k plan as well, a Roth? It's 20,500 as a cap. You could maybe make a Roth contribution or an after-tax contribution into an IRA beyond that, but that's subject to certain income limitations.

Larry Seigelstein: Great points, Marc. Thank you. Moving along. What we want to talk about is we talked about, Marc just obviously mentioned the Roth and he talked about the tax advantages, the tax implications, so obviously the Roth and traditional IRA, they have different tax characteristics. What if we were able to combine the tax deferral that we get with both of them and actually get a tax deduction as well as having tax free withdrawals? Well guess what we've just invented, well, we didn't invent it, but what exists is something called the health savings account.

Basically what that is, it's really a combination of the best of both of those worlds where you can contribute to a health savings account. This year, the max you could put into it is $7,300. There's $1,000 to catch up, again, for those of a certain age over 55 years old, but there's an important caveat here. That caveat is you must be participating in a high deductible plan coverage in order for this to happen. Okay? You can't contribute if you're, for those of us who are over 65, not if you're enrolled in Medicare. Okay. What does the health savings account cover? It's medical expenses.

Anything that, from vision to dental. It's going to the doctor for whatever you may need. This plan allows people the opportunity to set aside the dollars on a tax-deferred and tax-free basis for use either now or later on in life and potentially, actually maybe, it might be able to avoid that 7.5% threshold that we talked about earlier on. The medical expenses can be really used at any time to reimburse any type of these medical expenses after the account is open. From a record keeping standpoint, you do want to keep your receipts and there is a spousal rollover balance that will allow for additional monies and compounding over time.

Marc Scudillo: When you think about that HSA, this is one of the very rare opportunities, if you're looking for a tax loophole, that's it. You're getting a tax deduction and it gets tax free. I mean if you're 30 years old and you're going to, or 35 years old, save until your retirement until age 65. 30 years at even just $7,300, not including any future inflation increases in that dollar amount, not including your ability to do an enhancement of that savings, a catch up contribution over age 55, that's almost $280,000 that you would have tax free available to you for medical purposes in retirement. Medical is one of those areas that we see on the planning side when we're trying to push out. That's such an unknown, because the costs are only going to go up and so how are we going to afford to pay for those items? Well you have $282,000 of potentially tax free money that helps your plan as a whole.

Larry Seigelstein: Exactly. Thank you, Marc. We should be moving along. I'm looking at the clock here. Another way, put the kids on the books. Let them learn the value of savings, the value of compound growth, beginning of their financial education and that'll give them a significant advantage later on in life. Yes, for younger or teenage children, even though they're not subject to a higher marginal tax rate and the deduction's not particularly meaningful, it's something that might be considered to start to move assets out of our entire estate, open up a Roth IRA on behalf of our children.

What ends up happening is from a tax standpoint, the first 1,150 of the child's unearned income, which consists of things like Social Security, investment income, retirement plan distributions, that is going to qualify under their standard deduction. It does, but the next 1,150 is taxable at the child's income tax rate and anything above that is going to be taxable at the parent's marginal tax rate. Now if you do that, then you're going to get something called, yes, it'll be a kiddy tax and you'll be able to have to absorb that over that $2,300 threshold. We're going back to what Marc had talked about earlier, and again, remember it was 10 years ago when we had the sort of the sun setting for that one year about the lifting of income limitations related to Roth conversions and Roths. Some people did take advantage of it at that point in time.

Maybe they might have done a partial as I said earlier, but we think it might be worth taking a look at. Again, if you take a look at the conversion, obviously basically what it does is it is the immediate tax impact. Again, we're always going to speak to your accountant about this. But the fact is that it might be right for some people, like Marc alluded to before, maybe I'm just seven to eight years away from retirement, maybe a Roth is a good idea right now and maybe what I do is I start to convert little by little portions over time to not have a huge tax impact all at once.

You could do that, obviously it is beneficial, like we said earlier, when there's lower income tax years from your marginal tax rate standpoint, but it's something to consider right now. Remember, like Marc had spoken about, the reason why it might be advantageous for the people down the road who are starting their distribution from a legacy planning standpoint, number one, and also as he said, there are no required minimum distributions. That means it could be something that could be passed on generation to generation. Again, with the caveat, like Marc stated, you do have to take the, you will have to, excuse me, there are no RMDs related to that.

Marc Scudillo: Yeah. So the only RMDs is when the heirs take over, they have, but you don't have, as the primary donor of that, or owner of that Roth, you do not have that issue. The one thing to keep in mind is that sometimes, and the question came in actually that we just had was, do you get a step up in basis? Do you get a step up in basis for all of your money that you're owning as tax on your taxable side, your stock was $10, you pass away and it was worth $15. Currently under the laws, your heirs get a $15 cost basis, a step up of $5. That does not occur when it comes to retirement accounts, whether it be IRAs or any other retirement account, there is no step up in basis along the way.

Larry Seigelstein: No. Okay. We talked about it earlier, and I'm trying to accelerate this Marc, so we can get everything covered. We want to review beneficiary designations. It doesn't have to be necessarily at the end of the year. Some people like to do it like they check the batteries on their smoke detectors. Okay? You want to do it annually though to make sure that everything is up to date. Beneficiary choices might have changed. You know, want to talk about not only your primary but also your contingent beneficiaries.

Then, you want to make sure they're current and accurate. One thing I really want to point out is for people is those people who do have a corporate retirement plan and you've designated a beneficiary, please make sure that that is accurate. I'm going to tell you why because some people will say, well my will states that it goes to X, Y, and Z. Be aware that what you designate as your beneficiary and that corporate retirement plan is going to supersede what your will states. Just an important note to remember. What else do we want to cover on here? Yeah, inherited IRAs.

Obviously, things have changed with some Jobs Act and we talked about that before. A surviving spouse can either roll it into their own name or leave it as an inherited IRA. They will be subject to RMDs at their age and inherited IRA is going to be subject to RMDs at the deceased's age of 72. Now what we want to talk about that's fairly new, I think it was in the 2020 Marc, right? With the Secure Act, inherited IRAs for non spousal beneficiaries, they're subject to a 10 year rule. That means the entire retirement account has to be liquidated within that 10 year timeframe. The rules and regulations don't really specify how or specifically what you need to do, but it has to be completed by the 10 year timeframe. Just move along, okay?

We know that another requirement now at the end of the year is really going to be taking your RMDs, we've talked about them already, but just a reminder that, and we talk to our clients and they always say, oh yeah Larry, Marc, I got to do that at 70 1/2. You guys should be aware, that has been changed to the age of 72. Actually, there's legislation and rumblings about that age actually being moved up again or moved back, shall I say, to the age of 75. Now these are distributions that must be made prior to 12-31 on an annual basis, if you are over that age. How they calculate that is they really take the amount of what your value was of 12-31, closing of that year. That's the actuarial charts are the ones that we showed down on the bottom. Those are the factors that are utilized to say, well how much do I need to take out? Okay.

A lot of our clients are in the situation like Marc had said, where there's excess liquidity and you might want to consider if you don't need it, you take your requirement of distribution, you take it out of that bucket and you just move it into your taxable bucket. If you don't need it this way, it still continues to work hard for you. One thing that we would want to also emphasize is you don't want to miss this deadline, okay? There's a fairly significant penalty that is associated with it that you don't want to encounter 50% of the overall RMD if you do not take the RMD. Just remember this needs to be done prior to 1231 or 2022 if you're in that category.

Marc Scudillo: One key element also with the requirement of distributions is most of our clients out there have a 401K plan. They might also have an IRA account, you could aggregate all of your IRA account required minimum distributions and take it from one IRA. That's absolutely fine. But if you have a 401K plan out there, you have to take the required minimum distributions specifically from that 401K or 401K plans in plural. They have to come directly from each individual 401K plan.

Larry Seigelstein: It's a great point, Marc. I'm just going to add to that for one second. I think you started, if I have four IRAs and I have RMDs due for all, for each one of them, I could actually, if they're again IRAs alone, I could aggregate those IRAs and potentially take it out of one of the buckets only as long as I satisfy the aggregate of all four. Then the next thing we're going to talk about, I'm going to get through this quickly, is we need to make sure we are reviewing beneficiary elections for our Social Security, our Medicare, you're talking about two social programs that potentially we talk about how it really is that third leg of the stool, of the retirement stool.

Are we going to take it at full retirement age? Do I take it sooner? If I take it sooner, what are the ramifications of that? I'm going to get about 28.5% if I decide to do it at the age of 62. Or do I defer until the age of 70 where I am from my full retirement age? Then I'm accruing what we call delayed retirement credits, which is an additional 8% per annum on top of what was my full retirement age. What we also ask you to do is when you're making these decisions, it's a significant decision to make, excuse me, to be making, because who else does it affect? We want you to think about your spouse, because God forbid something happens to you and your potentially the higher earner, we want to make sure that you're also maximizing that benefit for the person left behind.

Just a quick stat for you. The average monthly check for your life expectancy from the age of 66 to 67, the number for a lifetime is somewhere around $730,000. I'm just trying to tell you this is not a decision that should be made without thinking about your entire game plan as a comprehensive scenario. On the Medicare side of things, we take a look at the fact that you know where the enrollment periods are, October 15th, November to December 7th. I'm just trying to accelerate, Marc, so we can get through this.

Marc Scudillo: No problem, no problem. We have this Larry. When you're looking at the year-end, you also want to review in preparation of just your total estate and legal documents. It's time for a review. It's a time to reflect and say, is everything that I have set up still appropriate based upon the current laws today? Knowing that there have been some changes and people forget only five years ago the estate exclusion amount was close to $5 1/2 million. Now, it's $12 million. Does the will still make sense? Does the estate plan still make sense? Also, keeping in mind that there's a sun setting provision that's going on in 2025, also with these dollar amounts.

The purpose is to say where are you in life? Where's the law and what is most meaningful to you as to what you want to have happen to your assets in your estate should something happen to you? When you're reviewing that, keeping these into consideration, if you have the means and you have the capability, gifting is still a definite strong estate plan before the year is up, it doesn't make sense to give. You could give $16,000 per person, so if you're married, that's $32,000 that you would be able to give combined to each individual. For example below, if we had three children and they were married, you'd be able to give not only three married children, but they also had grandchildren.

You have $480,000 of gifting capabilities along the way. It compounds, it grows, it's a significant amount, so that could help reduce your state tax liability. It'll also help reduce your income taxes along the way. Well, how is that? Well, because you could gift in different types of vehicles. That growth of that money, if it's utilized and you want to gift it into a 529 plan that'll grow tax free for the benefit of the beneficiary is long as it's used for post-secondary education. Limits are based upon each individual state money into the 529 plans for college purposes. You could also give into charities and that's not a gift limitation now, but this is something that you want to take into consideration.

This is where it's exciting when we're working in conjunction with the accountant to say, all right, how do we design this? I've seen my clients being given $10,000 a year on a regular basis, but their AGI excludes them from being able to get a deduction, but we have $100,000 here in cash. Why don't we put the $100,000 into a donor advised fund this year, get the deduction and then gift $10,000 a year for the next 10 years going forward, at least the client's getting a tax benefit for the given year. These are some of the strategies and concepts that you want to look at in putting into place for yourself, if it makes sense. You can give direct gifts. You could create the structures, like a donor advised fund. You could do different types of tactical strategies, like charitable remainder trusts or lead trusts, or you could even create your own private foundation.

With enough wealth, that might make sense. It does take on additional responsibilities, reporting and filings along the way. Then, you have qualified charitable distributions. Now this has gotten confused by some individuals, because the required minimum distributions have gone up to age 72. But to be able to use your IRA assets at a maximum of $100,000 a year, you could give $100,000 a year directly from your retirement account to a charity and not have to pay taxes on that money ever. Right? You got the deduction going in, the money goes directly to a charity. There are no tax consequences whatsoever, but the age that you could start doing that is still at 70 1/2. I don't know where the halves came from, the 59 1/2s, the 70 1/2s.

I'd have to ask some of my fellow accountant counterparts there and partners on that side, but it's still 70 1/2. It has nothing to do with your requirement and distributions now it's not tied to that and so it just needs to be to a 501(c)(3) nonprofit organization. You could also do it. That's important, because you can't, some people have asked, can I create my own foundation with my IRA account? Can I put it into a donor advised fund with my IRA account? No, it's going directly to the charity to be able to utilize those funds right away. Some other planning considerations, and we'll have another session that's going to delve in deep on just estate planning tactics. When you're getting closer to year-end, there's no law changes right now that are taking place, but there's no rush.

There's points in time through the years that there were some changes in the tax laws that made people have to rush to make decisions. Well, right now we don't have that, but you want to look at your existing documents making sure that, is there were any life changes that Larry had mentioned that we need to review. Any beneficiary changes, executors, anyone that's noted in the documentation, does it still work? The impact of the portability, how does that help on the federal side? That portable assets, there's a 12 million limit exemption for each spouse to leave assets to the heirs. One spouse passes away, they didn't use the full amount or use the amount, then the surviving spouse has $24 million of exclusion. That might not be the case at the level. You need to review that and take a look at that.

Then looking at more sophisticated strategies, spousal lifetime access trusts, the different titling of assets, qualified personal interests, lots of different strategies that could be put into place. I know we have three minutes, so I want to go get into Larry the annual reminders, and this is something that we utilize for ourselves and we actually use it internally here. As far as reminding each of ourselves as advisors, did any of us come across where clients were faced with any of these changes? This is the actual tool and technique that we're utilizing internally to make sure and we thought it would be good to share with everyone, so that it reflects upon your current situation. What does this mean to you at each of these different ages?

At age 50, did you make the catch up contribution? At age 55, we might be able to take out money from the retirement account if need be without being penalized. Do we need to also look at additional catch up contributions from the HSA at age 55? At 59 1/2, our retirement accounts become more accessible. Should we be looking to utilize them as part of the plan? At age 62, your minimum Social Security, does it make sense? Age 65, did you at least file for Medicare? Did you look at the options? Even though you might be employed, what does that mean?

You might have a better option to utilize a partial from Medicare. Look at your employer's plan, because they might want you or have better benefits for you if you file for Medicare. At age 72, you have your required minimum distributions and we often add that 70 1/2 also in there in our conversations for that qualified charitable distribution from the IRA accounts as well. I appreciate it. There were some questions that came in and we'll try to get back to you individually just that we're right on time. So again, we'll get back to anyone that had questions. We appreciate all of your participation in this call today.

Larry Seigelstein: Thanks everybody.

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