I recently had the opportunity to organize and moderate a session at the AICPA Personal Financial Planning conference that discussed the best planning ideas being implemented by financial planners right now. This conference and specifically this session brings together some of the best minds in the financial planning community. Below is a list of the top planning ideas we discussed during the session and some things you should be thinking about in your own planning:
Tax Planning Opportunities after Tax Reform
The Tax Cuts and Jobs Act (TCJA) that was passed at the end of 2017 has altered the income tax planning landscape with many changes. While we now have lower income tax rates, the limitations on state and local income taxes caused many to not see much of a reduction in their overall tax liability. We may now be in a window where rates are higher in the future, so planning to take advantage of this can make sense. Doing a detailed tax projection for multiple years is now critical to minimizing your income taxes. Trying to find years where your tax bracket might be lower than others can lead to tax planning opportunities and savings. The loss of the state tax deduction may leave many unable to itemize deductions, so bunching your deductions in specific years might make sense.
Charitable planning continues to be important and more complex
With the limitations on itemized deductions, many people may no longer get the benefit of their charitable contributions. Consider using a donor advised fund, which will better enable you to control when you get the deduction vs. when the funds go to charity. You can make contributions (with appreciated securities if possible) in higher income years and then spread out the charitable gifts in future years. If you are over 70.5 and have to start taking your Required Minimum Distributions (RMD), you can give up to $100,000 of that RMD to charity to avoid reporting that distribution as taxable income.
Retirement Planning and the Potential Impact of the SECURE Act
We have written about this legislation that is working its way through Congress. We will certainly have more details as we see what shape it takes, but the proposals will impact retirement planning for individuals in a number of ways. While you might be able to defer taking Required Minimum Distributions until age 72 (instead of 70.5 now), if you have inherited IRA’s you will be required to take them out over much shorter periods (5 or 10 years). For this reason, Roth IRA conversions may make look more appealing. These are especially valuable if you think you may be in a lower tax bracket now then you will be in the future.
Estate planning with a much higher lifetime exemption
The increase of the Federal estate tax exemption to $11,400,000 per person (for 2019) has changed the estate planning landscape dramatically. Many clients no longer have to worry about planning for the Federal estate tax, but it is important to remember that many states impose an estate tax at a much lower level (Maryland’s exemption is $5 mil per person). However, this doesn't mean you can ignore estate planning completely. It is still critical to make sure your estate planning documents are current, your assets are titled properly and beneficiary designations are right. You should also make sure you have named trustees and executors in your documents.
If you are over the Federal estate tax threshold, now is a great time to do some additional planning while the exemptions are so high. They will revert back to the lower levels in 2026, or perhaps even sooner if there is a change in leadership in Washington. You may want to consider additional gifting, possibly using trusts to accomplish this. There are many issues to consider in your estate planning now, and you should always start with how and when you want assets to pass to your heirs.
Social Security and Medicare planning continues to be an important topic as you approach retirement.
Once again there is potential legislation to push the age for Social Security eligibility out further in light of the future projections of insolvency of the program. Some of the claiming strategies utilized in the past, such as filing a restricted application, will be gone completely after this year. It is important to carefully consider your options for claiming social security in light of your overall financial plan.
Medicare planning is also filled with potential potholes as you approach and move into retirement. If you don’t apply for Medicare at age 65, you can be penalized over the rest of your lifetime. Many of our clients struggle with health insurance coverage during these transition years. We can help you identify these issues and work with outside advisers when needed.
We realize these planning ideas cover a lot of areas and they will impact everyone differently. We think it's important to keep you aware of any potential planning ideas in case they might apply to your situation. Two key things we have learned since Tax Reform: everyone’s situation is unique and it is even more critical than ever to integrate your tax, estate, retirement, and investment planning.
-Lyle K Benson, Jr., CPA, PFS, CFP
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.