Taxes Archives | Page 2 of 5 | CD Wealth Management

How Your Donation Can Benefit Charity — and Your Finances — on NTX Giving Day

With NTX Giving Day just days away on Sept. 21, it’s a wonderful time to think about making charitable donations for both philanthropic and tax purposes! No matter what your interests are, making gifts to the causes you care about can be one of the most meaningful uses of your money. In the end, of course, what really matters is helping an organization that matters to you; the tax benefits are just icing on the cake.

Charitable giving can offer both a financial benefit for you and your family as well as the intangible rewards that come with helping others and your community. Most donations to charitable organizations come in the form of checks or credit card payments. However, there may be more efficient ways to donate that can help both the charity and your pocketbook.

It’s important to understand the benefits of different types of donations.

Cash, Check or Credit Card

This is the most simple and straightforward way of donating to charity. It is important to keep a bank record or a receipt from the charity to substantiate a cash gift. For contributions in 2023, the annual income tax deduction limits for cash gifts to public charities increased to 60% of adjusted gross income (AGI). If contributions are made in excess of those limits, the excess may be carried over for up to five years.

If you do not have appreciated assets to give or want to give cash, some donors may find that the total of their itemized deductions will be slightly below their standard deduction. In that case, it could be beneficial to combine or bunch several years of tax contributions into one year.

Chart showing the benefits of tax-smart donation planning. — *Standard deduction amounts are for married filing jointly. This example is hypothetical and for illustrative purposes only.*

Appreciated Stock

Given the recent increases in the standard deduction, donating appreciated assets such as stock can have tremendous advantages. Gifts of stocks that have been held long enough to qualify as long-term capital gains (more than one year) can be deducted at the fair market value rather than your original purchase price. The downside is that your deduction can offset only up to 30% of your adjusted gross income (AGI).

Stocks that have not been held long enough to qualify for long-term capital gains (less than one year) receive a deduction for their cost basis, rather than fair market value. However, the deduction can offset up to 50% of AGI. Often, clients may donate the stock with the biggest winnings, which maximizes savings on capital gains, and then buy back the same stock with cash, which in turn raises the cost basis.

The chart below shows the difference between selling appreciated stock and then donating cash to charity compared with gifting appreciated stock. Not only would the individual save on taxes, as the charity does not pay capital gains tax, but the charity would also receive additional monies!

Chart showing the benefits of gifting stock to charity. — This example is hypothetical and for illustrative purposes only. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (24% in this example) minus the long-term capital gains taxes paid.

IRA Qualified Charitable Distributions (QCD)

This is an option only for donors over the age of 70 1/2. Qualified Charitable Distributions allow individuals to give up to $100,000 annually directly from their IRA to charitable organizations. Donor Advised Funds are excluded; the donation must go to a qualified charity.

The QCD reduces the value of the IRA and does not count towards the donor’s taxable income. It also counts towards satisfying the annual required minimum distribution. Starting in 2023, donors can also direct a one-time, $50,000 QCD to a charitable remainder trust or charitable gift annuity.

Donor Advised Fund (DAF)

Picture a Donor Advised Fund as having your own family foundation without the headache and administrative hassle of setting one up. A DAF is a charitable account established at a public charity or community foundation that allows donors to recommend grants over time.

The donor decides the timing of the donation, the charity that will receive the donation and the amount of the charitable donation made from the fund. The donor claims the tax deduction upon funding of the DAF. There is not a requirement that the DAF has to distribute 5% of the fund each year, which may allow the DAF to grow, expanding the available dollars to donate to charities. Donor advised funds also can be a charity beneficiary of IRA assets.

At CD Wealth Management, charitable giving plays a significant role in our company. We believe in giving back with our time as well as with our pocketbook.

We support many causes in North Texas and encourage our team to be involved and to give back. Each year, during the holiday season, we make charitable donations in each of our team members’ names to their charities of choice as an additional thanks and at the same time helping a great cause.

It is part of our culture, part of who we are as a firm and who we are as individuals. Please do not hesitate to reach out to us to discuss your charitable options to help you determine the best way to give for your situation.

On Thursday, Sept. 21, visit the NTX Giving Day website to join the tens of thousands of others helping charities in North Texas! (Please note: All funding options above may not be available through NTX Giving Day.)

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Source: Schwab

Promo for article titled September's Surprising Potential: 5 Reasons for Investor Optimism.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS. Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

The Tax Deadline Is Almost Here — What You Should Know About Bonuses and Extensions

For most people, this year’s deadline to file federal income tax returns is Tuesday, April 18. Victims of winter storms in New York have until May 15 to file their returns, and storm victims in Mississippi and Arkansas have until July 31. The deadline has been postponed until Oct. 16 for disaster-area taxpayers in most of California, parts of Alabama and Georgia. Please make sure you double-check your filing deadline if you are in any of the affected areas on the IRS website’s Tax Relief in Disaster Situations page.

Often, employers often pay bonuses to their employees early in the year. Being awarded a bonus on top of your pay is a nice sign of appreciation, but it also comes with an uncertain tax situation, and you may owe more taxes than you planned. Bonuses, tips and commissions are considered supplemental wages, and they are subject to taxes with their own rules for withholding. If you receive a separate bonus check, it falls into one of two categories:

• For amounts under $1 million, employers withhold 22%.
• For amounts over $1 million, employers withhold 22% for the first $1 million and 37% for the remainder.

A bonus is treated as regular income. If you are in a tax bracket that is less than 22%, your employer will have over-withheld, and you may receive a refund for the difference. If you are in the tax bracket over 22% (income of $41,775 to $89,075 for single filers and $83,550 to $178,150 for married filing jointly), your employer will have under-withheld, and you may owe the difference between what was withheld and your total tax.

If your bonus is included in your regular paycheck, then it will withhold taxes using the aggregate method, which uses the total amount to calculate the withholding. For example, if you normally withhold 35% of your pay for taxes, the amount of withholding on your bonus also will be 35%. This tends to be a more accurate method for taxes and is less likely to leave you with a surprise bill at tax time.

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Regardless of which method your employer uses for bonuses, a bonus is subject to state tax if applicable, as well as Social Security and Medicare taxes. If you are deferring income into a 401(k), a portion of the bonus may be withheld for that as well — an important consideration if you don’t want to frontload your 401(k) and have most of the money invested early in the year. We are happy to guide you on how to spread the payment into the 401(k) over the year.

While there is no way of fully eliminating the tax burden of a bonus, you may be able to lower it.

A couple of strategies to reduce tax payments down the road are:

• Find ways to reduce your taxable income such as maxing out contributions to your 401(k) or HSA. If the bonus significantly increases your taxable income, consider bunching charitable donations.
• If you don’t have a work-sponsored retirement plan, contributions to an IRA can reduce your tax burden. These contributions can be made until the filing deadline in April.
• Review your W-2. You may be able to time when you receive the bonus or defer the bonus for tax purposes. You also may raise your withholding on your regular wages if you know that your bonus is going to be larger.

It is important to remember that filing for an extension does not provide you any additional time to pay the tax if you owe more than what you withheld. When you file an extension, you must estimate the tax you owe, and this should be paid by the April filing date. If you don’t, you may owe interest and possibly penalties as well. If you are expecting a refund, the IRS encourages you to file your return as soon as possible and anticipates most tax refunds to be issued within 21 days of the IRS receiving the return.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Broadridge, Investopedia, CNBC

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Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

What You Need to Know to Get Ready for Tax Season

No one likes tax season, but there are some steps you can take to reduce the headaches and make things easier for you and your CPA. Your preparer should tell you when they need all the information to finalize or to extend your return before the deadline. If you are asked to complete a questionnaire, there’s a reason why: Those documents cover most (if not all) of what you will need to provide for your return to be complete and accurate.

Most of life’s major events seem to have a tax impact: marriage, divorce, births, deaths, home purchase or sale, new business, inheritance, etc. Your preparer’s questionnaire is designed to ensure you don’t forget to include anything important. Be sure to review all the questions they ask, as things change from year to year.

As we approach April 15, here are some ways to make tax season go more smoothly — and a list of documents you might need.

Documentation Reported to IRS

• W-2s: If you work for an employer, you will have a W-2 that shows how much you earned and how much was deducted for taxes and other withholdings.
• 1099-NEC (MISC): If you are a contract employee, you can expect to receive this form.
• 1099-INT and 1099-DIV: If you earned interest from savings or investments, you may receive this form. The 1099-DIV reports dividends and distributions from investments. Sources for 1099s include bank interest, brokerage accounts, stock dividends and sales, sale of real estate, Social Security and 529 distributions, to name a few.
• Consolidated 1099: This brokerage tax form will show income from dividends, both qualified and non-qualified, as well as any capital gains and losses that occurred during the year.
• 1099-R: If you take a distribution from your retirement account, you will have a 1099-R that shows the amount of distribution and amount of taxes withheld.
• 5498: This form reports your total annual contributions to an IRA account and identifies the type of retirement account you have.
• 1098: If you own a home and pay mortgage interest, you will receive this form from your lender, showing the amount of interest that was paid and that can be deducted.
• 1098-T: If you have a dependent in college, you will receive this form that reports how much qualified tuition and expense was paid during the year.
• K-1: If you have any limited partner investments, you will receive a K-1 that shows each partner’s share of the partnership’s earnings, losses, deductions and credits. Examples include trusts, partnerships, and S Corporations.

Information Not Reported to the IRS That Requires Recordkeeping

• Business income and expenses.
• Charitable contributions, including donor-advised funds and qualified charitable distributions. Remember, when you make a donation to a qualified charity from a donor-advised fund or from your IRA (if you are over age 70½), you are not eligible for a charitable deduction at that time. You received a deduction when you added monies to the donor-advised fund, and you are reducing your taxable income when made from the IRA.
• Real estate taxes.
• Contributions to 529s, HSAs and IRAs.
• Medical expenses.
• Estimated tax payments.

Old Files You Should Retain

• In most cases, you should plan on keeping tax returns — along with W-2s, 1099s, records supporting itemized deductions and other documents — for a period of at least three years following the date you filed or the due date of your tax return.
• Keeping tax returns for the three-year period is tied to the IRS statute of limitations. The IRS generally has only three years from the filing date or due date of the return to assess additional taxes.
• In some cases, you may need to hold onto your records longer than three years:
— Keep tax forms for retirement accounts, such as IRAs, until seven years after the account is zeroed out.
— If you file a claim for worthless security or bad debt, you must keep those records for seven years.
— If you buy or sell property, you should keep property records until the statute of limitations expires for the year in which you disposed of the property.

Maintaining good records and approaching tax season efficiently can have other benefits; being proactive and comprehensive can help you minimize taxes. Along with your CPA, CD Wealth Management can help you develop tax strategies that will pay off now — and well into the future. Once you have filed your taxes, it is beneficial to provide your financial advisor with a copy of your return.

Remember, tax planning is not just a once-a-year event. We want to ensure you that we are evaluating the landscape for tax changes and strategies that may help save future dollars and keep money in your pocket.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market.

That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

Sources: IRS, Carson, Baird

Promo for an article titled The Fed Raised Rates Again — Here's What That Means for Investors

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Year in Review: Our 10 Most Popular Articles from 2022

We wanted to take this occasion to look back at the content we’ve produced this year and share the 10 most widely read pieces of 2022 in case you missed any of them — or if you want to revisit and share them with friends and family.

Every week, we thoughtfully craft these letters with our clients in mind, broaching subjects we think are relevant and interesting. This is not syndicated content. We want you to find value in these letters — especially in times like these.

1. Before You Sell for a Loss, Make Sure You Know the Wash-Sale Rule

Investors may have seller’s remorse, but capturing losses to offset current taxes or future gains is a prudent strategy | May 5

A young woman is surrounded by monitors & their reflections displaying scrolling text & data.

When you sell an investment that has a loss in a taxable account, you may be eligible for a tax benefit. The wash-sale rule prevents investors from selling at a loss, then buying back the “substantially identical” investment within a 61-day window and being able to claim the tax benefit. This rule applies to stocks, bonds, mutual funds, exchange traded funds (ETFs) and options. Read more >

2. Midterm Elections are Right Around the Corner. What Does This Mean for the Market?

Midterm election years are historically more volatile than the rest of the presidential cycle | July 21

Close-up US midterm election badges with Stars and Stripes in blue and red. The text Midterm Election in the center.

Depending on which party controls Congress, U.S. fiscal policy may change after the election. However, economic fundamentals — and not election results — play the greatest role in stock market performance. Read more >

3. Understanding the Importance of Market Liquidity

As the Fed injects less money into the economy to slow down inflation, liquidity is being reduced, which can lead to outsized market moves | Feb. 10

computer screen showing performance of stocks over time

Over the last few years, liquidity has been a major driver in the stock market. In a liquid market — one that is not dominated by selling — the bid price and ask price are close to each other. As a market becomes more illiquid, such as during a sell-off like we saw last month, the spread between the bid and ask prices grows — meaning prices become less stable and transparent. Read more >

4. Here’s Why Today’s Housing Market Is Different from 2008

Home prices are rising, but the underlying drivers of the current market are different from the Great Financial Crisis | July 1

Lending has been in favor of those with much higher credit scores. Household balance sheets are in much better shape, and the percentage of one’s disposable income spent on mortgages is at an all-time low. Read more >

5. The Case for Staying Invested, Even When the Market Declines

The instinct to flee when the market starts to fall can have a major negative impact on the portfolio’s long-term health | Feb. 17

Investors who sit on the sidelines risk losing out on periods of market appreciation that follow the downturns. From 1929 through 2020, every decline of 15% or more in the S&P 500 has been followed by a strong recovery. Read more >

6. Don’t Let the Word ‘Recession’ Scare You: Here’s What History Has to Say

Recessions are normal occurrences in the economic cycle. In fact, we’ve already had three this century. Here’s what you should know | June 10

Just because the U.S. economy may have a recession does not mean it will be 2008 all over again and the stock market will experience similar pain. The stock market is a leading economic indicator, but most often it has already started to recover by the time the economy is officially in recession. Read more >

7. You’ve Inherited an IRA. What Happens Next?

The SECURE Act effectively ended the Stretch IRA, but it did not eliminate the need for financial planning when it comes to distributions | April 14

Inherited IRA memo on the color paper and calculator.

Under current law, you have 10 years to deplete the entire value of the IRA. However, if you wait until the 10th year to take the entire distribution and the IRA has experienced significant growth, you may be in the highest tax bracket, having to pay almost 40% in taxes for that one year. Read more >

8. What You Need to Know About Web 3.0 and the Metaverse

Social attitudes and norms are changing and adapting to the new era of the internet | Jan. 20

It will take many years for the metaverse to be fully formed and for the experiences to become part of the daily world. However, it appears the train has left the station, with social media and video game companies leveraging their large user bases to build the foundation of the metaverse. Read more >

9. What Does a Stronger U.S. Dollar Mean for You?

For the first time in nearly two decades, the exchange rate between the euro and the dollar is roughly the same | July 14

Benjamin Franklin peeking through euro banknotes

The parity in the two currencies comes after the euro has plunged almost 20% in value over the last 14 months compared to the dollar. This year, the U.S. dollar has gained against most major currencies, as the Fed’s interest rate hikes have made the dollar a safe haven for investors worldwide who are seeking protection against surging global inflation. Read more >

10. An Introduction to NFTs: What You Should Know About Digital Art

Like any collectible, an NFT’s value is based entirely on what someone else is willing to pay for it | Feb. 24

There are tens of thousands of NFTs in existence, representing a variety of topics, such as music, art and sports. Like any piece of art, beauty is in the eye of the beholder. Read more >

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Promo for article titled Year End Market Predictions: Separating Fact from Fiction

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Your Wealth Management Checklist to Help You Put 2022 to Bed

We are in the homestretch for 2022. It is the perfect time to review some year-end planning strategies to ensure your wealth plan reflects changes in your circumstances or goals, the current tax environment and the economic landscape. The end of the year is an important time for making financial decisions that can have an impact in the year ahead — and for years to come.

First, a quick look back at 2022. From a market perspective, this has been a year that won’t be forgotten soon. Here are a few high-level takeaways:

• Bear markets happen. This will not be the last bear market we encounter. The key is to stay invested. Survive the bear market to reap the benefits of the bull markets that follow.

• Things can change quickly. For most of the last decade, we had a zero inflation and zero interest rate environment, but the economy slammed on the brakes — and rates rose drastically. For investors, 2021 was one of the best years and 2022 was one of the worst. However, bull markets can appear just as quickly as a bear markets.

• We went from TINA to TARA. For many years, there was no alternative to stocks (known as TINA, or There is No Alternative). Now, we are seeing TARA (There Are Reasonable Alternatives) with higher interest rates, bonds provide attractive opportunities and money market rates are soon to be over 4%.

• Investing is not easy. We are coming off an incredible decade for the stock market, yet it’s easy for investors to focus on how bad the last 10 months feel. Is that feeling worse than a good 10 years? Greed and fear are timeless. As billionaire investor Seth Klarman commented, “The stock market is the story of cycles and the human behavior that is responsible for overactions in both directions.”

As we prepare to put this year behind us, we recommend that you review the checklist below for planning strategies to consider and discuss.

Income Tax Strategies

Traditional year-end planning focuses on deferring income to a future year and accelerating deductions into the current year.

1. If you anticipate your marginal income tax bracket to increase, you may consider accelerating income into 2022 and deferring deductions to 2023.

2. If you anticipate being in a lower tax bracket next year:
• Defer income to postpone paying the tax and have that income at a lower bracket, if possible.
• Bunch your medical expenses in the current year to meet the percentage of your adjusted gross income to claim those deductions if you itemize on your tax return.
• Make your January mortgage payment in December so you can deduct the interest on this year’s return.

Tax-related Investment Strategies

1. Tax loss harvesting is the strategy of selling securities at a loss to offset a capital gain liability, either for today or in the future.
• Harvest losses by selling taxable investments. You must wait at least 31 days before buying back a holding sold for a loss to avoid the IRS wash-sale rule.
• Harvest gains by selling taxable investments if you have a tax loss carry forward.

2. Ensure that you have satisfied your required minimum distributions (RMD).
• If you fail to take your RMD, this may result in a 50% penalty.
• If you own an inherited IRA, a RMD may be required separately for that account as well.

Retirement Planning Strategies

1. Maximize your IRA contributions. You may be able to deduct annual contributions of up to $6,000 to your traditional IRA and $6,000 to your spouse’s IRA ($7,000 if over the age of 50).

2. Make a Roth IRA contribution if under the applicable income limits.

3. Consider increasing or maximizing your 401(k) contribution. Boosting contributions to your 401(k) can lower your adjusted gross income while increasing your retirement savings.

4. Consider making contributions to a Roth 401(k) if your plan allows.

5. Consider setting up a Roth IRA for each of your children who have earned income during the year.

Gifting Strategies

1. Consider making gifts up to $16,000 per person as allowed under the federal annual gift tax exclusion. You can give up to $16,000 this year to as many people as you want without triggering gift taxes. Payments made directly to educational and/or medical institutions on behalf of your intended beneficiary do not count towards your annual exclusion amount or against your lifetime estate tax exclusion.

2. Create a donor advised fund for an immediate income tax deduction and provide immediate and future benefits to charity over time.

3. If you already have a donor advised fund or want to donate to a charity, consider gifting appreciated assets that have been held longer than one year to get the fair market value income tax deduction while avoiding income tax on the appreciation.

4. If over the age of 70½, consider making a direct transfer from an IRA to a public charity. The distribution is excluded from gross income, and you can give up to $100,000 as a tax-free gift from your IRA that may fully satisfy RMD requirements.

5. Consider combining multiple years of charitable giving into a single year to exceed the standard deduction threshold. This is called “bunching.” The chart below shows how the bunching strategy can reduce taxes if executed properly.

Hypothetical example of a married couple with no children.

Chart explaining the idea of bunching in context of charitable giving — *Standard deduction amounts are for married filing jointly status.*

Wrapping up 2022 and Planning for 2023

1. Discuss major life events with CD Wealth Management to confirm you have clarity in your current situation.

2. Communicate with your CPA to provide capital gains and investment income information for a more accurate year-end projection.

3. Check your Health Savings Account (HSA) contributions for 2022. If you qualify, you can contribute up to $3,600 (individual) or $7,200 (family) and an additional $1,000 catch up if over the age of 50.

4. Double-check your beneficiary designations for retirement plans, IRAs, Roth IRAs, annuities, life insurance policies, etc.

5. If you do not already have identity theft protection, consider purchasing a service to help protect you and your family.

The end of the year is a perfect time to review your financial planning needs. This includes reviewing the investment portfolio, assessing year-end tax planning opportunities, reviewing retirement goals, and managing your legacy plans. The checklist above includes just some of the items that may apply to you and your family. We are happy to meet to discuss any of the above to ensure that you remain on track with your financial goals.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: BNY Mellon, Baird, CNBC, Schwab

Promo for an article titled Year-End Market Predictions: Separating Fact from Fiction

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

The Year-End RMD Deadline Is Almost Here. Are You Ready?

If you are 72 or older, you should have recently received a letter that outlines the required minimum distribution (RMD) you must take from your retirement accounts. This is happening because when you reach age 72, IRS rules require you to make annual withdrawals from the following types of tax-deferred retirement accounts: 401(k), 403(b), 457(b), Traditional IRAs, SEP IRAs and SIMPLE IRAs.

Why do RMDs exist?

If you have been saving part of your income in any of the tax-advantaged retirement accounts listed above, you have not paid income tax on those dollars. The government lets you delay paying taxes, but RMDs are how the government ensures it will eventually get its tax dollars on that income. For investors, the benefit of tax deferral is that while we know we’ll pay income tax eventually, we can pay less in retirement than we would during our working years.

Still, it is not unusual for people to find themselves in the same tax bracket — or even a higher one — in retirement. Income from investments outside of retirement accounts, combined with Social Security and RMDs, can add up quickly. At the end of the day though, the difference in tax brackets may not be as big as once projected when comparing retirement and non-retirement income.

When do I need to start taking withdrawals?

You must start taking RMDs when you turn 72 — or continue to take RMDs if you reached age 70 ½ before Jan. 1, 2020. Your first required withdrawal doesn’t have to be made until April 1 of the year after you turn 72. After your first withdrawal, the IRS requires you take RMDs by Dec. 31 each year.

The first time you take an RMD, if you were to wait until April 1 of the following year, then you would have to take a second distribution that same year. Doing so could affect Social Security and Medicare benefits and could lead to a higher-than-anticipated tax bracket.

There is one exception: People still working after age 72 usually may delay taking RMDs from their employer-sponsored plan until they retire. (If you are in that situation, please double-check with the IRS and your company.) However, if you own 5% or more of the business sponsoring the retirement plan, RMDs must begin once you turn 72, regardless of your retirement status.

How much am I required to withdraw?

Your required minimum distribution is based on your account value on Dec. 31 of the previous year. The IRS calculates RMDs by taking the sum of your tax-deferred retirement accounts and dividing it by a number based on life expectancy. The chart below illustrates how your RMD is calculated. As you age, the denominator gets smaller each year, so as you grow older, you are required to take out more money the following year. The cost of miscalculating or failing to withdraw the full amount is steep: The IRS charges a 50% penalty on any withdrawals not taken!

Chart detailing how an RMD is calculated

How can I minimize the tax impact of RMDs?

If you are 70 ½ or older, you can contribute up to $100,000 per year in a qualified charitable donation (QCD). For married couples, each spouse can make a QCD up to $100,000 — for a potential total of $200,000. QCDs can be made only to certain charitable organizations, and they cannot be made to donor advised funds. If you make a donation that exceeds the RMD, the extra distribution can’t be carried over to meet the distribution the following year.

The RMD is the smallest amount you must withdraw from your retirement account after you reach a certain age. If you have multiple retirement accounts, you may withdraw money from each account or from one account, as long as you ensure that the required minimum amount is withdrawn. Each dollar withdrawn is taxed as ordinary income.

Depending on your tax bracket, it may make sense to take money out of your retirement accounts before age 72. Once you reach age 59 ½, you can take money out of your retirement accounts without a 10% penalty, but you will still owe taxes on the money taken out. It is very important to spend time with your financial team so you understand your options to maximize your income and avoid a costly tax mistake.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Fidelity, Schwab, Securian

Promo for article titled Social Security's Biggest Benefit Jump in 40 Years Is Coming Next Year

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Social Security’s Biggest Benefit Jump in 40 Years Is Coming Next Year

As we approach the end of the year, the IRS and Social Security Administration have released their 2023 adjustments. High inflation has led to a high cost of living adjustment (COLA) that will hit Social Security benefits next year: The 8.7% increase is the largest ever granted to today’s retirees, and it comes on the heels of a sizable 5.9% increase in 2022. The last time COLA exceeded 6% was more than 40 years ago, during double-digit inflation. As shown in the chart below, the average COLA before 2023 was 3.7%, and over the last decade, the average increase was only 1.9%.

2023 COLA is the highest ever for today’s retirees

Social Security cost of living adjustments, 1976-2023

Chart showing each Social Security adjustment since 1976 — *Source: Social Security Administration 2023*

On average, Social Security benefits will go up more than $140 per month – from $1,681 to $1,827 — and the average disability benefit will increase by $119 per month. To find out exactly how much you will receive next year from Social Security, you can calculate the change by multiplying your net Social Security benefit by 8.7%. The chart below provides average Social Security benefits for different recipients and may help provide further clarity.

Estimated average monthly Social Security benefits in 2023

The table shows the average monthly Social Security benefits for different qualifying recipients both before and after the 8.7% cost of living adjustment.

Chart showing average Social Security benefits before and after the 2023 adjustment — *Table: Gabriel Cortes/CNBC; Source: Social Security Administration*

The threshold for the taxation of Social Security benefits is not indexed to inflation and remains constant. As the benefit and other retirement income adjusts upward over time, more people will cross the threshold and pay more in taxes for their benefits. An individual’s Social Security income is taxed based on a combined income formula that includes wage income, interest, dividends, pension payments and taxable distributions from 401Ks and IRAs. If your combined income is above $34,000 for a single person and $44,000 for a couple, up to 85% of your benefit could be taxed.

The COLA should not influence the timing of when you file for Social Security. COLA takes effect automatically for all clients 62 or older, regardless of whether they are currently collecting or have filed for benefits before Dec. 31. Before age 62, an individual’s future benefit is adjusted for inflation through a different methodology.

The decision to start collecting benefits should be driven only by your circumstances, such as age, life expectancy, marital status and cash flow needs.

There are tradeoffs to consider for filing earlier or later than full retirement age; filing early permanently reduces the amount of monthly benefit, for example.

The IRS announced on Friday that due to higher inflation, it is raising contribution limits for retirement savings plans for 2023 based on cost-of-living adjustments. According to Mercer, the limit increases are the largest ever.

Individual contributions to 401Ks or similar retirement plans will see a $2,000 jump to $22,500, for those under the age of 50. Those who are 50 or older will be permitted to contribute an additional $7,500 per year, for a total of $30,000. At the same time, the IRS raised the limit for contributions to a pre-tax or Roth IRA to $6,500, up from $6,000, where it has been the last four years. Those 50 and older can still make an additional $1,000 catch-up contribution, which is not adjusted for inflation.

Income limits for a Roth IRA will increase as well. The income range for married couples filing jointly increases to $218,000 to $228,000 (from $204,000 to $214,000). For those filing as single, the income phase-out range for Roth IRAs increases to $138,000 to $153,000. SEP IRA contribution limits will go up to $66,000 from $61,000.

This year’s COLA can help you keep up with higher costs. In the short run, managing withdrawals from the portfolio may help smooth out the tax bumps during a period of high inflation. In the long term, however, tax planning should be a multi-year approach and strategic in nature.

Whether you are planning for the next year or next decade, managing taxes throughout retirement needs to be well thought out, working with your financial advisor and tax professional to understand the tax impact of any planning decisions.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Blackrock, CNBC, Fidelity, Social Security Administration

Promo for an article titled Here’s What You Should Know About Asset Allocations and Volatility

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Worried About Retirement in a Down Market? Consider These Strategies

The S&P 500 reached a new low last week, closing 25% down from its January peak. Markets may fall even more from here: Since 1961, the average peak-to-trough decline during drawdowns of 25% or more has been 38%. However, historical drawdowns of 25% or more have delivered a forward one-year return of 27% on average, with longer investment time frames proving even more compelling.

Timing the bottom of this market is difficult, if not impossible, for those considering going to the sideline and waiting to get back in after the market falls further. History suggests that those who stay the course have been rewarded.

Chart showing S&P 500 market performance during and after drawdowns of 25% or more since 1961 — *Source: Bloomberg and Goldman Sachs Asset Management. As of October 6, 2022*

We read a lot about market returns averaging 8% to 10% per year, but as the chart shows below, such returns are not common at all. The 8% to 10% average comes from many years of outsized returns, followed by weak or negative returns and a few years of average returns. If you are not invested in the market or decide to move to the sidelines, it becomes much harder to obtain average returns. We cannot control the sequence of returns – i.e., what the market does on a yearly basis. It’s no secret that investing is not predictable; the market can be up 10% one year and down 10% the next year.

Chart showing S&P 500 Annual Returns from 2000 to 2002

When you are in the accumulation phase, the sequencing of returns does not have a significant impact on your ending balance. However, when you are entering retirement or taking annual distributions from the portfolio, the sequence of returns can make a big difference. A down market early in retirement — on top of taking distributions from the portfolio — can eat into your wealth through no fault of your own, other than bad timing.

While we can’t control bear markets, we can control how we respond to them. The key to overcoming sequence-of-return risk is to draw down as little as possible during that down period. Here are some strategies for the newly or nearly retired to consider:

Revisit your need for distributions:

Take another look at how you are planning to fund your expenses and consider alternate strategies to minimize how much you take out. For example:

• Healthcare expenses: If you funded an HSA account, make sure you use those funds for qualified health expenses before withdrawing from the portfolio.

• Charitable giving: Consider making a large gift to a donor-advised fund during an up year in the market. That fund will become your charitable checkbook so that you do not have to tap into the portfolio during down years in the market.

• Flexible withdrawals: Consider taking out more during up markets and pulling back when the market is struggling. This could help you ride out the down market by withdrawing as little as possible.

Build up cash accounts

One way to limit how much you need from retirement accounts is to build up liquidity in your cash accounts. By maintaining short-term cash and cash equivalents — such as CDs, fixed income, and money market accounts — you can keep from having to draw down your retirement funds prematurely. For the first time in many years, money market rates and short term bond rates offer attractive yields, and you can get paid to be in cash with those monies.

Be wary of debt

It makes sense to enter retirement with as little debt as possible. Excessive debt in retirement can affect not only your financial health, but also your physical and mental health as well, due to the strain of paying off debt without income from work.

Know your retirement account options

Once you reach a certain age (72) or older and have a traditional IRA or 401K, the IRS requires you to take an annual required minimum distribution (RMD). Roth IRAs do not have RMDs, allowing you to withdraw funds without penalty or tax. It may make sense before retirement to convert some or all of a traditional IRA to a Roth IRA. This does require that you pay tax on the conversion amount at the time of the conversion. During a down market, doing a Roth conversion can reduce the taxes that you will pay since the value of the IRA is down, and it allows a future market recovery to happen in a tax-free account.

We fully recognize that bear markets are painful and challenging for all investors. Planning for retirement is a long road trip. On most long road trips, you are bound to run into some trouble — unexpected pit stops, flat tires or even a cracked windshield. But these bumps don’t last for the whole trip, and they do not ruin the overall journey. It is more important than ever to keep perspective and realize that these down markets don’t last forever, and good times have historically lasted much longer than the bad.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Goldman Sachs, Kestra Asset Management, Robert Baird, NYU

Promo for article titled Fourth-Quarter Outlook: Midterms, More Volatility and the Fed

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Tips for Planning Charitable Donations, on North Texas Giving Day and Beyond

Today is NTX Giving Day in North Texas. It’s an annual tradition through which the Communities Foundation of Texas connects donors with charities in need and fulfills its mission to put giving to work throughout our local communities.

What a great time to think about making charitable donations for both philanthropic and tax purposes! No matter your interests, making gifts to causes you care about can be one of the most meaningful uses of your money. In the end, what really matters is helping an organization that matters to you. The tax benefits from a donation are just icing on the cake.

Along with the intangible rewards that come from helping others, charitable giving may offer a financial benefit for you and your family.

Most donations to charitable organizations come in the form of checks and credit card payments. However, there may be more efficient ways to donate, which in turn help both the charity as well as your pocketbook. Understanding the benefits for different type of donations is important. Here are some options to consider:

• Cash, check or credit card: This is the most simple and straightforward way of donating to charity. It is important to keep a bank record or a receipt from the charity to substantiate a cash gift. Annual income tax deduction limits for gifts to public charities are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if held for more than one year, and 60% of AGI for contributions of cash. If contributions are made in excess of those limits, the excess may be carried over for up to five years. If you do not have appreciated assets to give or want to give cash, it may be beneficial to combine or “bunch” two years’ worth of charitable contributions into one year so you can take advantage of itemizing deductions.

• Appreciated stock: If you donate stock that you have held for at least 12 months, you can deduct the full value of the investment without having to pay capital gains on the appreciation. The current fair market value of the stock is deducted from your taxable income. Often, clients may donate the stock with the biggest winnings, which maximizes savings on capital gains, and then buy back the same stock with cash, which in turn, raises the cost basis. As the chart below shows, if you were to sell appreciated stock and then donate cash to charity (compared to gifting appreciated stock), not only would you save on taxes (the charity does not pay capital gains tax), but the charity would also receive additional monies!

Chart showing strategy for charitable donations involving appreciated stock — This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (24% in this example), minus the long-term capital gains taxes paid. Reprinted from Schwabcharitable.org.

• IRA Qualified Charitable Distributions (QCD): This is an option only for donors over the age of 70 1/2. QCDs allow individuals to donate up to $100,000 annually directly from their IRA to charitable organizations. This reduces the value of the IRA, and the QCD does not count towards the donor’s taxable income. It also counts toward the annual required minimum distribution.

• Donor Advised Fund (DAF): Picture a donor advised fund as your family foundation, without the headache and administrative hassle of setting up a family foundation. A DAF is a charitable account established at a public charity or community foundation that allows donors to recommend grants over time. The donor decides the timing of the donation, the charity that will receive the donation and the amount of the charitable donation made from the DAF. The donor claims the tax deduction upon funding of the DAF. There is not a requirement that the DAF distribute 5% of the fund each year, which may allow the DAF to grow, expanding the available dollars to donate to charities.

At CD Wealth Management, charitable giving is a significant part of our company’s culture. We believe in giving back with our time as well as our pocketbook. We support many causes in the Dallas-Fort Worth area, and we encourage team members to be involved in the community. Each year, during the holiday season, the company makes a charitable donation in each one of our team members’ names to their charity of choice, offering an additional thanks and helping a great cause at the same time.

Please do not hesitate to reach out to us to discuss your charitable options to help you determine the best way to give for your situation. If you are interested in taking part in NTX Giving Day, click here. (Please note that all funding options described above may not be available for NTX Giving Day.)

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Baird, BMO, Schwab

Promo for article titled Is a Roth IRA the Right Choice for You? Here’s What You Should Consider

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Is a Roth IRA the Right Choice for You? Here’s What You Should Consider

In the financial planning process, clients often ask us if it makes sense to open a Roth IRA or convert a traditional IRA to a Roth IRA. As a refresher: With a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. Roth IRAs are best suited for individuals in a lower tax bracket who expect to be in a higher tax bracket when they start taking withdrawals later in life. A traditional IRA may be best suited for those who expect to be in the same or lower tax bracket when they start taking withdrawals in retirement.

There are three main distinctions between a traditional IRA and a Roth IRA: eligibility, tax treatment and withdrawal requirements. The chart below provides a good summary on the differences.

• Eligibility – With both types of IRAs, the owner must have earned income to be eligible to contribute. For a Roth IRA, you must remain under a total income threshold to be eligible to contribute (income limits can be found here). There are no such limits with a traditional IRA; anyone at any income level can contribute.

• Tax treatments – Contributions to a Roth IRA won’t provide any immediate tax benefit because they are not deductible. Contributions to a traditional IRA may be deductible if you are not a participant in an employee-sponsored plan. Withdrawals from a Roth IRA can be tax-free if requirements are met. Withdrawals from a traditional IRA are typically fully taxable as ordinary income.

• Withdrawal requirements – Both traditional and Roth IRAs allow for withdrawals of any amount once you reach age 59½. Once the owner reaches age 72, traditional IRAs are subject to the required minimum distribution (RMD) rules, forcing money out of the IRA and triggering ordinary income. There are no RMD rules related to Roth IRAs; owners can leave the money in the Roth IRA to grow tax-free as long as they want. A Roth IRA’s beneficiaries generally will need to take RMDs to avoid penalties, although there is an exception for spouses.

Chart showing the differences between traditional and Roth IRAs

For those who are not eligible to contribute to a Roth IRA, there still is a way to take advantage of the tax-free growth. The Roth conversion, also known as a “back door Roth IRA,” allows a taxpayer to withdraw funds from a traditional IRA in a taxable distribution and then roll those monies into a Roth IRA. There are no income thresholds for a Roth conversion. If your tax bracket in retirement may be higher than your current tax rate, it may make sense to convert to a Roth IRA from a traditional IRA. This could happen if you accumulate significant savings in your retirement accounts or achieve top earnings later in your career. Here are five potential reasons to convert to a Roth IRA:

1. Portfolio losses: By converting a traditional IRA to a Roth IRA, the tax will be assessed on the value on the date of the conversion. If you convert to a Roth IRA while the value is lower, the amount of tax owed will be less, and the rebound in value can grow tax free.

2. Anticipating higher tax brackets: If you expect your tax bracket to be higher in retirement, then you may prefer to pay tax on savings now, while you are in a lower tax bracket, and then access those funds tax-free in retirement.

3. Longer growth horizon: Roth IRAs have no RMD obligations, whereas traditional IRAs have RMD after the age of 72. Money in a Roth IRA can stay invested in the stock market longer, giving additional opportunities for growth.

4. Helping your heirs: If your traditional IRA is passed on to your heirs, they will also owe taxes on their withdrawals — and they must be completely withdrawn after 10 years. The Roth IRA withdrawals will be tax free, so you are effectively gifting tax savings to your heirs.

5. Paying for Medicare: If you are enrolled in Medicare Part B or D and your modified adjusted gross income (MAGI) is above a certain threshold, you pay a surcharge on top of your Medicare premium. Withdrawals from a traditional IRA are included in MAGI, while withdrawals from a Roth IRA are not.

Keep in mind the two biggest drawbacks to a Roth IRA conversion are that you must pay income taxes on any pre-tax funds you convert in the year you make it, and you cannot change your mind once you convert. It generally makes sense to use taxable assets rather than proceeds from the converted IRA to pay the tax cost of the Roth IRA conversion. This is because — all things being equal — the rate of return is generally higher for a Roth IRA because no taxes are due for any gains inside the Roth IRA.

Please remember that CD Wealth Management does not offer tax advice, but we work closely with your CPA and attorneys to ensure the right strategy is in place for you and your situation.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client.

Sources: Fidelity, Schwab

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.