Category: Tax Planning

Top Risk Management Strategies for Families

Posted on by elaina

For high-net-worth families and trusts, risk management is about more than just protecting assets — it’s about securing financial stability for generations to come. Without a proactive strategy, even the most substantial wealth can be eroded by market volatility, tax inefficiencies, legal disputes, and family mismanagement. Here are the top risk management strategies to safeguard your family’s financial future.

1. Establish a Comprehensive Estate Plan

A well-structured estate plan ensures that wealth is preserved and transferred according to your wishes. Key components include:

  • Trusts: Protect assets from estate taxes, creditors, and potential family disputes while ensuring continuity in financial management.
  • Wills: Clearly define how assets will be distributed to avoid probate delays and legal battles.
  • Power of Attorney & Healthcare Directives: Ensure decisions are made by trusted individuals in the event of incapacity.
  • Regular Reviews: Estate plans should be updated periodically to reflect changes in tax laws, family dynamics, or financial goals.

2. Diversify Investment Portfolios

Market volatility can significantly impact family wealth, making diversification a key risk management strategy. Consider:

  • Investment Correlation: Spread investments across equities, bonds, real estate, and alternative assets to reduce exposure to any single market event.
  • Income Correlation: Explore opportunities to create additional income streams uncorrelated to your primary business.
  • Liquidity Management: Maintain a balance between liquid assets and long-term investments to provide flexibility during economic downturns.

3. Implement Tax-Efficient Strategies

High-net-worth families often face complex tax obligations, making strategic tax planning essential.

  • Gifting Strategies: Utilize annual gift tax exclusions and family trusts to transfer wealth efficiently.
  • Charitable Giving: Donor-advised funds and charitable trusts can reduce taxable income while supporting philanthropic goals.
  • Tax-Advantaged Accounts: Maximize contributions to retirement accounts, 529 plans, and other tax-deferred vehicles.
  • State & International Tax Considerations: For families with multi-state or global assets, careful structuring can minimize tax liabilities.

4. Leverage Insurance for Asset Protection

Insurance plays a vital role in protecting family wealth from unforeseen events: 

  • Life Insurance: Provides liquidity for estate taxes and income replacement.
  • Liability Insurance: High-net-worth individuals are often targets for lawsuits; umbrella policies can provide additional coverage.
  • Long-Term Care Insurance: Helps cover medical expenses in later years without depleting family assets.
  • Property & Casualty Insurance: Ensures real estate, collectibles, and valuables are properly protected.

5. Establish a Strong Family Governance Structure

Wealth mismanagement and family disputes are common risks in high-net-worth families. A clear governance framework can help avoid conflicts.

  • Family Constitution: Define values, financial goals, and succession plans to guide decision-making.
  • Regular Family Meetings: Promote transparency and alignment on financial matters.
  • Financial Education: Equip future generations with financial literacy to maintain and grow family wealth.
  • Trusted Advisors: Work with experienced financial planners, attorneys, and CPAs to guide wealth management strategies.

6. Protect Against Cybersecurity and Identity Theft

With growing digital threats, protecting financial and personal information is crucial. 

  • Cybersecurity Measures: Use strong passwords, multi-factor authentication, and encrypted communication.
  • Fraud Monitoring: Regularly review financial statements and set up alerts for unusual activity.
  • Family Training: Educate family members on phishing scams and online security best practices.
  • Digital Asset Planning: Include digital accounts and cryptocurrencies in estate plans. 

7. Stress Test Your Financial Plan

Conducting regular stress tests ensures your wealth management strategy is resilient under various economic and life scenarios. 

  • Scenario Planning: Evaluate how different market conditions, tax changes, or economic downturns could impact your wealth.
  • Liquidity Analysis: Ensure access to cash reserves for emergencies or opportunities.
  • Contingency Planning: Develop action plans for potential business, investment, or family-related risks. 

Risk Management Strategies to Assist Families

Effective risk management strategies for high-net-worth families requires a proactive and strategic approach. By integrating estate planning, investment diversification, tax efficiency, insurance protection, strong governance, cybersecurity, and financial stress testing, families can secure their wealth for future generations.

If you’re ready to develop a tailored risk management plan, BentOak Capital’s experienced advisors can help guide you through every step. Contact us today to start protecting your family’s financial future. 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BentOak Capital (“BentOak”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BentOak.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  BentOak is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of BentOak’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a BentOak client, please remember to contact BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BentOak shall continue to rely on the accuracy of information that you have provided or at www.bentoakcapital.com. Please Note: IF you are a BentOak client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Avoid These Common Tax-Loss Harvesting Mistakes

Posted on by RFTB Dev

Tax-loss harvesting is a valuable strategy for optimizing your investment portfolio and reducing taxes. While it may seem straightforward, even seasoned investors can stumble into costly pitfalls. Whether you’re a novice or an experienced investor, avoiding these common tax-loss harvesting mistakes is crucial to maximizing its benefits and aligning the strategy with your long-term goals. 

Understanding Tax-Loss Harvesting 

At its core, tax-loss harvesting involves selling investments that have declined in value to realize a loss, which can then offset capital gains or reduce taxable income. Contrary to popular belief, this strategy isn’t limited to end-of-year portfolio reviews—opportunities can arise anytime market fluctuations impact your investments. 

However, the process requires precision. Missteps can lead to missed opportunities or, worse, unwanted tax consequences. Let’s explore some common tax-loss harvesting mistakes and how to avoid them. 

#1: Falling Into the Wash Sale Trap

tax-loss harvesting mistakes

The wash sale rule is one of the most common stumbling blocks. If you sell an investment at a loss and purchase the same—or a “substantially identical”—investment within 30 days before or after the sale, the IRS disallows the loss for tax purposes. Think of it as running in circles: you’re right back where you started without any tax benefit.

How to Avoid It: 

Carefully plan your transactions. If you sell a specific stock, wait at least 31 days to repurchase it. Alternatively, consider reinvesting in a similar but not identical asset. For instance, selling a large-cap tech stock like Apple could mean purchasing a technology-focused ETF instead of the same stock. This way, you preserve your portfolio’s exposure while complying with IRS regulations. 

#2: Ignoring Asset Allocation 

Tax-loss harvesting isn’t just about reducing taxes; it’s also about maintaining a balanced portfolio. Selling assets to realize losses can unintentionally skew your portfolio, leaving you overexposed or underexposed to specific sectors or asset classes.

How to Avoid It:

Before executing trades, revisit your investment strategy. Ensure replacement investments align with your goals, risk tolerance, and desired asset allocation. Think of it as replacing a flat tire: the new one should keep your car running smoothly without throwing it off balance. 

#3: Neglecting Tax Implications

Not all losses are created equal. Tax-loss harvesting only applies to taxable accounts, so selling assets in tax-advantaged accounts like IRAs won’t impact your tax bill. Additionally, short-term losses (from assets held less than a year) offset short-term gains, which are taxed at higher rates than long-term gains.

How to Avoid It:

Focus on taxable accounts and understand how different types of gains are taxed. Strategically pairing losses with the appropriate gains can maximize your tax savings while keeping your portfolio goals intact. 

#4: Overlooking Portfolio Gains

While tax-loss harvesting focuses on minimizing losses, failing to address gains in your portfolio can lead to missed opportunities. For instance, if you have appreciated assets or concentrated positions, pairing gains with losses can rebalance your portfolio while minimizing tax impact.

How to Avoid It:

Take a holistic approach. Look at both gains and losses across your portfolio to ensure tax efficiency. By integrating tax-loss harvesting with broader portfolio management, you can optimize your overall strategy. 

Why Avoiding These Mistakes Matters 

Tax-loss harvesting is like tuning your financial engine—it helps reduce your tax burden while keeping your financial plan on track. However, common missteps like violating the wash sale rule or neglecting asset allocation can derail your strategy, leading to avoidable tax consequences and financial setbacks. 

How to Avoid Common Tax-Loss Harvesting Mistakes  

Tax-loss harvesting isn’t just about minimizing taxes; it’s about doing so while staying aligned with your long-term financial goals. A thoughtful, strategic approach ensures you reap the benefits without compromising your portfolio’s balance. 

If you’re unsure where to start, BentOak Capital is here to guide you. Our team can help you navigate the intricacies of tax-loss harvesting, ensuring your investment strategy stays on course.

 

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BentOak Capital [“BentOak”]), or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. BentOak is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from BentOak. Please remember that it remains your responsibility to advise BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. 

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com. Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

Should I Use a Donor Advised Fund When Giving to Public Charities?

Posted on by RFTB Dev

If you want to give money to your favorite charity, how should you do that? The obvious option is to write them a check (though these days, it’s more likely to be done electronically). Quick, easy, no strings attached. They get the money now to help keep their charitable mission going.

Exploring Ways to Give to Charities

Another way—less common but potentially more valuable—is to give the charity something else of value. For example:

You can donate any of these assets to a charity, which may keep them or sell them for cash.

No matter how or what you give1, you get an income tax deduction in the year you make the gift. However, in some circumstances, you may not actually be able to use the full tax deduction when you file your taxes.

For instance, if you don’t itemize deductions on your tax return, you won’t see any tax benefit for your charitable gift. In 2025, the standard deduction is $15,000 for a single filer and $30,000 for married couples filing jointly. So your charitable gifts, combined with state and local taxes, home mortgage interest, and certain medical expenses, must exceed these thresholds to count.

Understanding Donor Advised Funds

This is where a donor advised fund (DAF) can come into play. A DAF allows you to make a contribution to the fund and receive an immediate tax deduction, even if the money isn’t distributed to a charity right away. Think of it as your charitable savings account. You can contribute cash, stocks, or other assets to the fund, and your donation is invested until you decide which charity or charities to support.

So, should I use a donor advised fund? It depends on your goals and tax situation, but DAFs offer distinct advantages.

The Flexibility and Benefits of Donor Advised Funds

One of the major advantages of using a DAF is the flexibility it offers. You can contribute to your DAF in a high-income year, take the tax deduction, and then distribute the funds to your chosen charities over time. This allows you to maximize your tax benefits while still supporting your favorite causes.

Are you looking to simplify your charitable giving while gaining the ability to strategically support the causes you care about most? A DAF might be the right solution.

Additionally, a DAF gives you time to research and select charities that align with your philanthropic goals, rather than feeling rushed to make decisions by a deadline (such as December 31).

At BentOak Capital, we specialize in aligning your charitable giving with your overall financial goals, ensuring you make the most of opportunities like donor advised funds. With our expertise, we can help you strategically maximize both your tax benefits and the long-term impact of your generosity.

Donor Advised Funds as an Estate Planning Tool

One of the major advantages of using a DAF is the flexibility it provides. You can contribute to your DAF in a high-income year, take the tax deduction, and then distribute the funds to your chosen charities over time. This allows you to maximize your tax benefits while still supporting your favorite causes. 

There’s no greater joy than knowing your generosity can make a lasting difference. With a donor advised fund, you can ensure your charitable giving aligns with your values and creates a meaningful impact for years to come.

Should You Use a Donor Advised Fund? 

If you’re considering making a substantial charitable contribution and want to take advantage of immediate tax benefits, you might ask yourself: Should I use a donor advised fund?

A donor advised fund could be an excellent option. It provides flexibility, an opportunity to strategize your giving, and the ability to create a lasting impact. Just be sure to weigh the pros and cons carefully to ensure it’s the right fit for your charitable aspirations.

To learn how BentOak Capital can help you make the most of your charitable giving, contact us today.

 

 

1 There are of course rules for gifts of anything that’s not cash. For instance, some types of assets (the car, the house, the patents) require a qualified appraisal. Also, you have to fill out Form 8283.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

Trump vs. Harris: How the Upcoming Election Impacts Financial Plans

Posted on by RFTB Dev

As the presidential election on November 5 approaches, the financial landscape is filled with questions about how this election impacts financial plans. Recent polls indicate a competitive race between former President Donald Trump and Vice President Kamala Harris. Both candidates are actively campaigning in key swing states, which has raised concerns among investors about the potential impact of the election results on their portfolios.

For many, understanding how the election impacts financial plans is key to making informed decisions about long-term strategy. Given the significant political divisions in recent years, emotions surrounding this election are understandably heightened. In this context, it is essential for investors to remain focused on their long-term financial strategies and not allow political developments to disrupt their plans.

Tax Policy is Uncertain, Especially Relating to Estate Planning

As citizens, voters, and taxpayers, the result of this election could have important implications for our everyday lives. However, when it comes to investment portfolios, political preferences should not dictate decisions. Historically, it is the markets and economic conditions that influence election outcomes, rather than the reverse. Therefore, it’s crucial to participate in the election process without allowing political sentiments to affect financial strategies. 

One of the most complex issues related to the election is tax policy. The Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025, which introduces uncertainty regarding individual and corporate tax rates and creates a potential “tax cliff.” The candidates have differing views on corporate taxes, individual rates, capital gains, tax credits, and more. 

Although it’s tempting to react immediately, it’s important to take a balanced view of how the election impacts financial plans. While taxes undoubtedly affect households and businesses, their impact on the overall economy and stock market is not always straightforward. Taxes are just one of many factors influencing economic growth and investment returns, and various deductions, credits, and strategies can mitigate the effective tax rate.

Currently, tax rates are relatively low by historical standards, regardless of whether the top marginal tax rate is 37% or 39.6%. Given the increasing federal debt, investors should prepare for the likelihood of tax rates rising in the future, whether that occurs after this election or not. Planning for this potential change, ideally with the guidance of a trusted advisor, is becoming increasingly important.

One area where taxes remain particularly low is estate taxes, which apply to the transfer of assets to heirs after death. The Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption amount, which has been adjusted for inflation to reach $13.6 million for 2024. Without further legislative action, this exemption is expected to revert to its pre-TCJA level—approximately $6.8 million per individual by 2026, adjusted for inflation.

Although estate taxes generate only a small portion of government revenue and affect a limited number of individuals, they have become a contentious political issue. The future of estate taxes will largely depend on the outcome of this election, including the results of Congressional races. For many affluent households, these developments could significantly impact their tax and estate planning strategies.

Global Trade and Tariffs Will Depend on the Election

The candidates also have differing views on potential trade policies, particularly regarding tariffs. While the trend of deglobalization and the reshoring of manufacturing—bringing production closer to the U.S.—is likely to continue, the specific use of tariffs to enhance U.S. competitiveness and generate revenue may hinge on the election outcome. During his administration, President Trump implemented several tariffs, many of which were maintained by the Biden administration.

Historically, tariffs were a significant component of trade policy and a major source of revenue for the U.S. government. However, in recent decades, their role has diminished. The establishment of organizations and trade agreements, such as the WTO, NAFTA, and the USMCA, has helped reduce trade barriers among key partners. Despite this, tariffs are still used periodically to protect domestic industries and intellectual property, including sectors like steel, electronics, semiconductors, and agriculture.

For investors concerned about the possibility of a trade war, it’s important to remember that similar fears in 2018 and 2019 did not result in the worst-case scenarios that many anticipated. During that period, the economy remained robust, with unemployment near historic lows and inflation effectively nonexistent, even late in the business cycle. Ongoing negotiations between key trading partners also alleviated some concerns. As illustrated in the accompanying chart, the U.S. has consistently maintained a trade deficit with many countries across various trade regimes.

The Economy Has Grown Under Both Major Parties 

Historically, the economy has shown growth under both major political parties, and bull markets have occurred regardless of who is in the White House. While it might seem counterintuitive, politics typically has a limited impact on the economy and financial markets. More significant factors include the business cycle and broad trends, such as advancements in artificial intelligence and technology, declining inflation, and a robust job market.

Despite the perceived significance of this election, policy changes tend to be gradual due to the checks and balances inherent in our political system. Candidates’ campaign promises often differ from what they can realistically implement.

Regarding taxes, neither candidate is suggesting a return to the high tax rates of the pre-Reagan era, when the top marginal rate reached as much as 94%. Similarly, while tariffs may increase, they are unlikely to rise to the levels seen during the Great Depression nearly a century ago. Keeping these facts in mind is crucial when planning for the next four years.

Keeping Perspective on How This Election Impacts Financial Plans 

The upcoming election impacts financial plans in ways that may be subtle yet significant over time. While it’s natural to consider potential policy changes, investors should remember that the economy has grown under both major parties. By keeping a steady perspective, investors can focus on broader, long-term trends rather than immediate political shifts.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

Investing involves risk including loss of principal. No strategy assures success or protects against loss. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies.

Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield promoted will be successful.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BentOak Capital [“BentOak”]), or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. BentOak is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from BentOak. Please remember that it remains your responsibility to advise BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com. 

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Do I Need to Hire a CERTIFIED FINANCIAL PLANNER® Professional?

Posted on by RFTB Dev

Financial advice and planning are unique to each individual’s situation—and so is the decision to hire a CERTIFIED FINANCIAL PLANNER® professional. For instance, a business owner may need guidance structuring their first deal, while a doctor may seek tax-efficient retirement strategies. A recent retiree might need help creating a steady income from their nest egg. The needs vary because everyone’s goals and paths differ.  

Why Should I Hire a CERTIFIED FINANCIAL PLANNER® Professional? 

While financial planning is always personalized, there are key reasons why many individuals should consider hiring a CERTIFIED FINANCIAL PLANNER® professional. 

Reduce the Noise 

In today’s world, information is everywhere. But where do you start? Do you trust your neighbor, a news anchor, or a targeted ad on social media? While picking up trends may not require a discerning eye, high-quality financial guidance does. When you hire a CERTIFIED FINANCIAL PLANNER® professional, you reduce the noise and gain a reliable source for your questions or concerns. CERTIFIED FINANCIAL PLANNER® professionals are committed to offering personalized, sound advice. Plus, as fiduciaries, they are bound to act in your best interest. 

Compare this to flashy headlines designed to grab attention and clicks, often by presenting slanted facts. Following advice from unreliable sources can steer you off course, potentially derailing your financial goals. A CERTIFIED FINANCIAL PLANNER® professional can cut through the noise, breaking down facts and misconceptions to keep you focused on what matters most. 

Take Your Time Back  

Americans lead fast-paced lives. Whether you’re just entering the workforce, in the midst of your career, or preparing for retirement, chances are your schedule is full. Financial planning is a complex task that demands time and effort—resources many of us don’t have to spare. Seeking simplicity, many people turn to professionals in other areas of their lives. Just as you would consult a doctor for your health, you should consult a professional for your financial well-being. 

CERTIFIED FINANCIAL PLANNER® professionals dedicate their careers to helping people navigate the complexities of personal finance. By analyzing your plans and identifying potential weaknesses, they ensure your financial strategy aligns with your goals. Delegating this responsibility to a professional allows you to focus on what matters most to you. 

Navigate the Complex 

When was the last time you reviewed your company’s retirement plan benefits? Will they be enough when you retire? That depends. When you hire a CERTIFIED FINANCIAL PLANNER® professional, they can help you understand the ins and outs of your company’s retirement plan, ensuring you make the most of its features. Retirement plans vary widely, and a CFP® professional can guide you in leveraging your plan to fit your personal financial situation. 

Check out one of our other blog posts for more on when to hire a financial advisor. 

What Do I Need? 

When you hire a CERTIFIED FINANCIAL PLANNER® professional with the right expertise, you gain access to a wide range of services—investment management, tax planning, estate planning, and cash flow management, to name a few. However, financial planning is not one-size-fits-all. Some may need ongoing support, while others require only a one-time consultation to get started on the right path. Your personal circumstances will dictate what type of service you need, and a good advisor will help you figure out the best fit. 

Still unsure? Reach out to us. We’d be happy to help you determine whether you’re ready to hire a financial advisor. 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.    

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

Tax Policy, the Stock Market, and Tax Planning

Posted on by RFTB Dev

As Benjamin Franklin famously said, “in this world, nothing is certain except death and taxes.” Taxes are no one’s favorite topic but their importance cannot be overstated. Tax policy affects every aspect of our financial lives including how much of our paychecks, investment gains, and dividends we keep, in addition to directing our choices of retirement vehicles, estate planning considerations, and much more. This is why tax planning with the help of trusted financial advisors is important to best achieve our financial goals. 

Individual Tax Rates Are Historically Low 

Naturally, some investors also worry about how changes to tax policy will impact the stock market. This is especially true during a presidential election year since the topic of taxes and government spending are politically charged. What history shows, however, is that while taxes might impact specific industries or asset classes, they have not been the main driver of bull or bear markets. In this context, there are several key facts investors should keep in mind when it comes to their investment decisions.

First, although the history of taxes is complex, it’s fair to say that individual tax rates have been much higher in the past. For instance, the accompanying chart shows that during the 1950s and early 1960s after World War II, the highest rate was a staggering 91%. The Tax Reduction Act, proposed by President Kennedy and signed into law by President Johnson in 1964, cut federal income taxes by around 20 percentage points across the board, bringing the top marginal rate down to 70%. The bill also reduced the corporate tax rate from 52% to 48%. 

Ronald Reagan was then elected in 1980 on a platform of lower taxes and reduced government spending and regulation. Over the course of his two terms in office, the top marginal rate fell from 70% to 28%. This was an era of stagflation and both fiscal and monetary policy sought to stimulate the economy while reigning in supply problems due to high food and oil prices. 

Since then, changes to marginal tax rates have been smaller by comparison. The Tax Cuts and Jobs Act signed by President Trump in 2017, for instance, lowered the top individual income tax rate from 39.6% to 37% for households earning more than $600,000. 

There have been countless other changes to the tax code including to the number of tax brackets, credits and deductions, how capital gains and dividends are treated, and more. In recent years, inflation adjustments to tax bracket thresholds have also been important to prevent “bracket creep” in which individuals owe more as their incomes are adjusted for rising prices. 

When it comes to investing, the most important historical lesson is that the market has performed well in both high and low tax regimes. Most would expect the stock market to perform well during periods of rate cuts. However, the stock market experienced a strong bull market throughout the 1950s and 1960s as the country rebounded from World War II and other global conflicts, when tax rates were near historical peaks. Economic growth was also generally strong during these decades despite these high marginal rates. Thus, the relationship between the economy, markets and taxes is neither a simple one nor the main driver of growth or market returns. 

The U.S. Corporate Tax Rates Are Now More Competitive

Second, today’s statutory corporate tax rate is also low compared to historical levels. Prior to 2017, the U.S. had the highest corporate tax rate among OECD countries at 35%, as shown in the accompanying chart. The Tax Cuts and Jobs Act lowered the corporate rate to 21%, placing the U.S. in the lower half of OECD countries. 

Of course, the effective tax rate that corporations pay is typically far lower than the statutory rate due to a labyrinth of tax breaks and deductions. Naturally, this is a politically complex topic. On the one hand, corporations are maximizing their tax efficiency based on the existing tax code, which ultimately is good for employees, shareholders, and the overall economy. 

On the other hand, this can be viewed as corporations “not paying their fair share,” especially when they are highly profitable, buying back shares and keeping cash overseas. This is one motivation for the 15% Corporate Alternative Minimum Tax (CAMT) for companies with roughly $1 billion in profits included in the 2022 Inflation Reduction Act. 

Whether this corporate tax rate remains in effect beyond 2025, along with individual income tax provisions from the 2017 tax cuts, remains to be seen. Regardless, the statutory corporate tax rate has been at this level or higher for the past 85 years during which markets have performed extremely well due to business cycle expansions. Thus, while taxes do affect individuals and business owners, it’s important to not overreact when it comes to investment strategies. 

Third, some investors worry that taxes could increase in the coming years. While there is uncertainty as to when or if this might occur, it is clear that today’s tax rates are relatively low by historical standards. With the Tax Cuts and Jobs Act planned to “sunset” in early 2026, many are asking if there any ways to take advantage of lower rates prior to that, or plan accordingly if rates revert back to pre-2017 levels? The answer to these tax planning questions depends on your financial plan, but yes there still are options out there. Below are a few of the more popular strategies, though there are many more ideas available.    

1. Roth Conversions – Converting a portion of your traditional IRA or 401k into a Roth IRA offers several key advantages including tax-free growth, taking advantage of the current lower tax brackets, potentially resulting in additional flexibility in retirement income and estate planning.  See our primer on Roth conversions here. Or download this flowchart for a visual of how these strategies work.

Download your copy of "What Will Have The Least Tax Impact: Harvesting Capital Gains Or Roth Conversions"

2. Donor Advised Fund – A Donor Advised Fund (DAF) enables you to contribute an amount to a special charitable account, receive a charitable tax deduction in the year of the contribution, but then control and distribute the funds to your favorite charities over time. The timeline for distribution varies for each family based on goals. Download this flowchart to explore Donor Advised Funds further.

3. Qualified Charitable Distributions – A Qualified Charitable Distribution (QCD) occurs when you transfer funds directly from your IRA to a charitable organization to partially or fully meet your required minimum distribution (RMD). These distributions are not taxed as income, assist in meeting your required minimum distribution, and can assist in meeting your charitable goals. You can also download this flow chart for a different view of this strategy.

The bottom line? Taxes are low by historical standards and markets have performed well across both high and low tax periods. Investors should maintain perspective and not overreact to tax policy changes when it comes to their investment plans. It’s important for all investors to consider current tax policies while planning for the future with the help of a trusted advisor. If you would like to explore strategies that could reduce your income taxes and benefit your financial plan, please contact us today to coordinate a meeting.

 

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by BentOak Capital [“BentOak”]), or any non-investment related services, will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. BentOak is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from BentOak. Please remember that it remains your responsibility to advise BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

Understanding the Step-Up in Tax Basis

Posted on by RFTB Dev

When it comes to estate planning and inheritance, one term you might have heard is the “step-up in tax basis.” While it may sound like financial jargon, understanding this concept can have significant benefits for your heirs. Let’s break it down and explore why it could be important to you. 

What is the Step-Up in Tax Basis? 

The step-up in tax basis is a provision in the U.S. tax code that adjusts the value of an inherited asset to its fair market value at the time of the original owner’s death. This adjustment can significantly reduce the capital gains taxes that heirs might owe if they decide to sell the inherited asset. 

How Does It Work? 

Let’s look at a simple example to illustrate how this works. Suppose your grandpa bought a house for $100,000 many years ago and, at the time of his passing, the house is worth $500,000. Under the step-up in basis rule, the house’s value is “stepped up” from the original purchase price of $100,000 to its current market value of $500,000 at the time of Grandpa’s death. 

This means that if you inherit the house and decide to sell it for $510,000, you will only owe taxes on the $10,000 gain (the difference between the stepped-up basis of $500,000 and the selling price of $510,000).  

If Grandpa gifted you the house during his lifetime, the step-up in basis would not apply and you would owe taxes on the $410,000 gain (the difference between the original $100,000 purchase price and the selling price of $510,000). 

Why is This Important? 

The step-up in tax basis can result in significant tax savings for your heirs. Here are some key benefits: 

  1. Reduced Capital Gains Taxes: By adjusting the asset’s tax basis to its current market value, the potential capital gains tax liability is minimized. This is particularly beneficial for assets that have appreciated significantly over time. 
  2. Easier Estate Planning: Understanding and utilizing the step-up in basis can simplify estate planning and help you make more informed decisions about transferring assets to your heirs. 
  3. Preservation of Wealth: By reducing the tax burden on inherited assets, more of your wealth can be preserved and passed on to future generations. 

Which Assets Qualify? 

The step-up in basis applies to a wide range of assets, including: 

  • Real Estate: Homes, rental properties, and land. 
  • Stocks and Bonds: Investments held in brokerage accounts. 
  • Business Interests: Ownership stakes in family businesses or other privately held companies. 
  • Personal Property: Valuable items such as art, jewelry, and collectibles. 

Exceptions and Considerations 

While the step-up in basis offers substantial tax benefits, there are some important considerations: 

  • Community Property States: In community property states, the surviving spouse typically receives a full step-up in basis for all community property assets. At the passing of the second spouse, the inheritors would receive a second step-up in basis 
  • Assets in Trusts: Certain types of trusts can impact how the step-up in basis is applied (or not applied), so it’s crucial to consult with a financial planner or estate attorney. 
  • Estate Tax Exemption: The step-up in basis is separate from the federal estate tax exemption, which allows a certain amount of an estate to be passed on tax-free. 

Final Thoughts

The step-up in tax basis is a powerful tool in estate planning, providing significant tax savings and helping to preserve wealth for your heirs. By understanding how it works and incorporating it into your estate planning strategy, you can ensure that your loved ones benefit from the assets you’ve worked hard to build. 

If you have any questions or need personalized advice on how to best utilize the step-up in basis in your estate planning, feel free to reach out. Smart financial planning today can secure a brighter future for your family. 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

Looking Ahead at the Tax Cuts and Jobs Act Sunset

Posted on by RFTB Dev

“If you fail to plan, you are planning to fail” – Benjamin Franklin 

The Tax Cuts and Jobs Act of 2017 (TCJA) will expire on December 31, 2025, unless Congress intervenes. Now, there’s a reason the phrase “it will take an act of congress” was colloquially created to describe getting a difficult situation taken care of. While it is possible that Congress could extend the TCJA Sunset, getting the two sides to come together on taxes in today’s political climate is not promising. We feel that it’s crucial to review your estate plan and tax situation now to be sure you are well prepared before January 1, 2026. 

Estate and Gift Tax Exemption 

The implementation of the Tax Cuts and Jobs Act doubled the lifetime federal estate and gift tax exemption, which is currently $13.61 million per person in 2024, or $27.22 for a married couple. This amount will drop to around $7 million per person on January 1, 2026. To maximize these current benefits, consider utilizing the increased exemptions before they expire. 

Possible Estate Planning Strategies to Consider:

  • Outright Gifts: Direct gifts to non-spousal and non-charitable recipients utilize your gift tax exemption ($18k in 2024) and can be an effective way to transfer wealth, especially to grandchildren by also applying your GSTT exemption. 
  • Insurance Trusts: Use your gift tax exemption to fund an irrevocable life insurance trust (ILIT), either by creating a new trust to purchase a policy or transferring an existing policy into an ILIT. 
  • Other Complex Strategies: Some UHNW clients may benefit from a mix of some other relatively complex but highly effective strategies. Please be sure to sit down with your wealth advisor and your estate planning attorney to determine what risks your estate may be exposed to starting in January 2026 and the best ways to plan around them. 

Income Tax Planning 

Federal income tax rates will increase after 2025, with the top rate rising from 37% to 39.6%. To mitigate this, consider strategies such as accelerating ordinary income or transferring income-producing assets to lower-earning family members. Note that capital gains tax rates will remain unchanged. If you would like a detailed look at the changes that are coming, take a look at this helpful Comparison Guide.

TCJA Sunset

Consider These Possible Tax Planning Opportunities:

  • Accelerate Ordinary Income: If you believe your tax rate will be higher starting in 2026 and you have control over all or part of your annual income, consider accelerating income into 2024 or 2025.  This may help you take advantage of the current lower rates before they potentially increase. W-2 income cannot be accelerated but you could, for example, choose to exercise vested stock options. 
  • Roth IRA Conversions: Converting traditional IRA assets to a Roth IRA now might be beneficial for your situation with rates being lower currently. A Roth IRA grows tax-free and is not subject to required minimum distributions (RMDs). Note that Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 
  • Traditional IRA Withdrawals: Consider accelerating withdrawals to take advantage of lower tax rates before 2026. This could be especially useful for individuals over age 59½ who do not want to convert to a Roth IRA but still want to benefit from current rates. 
  • Inherited IRA Distributions: If you inherited an IRA from someone other than your spouse anytime since January 1, 2020, that account is subject to the 10-year withdrawal window via the SECURE ACT. That means everything must be distributed from the account within 10 years. As such, you may consider taking some larger distributions before 2026 to take advantage of a lower tax rate right now. 

Itemized Tax Deductions 

The standard deduction will decrease in 2026, making itemized deductions more beneficial for many taxpayers. This change will affect state and local income tax (SALT) deductions, mortgage interest deductions, and charitable deductions. Additionally, the itemized deduction limitation (PEASE limitation) will return, affecting high-income taxpayers. 

Key Points:

  • State and Local Income Tax (SALT): The current $10,000 limit on SALT deductions will expire, allowing more individuals to itemize deductions. One thing that taxpayers may consider is taking advantage of is delaying the payment of the 4th quarter estimated SALT in 2025 to January 2026 to have the deduction for the 2026 tax year. 
  • Mortgage Interest Deduction: The deduction for mortgage interest will revert to interest on the first $1,000,000 of mortgage debt plus up to $100,000 of home equity debt. The current limit under TCJA is $750k. 
  • Charitable Deductions: Should the sunset occur, the amount of charitable contributions you can deduct may be reduced as well. The IRS doesn’t necessarily give you a full deduction towards your income taxes in the year you make a charitable gift – the type of charity you give to, the type of asset you give, and your taxable income for that year all play a part in determining how much of your charitable giving can actually be written off. Discuss this with your wealth advisor and tax professional to better understand the impact on your plan. 

Business Income 

The Tax Cuts and Jobs Act’s Qualified Business Income (QBI) Deduction, which allows a 20% deduction on passthrough business income, will expire at the end of 2025. This will significantly increase the tax burden on passthrough entities (Sole Proprietors, LLCs, S-Corporations, Partnerships) compared to C corporations, whose tax rate remains at 21%. Business owners should consider the impact this will have on their tax planning and current entity structure. 

Alternative Minimum Tax (AMT) 

The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that high-income individuals and corporations pay at least a minimum amount of tax, regardless of deductions or credits they might otherwise qualify for. It recalculates income tax by adding back certain tax preference items to taxable income, potentially resulting in a higher tax bill. If the Tax Cuts and Jobs Act sunsets, the AMT exemption and phaseout thresholds will revert to pre-TCJA levels. What this means is that many taxpayers who have never had to worry about AMT may all of a sudden have an AMT problem. This change, along with the re-expansion of AMT tax preference items like SALT deductions, presents opportunities for strategic income and deduction timing to manage tax liabilities. 

Don’t Sit Back and Watch the Tax Cuts and Jobs Act Sunset, Take Action Now

The anticipated sunset of the Tax Cuts and Jobs Act provisions necessitates proactive planning. If you are feeling overwhelmed right now, it’s okay. Know that these changes aren’t happening overnight, but be mindful that they are on the horizon and we do need to be prepared and plan for them. Don’t wait until the end of 2025. Download our TCJA Preparedness Checklist today about how your plan may or may not be affected by the TCJA Sunset and share it with us to discuss what strategies we can preemptively have ready for you as we go through the rest of 2024 and into 2025.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.   

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.   

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

529 to Roth IRA Rollovers: What to Know

Posted on by RFTB Dev

Beginning in 2024, 529 plan holders can roll their accounts into Roth IRAs without paying taxes or penalties. Having unused or leftover funds in a 529 plan account has been welcome news for many families. Here’s what to know when it comes to 529 to Roth IRA Rollovers.

The rollover provisions were included in Section 126 of the SECURE 2.0 Act, a part of the Consolidated Appropriations Act of 2023 (CAA) signed into law in December 2022.

What’s Changed?

If beneficiaries or owners of 529 plans wanted to withdraw funds for non-qualified education expenses before SECURE 2.0, they had to make a non-qualified withdrawal. Non-qualified withdrawals are taxed on earnings and are subject to a 10% penalty.  

Starting January 1, 2024, 529 plan owners and beneficiaries could start to roll over 529 funds into a Roth IRA without incurring taxes or penalties, subject to specific limitations we have listed below. If you qualify, this option can help jump-start your beneficiary’s retirement savings. The 529 plan industry is currently seeking clarification and guidance on several ambiguous areas of the statute that are open to interpretation. Nonetheless, most 529 plans are now processing rollover requests. 

Qualifications and Limitations

  1. It is only possible to rollover money to a Roth IRA of the beneficiary of the 529 plan, not to the owner of the 529 plan (if this is different). 
  2. A 529 account must have existed for at least 15 years before rolling funds over to a Roth IRA. Individuals are prohibited from establishing 529 accounts and funding them to immediately roll the funds over into Roth IRAs.  
  3. Rollover treatment does not apply to 529 contributions and earnings made in the last five years. In a similar manner to the 15-year rule, this requirement prevents the funding of an existing 529 account from transferring funds immediately to a Roth IRA. 
  4. There is a lifetime maximum of $35,000 that can be rolled over from a 529 account to a Roth IRA per beneficiary (not per owner). This limit is not inflation indexed. 
  5. The maximum annual 529 rollover is limited to the amount that can be contributed to an IRA during that year. The IRA contribution limit for 2024 is $7,000 ($8,000 for beneficiaries over 50). Furthermore, any actual contributions to a traditional or Roth IRA for that year reduce the amount eligible for rollover. By making direct contributions to a Roth IRA or a traditional IRA and rolling 529 funds into a Roth IRA, you cannot “double dip.” Consequently, the maximum lifetime rollover of $35,000 to a Roth IRA must be divided over several years. 

It’s important to note that even if all the conditions outlined above are met, the beneficiary must have compensation (at least the amount being rolled over) to qualify for making a Roth contribution. Though individuals are prohibited from making regular (direct) Roth IRA contributions once their modified Adjusted Gross Income (MAGI) exceeds a threshold, this restriction does not apply to 529-Roth IRA rollovers. 

When to Convert 529 Funds to a Roth IRA? 

Moving 529 funds to a Roth IRA for a beneficiary can simplify retirement saving. However, there’s no need to hurry. In addition to unclear guidelines for 529 plan managers, it’s uncertain whether all states will consider these rollovers as tax-deductible expenses. Some states will need to update their laws to classify these rollovers as a qualified expense, while others may choose not to do so. 

If your state does not classify 529 to Roth IRA rollovers as a qualified expense, consult your plan administrator or tax advisor first to understand any potential consequences. Remember, you have other options for leftover 529 funds, such as keeping the money in the 529 for graduate school or changing the beneficiary. 

The new rules enhance the flexibility of 529 plans, giving families an additional incentive to save for college without worrying if their child decides not to attend. While limits still apply, this is a significant step toward encouraging families to utilize 529 plans for college savings. Should you need any clarification, please reach out to our team and we can help advise you on this new change.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.  

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.  

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

Changes in Marginal Tax Bracket, Deductions, Credits and Exclusions from 2023 to 2024

Posted on by RFTB Dev

Tax season is upon us, and we are here to provide you with the essential updates that have been released by the IRS regarding the 2024 tax year. The main updates are inflation adjustments to the marginal tax brackets, deductions, and applicable tax credits and exclusions. Each year the IRS adjusts many tax provisions to prevent taxpayers from being pushed into higher tax brackets due to inflation rather than real income increases.  

 

Federal Marginal Tax Rates 

For the 2024 tax year, the marginal tax rates remain the same at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top marginal rate will apply to those with taxable income of $609,351 and above for single filers, and $731,201 and above for married couples filing jointly. The income ranges for those rates have been increased based on the Chained Consumer Price Index (C-CPI). 

2024 Federal Income Tax Brackets for Single and Married Couples Filing Jointly 

Tax Rate  Single  Married Filing Jointly 
10%  $0 – $11,600  $0 – $23,200 
12%  $11,601 – $47,150  $23,201 – $94,300 
22%  $47,151 – $100,525  $94,301 – $201,050 
24%  $100,526 – $191,950  $201,051 – $383,900 
32%  $191,951 – $243,725  $383,901 – $487,450 
35%  $243,726 – $609,350  $457,451 – $731,200 
37%  $609,351 and above  $731,201 and above 

 

Capital Gains Tax Brackets 

While the capital gains tax rates remain unchanged at 0%, 15%, and 20%, the income limits for the capital gains tax bracket were increased from 2023 to 2024. 

2024 Capital Gains Tax Brackets 

Tax Rate  Single  Married Filing Jointly 
0%  $0 – $47,025  $0 – $63,000 
15%  $47,026 – $518,900  $63,001 – $551,350 
20%  $518,901 and above  $551,351 and above 
 

Standard Deduction 

The standard deduction for married couples filing jointly will increase to $29,200, up $1,500 from 2023 to 2024. For single individuals, the standard deduction will increase to $14,600, up $750 from 2023. The standard deduction is a flat deduction available to eligible taxpayers who choose not to itemize their deductions.  

 

Qualified Business Income Deduction 

Stemming from the Tax Cuts and Jobs Act of 2017, certain qualifying businesses are allotted a 20 percent deduction for pass-through income, or Qualified Business Income (QBI). The phase out for QBI starts at $191,950 for single taxpayers and $383,900 for married couples filing jointly, up from $182,100 and $364,200 respectively in 2023. 

 

Child Tax Credit 

The Child Tax Credit is a partially refundable credit available for families with qualifying children under the age of 17 and income below $200,000 for single taxpayers and $400,000 for married couples filing jointly. The Child Tax Credit for 2024 is $2,000 per qualifying child. The refundable portion will be $1,700 per child, up from $1,600 per child in 2023. 

 

Annual Gift Tax Exclusion 

The amount eligible to be excluded from gift tax is increased to $18,000 per person from $17,000 in 2023. The exclusion for gifts to spouses who are not US citizens is increased to $185,000 from $175,000. 

 

Alternative Minimum Tax Exemptions 

The exemptions from Alternative Minimum Tax (AMT) increase to $87,500 for single taxpayers and $133,300 for married couples filing jointly. These exemptions are up from $81,300 and $126,500 respectively in 2023. The exemption phases out for AMTI up to $609,350 for single filers and $1,218,700 for married couples filing jointly.  

The AMT is often misunderstood, as its provisions can be confusing. The AMT was created to limit certain tax benefits for high earning taxpayers. Essentially, high earning taxpayers are required to calculate their tax bill two times. Once under ordinary income tax calculations, and again using the parallel AMT calculation which uses an alternative taxable income definition called alternative minimum taxable income (AMTI). The AMT exemption prevents lower earning taxpayers from being subject to AMT. After the exemptions are applied, the AMT can be applied at either 26% or 28%. The 28% rate applies to AMTI above $232,600 in 2024.  

 

Planning and Strategies 

Now that you are armed with knowledge about the changes implemented by the IRS, you are ready to create a tax strategy that fits your situation. It’s important to seek professional advice when it comes to tax planning. Each tax situation is unique and requires specialized planning and attention. A team consisting of a qualified tax planner and a CPA can create a plan to make you as tax efficient as possible. 

 

For more tax information, download our “2024 Important Numbers“

 

As we transition from 2023 to 2024, understanding the changes to marginal tax brackets, deductions, and applicable credits and exemptions will empower you to make informed decisions and optimize your tax planning opportunities. Contact BentOak Capital if you would like to discuss tax planning strategies and create a plan tailored to your situation in 2024. 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com. 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.