Giving | Taxable Diversification & Surfing at 90

Increased Giving: We mentioned last week how one of our core values is generosity and ensuring that we, as a firm, are giving at least 20% of our profits to those in need. In their book, Go-Giver authors Bob Burg and John David Mann write, “Your true wealth is determined by how much more you give in value than you take in payment.” The idea is that money doesn’t automatically create success; what you do with it is the key.

Here’s a look at charitable giving in America:

As you consider your personal portfolio, one possible charitable donation is appreciated stocks given to your favored charity. Donating appreciated stock will ensure a charitable deduction if the donation exceeds certain thresholds and eliminate up to a 20% federal tax on appreciated securities. This concept also applies to individual state taxes. Other benefits include a greater charitable impact as the charity can sell the stocks without paying capital gains taxes and supporting a cause you believe in. It’s a simple process, and if you are interested in donating stocks from your portfolio to a chosen charity, let’s start that conversation.

Diversifying Taxes: You have heard it 100, if not 1,000, times. Diversification is a critical component of any investment plan. However, it’s not the only area you should consider diversifying. One such topic that doesn’t often fall into our practical experience of diversification is taxes.

There are four primary accounts used for retirement savings.

• 401(k) or 403(b)
• Traditional IRA
• Individual or Joint Brokerage Account
• Roth IRA

Each account has specific nuances and approaches. For example, you receive a tax deduction if you contribute pre-tax dollars to your 401(k). Woo Hoo! There is a catch. When you distribute dollars later in your retirement, you will pay tax at the ordinary income tax rate on those distributions.

If you contribute to a Roth IRA, you do not receive a tax deduction in the current year. However, you do receive tax-free growth and tax-free distributions over the life of the account.

In a world full of options, which one do you choose?

Our answer is simple. Choose them all.

We recently experienced Opening Day in baseball. So, you will have to forgive me for the baseball analogy.

A catcher has unique equipment and a glove built specifically for catching 95 MPH fastballs and the occasional foul ball. However, a Center Fielder’s primary goal is to cover as much ground as possible. His gear is light so that he can move quickly.

Each account has a unique benefit in retirement. Below are sample case studies.

• You wish to purchase that vacation property in retirement; however, all your assets are in a pre-tax IRA or 401(k). When you make a large distribution to cover the down payment, you will pay a tremendous amount of tax in the year of distribution. Another account, such as a brokerage or after-tax Roth IRA, could help you manage the tax brackets for optimum efficiency in this situation.
• You recently retired and decided to delay receiving Social Security until Full Retirement Age or Age 70 to optimize your tax benefit. Suppose you have previously contributed to a pre-tax 401(k) or IRA. In that case, we can complete Roth conversions to optimize a low tax bracket. If you have yet to contribute to a pre-tax vehicle, we cannot complete Roth conversions on your behalf.
• What will tax rates be in the future? Will they be higher? I do not know. My crystal ball is broken. I do know that if you have 100% of your retirement savings in a pre-tax vehicle, you are completely subject to changes in tax rates and policy. We consider this a risk that should have a corresponding action. You can solve this by having an allocation to Roth accounts via direct contributions if you are still working and under an income cap. Or we could solve this by Roth conversions. Either way, we encourage you to utilize this style of account as a defensive posture toward future increases.

Our goal with solid financial planning is to ensure you are successful in not one type of market environment but all.

Suppose your retirement savings are skewed toward one type of account. In that case, we encourage you to contact us as it might merit a broader conversation. This link will allow you to schedule a call today, whether you’re already a client or not.

Business Briefing

• Price Cuts = Record Sales: Tesla’s first-quarter sales jumped 36 percent, pushing its deliveries to a record 422,875 vehicles. The surge came as Tesla cut prices on some of its models twice in the first three months of 2023 to boost weakening demand. Despite the gains, deliveries came in slightly short of 432, 000 due to being “demand constrained.” Tesla stock had its worst year on record in 2022, dropping 65 percent. (The Wall Street Journal)
• Oil Prices Rise: Early last week, oil prices rose 6.3 percent after OPEC+ nations led by Saudi Arabia announced a surprise production cut. It was the biggest one-day surge since March 2022, when Russia’s invasion of Ukraine disrupted energy markets. With a possible U.S. recession threatening to curb demand, it’s not clear how high the reduction of more than 1.1 million barrels a day would push the price of crude oil. (The Wall Street Journal)

Monday Motivation: It can be hard to get up and moving on a Monday morning, but consider the example of Seiichi Sano. Sario is a 90-year-old surfer who is recognized by the Guinness World Records for one of the oldest surfers. At 80, Sano climbed Mt. Fuji but set his sights to then conquer surfing. Up next? Maybe bouldering, definitely not bungee jumping, or maybe just sticking to the basics. Sano says, “I don’t consider myself an old man. I have never thought of myself as an old person. I always feel that I can still move forward. I can still do it. I can still enjoy it.” In view of this, we trust you enjoy your Monday by doing what you need to do to move forward in the best possible ways.