A pay stub is a valuable source of information when building financial models and evaluating cash flow. It provides insight into income, tax, retirement savings, various insurance costs, etc.

A periodic paycheck review can be a productive exercise, demonstrating how your earnings translate into net pay. As you guide a client through their pay stub, you can help them to understand the automated tax withholdings, savings, and payments that they make each pay period, and appreciate any employer benefits that augment their compensation package.

This flowchart helps you lead through a series of considerations when reviewing your paycheck. It covers:

You may find this flowchart on Acumen’s Resources page: Pay Stub Review 2021

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

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Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

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IMPORTANT DISCLOSURE INFORMATION
This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.

Report Not a Solicitation
This report is not a solicitation or recommendation to make changes to your tax withholdings. Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

This checklist can help guide your conversations regarding the highlights of President Biden’s tax plan. Please take a look at this and the companion piece “As A High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?” and consider how these resources may be of use to you. You may find this checklist on Acumen’s Resources page: How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

Ready to Connect?

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice
specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may
be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

President Biden’s administration has outlined a tax policy built upon the agenda introduced during his campaign. Biden’s tax plan focuses on raising taxes on corporations and affluent households, while increasing credits for moderate- to lower-income households. With Democratic control of Congress, changes outlined in President Biden’s tax plan have an increased possibility of becoming a reality. At what time, in what form, and to what extent remains to be seen; however, another round of tax law changes is likely on the horizon.

Having adapted to frequent, and sometimes major, legislative changes in recent years (namely the TCJA, the SECURE Act, the CARES Act, and most recently, the American Rescue Plan Act), you may be understandably concerned about what changes could be imminent. High-income households, in particular, have been targeted for tax increases under Biden’s tax plan.  By familiarizing yourself with President Biden’s tax plan now, you can be positioned to take action and seize planning opportunities when changes are implemented.

Take a look at this checklist to help guide you through conversations regarding the highlights of President Biden’s tax plan, along with the companion piece “How Might President Biden’s Tax Plan Affect Me?”.

You may find this flowchart on Acumen’s Resources page: As a High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

Ready to Connect?

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Income tax planning is critical to solid financial planning. Navigating our complicated federal pay-as-you go income tax system can be difficult. Adding further complexity, you must understand and adapt to changes in tax laws and in your personal circumstances. In each tax year, it is important to ensure you are properly paying your federal income tax liability in order to avoid penalties. Frequently, you may need to make estimated payments to avoid penalties for late payments and/or underpayments.

We have a flowchart to help you guide through an estimated payments analysis. The decision points identify factors that may trigger a need to make or increase estimated payments, including:

You may find this flowchart on Acumen’s Resources page: Do I Need to Start Making Estimated Federal Income Tax Payments for 2021?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Ready to Connect?

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

The American Rescue Plan Act of 2021 (ARPA) was signed into law on March 11, 2021. This $1.9 trillion stimulus bill aims to provide additional economic relief to taxpayers, businesses, and other employers through various provisions including a third round of direct payments to eligible individuals, an expansion of the Child Tax Credit, additional funding for the Paycheck Protection Program (PPP), and many more. Approximately, $850 billion is directed towards individuals and $65 billion is directed to businesses. Key provisions we find to be relevant for individuals, businesses, and other employers include $1,400 direct payments.

Direct Payments

ARPA provides a third round of stimulus payments up to $1,400 for individuals ($2,800 for taxpayers filing jointly) and qualifying dependents (as defined in Sec. 152). Eligibility for this recovery rebate credit is based on 2020 or 2019 Adjusted Gross Income and the limits are as follows:

Filing StatusEligible for Full PaymentIncome Phaseout BeginsNot Eligible
SingleLess than $75,000$75,000Greater than $80,000
Married Filing JointlyLess than $150,000$150,000Greater than $150,000
Head of HouseholdLess Than $112,500$112,500Greater than $112,500

Child Tax Credit

For 2021, ARPA expanded the Child Tax Credit amount to $3,600 for children under 6 and $3,000 for children 6 – 17. The standard Child Tax Credit amount and phaseout amounts still apply but this additional tax credit is available to those whose Modified Adjusted Gross Income (MAGI) are as follows:

Standard Child Tax Credit:

Filing StatusMAGI ThresholdReductions
Single or Head of Household< $200,000This credit is reduced by $50 for each $1,000 of income over these limits.
Married Filing Jointly< $400,000

Additional Child Tax Credit through ARPA:

Filing StatusMAGI ThresholdReductions
Single$75,000This expanded portion of the credit ($1,000/$1,600) is reduced by $50 for every $1,000 of income over these limits.
Married Filing Jointly$150,000
Head of Household$112,500

This additional credit is fully refundable meaning, if eligible, no tax liability is necessary for the full refund amount. Advanced payments for this 2021 credit will be distributed from July 2021 through December 2021 and will be based on the most recently filed tax return unless eligible individuals opt-out of advance payments through a soon-to-be established IRS online portal.

Earned Income Tax Credit

For 2021, the applicable minimum age is decreased from 25 to, in most cases, age 19. Special conditions apply to students and other youth. The maximum age a childless taxpayer can qualify is eliminated and the maximum EIC amount for childless households increases from $540 to $1,502.

Child and Dependent Care Tax Credit

ARPA increases and expands the Child and Dependent Care Tax Credit from $3,000 for one qualifying individual or $6,000 for more than one qualifying individual to $8,000 for one qualifying individual and $16,000 for more than one individual child. If AGI is less than $125,000, the credit is 50% of the expense amount; this credit phases out completely for AGI over $440,000. This credit essentially means the maximum credit is $4,000 for one qualifying individual and $8,000 for more than one qualifying individual. This credit is fully refundable.

Unemployment Benefits

ARPA increases the total number of weeks benefits are available to individuals who cannot return to work safely from 50 to 79 weeks. Supplemental unemployment payments will remain at $300 per week after March 15, 2021 until September 6, 2021. For those who claimed unemployment benefits in 2020, up to $10,2000 of unemployment benefits can be excluded from income for those with AGIs less than $150,000.  For married couples filing jointly who both received unemployment in 2020, each spouse can exclude up to $10,200.

Student Loan Discharge Taxability

Qualifying student loan debt forgiven between December 31, 2020 and January 1, 2026 will not be taxable as income.

Expanded PPP Eligibility and Funding

ARPA provides additional funding for eligible businesses under the Paycheck Protection Program as well as expands eligibility to additional nonprofits and digital news services. Applications are due by May 31, 2021.

Employee Retention Credit and Paid Leave Credit Programs

The American Rescue Plan extends the availability of the Employee Retention Credit for small businesses through December 2021 and allows businesses to offset their current payroll tax liabilities by up to $7,000 per employee per quarter. This credit of up to $28,000 per employee for 2021 is available to small businesses who have seen their revenues decline, or even been temporarily shuttered, due to COVID.

The American Rescue Plan also extends the availability of Paid Leave Credits through September 2021 for small and midsize businesses offering paid leave to employees who may take leave due to illness, quarantine, or caregiving. Businesses can take dollar-for-dollar tax credits equal to wages of up to $5,000 if they offer paid leave to employees who are sick or quarantining. More details are provided in IRS Notice 2021-20: https://www.irs.gov/pub/irs-drop/n-21-20.pdf

Targeted Grants

Additional funding for targeted Economic Injury Disaster Loan grants is available for small businesses in low-income communities as well as targeted grants for restaurants, bars, lounges, and food trucks.

Excess Business Loss Limitation

ARPA extends the excess business loss rule (Code Section 461(I)) through 2026 which limits the deduction for excess business losses for noncorporate taxpayers. This provision was enacted under the Tax Cuts and Jobs Act of 2017 and originally was set to end at the end of 2025. Section 461(I) limits up to $250,000 for individual filers and $500,000 for joint filers but the CARES Act removed these limitations for the 2018-2020 tax years.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

Sources:

https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-H5A2CF32D1697421DA46ACD1A7E094453

https://home.treasury.gov/news/featured-stories/fact-sheet-the-american-rescue-plan-will-deliver-immediate-economic-relief-to-families

https://www.journalofaccountancy.com/news/2021/mar/tax-components-coronavirus-relief-bill.html

https://www.natlawreview.com/article/american-rescue-plan-act-2021-tax-reports

https://www.jdsupra.com/legalnews/the-most-important-items-in-the-1-9t-4232245/

This report is provided as a courtesy for informational purposes only and nothing herein constitutes investment, legal, accounting, or tax advice. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

As 2020 comes to an end, we look forward to what 2021 will bring.  We hope more happiness, less uncertainty, stronger relationships, and more time together will take place.  With only a few weeks left in 2020, we would like to remind you there are some steps you can take to make the most of this year financially.

Gifting to Family Members

Gifting to Charity

Tax

These are just a few examples when it comes to planning strategies.  The planning team at Acumen is here to help if you have any questions.  Please remember that due to increased processing times, we need to execute any strategies well before year end to ensure they are processed in time. Smart financial decisions year after year help increase the probability of financial success.  As Warren Buffett says, “The more you learn, the more you earn.”

Thank you for working with us and stay safe!

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

Sources:

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice.  Any opinions expressed in this commentary should not be considered as fact.  All opinions expressed are as of the published date and are subject to change.  Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities.  Investments in securities involves risk, will fluctuate in price, and may result in losses.  The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.  It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.  Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.  Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.  Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser.  Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure.  Past performance is no guarantee of future returns.  Investing involves risk and possible loss of principal capital.  No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

We are proud to announce Jerome You was recently awarded the Certified Trust & Financial Advisor (CTFA) professional certification from the American Bankers Association.

The CTFA certification is awarded to individuals who demonstrate excellence in the field of wealth management and trust. To qualify for the CTFA certification, individuals must have certain levels of experience and education in the trust profession, pass an exam, and agree to abide by a code of ethics. The CTFA exam covers many areas including fiduciary and trust activities, financial planning, tax law and planning, investment management and ethics.

Jerome is a Financial Planner and has been with Acumen Wealth Advisors for nearly five years.  He is responsible for assembling financial plans and creating projections based upon a client’s historic data, present financial standing, and future financial goals.  Jerome works alongside Acumen’s CFP® in discussing investment strategies, estate planning considerations, risk management protection through insurance, tax efficiency strategies, charitable intent, and retirement accumulation and distribution tactics.  Jerome is active in the community and is proud to serve on the Northside Neighborhood House (NNH) Board which promotes the independence of residents in North Chattanooga by providing education and assistance through various programs.

Financial services professionals, working through ABA, initiated the CTFA certification and seven others in order to establish meaningful standards of knowledge in specialty areas of the financial services industry. ABA Professional Certifications formally recognize those who meet these standards and meet professional continuing education and development requirements.

ABA Professional Certifications promote the highest standards of performance in the financial services industry by validating individuals’ knowledge and expertise. To learn more, visit www.aba.com/certifications.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

With the presidential election only 27 days away, our team at Acumen has been researching a variety of topics relating to the potential impacts of the election and we are sharing this information with you in a three-part series called “The Election Effect.”  In today’s second installment, we explore the tax plans of the presidential candidates.  We hope you find this information interesting and welcome your thoughts on the series.

The Election Effect: Part 2 of 3

Tax Plans of the Presidential Candidates

The November election is drawing closer and with all of the news coverage surrounding this event, the tax plan of each candidate seems to have been put on the back burner by political pundits and voters alike despite tax reform being one of the most influential and pivotal platforms.  Any change in tax policy has the potential to create immediate, mid-term, or long-term effects on fiscal policy, the economy, and the markets.  The Tax Cuts and Jobs Act of 2017 (TCJA) was the most sweeping reform to the tax code made in the past 30 years but is scheduled to expire after 2025 and revert back to pre-2017 policies unless the changes are made permanent.  Although the specific details and policies regarding the candidates’ respective tax plans change, there are broad concepts and motives that differentiate the candidates.  The Republican candidate, Donald Trump, aims to make the TCJA changes permanent while the Democratic candidate, Joseph Biden, would most likely advocate for an increase in taxes for high income individuals and corporations.  What we believe is, no matter the result of the election, tax policy will remain the same for 2020.  If there is a change in control, we believe there may be a short window to implement certain strategies.  For this reason, Acumen is ensuring we have a plan in place to execute quickly, if needed.  Please keep in mind everyone’s tax situation differs, and the possible strategies outlined below are general strategies and should not be considered as an individualized recommendation or investment advice.

Although the result of the November and the Congressional elections will ultimately dictate what changes to tax laws will be made, Acumen Wealth Advisors’ Financial Planners are diligently keeping track of the proposed changes as well as formulating strategies to mitigate increased tax liability which may be produced as a result.  Please feel free to reach out with any questions.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

 

Sources:

https://www.cnr.com/insights/article/tax-plan-proposal.html

https://www.cpapracticeadvisor.com/tax-compliance/news/21152588/election-2020-comparing-the-biden-and-trump-tax-plans

https://www.accountingtoday.com/list/election-2020-trump-vs-biden-on-tax-policy

https://aboutbtax.com/R7C

The opinions expressed in this commentary should not be considered as fact.  All opinions expressed are as of the published date and are subject to change.  Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities.  Investments in securities involves risk, will fluctuate in price, and may result in losses.  The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.  It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.  Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.  Diversification does not protect against loss of principal.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser.  Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure.  Past performance is no guarantee of future returns.  Investing involves risk and possible loss of principal capital.  No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

 

In the past eight months, multiple changes have been made to tax law through the SECURE Act as well as the CARES Act.  These changes are the most sweeping retirement account reforms made in recent history and Acumen’s financial planners have been diligently watching and incorporating these changes into strategies as they may provide long-term tax benefits and planning opportunities for a majority of our clients.

 SECURE Act

  1. Age to Begin Required Minimum Distributions Extended – Previously, the age which an individual was required to take Required Minimum Distributions (RMDs) from a retirement account or plan was 70½. The new age to begin RMDs is now 72.  Those who turned 70½ in 2019 must keep taking RMDs according to the rules prior to the passage of the SECURE Act.
  2. IRA Contributions can be Made Past 70½ – Individuals who have earned income or individuals whose spouses have earned income are now eligible to contribute to an IRA no matter what age they are.
  3. Some Part-Time Employees Eligible for 401(k) – Part-time employees who have worked at least 500 hours each year for three consecutive years and are 21 and older may be eligible to make 401(k) contributions and deferrals. This eligibility is contingent upon plan provider.
  4. Stretch IRA Provision Eliminated – Some non-spousal beneficiaries will now have to deplete the balance of an inherited IRA within ten years. Exceptions to this rule include:
  1. Penalty-Free Withdrawals from Retirement Plans for Childbirth or Adoption – Each parent can take a $5,000 penalty-free withdrawal from their retirement plan for expenses associated with childbirth or adoption. This new benefit means married couples can withdraw a combined total of $10,000.  It is important to note any withdrawal will be taxable as income.
  1. 529 Plans Can Be Used for Student Loan Repayment – 529 plans can now be used to pay a maximum of $10,000 towards student loan repayments. This lifetime amount is for the 529 plan beneficiary, but an additional $10,000 lifetime amount can be used for the sibling(s) of a beneficiary.

CARES Act

  1. Penalty-Free COVID-19 Retirement Plan Withdrawal – Qualified individuals, whose health or financial situation has been affected by COVID-19, can make a penalty-free withdrawal from an eligible retirement plan up to $100,000 or take a loan up to 100% of their vested balance if the plan provisions allow. The IRS has set guidelines as to who qualifies for this withdrawal, taxability of this withdrawal, and repayment stipulations HERE.
  2. 2020 RMDs are Waived – Individuals are not required to take RMDs for 2020 from 401(a), 401(k), 403(a), 403(b), governmental 457(b) plans, and IRAs. This RMD waiver also applies to inherited IRAs but not to defined benefit plans.
  3. 2020 RMDs Already Taken Can Be Rolled Back In – When the CARES Act was first passed, those who had already taken their 2020 RMD earlier in the year had 60 days from the date of distribution to roll those funds back. The IRS now allows for RMDs taken at any point in 2020 to be rolled back into a retirement account as long as this transaction is done by August 31st, 2020.
  4. Tax Deadline Extension – The new deadline to file and pay taxes is July 15, 2020. This date is also the deadline to make 2019 IRA or Roth IRA contributions.

Other Relief

  1. Tax Deadline Extension for Victims of April Tornadoes – Victims of the April tornadoes, severe storms, and flooding in Mississippi, Tennessee, and South Carolina will have until October 15th, 2020 to file their individual and/or business tax returns and make tax payments.  All residents, not only victims, of certain counties are eligible for this extension, including Hamilton County, Tennessee.  The information can be viewed HERE.

In addition to these reforms, the income brackets for tax rates have been updated for 2020:

The standard deduction amounts have changed as well:

*There is an additional standard deduction of $1,300 for taxpayers who are age 65 or older and/or legally blind.  A married couple filing jointly may be able to claim $2,600 in additional standard deduction.  Unmarried taxpayers and those filing as head-of-household who meet these same conditions can claim $1,650 in additional standard deduction.

This is not a comprehensive list of changes but include pertinent changes for individuals taxpayers.

Earlier this year, Acumen wrote an article regarding the benefits of a Roth IRA, the Roth conversion process, and how this may be an opportune time for the strategy HERE.  The benefit of Roth conversions may be increased with some of these changes:

  1. The extension of the RMD age allows more years of Roth conversions before additional income through RMDs must be recognized.
  2. The waiver of 2020 RMDs allows those in a high tax bracket to “replace” their 2020 RMD income with Roth conversion income without encroaching on a higher tax rate.
  3. The elimination of the “stretch” IRA can create accelerated tax burdens for beneficiaries of a traditional IRA.

We encourage you to speak to one of the planning professionals at Acumen Wealth Advisors if you believe you may benefit from any of these changes or you believe a Roth conversion is beneficial for your long-term financial plan.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

 

 

 

 

The opinions expressed in this commentary should not be considered as fact.  All opinions expressed are as of the published date and are subject to change.  Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities.  Investments in securities involves risk, will fluctuate in price, and may result in losses.  The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.  Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.  Diversification does not protect against loss of principal.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser.  Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure.  Past performance is no guarantee of future returns.  Investing involves risk and possible loss of principal capital.  No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

03/17/20

Recently, the domestic and international markets have experienced volatility due to the economic concerns regarding the Coronavirus as well as an oil price war between Russia and Saudi Arabia.  Acumen’s Portfolio Management Committee (PMC) has been conferring daily amidst this market volatility and have made adjustments to allocations when observations evolve into convictions.  One topic the PMC is addressing during these daily conversations is regarding when to buy into the market.  Acumen’s PMC recognizes the potential for opportunity during market corrections and is diligently monitoring for what we believe to be undervalued equities.

Acumen’s financial planners see correlated opportunities to capitalize on current market conditions through IRA contributions and Roth conversions.  In our January 2020 article, titled “Roth Conversions”, we explained the strategy and tax benefit of performing Roth conversions.  This process converts tax-deferred IRA assets into a forever-tax free Roth IRA.  In this article, we discuss the main benefits of performing Roth conversions during current market conditions including a reduction in taxes paid on the conversion1 and potential for growth.

(1) Reduction in Taxes Paid on Conversions – Very simply stated, if the value of the potential conversion of a traditional IRA has decreased, the taxes paid on the conversion of that amount to a Roth IRA will decrease. Paying taxes on a conversion when the account is at a lower value reduces both the tax liability and also allows the converted amount to grow tax free forever in a Roth IRA when the market rebounds.  While Acumen’s PMC looks for investment opportunities, Acumen’s financial planners analyze income figures to stay within the bounds of the appropriate and lowest tax rate found to be optimal for conversions.  In addition to the advantage of converting with a lower traditional IRA account value, Acumen believes today’s individual tax rates are relatively low compared to what they may be in the future.  From a tax perspective, now is an opportune time to perform Roth conversions.  The Tax Cuts and Jobs Act of 2017 provided a cut to individual tax rates and effectively doubled the standard deduction but these changes sunset (or end) in 2025.  With no legislative action, tax rates will revert back to 2017 rates.  Meaning in 2026, these rates could be 7.9% higher in aggregate and the standard deduction is set to be halved as well.

(2) Potential for Growth – Whether through a Roth conversion or a contribution into a 401k, traditional IRA, or Roth IRA, Acumen sees current market conditions as an opportunity to “buy low” and enjoy future growth. Since its inception, the stock market’s history shows an overall upward trajectory with some of its highest periods and years of growth following directly after negative performances.  Acumen does not believe timing the market is anywhere near as effective a strategy as time in the market.  The impact of time in the market can benefit from entering at a lower price point and active asset allocation.

The Roth versus traditional IRA consideration is a complex one Acumen’s financial planners must take time to assess with each client.  Having a traditional IRA or making traditional IRA or 401k contributions may be an appropriate strategy for some and Roth conversions are not necessarily an appropriate strategy for everyone.  While growth is favorable and can be expected as a long-term investor, growth in a traditional IRA has the potential to create substantial future tax liability without proper tax planning.  Although one receives a a tax deduction for making contributions to a traditional 401k or traditional IRA, the funds will be taxed when distributions are made.  As of now, an individual is required to start drawing a percentage of their traditional IRA assets at age 72.  This requirement is known as Required Minimum Distributions, (RMDs) and are taxed and count towards annual adjusted gross income.2 The more growth realized in an IRA equates to a higher IRA balance and a higher IRA balance means a higher RMD amount.  Although a higher RMD amount may seem like a positive with no downside, a combination of potentially higher future tax rates and additional income through pensions, social security, and RMDs may result in a traditional IRA account owner being pushed into a higher tax bracket.  The resulting tax rate applied to income could reduce the effectiveness of the growth that was experienced in the traditional IRA account.  Conversely, a Roth IRA does not have RMDs and its distribution will not be taxed when taken.  Essentially, this means a Roth IRA account holder (and their beneficiary) will fully capture and enjoy the growth of the Roth IRA without ever having to pay taxes on the distributions.

Market detriments, such as the Coronavirus or an oil price war, are out of our control.  Acumen doesn’t believe in dwelling on those factors out of our control but believes in the value of making opportunistic and deliberate changes within our control at optimal times for a better financial future.  In line with our belief, investment management and financial planning must be cohesive for an optimal approach.  We believe investment opportunities can also open doors for financial planning strategies.  Most of all, we believe in being transparent and the adherence to the fiduciary standard of recommending and doing what is in the best interest of our clients.

For these reasons, we encourage you to reach out to our team if you have any questions or would like to further discuss the strategies outlined in this communication to help you plan and protect your legacy.  For additional information regarding market conditions and Acumen’s perspective, please refer to recent Market Insights written by members of the Portfolio Management Committee here: March 9, 2020 Update, February 26, 2020 Update, February 3, 2020 Update.

1.A reduction in taxes only applies to a value which has decreased due to market conditions.  This does not indicate a conversion of the same value in an up market and down market will yield a different tax liability.

2.RMDs sent directly to charity do not count as income and will not be taxable to the account holder or qualified charitable organization.

We encourage you to reach out to our team, so we may help you plan and protect your legacy.

About the Author: Jerome You is a Financial Planner for Acumen Wealth Advisors in Chattanooga, TN.  Jerome has passed the Cannon Trust School II exam (of a three-part series) to earn the Certified Trust and Financial Advisor (CTFA) designation offered by the American Bankers Association (ABA).

 

The opinions expressed in this commentary should not be considered as fact. Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.