What Issues Should You Consider Before the End of the Year?

The end of the year provides a number of financial planning opportunities and issues. These include tax planning issues, issues surrounding investment and retirement accounts, charitable giving, cash flow & savings, and insurance & estate planning issues.

We use the checklist below to proactively scan for many actionables to help serve our clients. In this checklist, we cover a number of planning issues that you need to consider prior to year-end to ensure you stay on track, including:

  • Various issues surrounding your investment and retirement accounts including matching capital gains against any investment losses in taxable investment accounts and ensuring that all Required Minimum Distributions (RMDs) are taken.
  • Tax planning issues including moves dependent upon your prospects for higher or lower income in the future. You will also want to review where you sit relative to your tax bracket as this is a good time to make moves to fill out your tax bracket for the current year that also might prove beneficial down the road.
  • For those who are charitably inclined there are several strategies that will also help reduce your tax liability that can be considered based upon your situation.
  • For those who own a business, tax reform has created some opportunities surrounding pass-through income from your business to your personal return. Accelerating or deferring business expenses presents another solid planning opportunity.
  • It’s wise to review your cash flow situation as you near year-end to see if you can fund a 529 plan for children or grandchildren or to see if you can save more in an HSA or employer-sponsored retirement plan like a 401(k).

This is a comprehensive checklist of the types of year-end planning issues that you should be discussing with your financial advisor to ensure you maximize cash flow and tax opportunities in the current year and beyond.

Issues You Should Consider Before the End of Year
ASSET & DEBT ISSUES

Do you have unrealized investment losses?
If so, consider realizing losses to offset any gains and/or write off $3,000 against ordinary income.

Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions?
If so, consider strategies to minimize tax liability.

Did you reach your Required Beginning Date, or are you taking an RMD from an inherited IRA?
If so, under the CARES Act, RMDs are waived for 2020.

TAX PLANNING ISSUES

Do you expect your income to increase in the future?
If so, consider the following strategies to minimize your future tax liability:
– Make Roth IRA and Roth 401(k) contributions and Roth IRA conversions.
– If offered by your employer plan, consider after-tax 401k contributions.
– If over age 59.5, consider accelerating IRA withdrawals to fill up lower tax brackets.

Do you expect your income to decrease in the future?
If so, consider strategies to minimize your tax liability now, such as Traditional IRA and 401(k) contributions instead of contributions to Roth accounts.

Do you have any losses for this year or carryforwards from prior years?
If so, consider the following:
– There may be tax-loss harvesting opportunities.
– You may be able to take the loss or use the carryforward to reduce taxable income by up to $3,000.

Are you on the threshold of a tax bracket?
If so, consider strategies to defer income or accelerate deductions and strategies to manage capital gains and losses to keep you in the lower bracket. Consider the following important tax thresholds:
– If taxable income is below $163,300 ($326,600 if Married Filing Jointly [MFJ]), you are in the 24% percent marginal tax bracket. Taxable income above this bracket will be taxed at 32%.
– If taxable income is above $441,450 ($496,600 if MFJ), any capital gains will be taxed at the higher 20% rate.
– If your modified adjusted gross income (MAGI) is over $200,000 ($250,000 if MFJ), you may be subject to the 3.8% Medicare surtax on the lesser of net investment income or the excess of MAGI over $200,000 ($250,000 if MFJ).
– If you are on Medicare, consider the impact of Medicare’s Income-Related Monthly Adjusted Amount (IRMAA) surcharges.

Are you charitably inclined and want to reduce taxes?
If so, consider the following:
– For 2020, the CARES Act created a $300 above-the-line deduction for contributions to certain qualifying charities. This can help reduce AGI for taxpayers claiming the standard deduction.
– If you expect to take the standard deduction ($12,400 if single, $24,800 if MFJ), consider bunching your charitable contributions (or contributing to a donor-advised fund) every few years which may allow itemization in specific years.

Will you be receiving any significant windfalls that could impact your tax liability (inheritance, Restricted Stock Units vesting, stock options, bonus)?
If so, review your tax withholdings to determine if estimated-payments may be required.

Do you own a business?
If so, consider the following:
– If you own a pass-through business, consider the Qualified Business Income Deduction eligibility rules.
– Consider the use of a Roth vs. Traditional Retirement plan and its potential impact on taxable income and Qualified Business Income.
– If you have business expenses, consider if it makes sense to defer or accelerate the costs to reduce overall tax liability.
– Some retirement plans, such as a Solo 401(k), must be opened before year-end.

Have there been any changes to your marital status?
If so, consider how your tax liability may be impacted based on your marital status as of December 31st.

CASH FLOW ISSUES

Are you able to save more?
If so, consider the following:
– If you have an HSA, you may be able to save $3,550 ($7,100 for a family) and an additional $1,000 If you are over the age of 55.
– If you have an employer retirement plan, such as a 401(k), you may be able to save more but must consult with the plan provider as the rules vary as to when you can make changes.
– For 2020 the maximum salary deferral contribution is $19,500, plus the catch-up contribution if over the age of 50 of $6,500 per year.

Do you have a 529 plan? If so, consider the following:
– You can contribute up to $15,000 ($30,000 if a joint gift is made) each year without filing a gift tax return.
– Alternatively, you can elect the Five Year Accelerated Gift of $75,000.

INSURANCE PLANNING ISSUES

Will you have a balance in your FSA before the end of the year?
If so, consider the following options your employer may offer:
– Some companies allow you to roll up to $550 in your FSA account over the previous year.
– Some companies offer a grace period up until March 15th to spend the unused FSA funds.
– Many companies offer you 90 days to submit receipts from the previous year.
– If you have a Dependent Care FSA, check the deadlines for unused funds as well.

Did you meet your health insurance plan’s annual deductible?
If so, consider incurring any additional medical expenses before the end of the year at which point your annual deductible will reset.

ESTATE PLANNING ISSUES

Have there been any changes to your family, heirs, or have you bought/sold any assets this year?
If so, consider reviewing your estate plan.

Are there any gifts that still need to be made this year?
If so, you can make gifts up to $15,000 ($30,000 if a joint gift is made) per year to an individual without filing a gift tax return.

OTHER ISSUES

Do you have children in high school or younger who plan to attend college?
If so, consider financial aid planning strategies, such as reducing income in specific years to increase financial aid packages.
Financial Order of Operations

One of the pillars of financial success is doing the right things in the right order.  My informal term for this is F.O.O. — Financial Order of Operations.

That phrase may sound slightly cumbersome, but the conceptual framework is a life changer!

I’ve recorded this special video for you that lays out a roadmap for deploying your army of dollar bills.  Watch now to learn exactly what you should do with each successive dollar you have.

You can watch it here.


Following the F.O.O. will strengthen your financial success and allow you to live your best life.

If you have any questions about the particulars of your Financial Order of Operations, please don’t hesitate to reach out.

Thank you and be well,

Chris Mullis, Ph.D., CDFA®
Founding Partner
What Issues Should I Consider For My Aging Parents?

Becoming a caregiver for aging parents can be a drain emotionally and can carry financial ramifications both for parents and for the caregiver children. Helping understand and manage the financial issues involved can make the situation a bit easier all.

In this guide, we cover a number of financial issues that you need to consider when faced with helping and potentially caring for aging parents, including:

  • Be sure you examine your parents’ finances to determine if they are able to manage their own expenses. There may be sources of income available to your parents of which they are unaware.
  • It’s important that you be sure you have access to their parents’ important documents such as any estate planning documents. You should have the names and contact information for any advisors your parents use such as an attorney, financial advisor or accountant.
  • If your parents need long-term care, they will need to investigate ways to cover the cost. Medicaid planning or a reverse mortgage might be options.
  • If the estate of your parents is over a certain amount, then they may have an estate tax issue. It’s also important for you to ensure that your parents’ beneficiary designations on insurance policies and retirement plans are up to date, and that they reflect their wishes.
  • It’s important for you to ensure that your parents’ tax situation is in order, managing any capital gains or losses, as well as fully utilizing any deductible medical expenses.
  • Overall, it’s helpful to stress the benefit of having a handle on all of your parents’ assets, liabilities and all related financial issues as a time may come when your parents are unable to manage their own affairs.

This is a comprehensive guide to the types of financial issues that you consider when helping your aging parents.

 

Do this to plan for a recession (2-minute video)
Current data tells us that the economy is in a steep contraction due to the coronavirus.

We don’t know how long it will last or how long the economy will take to recover.

How can we protect ourselves when we can’t predict the future?

We made a short video showing you exactly how the most successful companies in the world prepare when the future is unknown.

You can watch it here.

Click here to watch!

Warmly,

Chris Mullis, Ph.D.
Founding Partner
What Issues Should You Consider Before the End of the Year?

The end of the year provides a number of financial planning opportunities and issues. These include tax planning issues, issues surrounding investment and retirement accounts, charitable giving, cash flow & savings, and insurance & estate planning issues.

We use the checklist below to proactively scan for many actionables to help serve our clients. In this checklist, we cover a number of planning issues that you need to consider prior to year-end to ensure you stay on track, including:

  • Various issues surrounding your investment and retirement accounts including matching capital gains against any investment losses in taxable investment accounts and ensuring that all Required Minimum Distributions (RMDs) are taken.
  • Tax planning issues including moves dependent upon your prospects for higher or lower income in the future. You will also want to review where you sit relative to your tax bracket as this is a good time to make moves to fill out your tax bracket for the current year that also might prove beneficial down the road.
  • For those who are charitably inclined there are several strategies that will also help reduce your tax liability that can be considered based upon your situation.
  • For those who own a business, tax reform has created some opportunities surrounding pass-through income from your business to your personal return. Accelerating or deferring business expenses presents another solid planning opportunity.
  • It’s wise to review your cash flow situation as you near year-end to see if you can fund a 529 plan for children or grandchildren or to see if you can save more in an HSA or employer-sponsored retirement plan like a 401(k).

This is a comprehensive checklist of the types of year-end planning issues that you should be discussing with your financial advisor to ensure you maximize cash flow and tax opportunities in the current year and beyond.

Issues You Should Consider Before the End of Year

ASSET & DEBT ISSUES

Do you have unrealized investment losses?
If so, consider realizing losses to offset any gains and/or write off $3,000 against ordinary income.

Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions?
If so, consider strategies to minimize tax liability.

Did you inherit an IRA or 401(k) from someone who passed away last year but have not split the account yet (assuming there were multiple beneficiaries)?
If so, consider splitting the account before the end of the year to avoid calculating the Required Minimum Distribution (RMD) based on the oldest beneficiary.

Are you over the age of 70.5, or are you taking an RMD (from an inherited IRA)? If so, consider the following:
– RMDs from multiple IRAs can be aggregated.
– RMDs from multiple 403bs can be aggregated.
– RMDs from an employer retirement plan must be calculated and taken separately. No aggregation is allowed.
– RMDs from inherited IRAs can not be aggregated with Traditional IRAs.

TAX PLANNING ISSUES

Do you expect your income to increase in the future?
If so, consider the following strategies to minimize your future tax liability:
– Make Roth IRA and Roth 401(k) contributions and Roth IRA conversions.
– If offered by your employer plan, consider after-tax 401k contributions.
– If over age 59.5, consider accelerating IRA withdrawals to fill up lower tax brackets.

Do you expect your income to decrease in the future?
If so, consider strategies to minimize your tax liability now, such as Traditional IRA and 401(k) contributions instead of contributions to Roth accounts.

Do you have any losses for this year or carryforwards from prior years?
If so, consider the following:
– There may be tax-loss harvesting opportunities.
– You may be able to take the loss or use the carryforward to reduce taxable income by up to $3,000.

Are you on the threshold of a tax bracket?
If so, consider strategies to defer income or accelerate deductions and strategies to manage capital gains and losses to keep you in the lower bracket. Consider the following important tax thresholds:
– If taxable income is below $160,724 ($321,449 if Married Filing Jointly [MFJ]), you are in the 24% percent marginal tax bracket. Taxable income above this bracket will be taxed at 32%.
– If taxable income is above $434,550 ($488,850 if MFJ), any capital gains will be taxed at the higher 20% rate.
– If your modified adjusted gross income (MAGI) is over $200,000 ($250,000 if MFJ), you may be subject to the 3.8% Medicare surtax on the lesser of net investment income or the excess of MAGI over $200,000 ($250,000 if MFJ).
– If you are on Medicare, consider the impact of Medicare’s Income-Related Monthly Adjusted Amount (IRMAA) surcharges.

Are you charitably inclined and want to reduce taxes?
If so, consider the following:
– If you expect to take the standard deduction ($12,200 if single, $24,400 if MFJ), consider bunching your charitable contributions (or contributing to a donor-advised fund) every few years which may allow itemization in specific years.

Will you be receiving any significant windfalls that could impact your tax liability (inheritance, Restricted Stock Units vesting, stock options, bonus)?
If so, review your tax withholdings to determine if estimated-payments may be required.

Do you own a business?
If so, consider the following:
– If you own a pass-through business, consider the Qualified Business Income Deduction eligibility rules.
– Consider the use of a Roth vs. Traditional Retirement plan and its potential impact on taxable income and Qualified Business Income.
– If you have business expenses, consider if it makes sense to defer or accelerate the costs to reduce overall tax liability.
– Some retirement plans, such as a Solo 401(k), must be opened before year-end.

Have there been any changes to your marital status?
If so, consider how your tax liability may be impacted based on your marital status as of December 31st.

CASH FLOW ISSUES

Are you able to save more?
If so, consider the following:
– If you have an HSA, you may be able to save $3,500 ($7,000 for a family) and an additional $1,000 If you are over the age of 55.
– If you have an employer retirement plan, such as a 401(k), you may be able to save more but must consult with the plan provider as the rules vary as to when you can make changes.
– For 2019 the maximum salary deferral contribution is $19,000, plus the catch-up contribution if over the age of 50 of $6,000 per year.

Do you have a 529 plan? If so, consider the following:
– You can contribute up to $15,000 ($30,000 if a joint gift is made) each year without filing a gift tax return.
– Alternatively, you can elect the Five Year Accelerated Gift of $75,000.

INSURANCE PLANNING ISSUES

Will you have a balance in your FSA before the end of the year?
If so, consider the following options your employer may offer:
– Some companies allow you to roll up to $500 in your FSA account over the previous year.
– Some companies offer a grace period up until April 15th to spend the unused FSA funds.
– Many companies offer you 90 days to submit receipts from the previous year.
– If you have a Dependent Care FSA, check the deadlines for unused funds as well.

Did you meet your health insurance plan’s annual deductible?
If so, consider incurring any additional medical expenses before the end of the year at which point your annual deductible will reset.

ESTATE PLANNING ISSUES

Have there been any changes to your family, heirs, or have you bought/sold any assets this year?
If so, consider reviewing your estate plan.

Are there any gifts that still need to be made this year?
If so, you can make gifts up to $15,000 ($30,000 if a joint gift is made) per year to an individual without filing a gift tax return.

OTHER ISSUES

Do you have children in high school or younger who plan to attend college?
If so, consider financial aid planning strategies, such as reducing income in specific years to increase financial aid packages.
Asset Management vs. Financial Planning

At a 100,000-ft level, we do two things in our financial advisory practice: Asset Management* and Financial Planning.  Although these two functions are distinct, they are very much interrelated.  Both are essential components for our client families’ long-term success, but it’s important to understand and appreciate the differences:
(* Asset Management also falls under the monikers of  “investment management” or “portfolio management”)

Asset management is about asset allocation, expected returns, risk tolerance and time horizons.
Financial planning is about making wise choices about the use of debt, setting up college savings plans, tax efficiency, estate planning and ensuring your insurance needs are taken care of.

Asset management is about managing investments.
Financial planning is about managing investors.

Asset management is about portfolio construction and risk management.
Financial planning is about comprehensive planning and emotional management.

Asset management is about measuring portfolio performance by comparing results to predetermined index benchmarks.
Financial planning is about measuring your performance against your true benchmark — your goals.

Asset management is about allowing your money to work for you to help you reach your financial goals.
Financial planning is about helping people define their goals, dreams, desires and fears.

Asset management is about creating a process that guides your actions in a wide variety of market environments.
Financial planning is about implementing a plan and making corrections along the way as life or market and economic forces intervene.

Asset management is about creating a portfolio that can survive severe market disruptions.
Financial planning is about creating a financial plan that can survive severe life disruptions.

Asset management deals with financial capital.
Financial planning deals with human capital.

Asset management is about growing and/or preserving your wealth.
Financial planning is about understanding why money is important to you personally.

Asset management is about where to invest a lump sum.
Financial planning is about how and when to invest a lump sum.

Asset management is about asset allocation.
Financial planning is about asset location.

Asset management is about creating policies to guide your actions in the face of economic and market uncertainty.
Financial planning is about helping people make better decisions with their money in the face of uncertainty that is impossible to reduce.

Asset management helps you understand how much you need to earn on your investments to meet your future spending needs.
Financial planning helps you understand how much you need to save meet your future spending needs.

Asset management helps you figure out where to take your money from when you need to spend it.
Financial planning helps you figure out where to spend your money in a way that makes you happy.

Asset management helps you grow your savings to meet future consumption needs.
Financial planning helps you plan and budget for future consumption needs.

Asset management is about creating a long-term process to guide your actions in the markets.
Financial planning is about creating systems that allow you to spend less time worrying about your money.

Asset management is about reducing the anxiety that comes from the volatile nature of the markets.
Financial planning is about reducing the anxiety that comes from making important decisions with your money.

Asset management involves growing your wealth so some day you can become wealthy.
Financial planning involves figuring out what a wealthy life means to you.

To get the most benefit from asset management, you really need comprehensive, well thought-out financial planning.

25 Important Documents You’ll Need Before You Die

death-dossierDesign your “Death Dossier” soon or you could be setting up your heirs for frustration and financial pain:

25 Important Documents You’ll Need Before You Die
The Essentials
• Will
• Letter of instruction
• Trust documents
Proof of Ownership
• Housing, land and cemetery deeds
• Escrow mortgage accounts
• Proof of loans made and debts owed
• Vehicle titles
• Stock certificates, savings bonds and brokerage accounts
• Partnership and corporate operating agreements
• Tax returns
Bank Accounts
• List of bank accounts
• List of all user names and passwords
• List of safe-deposit boxes		 Health-Care Confidential
• Personal and family medical history
• Durable health-care power of attorney
• Authorization to release health-care information
• Living will
• Do-not-resuscitate order
Life Insurance and Retirement
• Life-insurance policies
• Individual retirement accounts
• 401(k) accounts
• Pension documents
• Annuity contracts
Marriage and Divorce
• Marriage license
• Divorce papers

Learn more in this article

What You Should Focus On

What-you-should-focus-on-1200x914We all want to live a great life.  The path to achieve that life relies, in part, on knowing what to focus on and what to ignore.  Focusing on the things you can’t control is a waste: a waste of time, energy, and often, money.  Here’s a list of things that matter, things you can control, and the things you should focus on.

Things that matter:

  • Health
  • Human progress
  • Long-term market returns

Things that you can control:

  • How you treat people
  • Feeling good about yourself
  • Making smart financial decisions

What you should focus on:

  • Living a happy, productive life
  • Surrounding yourself with good people
  • Not letting a long-term plan be derailed by the current market environment

 

Source: Carl Richards, Michael Batick

6 Core Values a [Good] Financial Planner Provides

fp-values

A good financial planner is client-centric and focused on improving your “Return on Life”.  At NorthStar Capital Advisors, we focus on six key value propositions in this dimension:

Organization. We will help bring order to your financial life, by assisting you in getting your financial house in order (at both the “macro” level of investments, insurance, estate, taxes, etc., and also the “micro” level of household cash flow).

Accountability. We will help you follow through on financial commitments, by working with you to prioritize your goals, show you the steps you need to take, and regularly review your progress towards achieving them.

Objectivity. We bring insight from the outside to help you avoid emotionally driven decisions in important money matters, by being available to consult with you at key moments of decision-making, doing the research necessary to ensure you have all the information, and managing and disclosing any of our own potential conflicts of interest.

Proactivity. We work with you to anticipate your life transitions and to be financially prepared for them, by regularly assessing any potential life transitions that might be coming, and creating the action plan necessary to address and manage them ahead of time.

Education. We will explore what specific knowledge will be needed to succeed in your situation, by first thoroughly understanding your situation, then providing the necessary resources to facilitate your decisions, and explaining the options and risks associated with each choice.

Partnership. We attempt to help you achieve the best life possible but will work in concert with you, not just for you, to make this possible, by taking the time to clearly understand your background, philosophy, needs and objectives, work collaboratively with you and on your behalf (with your permission), and offer transparency around our own costs and compensation.

The real value we want to bring to you is to know what really matters to you and to be a part of that.

Source: Mitch Anthony, “Moving from ROI to ROL”

529 College Savings Plans — Your 30-Second Primer

529 plans are the best college savings option for most families.  Here’s a 30-second primer on how to choose the right one for your family:

  • 529s are funded with after-tax contributions; growth and distributions taken for higher-ed are tax free.
  • Essentially every state has its own 529 program.  You’re free to select whichever state’s plan you like.
  • If your state gives you a significant tax deduction on contributions (dark green in the map below), it’s worth reviewing your state’s 529 first.
  • If you don’t get a state tax deduction OR if it’s <5% OR your state offers tax parity (any color except dark green in the map below), go with the best plan available nationally.
  • Utah’s 529 is NorthStar’s favorite in the nation because of low fees, great investment choices, no contribution minimums, and very easy setup.

Need help making the best 529 choice for your kids’ future?
Give us a call at 704-350-5028 for a free consultation. 

ABOUT US

We are a fee-only, independent fiduciary advisor. Our allegiance rests solely with our clients and their best interests. We are headquartered in Charlotte, North Carolina and serve client families across the nation.



CLIENT TOOLS
CONTACT
  • (704) 350-5028
  • info@nstarcapital.com
  • 521 East Blvd, Charlotte, NC 28203
    (by appointment only)
  • fax: (704) 626-3462
FROM OUR BLOG
Nothing on this website constitutes either the provision of investment advice or solicitation to provide investment advice. Investment advice can only be provided through a formal investment advisory relationship. Copyright © 2022 NorthStar Capital Advisors - Charlotte, NC. All Rights Reserved.