January 2019 – Retirement InSight

Think of these factors AS YOU think about retirement income

If retirement is drawing closer, you will want to ask yourself some key questions relating to your future income. Answering these fundamental questions may help to give you a better picture of the monthly cash flow needs of your retiree household.

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How Can Seniors Plan to Cope With These Wall Street Ups and Downs?

How can seniors plan to cope with these Wall Street ups and downs? CBS MoneyWatch offers some ideas @ https://tinyurl.com/ya6zlcwo

5 Financial Moves for Your Twenties

Starting to save and invest? Forbes suggests 5 financial moves for your twenties @ https://tinyurl.com/ybtx8rgw

December 2018 – Retirement InSight

CAN YOU PSYCH YOURSELF UP TO SAVE MORE?

You have probably spent decades saving for retirement, and you might have a decade or more of saving to go before you actually retire. At times, your resolve may be tested. The stock market may falter; household money pressures may mount; new near-term priorities may arise. What can you do to stay on point and stick with this financial commitment you have made to your future self?

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In-Kind Distributions from IRAs

Yes, you can take an IRA distribution in the form of an investment.

Provided by Ron Richards

This may surprise you: you can take an IRA distribution in a form other than cash. This may seem unorthodox, but it can make financial sense for some older IRA owners as well as IRA heirs.

An in-kind distribution from a traditional IRA is fully taxable, just as a cash distribution from a traditional IRA becomes taxable income. Just how is the cash value of the in-kind withdrawal determined? The fair market value of the asset is reported to the IRS as a step in the distribution.1,2

Why would you want to make this type of IRA withdrawal? In certain cases, it may be preferable to withdrawing cash, especially when it comes to Required Minimum Distributions (RMDs) for traditional IRAs.

Maybe you want to keep shares instead of selling them. There are times when you may be reluctant to sell some or all of an investment to satisfy an RMD, because the investment is really performing well. An in-kind withdrawal is an alternative. The amount of the distribution will be treated just like taxable income, but you will still own that asset once it is outside of the IRA. Those shares now have a chance to appreciate further, and you can also elect to donate them to charity.2,3

Maybe you have a cashless IRA. If 0% of your IRA assets are sitting in cash, then one option is to take either a partial or full in-kind withdrawal to satisfy the RMD requirement. You will still retain ownership of the asset(s) distributed in-kind.2

Maybe you see a loser turning into a winner. You hold a poorly performing investment in your IRA, but you sense it will turn around, you suspect its value will soon rise. Rather than liquidate it, shares of it could be withdrawn from the IRA as an in-kind distribution. They will be taxed at their current value when distributed from the IRA as in-kind distributions are treated like taxable income, but in future years, they will only be subject to capital gains tax rates rather than (higher) income tax rates.4

Maybe the IRA has little value. Some “stray” IRAs are not worth very much. If an IRA holds an investment that has so little worth that it seems pointless to have the IRA in the first place, an in-kind distribution may offer a solution. If you own a traditional (or Roth) IRA and make this move before age 59½, you are likely looking at an early-withdrawal penalty as well as taxes. Even so, you may prefer that to keeping up the IRA for years, or carrying a loser investment in the IRA for any number of years while paying attached account fees.2

In-kind IRA distributions can be tricky, as they often involve shares. Share prices fluctuate, and if you are trying to precisely meet your RMD amount with a distribution of shares, there is the risk of coming up short or long. If you come up short, you will need another transaction to satisfy the RMD. If you come out long, that could increase the income tax attached to the RMD. This is the risk you take.5

Ron D. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/hsdkwgn [1/19/14]

2 – newdirectionira.com/ira-info/distributions/what-is-a-distribution [2/3/16]

3 – azcentral.com/story/money/business/consumers/2015/12/22/right-size-your-portfolio-coming-year-nancy-tengler/77780344/ [12/22/15]

4 – time.com/money/2791159/how-are-stocks-taxed/ [2/3/16]

5 – marketwatch.com/story/should-you-take-stock-to-meet-required-minimum-distributions-2014-11-03 [11/3/14]

Consider an IRA Charitable Rollover

If you want a tax break and want to help a non-profit, this may be a good move.

Provided by Ron Richards

Have you ever wanted to make a major charitable gift? Would you like a significant federal tax break in acknowledgment of that gift? If so, an IRA charitable rollover may be a good financial step to take.

If you are age 70½ or older and have one or more traditional IRAs, you may want to explore the potential of this tax provision, first introduced in 2006 and recently made permanent by Congress. In the language of federal tax law, it is called a Qualified Charitable Distribution (QCD) – a direct transfer of up to $100,000 from the IRA to a qualified charity.1,2

An IRA charitable rollover may help you lower your adjusted gross income. That may be a goal in your tax strategy, especially if your AGI is large enough to position you for increased Medicare premiums, greater taxation of your Social Security benefits, or exposure to the 3.8% investment income tax and the 0.9% Medicare surtax. If your AGI passes a certain threshold, you also lose the ability to itemize deductions.2

Up to $100,000 may be excluded from your gross income in the year in which you make the gift. The gifted amount also counts toward your Required Minimum Distribution (RMD).1,2

By the way, this $100,000 annual QCD limit is per individual. If you are married, you and your spouse may gift up to $200,000 in a year through IRA charitable rollovers. Imagine lowering your household’s AGI by as much as $200,000 in a tax year.2

A QCD will not afford you an opportunity for a charitable deduction. That would amount to a double benefit for the taxpayer making the gift, which is not something federal tax law allows.3

You need not be rich to do this. When many people first learn about the IRA charitable rollover, they think it is only for multi-millionaires. That is a misconception. Even if you do not think of yourself as wealthy, a QCD could prove a significant element in your tax strategy.

How does it work? Logistically speaking, an IRA charitable rollover is a trustee-to-trustee transfer: the IRA owner does not take possession of the money as the gift is arranged. Rather, the custodian or trustee overseeing the IRA writes a check for the amount of the gift payable to the charity. It is a direct transfer of funds, not a withdrawal.2

An IRA owner must be age 70½ or older to do this, and he or she must be the original owner of the IRA (an inherited IRA may not be used). The gifted assets must come from an IRA (or multiple IRAs) subject to RMD rules. SEPs and SIMPLE IRAs are ineligible if an employer contribution has been made for the particular year.4,5

Can you gift appreciated securities as well as cash? You can. Securities held within an IRA may be directly transferred from an IRA to a qualified charity in a QCD. You can claim an income tax deduction for the full fair market value of those securities.4,5

The charity or non-profit involved must pass muster with the IRS. It must be an entity that qualifies for a charitable income tax deduction of an individual taxpayer, and it cannot be a donor-advised fund, a private foundation that makes grants, or a supporting organization under Internal Revenue Code Section 509(a)(3). The charity must provide you with a letter of acknowledgement denoting that you received no goods, services, or benefits of any kind in exchange for your gift, and that you shall not receive any in the future as a consequence of your gift. If that letter is not quickly sent to you, be firm in requesting it.4,5

In case you are wondering, you can actually contribute more than your IRA RMD amount for a particular year through an IRA charitable rollover, as long as the gifted amount does not exceed $100,000. If you pledge a donation to a qualified charity or non-profit, an IRA charitable rollover can be used to satisfy your pledge.5

This tax break has been a boon to charities and IRA owners alike. Correctly performed, a charitable IRA rollover may help to lessen tax issues while benefiting qualified non-profit organizations.

Ron D. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – marketwatch.com/story/ira-charitable-rollover-provision-made-permanent-2015-12-25 [12/25/15]
2 – forbes.com/sites/jamiehopkins/2016/01/20/why-retirees-need-to-stop-writing-checks-to-charities/ [1/20/16]
3 – cof.org/content/analysis-ira-charitable-rollover-extension [12/22/15]
4 – wealthmanagement.com/retirement-planning/ira-qualified-charitable-contributions-reinstated-made-permanent [12/21/15]
5 – forbes.com/sites/berniekent/2015/12/20/should-you-make-a-charitable-contribution-from-your-ira/ [12/20/15]

November 2018 – Retirement InSight

RETIREMENT PLANNING CONTINUES AFTER YOU RETIRE

It can be easy think of retirement planning as a means to an end: a series of purposeful meetings leading up to a life transition. This transition is not the end of retirement planning. Think of this transition (and the steps preceding it) as the first phase. The second phase focuses on managing your spending, plus enhancing your income and savings.

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How New Tax Laws Affect Small Businesses

A recap of the major changes impacting corporations and closely held firms.

Provided by Ron Richards

The Tax Cuts & Jobs Act changed the tax picture for business owners. Whether your company is incorporated or held closely, you must recognize how the recent adjustments to the Internal Revenue Code can potentially affect you and your workers.

How have things changed for C corps? The top corporate tax rate has fallen. C corps now pay a flat 21% tax. For most C corps, this is a big win; for the smallest C corps, it may be a loss.1

If your C corp or LLC brings in $50,000 or less in 2018, you will receive no tax relief – your firm will pay a 21% corporate income tax as opposed to the 15% corporate income tax it would have in 2017. Under the old law, the corporate income tax rate was just 15% for the first $50,000 of taxable income.1,2

Another notable change impacting C corps involves taxation of repatriated income. Prior to 2018, American companies paid U.S. tax rates on earnings generated in foreign countries; those profits were, essentially, taxed twice. Now they are being taxed differently – there is a one-time repatriation rate of 15.5% on cash (and cash equivalents) and 8% rate on illiquid assets, and those taxes are payable over an 8-year period.2

By the way, the 20% corporate Alternative Minimum Tax (AMT) is no more. The tax reforms permanently abolished it.2

What changed for S corps, LLCs, partnerships, and sole proprietorships? They can now deduct 20% of the qualified business income they earn in a year. Cooperatives, trusts, and estates can do the same. This deduction applies through at least 2025.2,3

The fine print on this deduction begs consideration. If you are a lawyer, a physician, a consultant, or someone whose firm corresponds to the definition of a specified service business, then the deduction may be phased out depending on your taxable income. Currently, the phase-out begins above $157,500 for single filers and above $315,000 for joint filers. Above these two thresholds, the deduction for a business other than a specified service business is limited to half of the total wages paid or one quarter of the total wages paid plus 2.5% of the cost for that property, whichever is larger.2

Salaried workers who are thinking about joining the ranks of independent contractors to exploit this deduction may find it a wash: they will have to pay for their own health insurance and absorb an employer’s share of Social Security and Medicare taxes.2

What other major changes occurred? The business depreciation allowance has doubled and so has the Section 179 expensing limit. During 2018-22, the percentage for first-year “bonus depreciation” deductions is set at 100% with a 5-year limit and applies to both used and new equipment. The maximum Section 179 deduction allowance is now $1 million (limited to the amount of income from business activity) and the phase-out threshold begins $500,000 higher at $2.5 million. Also, a business can now carry forward net operating losses indefinitely, but they can only offset up to 80% of income.4

The first-year depreciation allowance for a car bought and used in a business role is now $10,000; it was $3,160. Claim first-year bonus depreciation, and the limit is $18,000. (Of course, the depreciation allowance for the vehicle is proportionate to the percentage of business use.) The TC&JA also created a new employer tax credit for paid family and medical leave in 2018-19, which can range from 12.5%-25%, depending on the amount paid during the leave.4,5

Some longtime business tax deductions are now absent. Manufacturers can no longer claim the Section 199 deduction for qualified domestic property activities. Business deductions for rail and bus passes, parking benefits, and commuter vehicles are gone. Deductions have also been repealed for entertainment costs linked directly to or associated with the conduct of business.4

Business owners should also know about the new restriction on 1031 exchanges. A like-kind exchange can now only be used for real estate, not personal property.3

Ron D. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Ron Richards is a Registered Representative Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 1404 N Main Street Suite 101 Meridian, ID 83642

Citations.

1 – thebalancesmb.com/corporate-tax-rates-and-tax-calculation-397647 [2/5/18]

2 – investopedia.com/taxes/how-gop-tax-bill-affects-you/ [2/14/18]

3 – americanagriculturist.com/farm-policy/10-agricultural-improvements-new-tax-reform-bill [12/27/17]

4 – cpapracticeadvisor.com/news/12388887/2018-tax-reform-law-has-benefits-for-some-small-businesses [1/2/18]

5 – marketwatch.com/story/use-your-car-for-your-small-business-the-new-tax-law-is-good-news-for-you-2018-03-06 [3/6/18]

Retirement Plan Contribution Limits Rise for 2018

Slight increases have been made due to mild inflation.

Provided by Ron Richards

You will able to put a little more into your workplace retirement account in 2018. The federal government has boosted the annual contribution limit on some of the popular qualified retirement plans thanks to inflation and made other adjustments worth noting.

Contribution limits for 401(k)s are rising by $500. This is the first increase seen in three years. In 2018, you can direct up to $18,500 into one of these accounts; $24,500, if you are age 50 or older.1

This $500 increase also applies for three other types of retirement plans – the 403(b) plans in place at schools and non-profit organizations, the Thrift Savings Plan for federal employees, and most 457 plans sponsored by state and local governments.1

The total contribution limit for a defined contribution plan increases. A defined contribution plan is a retirement plan to which both an employer and employee can contribute. If your company has such a plan, the annual limitation on total employer/employee contributions improves by $1,000 in 2018, to $55,000.1

Contribution limits for Health Savings Accounts increase by $50/$150. You must be enrolled in a high-deductible health plan (HDHP) to have one of these accounts. The yearly contribution limit for those enrolled in individual plans rises $50 to $3,450; the yearly limit for those enrolled in qualifying family plans goes up $150 to $6,900. Correspondingly, the respective catch-up limits, which people 55 and older can take advantage of, are also heading north to $4,450 and $7,900.2

The phase-out ranges on IRA contributions are also rising. The annual IRA contribution limits are unchanged for next year ($5,500 for those under 50, $6,500 for those 50 and older), but the adjusted gross income limitations that reduce your eligibility to make IRA contributions are adjusted for inflation.1

If you are single and participate in an employer-sponsored retirement plan such as a 401(k), your new phase-out range is $1,000 higher: $63,000-$73,000. Joint filers who also contribute to workplace plans have a phaseout range of $101,000-$121,000, a $2,000 increase. If you want to contribute to an IRA and do not contribute to a workplace retirement plan, yet your spouse does, your phaseout range is $3,000 higher: $189,000-$199,000.1

Ron D. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – benefitnews.com/news/irs-announces-2018-retirement-plan-contribution-limits [10/20/17]

2 – cbsnews.com/news/irs-allows-higher-retirement-savings-account-limits-in-2018/ [10/24/17]