While we are all enjoying the summer, it is hard to believe that we are already past the midpoint of 2014! Now is an ideal time to look at several key areas of your financial position to ensure you are making the wisest decisions to grow your wealth and mitigate your tax liability. I’ve outlined key themes we have been helping clients think about at this midpoint in the year.
INCOME TAX PLANNING
Look carefully at your withholding’s from earned income and equity compensation. As there may be penalties for underpayment, it is important to review withholding’s now while you have time to make adjustments. Because of the higher tax environment, now is a good time to look at your realized and unrealized gains and losses. As you consider portfolio re-balancing, it is important to stay on top of your gains as they may push you to a higher level of capital gain tax exposure. It is never too early to employ the practice of loss harvesting, using unrealized losses to offset realized capital gains.
RETIREMENT PLANNING
Individuals under 50 can save $17,500 in a qualified retirement plan such as a 401k, and the number is $23,500 for those over 50. If you have self-employment income from another source, you can also save up to $52,000 in a SEP IRA to further reduce your tax burden. Many employers also offer Roth features in their plans that allow funds to go in post-tax that grow tax free. This midpoint in the year is a good time to assess how much of your savings should be in traditional versus Roth.
PHILANTHROPIC PLANNING
The tremendous gains in the financial market over the past year have prompted many to rethink how they are satisfying their charitable giving goals. In an environment of higher capital gains, you may consider reviewing your portfolio for low cost basis high market value securities. These are ideal assets to give because you take your deductions on the fair market value, but give away the embedded capital gain. A win-win for you and the charities you support. This past year has been marked by significant activity in mergers and acquisitions. If you have a spike in income that is not expected to be repeated next year, you should consider a Donor Advised Fund to capture the tax deduction this year, but have several years to actually distribute funds.
FAMILY GIFTING
Summer is marked by vacation and longer days spent with family and is an ideal time to review gifting strategies. A husband and wife can gift $14,000 each for a total of $28,000 to anyone they choose. Two strategies that we are seeing clients embrace are using that gifting to fund children’s Roth IRAs. As long as your kids have earned income up to $5,500, you can fund the Roth IRA as part of your gift that will also grow tax free for them. For adult family members over the age of 24 who are in a 0% to 15% federal income tax bracket, you can give low basis securities that they can sell at a 0% capital gain rate. These are two planning strategies that provide a benefit to the donor and recipient.
RISK MANAGEMENT
In the litigious society we live, it is prudent to make sure you have umbrella coverage equal to your net worth. Given the run up in the stock market in the past year, many people’s portfolios are higher than they were. This is an ideal time to look at your umbrella policies that provide a layer of protection between you and your assets. In most cases, there is not a large shift in premiums to increase those levels to $5,000,000 or more.
Our value promise to our clients is to help you navigate your financial world. My team and I believe that if we only provide excellent investment management services, we are not fully serving our clients. Our goal is to provide superior investment returns in the context of a well-run, custom financial plan. I hope you find these mid-year planning concepts useful. Please feel welcome to call or email with any questions.
_
_
_