Category: Insights

Read all of the insights coming from the experts at confluence financial partners.

  • Stock Market Recap: November 2024

    • Markets rallied sharply in November following the US elections, with US small cap stocks leading all markets higher at +10.97% for the month (Russell 2000 TR Index). This represents the first all-time high for small caps in three years.
    • US large cap stocks also participated, with the S&P 500 TR Index rising +5.87% in November. The gains for large cap growth and large cap value were about even for the month.
    • The strength of the US dollar weighed on international stocks, which fell slightly during the month (-0.57%, MSCI EAFE NR USD Index). After interest rates initially rose sharply, longer-term rates ultimately fell in November, resulting in a +1.06% gain for the bond market (Bloomberg Barclays Aggregate Bond TR Index).

    This year has been another strong year for equity markets, particularly US large-cap stocks. For example, the S&P 500 has made over 50 all-time highs in 2024, which is on pace for the fifth most in a calendar year since 1957. Through the end of November, it was also the strongest election year since 1936 for the S&P 500. What do investors have to look to as we head into 2025?

    In the very near-term, investors have the month of December. Going back to 1928, the S&P 500 has had a positive return 74% of all Decembers, the highest positive return rate of any month. The average monthly return of +1.3% in December is the second-best month of the calendar year, on average.

    There are also historical trends around US election cycles to consider. Since 1926, the S&P 500 has averaged +10.7% during the year after Presidential elections, slightly higher than the +10.4% for any given year. This trend largely reflects the ability for new administrations to enact legislative change prior to mid-term election years, which have historically had below-average results.

    Morningstar as of 10/31/24.  Stock market represented by the S&P 500 Index from 1/1/70 to 10/31/24 and  IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

    • The Federal Reserve will announce any changes to policy on December 18th. As of December 2nd, the market is pricing a 65% chance of a 0.25% reduction in the Federal Funds Rate.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

  • Maximizing Your Equity Compensation: Understanding RSUs and ISO

    Many companies offer equity compensation programs to attract, motivate, and retain top talent while conserving cash and aligning the interests of the employees and shareholders. While these incentive programs provide a great benefit, they must be carefully managed to avoid upsetting your financial strategy or posing a significant tax burden. Below we discuss two of the most common stock option plans that we help our clients understand and maximize.

    RSU – Restricted Stock Units

    As an employee, you may receive a Restricted Stock Unit (RSU) grant as part of your annual performance assessment or generally as part of your overall compensation package. The majority of RSUs have a vesting schedule, so you don’t receive the full value from the outset (Your employer wants to schedule vesting over a period, rather than all at once, to retain your services!). For example, if your company grants you 400 RSUs, you’ll probably get 100 shares to vest each year (typically on a quarterly schedule) until you vest all 400 shares, at which time you may receive a new grant.

    RSUs give you an interest in the company but no actual value until they are vested. Upon vesting, the Fair Market Value (FMV) of the shares is considered income. You will then have the right to sell the vested shares and receive the cash proceeds or hold the shares for a longer period.

    Regarding Taxes

    Your income will include the FMV of the shares as they vest. You can sell your vested shares and convert them to cash. Alternatively, you may keep the shares, but any gains made after the vesting date would be taxed as capital gains when you sell. If you hold shares and they drop in value, you might be faced with selling those shares at a loss, while paying tax on vesting date FMV you never actually received.

    Your employer typically handles your tax withholding at the vesting date by selling enough shares on your behalf to cover the estimated tax liability and distributing the remainder to you. The IRS requires a statutory 22% withholding rate. Because your vested RSUs influence your taxable income, and effective tax bracket, your employer’s tax withholding rate may not be enough.

    Strategy

    RSUs accrue over time and, if held, can lead to a significantly consolidated position in one firm. An experienced executive might start with 100 shares vested, then 200, then 300, and so on. Suddenly, they discover that a sizable chunk of their holdings, perhaps also a significant percentage of their net worth, consists of company stock.

    Accumulation of company stock can lead to more than just lack of portfolio diversification. Generally, having a sizable stock position in the same company that also pays your salary isn’t advisable. If that organization, for a myriad of reasons, experiences a downturn this could have a double-whammy effect.

    As a result, it may be advisable to sell all RSUs as they vest. There should be no additional taxes owed, because your costs basis will be the FMV at which you received the stock. In fact, keeping RSUs as they vest is the exact same thing as taking each cash bonus and investing it 100% in your company stock. If you wouldn’t do that, you shouldn’t hold all of your RSUs. By converting the shares to cash you will be better able to manage taxes due and invest proceeds in a more diverse manner. This should provide you with greater and more predictable long-term success.

    ISO – Incentive Stock Options

    Incentive Stock Options (ISO) are issued by public companies or private companies planning to go public in the future. They are most typically offered to executives and highly valued employees and are designed to encourage these employees to stay with the company over the long term.

    An ISO provides an ‘option’ to purchase shares in a company at a set price, called the ‘strike price’, for a specified period. Like RSUs, ISOs are typically subject to a vesting schedule that could be several years. As the ISOs vest, you can exercise them at the strike price stated in the grant. Employees may have 10 years to exercise their options before they expire. Once you exercise vested shares, you now own the shares at the strike price. You may hold them or sell them immediately, but there are several things to consider.

    Regarding Taxes

    When you exercise your ISOs, you don’t receive any proceeds, as the exercise is only the purchase of the stock. To qualify for the most favorable tax strategy, ISOs need to be held for 2 years from grant date and 1 year after exercise, allowing for Long Term Capital Gains (LTCG) treatment at sale. Pursuing this strategy, however, can trigger what is known as Alternative Minimum Tax, or AMT.

    This tax liability is created by the spread, or difference between, the Fair Market Value (FMV) and the Strike price you were granted. This is often referred to as the ‘Bargain Element’, and if large enough, will create AMT. This can be very complex and confusing as many employees are unaware of this and are caught off guard by their sometimes-significant tax liability due to AMT. We help our clients understand the AMT involved with their ISO strategy, and the ways that they can use any excess AMT payments as credits against future taxes in years where they aren’t subject to AMT.

    Another option for ISOs is to do a “cashless exercise,” which means you never actually purchase the stock at the strike price, but rather you are simply paid out the spread between the strike price and the current FMV. This is a good choice if you don’t want to worry about AMT, or if you don’t have the cash necessary to buy the shares at the strike price. However, this strategy will cause the spread to be taxed at ordinary income rates instead of capital gains rates, and it effectively forgoes the potential tax benefits offered by ISOs.

    Strategy

    We generally recommend exercising options as soon as they vest and holding for long term capital gains treatment. Your specific strategy may vary based on your goals, but reducing what could be a concentrated position, and reinvesting the proceeds in a more diverse portfolio can lead to more predictable long-term outcomes.

    The Bottom Line:

    The most common misconceptions about equity incentive programs relate to taxation and vesting.

    • RSU: Taxed immediately upon vesting using the FMV of the vested shares, usually vest over a period of years, and you can sell them as they vest. No tax benefit to holding after they vest.
    • ISO: Subject to vesting schedules, may create AMT liability when exercised and held, and must be held for 2 years from grant and 1 year from exercise to apply LTCG. Typically expire after 10 years.

    If your employer offers these unique and valuable benefits, don’t let the financial planning overwhelm you.  Act today and consult with an experienced financial planner and a tax professional to develop a solid strategy for maximizing your wealth. If we can help you in any way, please don’t hesitate to contact us.

    Nathan Garcia
    About the Author

    Nathan Garcia, CFP® has been serving individuals, families, and organizations as a financial advisor and planner since 2001. With a deep understanding of the meaningful, positive impact that quality advice can have, Nathan is committed to helping clients achieve clarity and confidence in their financial futures.

  • Stock Market Recap: October 2024

    • October was a challenging month for stock and bond markets as bond yields rose sharply during the month. All major markets finished the month lower, with international equities and interest rate sensitive equities falling the most.
    • The S&P 500 finished October down slightly at -0.91% (S&P 500 TR Index), marking the first time in five months that the index has declined.
    • The yield of the 10-year US Treasury rose to +4.28% in October (+0.54% increase for the month), which weighed on bond market returns: the Bloomberg Barclays US Aggregate Bond Index fell -2.48% in October.

    The Federal Reserve began its interest rate cutting cycle in September, reducing the Federal Funds target rate by 0.50%. Historically, the start of an interest rate reduction policy has been associated with a decline in bond yields. Why is this? Typically, the Federal Reserve reduces interest rates to help support a slowing economy, whether its slowing due to changes in the business cycle, or an external event.

    This year has been an exception, compared to the seven easing cycles since 1989 (before 1989 Federal Reserve did not officially target interest rate changes). Since the September 18th rate cut, the 10-year Treasury yield has increased nearly 0.60%, the largest increase at this stage compared to the previous seven cycles. It is worth noting that 50-days after the first rate cut, during the previous seven cycles, the 10-year yield was either the same, or lower, than the start.

    What could be driving bond yields higher during the present cycle? It is likely the fact that inflation is declining, while the economy and jobs markets are still growing (at a slowing rate), similar to the 1995 soft landing outcome. Alternatively, it could be a sign that investors are concerned about the lack of any clear plan to address the US government’s fiscal situation. Measuring outstanding debt relative to annual economic growth, the United States has a debt-to-GDP ratio of 123%- meaning more debt outstanding than the rate of economic growth in a given year.

    Source: Yardeni Research, LSEG Datastream

    • US Election Day is on November 5th, which will be a closely followed affair.
    • Earnings season is well underway for the Third Quarter of 2024. Consensus estimates for year/year earnings growth for the S&P 500 was +4.3% for the quarter.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

  • Market Update – May 2022

    Though the market changes, our commitment to clients does not. Our Chief Executive Officer, Greg Weimer, and Director of Investments, Bill Winkeler, give you an update on the current market and share insights on how to navigate these times.

  • Inflation’s Return: Impact on the Global Economy & Your Investments

    After a long hiatus, inflation has made quite a comeback in everyday lives of consumers around the world. Generally defined as the increase in the prices of goods and services in an economy, inflation had been below historical averages most of the past decade, with the backdrop of a longer-term decline since peaking in the early 1980’s. The COVID-19 pandemic was the catalyst for a revival, initially due to constraints on supply chains and global trade. However, as economies globally recovered from the pandemic, inflation readings continued to show signs of growth.

    The phenomenon was initially described as “transitory” by economists and investors, believing that inflation would slow as supply chains and global trade healed. This assumption proved to be incorrect, with the “transitory” description has been dropped since mid-2021, as all major measures of inflation have continued to increase at a consistent and rapid pace. The most commonly referenced inflation measurement, the Consumer Price Index (CPI), is tracked including food and energy prices (headline CPI) and excluding food and energy prices (core CPI). The reading through February showed that compared to one-year ago, headline CPI rose +7.9% and core CPI rose +6.4%, the highest level in almost 40-year for both readings. Importantly, this reading does not account for the subsequent increase in energy and other commodities after the escalation in Ukraine.

    Core CPI through February 2022; 1970 to 2022

    Inflation is an impactful force to the global economy and therefore financial markets; the sharp increase certainly has the attention of policymakers. In the United States, the Federal Reserve operates under a “dual mandate” of “price stability and maximum sustainable employment”, with the former goal referencing inflation. Due to the improvement in the labor market, and consistently high inflation readings, the Federal Reserve is expected to raise interest rates starting in the March meeting.  The first increase will mark the start of tighter monetary policy, which will influence equity and bond markets in the short-term. The additional unknown duration of the supply disruptions in the oil and gas market will also muddy the waters for policymakers over the coming months.

    The long, secular decline in inflation readings is over in the short-term. With inflation readings already near 40-year highs prior to the conflict in Ukraine, the response by policymakers over the coming months will be widely followed by investors. As we transition to a rate hiking cycle and inflation stays firm, the environment will likely require investors to shift their approach. Looking back historically over periods of rising inflation, asset classes such as commodities, real estate, value equities, US small cap equities and international equities tended to do well. Within equities, dividend paying stocks may offer an attractive opportunity for investors seeking growth with income in an inflationary environment. One additional portfolio consideration for investors: inflationary periods have had implications for the relationship between stock and bond returns, with high and rising inflation historically reducing the diversification benefit from bonds (positive correlation between stocks and bonds). While the approach may be different than the past 20 years for investors, there are likely to be opportunities for long-term investors to take advantage of as we navigate the ever-changing investment environment.

    Views and opinions expressed are current as of the date of this white paper and may be subject to change; they are for informational purposes only and should not be construed as investment advice. Prior to making any investment decision, you should consult with your financial advisor about your individual situation. Although certain information has been obtained from sources considered to be reliable, we do not guarantee that it is accurate or complete.

    Forecasts, projections, and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with such forward-looking statements, it is important to note that actual events or results may differ materially from those contemplated.

    Confluence Wealth Services, Inc. d/b/a Confluence Financial Partners is an SEC-registered investment adviser. Registration of an investment adviser does not imply any level of skill or training. Please refer to our Form ADV Part 2A and Form CRS for further information regarding our investment services and their corresponding risks.

    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

  • Confluence Commentary

    Advice for Young ProfessionalsTop 10 Financial Wellness Tips for Young Professionals & Upcoming Graduates

    By: Zac Saunders, Wealth Manager 

    1. As you consider your career and job opportunities – think about total compensation, not just salary!
    • Assess the total compensation package (healthcare, 401k match, etc.) when reviewing job offers
    1. Create and maintain a monthly budget.
    • Setting up a budget is of utmost importance.
    • Keep track of your spending and keep expenses down (Needs vs. Wants).
    1. Start to build up your emergency savings.
    • A good rule of thumb is to keep 4-6 months of living expenses in savings.
    1. If available, start contributing to your work 401k plan and take advantage of the company match benefit.
    • You should consider contributing at least the amount to obtain the maximum company contribution. This is free money!  For 2020, the maximum contribution that an employee can make to their 401k plan is $19,500.
    1. Start an individual retirement account (Roth and Traditional IRAs).
    • You can contribute to a Roth or Traditional IRA (depending on income limits) while also contributing to a work 401k.
    • The total amount that a person can contribute to all traditional and Roth IRAs combined is $6,000 for 2020.
    1. Pay down any debts and if you have student loans consider consolidating.
    • Be disciplined and start paying your loan off as soon as you can.
    1. Pay off credit cards on a monthly basis. A credit card can help you build credit provided you pay off in a timely manner.
    • Don’t spend what you don’t have.
    1. Start saving for your first home. We recommend saving 20% for a down payment.
    • Avoid private mortgage insurance (PMI)!
    1. It’s ok to buy a car, but don’t fall for the low monthly payment options that are spread out over 48 + months.
    • Don’t live beyond your means.
    1. Save and Invest Early. Time and compound interest should be your best friend!
    • Case study A: Contributing $500 per month to your portfolio from age 32 to 65, growing at 9% average annual return, adds up to approximately, $1.1 million…not bad!
    • Case study B: Contributing $500 per month to your portfolio from age 22 to 65, growing at 9% average annual return, adds up to approximately, $2.6 million…even better! Key takeaway: START EARLY!
    Any opinions are those of Zac Saunders and not necessarily those of RJFS or Raymond James.  The case study examples are for illustrative purposes only.  Actual investor results will vary.
    Zac Saunders
    About the Author

    Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance.  Zac and his team support and care for the overall financial well-being of their clients.

  • CARES Act Explained: What You Need to Know

    From rebate checks to small business support, there is quite a bit packed into the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law on Friday. The $2+ trillion emergency fiscal stimulus package is intended to mitigate some of the economic effects caused by the COVID-19 outbreak.

    We have all been working to gain an understanding of the law so that we can act as a resource for our friends and family looking to take advantage of the applicable provisions. We have been reading numerous articles, participating in webcasts hosted by industry experts and large accounting firms, and talking with banks to understand the process for various provisions. New information is still coming out daily, but please do not hesitate to use us as a resource as we work through this pandemic.

    Here is a look at some of the key provisions in the CARES Act that may be of interest to you:

    1. A check – Based on income and family makeup, most Americans can expect to receive $1,200 individually ($2,400 for joint filers) and $500 per dependent. Amounts phase out for those who reported adjusted gross incomes over $75,000 for individuals and $150,000 for joint filers in 2018 or
    2. A buffer – The CARES Act eliminates the 10% early withdrawal penalty for coronavirus-related distributions from retirement accounts. Withdrawn amounts can be repaid to the plan over the next three years. In addition, required minimum distributions (RMDs) are waived for 2020. Investors who have already taken an RMD for 2020 have options that may include returning the amount or rolling it over, as long as the distribution was not made from a beneficiary
    3. Support for small businesses – In the form of more than $350 billion, including forgivable loans (up to $10 million) to help keep the business afloat, a paycheck protection plan and
    4. Expanded unemployment benefits – Unlimited funding to provide workers laid off due to COVID-19 an additional $600 a week, in addition to state benefits for up to four months. This includes relief for self-employed individuals, furloughed employees and gig economy workers who have lost work during the
    5. Fortified healthcare – $100 billion is allocated to hospitals and other health providers to help offset costs and provide relief. In addition, the legislation provides funding for numerous other areas including state and local COVID-19 response measures, an increase to the national stockpile for medicine, protective equipment, medical supplies and additional FEMA disaster relief
    6. Enhanced education – $30 billion to bolster state education and school funding, as well as the deferral of federal student loan payments through the end of September.

    What’s next? Treasury Secretary Steven Mnuchin has targeted early April to deliver the funds. Discussions are starting in D.C. around a possible next phase of economic relief, although it’s just talk for now.

    We’ll continue to keep you updated with relevant and timely information. In the meantime, please don’t hesitate to reach out. These are difficult times in which we are living, but we are confident that we will get through them together.

    The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Confluence Financial Partners is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Investing involves risk, and investors may incur a profit or a loss. Some expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.  Some of the material was prepared by Raymond James for use by its advisors.
  • How to Nurture Moneywise Children

    Teach your children to treasure their financial legacy.

    Most parents appreciate the importance of traditional education in their child’s development considering the obvious intellectual and social benefits. Yet all too many forget that a financial education is also crucial for ensuring their offspring’s long-term well-being.The good news is it’s never too early or too late to begin sharing your financial wisdom and experiences with your family. By taking the time to teach your children the value of money, you’ll have the comfort of knowing they’ll understand how to care for their own financial legacy when the time comes.

    An Essential Skill

    Like reading, financial literacy is an essential skill, but unfortunately, it’s not typically taught in school. Rather, it’s up to parents to pass on their financial knowledge to ensure the next generation is capable of taking care of the wealth they’ve built.

    Pre-kindergarten age is a great time to introduce the basics, including the idea that you must work to earn money in order to pay for items and services, as well as the value of different coins and bills. As they get a little older, your child can start doing chores and earning an allowance. Help them go through the motions of saving up for something they’d like to buy and deciding whether or not it’s a worthwhile purchase.

    With pre-teens and teenagers, there are several other steps you can take, such as helping them open a savings account with their earnings from chores, babysitting or other jobs. Share your own tips on managing a budget and introduce them to the concept of investing and saving for retirement. Simply being transparent with your children about the realities and costs of living can go a long way in preparing them for the future.

    Sharing Your Financial Legacy

    While products such as trusts and wills can help ensure your wishes are carried out, they can’t give your heirs the true understanding of how to save, grow and spend money wisely. In fact, if your children are going to receive a sizable inheritance, they may get overwhelmed by sudden wealth without a solid foundation to rely on. It’s also a good idea to introduce your children, when they’re ready, to your financial advisor and other professional partners, so they’ll know where to find expert guidance when dealing with money issues.

    Next Steps

    • Write out a sample budget with your children, explaining the expenses you have each month, such as utilities and groceries
    • Help them open a savings or checking account
    • Schedule a time for them to join you for a meeting with your financial advisor

    Family and Life Events

    August 14, 2019

  • Make Lasting Memories by Savoring Life’s Simple Joys

    Make Lasting Memories by Savoring Life’s Simple Joys

    While extravagant vacations are great, you don’t need to spend a lot of money to make meaningful memories with your loved ones. A slow morning on the first day of summer. Baking cookies with the littles. A great meal surrounded by close friends or family. The best memories come in all shapes and sizes, both planned and unplanned. And while there’s nothing like going on that vacation you’ve been looking forward to for months, sometimes it’s the small, unexpected delights that stay with us the longest.

    So how can you lead a life with more moments worth savoring? Here are a few tips to help you get started.

    Focus on the Little Things

    There’s nothing wrong with a bucket list full of exotic travel destinations or goals to buy that yacht or plan a big family reunion. After all, helping you work toward those goals is what a well-planned life is all about. Still, that’s usually not our day-to-day life. There are so many moments in between those grander experiences that are opportunities to explore smaller joys that, when added together, can be just as memorable or fulfilling as a big trip.

    Start by picturing your perfect day. What do you do or eat? Who and what do you see? Perhaps it’s reading a book, listening to music or getting outside. Maybe you want to spend more time with close friends. After thinking it over, consider how to bring a few of those elements into your regular routine.

    For example, maybe you want to get outside and see one of your friends more often. Consider putting a weekly date on the calendar with them to go for a walk, helping you fulfill both goals. Or perhaps you want to spend more time with your grandkids and also do more at-home cooking. Can the kids help? It could turn into an opportunity to not only spend time together, but for you to share some of your skills and insights with the next generation – doing something as simple as making a pizza.

    When trying to find ways to bring the whole family together, consider what everyone is most interested in. Do your kids or grandkids have favorite activities you can do together? Maybe it’s going to an escape room or planning a watch party for their favorite show. Better yet, take turns choosing the plans for a monthly get-together. Experiences are a great way to connect and they make excellent gifts, too.

    Commit to Unplugging

    Social media has given us unprecedented access to loved ones near and far, and it’s made it easier than ever to share our lives (for better or for worse). But while it makes capturing a moment so easy, social media can also put extra pressure on ourselves and our experiences to be and look perfect – making it that much harder to cultivate and cherish authentic memories.

    Moreover, according to Psychology Today, the average American has five social media accounts and spends an hour and 20 minutes each day browsing their feeds. That’s more than 37 hours every month! Imagine the memories we could create over a year with that time.

    If you’ve found yourself getting sucked into social media, consider taking a break or limiting the time you spend scrolling. Time management apps and new settings on phones allow you to set timers so you receive an alert when you’ve gone over your allotted time on specific apps.

    Learn to Be Present

    It’s hard to fully take in a great moment when we’re distracted, whether by our never-ending to-do list or our phone. Learning how to quiet our mind for even short periods of time can leave us open for moments of serendipity and spontaneity. Perhaps you run into a friend at the grocery store and decide to catch up over lunch, or spot a bed of flowers in full bloom while on a walk – both things you may have missed while checking your phone or worrying over all the errands on your list.

    Meditation has been proven to help reduce stress and anxiety while improving our concentration. And with several popular apps out there with guided meditations, it’s never been easier to give it a try. While some require subscriptions, most offer a free trial so you can see how you like it before making a commitment.

    Enjoy the Moments Worth Living For

    Living for the moment is all about applying that stop-and-smell-the-roses mindset to your daily life. That way, even when you aren’t cruising the Mediterranean or celebrating your birthday with a bash, you might just stumble upon a few more exciting moments and soak up some extra memories along the way.

    Sources: Psychology Today; Huffington Post

    Raymond James is not affiliated with any organizations mentioned.

    Family and Life Events

    June 26, 2019

  • End of Year Tax Savings Strategies

    Check This List – Twice – Before Year-End

    Proactive investors know that the months before year-end are an ideal time to make any final tax-saving moves.

    While keeping in mind your long-term investment goals, meet with your advisor and coordinate with your tax professional to examine nuances and changes that could impact your typical year-end planning.

    Mind Your RMDs

    Be thoughtful about required minimum distributions (RMDs) to ensure that you comply with the rules. If applicable and you have yet to do so, take your 2017 RMD to avoid a 50% penalty on required amounts not taken. Other considerations:

    • By automating your RMDs with your advisor, ensure that you never miss this important deadline.
    • You can take your first RMD during the year you reach age 70½, or you can delay it until April 1 of the following year. Know, however, that if you delay and take two distributions in the first year after turning 70½, your income could be inflated, which may affect your tax-bracket standing.
    • Subsequent RMDs must be taken no later than December 31 of each calendar year.
    • Qualified charitable distributions allow traditional IRA owners who transfer RMDs to qualified charities to exclude the amount donated from their adjusted gross incomes, up to $100,000.
    • Be mindful of how taking a distribution will impact your taxable income or tax bracket. If you have space left in your bracket or a down income year, you may want to consider taking additional distributions.

    To Harvest or Not to Harvest

    Evaluate whether you could benefit from tax-loss harvesting – selling a losing investment to offset gains or establish a deduction of up to $3,000. Excess losses also can be carried forward to future years. With your advisor, examine the following subtleties when aiming to decrease your tax bill:

    • Short-term gains are taxed at a higher marginal rate; aim to reduce those first.
    • Don’t disrupt your long-term investment strategy when harvesting losses.
    • Be aware of “wash sale” rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but purchase another “substantially identical” security – within 30 days before or after the sale date – the IRS likely will consider that a “wash sale” and disallow the loss deduction. The IRS will look at all your accounts – 401(k), IRA, etc. – when determining if a wash sale occurred.

    Manage Your Income and Deductions

    Those at or near the next tax bracket should pay close attention to anything that might bump them up and plan to reduce taxable income before the end of the year.

    • Consider making a donation. Giving to a charity can benefit a cause you care about and reduce your taxable income. Make sure your gifts are well-documented. You also can gift up to $14,000 tax free to as many individuals as you wish.
    • Determine if it makes sense to accelerate deductions or defer income, potentially allowing you to minimize your current tax liability. Some companies may give you an opportunity to defer bonuses and so forth into a future year as well.
    • Certain retirement plans also can help you defer taxes. Contributing to a traditional 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income.*
    • Evaluate your income sources – earned income, corporate bonds, municipal bonds, qualified dividends, etc. – to reduce the overall tax impact.

    Evaluate Life Changes

    From welcoming a new family member to moving to a new state, any number of life changes may have impacted your circumstances over the past year. Bring your financial advisor up to speed on major life changes and ask how they could affect your year-end planning.

    • Moving, for example, can have a significant impact on taxes and estate planning, especially if you have relocated from a high income tax state to a low income tax state, from a state with an estate income tax to one without or vice versa, or if you have moved to a state with increased asset protection. Note that moving expenses themselves, however, are no longer deductible as an itemized deduction for non-military members.
    • Give thought to your family members’ life changes as well as your own – job changes, births, deaths, weddings and divorces for example can all necessitate changes – and consider updating your estate documents accordingly.

    Next Steps

    Consider these to-dos as you prepare to make the most of year-end financial moves, and discuss with your financial advisor and tax professional:

    • Manage your income and deductions, paying close attention to your tax bracket, especially if you are on the edge.
    • Remember to take your RMD, if applicable.
    • Evaluate your investments, keeping in mind whether you could benefit from tax-loss harvesting.
    • Make a list of the life changes you and your family have experienced during the year.

    *Withdrawals prior to age 59 1/2 may also be subject to a 10% federal penalty tax. RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Raymond James advisors do not provide tax advice. 

    TAX PLANNING

    November 21, 2018