The end of 2022 is approaching, as holiday displays and – perhaps – reminders from accountants and other tax professionals make all too clear. This month, three financial advisers offer their perspectives on money matters for the remainder of the year.
Scott Winslow, Managing Partner, Nabell Winslow Wealth Management
“In financial planning for individuals, we plan to match future liabilities with strategies to finance/fund them with assets that efficiently match them on a net-present-value basis. We know that long-term investment strategies that are funded with equities will have volatility and that corrections and bear markets, though not predictable, are a real part of investing.
If we’re talking about financing retirement, for example, we know the short term needs safer, liquid predictability. Long-term goals are more cheaply funded or financed with a higher rate of return. However, this requires risk. And your predictability in the short term is less in exchange for a potentially higher return.
“As advisers we know that staying invested is the most optimal strategy since, historically, just missing the best 40 days of exposure to the market over 40 years could significantly reduce your returns by, at times, as much as 75%. The biggest mistake I see in times of turbulence is investors overreacting, becoming emotional at the worst times. It is extremely important to stay calm and reassess.
“You reassess by making sure your cash and short-term needs are adequately funded with short- term investments and cash. The one positive to the increase in interest rates is that your cash and safer parts of your portfolio can now obtain some yield.”
David Shucavage, Founder and President, Carolina Retirement Planners
“ ‘Always pay taxes at the lowest rate.’ This is sound advice from IRA expert Ed Slott. One of the best ways to do this is to convert portions of your IRA funds to a Roth. The Roth will then grow tax-free and pass tax-free to you, your spouse or your kids. And taxes are “on sale” right now. The 2017 Tax Cuts are due to sunset in 2026, which gives you four more years (including this one) to take advantage of the lower rates.
“The trick is to convert the right amount each year so you will capture the lower rate without the amount you converted putting you into a higher bracket. As an added benefit, the market is down right now. When it recovers, the Roth will likely see a big gain. Down markets are a great time to do Roth conversions. Check with your accountant or financial adviser to help with the calculations and to be sure you’re not missing something.
“The higher standard deduction has left fewer people itemizing and able to deduct charitable contributions. So, if they donate money from their IRA they may have to pay tax on it. There is good news is if you are 70 ½ or older. We routinely fill out paperwork for clients each year that lets them do a QCD (Qualified Charitable Contribution), having the company that holds their IRA send contributions directly to their charity. It bypasses their tax return and if they are over 72 also counts toward their Required Minimum Distribution [RMD] from their IRA. Check with your IRA company or your financial advisor. You can use this to donate up to $100,000 per year.”
David Hartness, Partner and Chief Client Officer, IronGate Partners
“It seems it’s the same sentiment toward the end of every year: “My, how time flies!” This year is no different. As we seek to take a client-centered, holistic planning approach to serving our clients we want to help them take advantage of year-end planning opportunities, and this often includes tax planning. While we never want the “tax tail to wag the dog,” it’s crucial to consider taxes when advising clients because it’s their money and we want them to retain as much of it as possible.
“No one likes investment losses, but in a challenging year like this, one must consider gains/loss harvesting. One of our goals for retired clients is to help ensure they maximize the two lowest tax brackets. Another strategy entails creating a longer-term, proactive plan to try and intentionally reduce the amount of money in retirement accounts. Most people just defer until they have to start required distributions, only to realize later in life that was a mistake.
“The last area of focus is on gifting. We have many clients who are charitably inclined, so helping them gift in the most tax efficient ways is very important. Sometimes gifting appreciated assets in lieu of cash or utilizing QCDs (Qualified Charitable Distributions) may be beneficial. This can be especially true when taking the standard deduction instead of itemizing.
“There’s much to consider and customizing advice to each unique client situation is imperative. This includes working as a team by involving clients’ CPAs to help ensure the best outcome.”
FDIC: More Americans opening bank accounts
The number of Americans without a bank account fell to a record low in 2021, as the growth of online-only banks and an improving economy continues to bring more Americans into the traditional financial system. That’s according to a report the Federal Deposit Insurance Corp. (FDIC) released Oct. 25.
FDIC research found that 4.5% of Americans – about 5.9 million households – were without a bank account in 2021. That’s the lowest level since the FDIC started tracking the data in 2009 and down from 5.4% of Americans in the 2019 survey data.
One reason for the increase in banking accounts may be the COVID-19 pandemic government stimulus funds. To receive the money quickly, individuals needed to have a bank account.
The FDIC also attributed the improvement to the stronger economy in 2021, as the coronavirus pandemic restrictions largely expired and there were low levels of unemployment.
“Black and Hispanic households still remain much more likely to not have a bank account, although those figures are improving,” the FDIC reported. “Roughly 11.3% of Black households are without a bank account, down from 13.8% two years earlier. Among Hispanic households, that figure declined to 9.3% from 12.2%.”