Give a kid/Young Adult a Roth if they Meet the restrictions
By blending a couple of Tax laws and having at least $6500 in earnings, a young adult may be just the right recipient of a gift, but to a Roth Retirement plan rather than for spending….
Gifts up to $17k per person are free of gift/estate tax issues – blend that with at least the Roth amount of earnings and a donation directly to a Roth can be a super gift, all of which we discuss here in our January post!
Purchase a New Home last Year – Check that Homestead Exemption
In one of our annual reminders, in this post we once again remind those that purchase a new home last year, that if they are in the home as of January 1 in most/many cases, you may be eligible for a Homestead Deduction aka – Property tax savings….
We also updated a large but not complete slew of state related adjustments – thanks Wikipedia!
Capital Market Comments
Watch the Contra Rally – They can be very deceiving!
With a suddenly happy faced Capital Market, we remind ourselves and everyone else Contra Rallies can seem very soothing, but often times their main result is to have you let your guard down and draw one into a sudden overconfident situation… NO biting…
Have a Great Day, Talk to You at the End of February!
A while back we first came across the neat Tax/Retirement/Donation/Savings technique utilizing low/early career income relatives (think young kids/adults) of basically helping them fund a Roth IRA.
Give a Kid a Roth – Blending Tax Techniques to Accomplish
We all know starting early greatly helps our future retirement planning chances… Marry that to tax free growth AND under CURRENT Tax laws, Tax Free withdraws, and we have a neat plan.
Let’s blend some tax techniques and get this accomplished:
In the year 2023 we can give $17k to basically anyone without causing a Gift tax event…. the max for young earnings is $6500 into a Roth this year!
Have a Child/Grandchild/Relative or special young person in your life? If they have at least $6500 in income this year, consider giving them a Roth IRA to help jump start their retirement…. the earlier the better of course.
Kids working at your or a relatives business? Consider funding a Roth with their income… maybe a well earned bonus goes directly into the Roth?
Make sure the young earner does not over save in their Retirement plans – Max into a 401k is $22,500 this year and that includes a Roth contribution… so do not overfund.
Just one $6500 Roth for a 15 year old, growing at 8% annually, will be worth a whopping $300k+ at age 65 … do that three times to get to a million… and that is tax free withdrawals at retirement! NICE!
While researching the afore mentioned Secure Act 2.0 about a week ago… recall this 4200 page monster was released on December 27th, 2022 …
Some talk in the beast is about unused 529’s being able to roll over into a Roth….
This caught the eye/ear and a note was made. A possible use of this came up this week, so further research is needed as there were a ton of hurdles (like a 15 year waiting period, just to name one) to allow this transaction AND we will likely have updates during the year to clarify this possibility.
With a use already a possibility, we wanted to bring this to your attention and let you know we will be doing further research for clarity! yay
Long Weekend
Monday is a Holiday in honor of Martin Luther King day, as such banks, government offices and our office will be closed as well.
Today is a Friday the 13th spooky … enjoy your day and the weekend…talk next week!
Our first post here, on the new extra large inflation adjustments were …. well not in a good format…
Patience is a virtue…. we chopped this up and reordered in our personal most used… we will also have this pasted on a special tab here in our blog…;. Enjoy!
Once again not surprising with the afore mentioned COLA adjustment on Social Security…. Retirement contribution limits were also adjusted by a large amount….
We find ourselves reviewing this amount so frequently and getting confused as the calendar turns as well as being in the next tax year but making contributions for the prior…. we are going to have a special tab here on our blog moving forward that will have two years data. The IRS Release.
So here we go!
Retirement Contribution Limits
401(k), 403(b), most 457 plans, increased to $22,500 (2023), up from $20,500 (2022)
Catch up for those over 50 is increased to $7,500 (2023), up from $6,500 (2022)
Total max 401(k), 403(b), most 457 plans including catch up is $30,000 (2023) up from $27,000 (2022)
limit on annual contributions to an IRA increased to $6,500 (2023), up from $6,000 (2022)
IRA catch up for those age 50 and greater remains $1000
Annual Gift Exclusion amount increased to $17,000 (2023) from $16,000 (2022)
This takes care of the great majority of retirement plans…but for the record we do not like the formatting and will wait to post the new page once a more comprehensive and better formatted list is completed….
Have a “Fresh of the Presses IRS Retirement Increased Limit” Day!
Welcome to our Video and Audio Podcast Review of our Q2 2022 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
BREAK IN – We are trying a new format of articles that are shorter, and hit a very wide variety of topics that should interest all ages and chapters…. Let us know what you think?
Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page
All about the Stimulus Base Effects and the Coming Comparable (Hurdles)
In our main article, a somewhat follow up article to our Q 1 2022 Newsletter Main Article “Anatomy of a Slowdown” we review the base effects we as an economy are about to have to hurdle.
Sale of many companies exploded higher, similar to the one below, but now must be digested..
Look Back Tax Savings – Spousal IRA – SEP – HSA , These can be done before your filing due date of April 18 to Possible Lower Your 2021 Taxes
With tax season officially underway, actually nearing an end, the official filing date for non-extension regular Form 1040 Filers is April 18th, 2022 (this year) for year 2021 tax filings, just a few weeks out. There are a few tax saving ideas that even with the turn of the calendar can be implemented to possibly help last year’s income taxes.
Self Employed Pension plan-the SEP as it’s commonly called is a great vehicle to offset income that is not of the W2 type, think consulting income.
The Spousal “Qualified IRA” is another handy tool to use if one of the spouses does not have any form of a retirement plan.
The HSA. One of the great parts of the HSA is you only need a high-deductible health insurance plan
Estate and Gift Planning Update – Annual Gifting Amount – Estate Tax Update
Annual Gift amount upped to $16k per person
Estate Tax Stands at $12.06 million per person or $22.12 million per couple
“Last year certainly garnered many headlines of possible changes in much of the estate tax laws. In all fairness we fielded many questions and thankfully once again stuck to our mantra of until it is law, one should be very careful at making preemptive adjustments. There certainly can be changes in the future, but again short of knee jerk reactions, we tend to like for law mandates to be made for reaction, rather than rumors. “
Financial Planning/Retirement Planning Trick for those Early in the Workforce – Roth contribution for young working
Helping a new worker contribute to a Roth and an early age to jumpstart a retirement program…
From the Article…
“Most likely if a young worker is making a very nominal amount, and possibly still living at home, they will not have the cash flow to contribute to any type of retirement plan. But if someway somehow they can make a Roth contribution at least up to their earnings at a very young age the long term positive consequences of this can obviously be fantastic.”
“If a 17 year old was somehow able to get $6000 in a Roth (one time!) and earn 8% a year at age 66 he/she would have about $191,000. If that same 17 year old were somehow able to get $6000 a year until he or she was 23, (five years), and had the same 8% compounding until he or she was 66 there would be a nest egg of just under $1,000,000. That $1,000,000 would not be subject under current tax laws, to mandatory required minimum distributions (RMS;s) nor again under current tax laws would it be taxable income upon distribution.”
As a reminder this is a high level Financial Planning Education like overview starting with the basics of and we will continue into advanced topics in order of Planning Importance.
Retirement Planning
The most important parts of retirement planning are very easy and as follows:
Start Early
Save as much as you can especially when you are young as compounding is your friend, do not worry about the amount, just save!
Don’t overthink your investment options, just allocate as available and save save save…
Starting out with a healthy savings percentage of our earnings at an early age will lead to eventual maxing out of your retirement plans, forcing you happily into other savings vehicles thereby balancing your eventual portfolio with pre-tax retirement savings and after tax buckets of investments.
Continued high percentage earnings savings will also ultimately create the habits of not living on all that you are earning. This is especially important as we get closer to retirement and create just darn good habits.
There will likely be times in our lives when we may not be able to save as much on a percentage of our earnings as we would like, but constant top of mind savings habits will garner success in the long term, don’t let life’s curve balls distract your long term savings effort, you can do it!
Early savings should be very aggressive as the corpus of your savings are the actual savings component. All equity type of investments especially during the first 5-10 years are not out of the realm of possibilities, again your continued contributions dominate the investment during these early stages. As your retirement savings and for that matter other investments grow in size adjustments are necessary especially as we near retirement.
While there are talks of optimal retirement allocations, it’s not unusual to find inferior investment options in retirement accounts. Not to worry, don’t throw your employer or your plan under the bus … the most important item in your retirement savings program is the actual deferral of your hard earned work and the broad allocation! Be aggressive in the beginning and slowing down the allocation as it matures in size and our chapter nears retirement.
Weather 401, IRA, Sep- (Simplified Employee Pension), Roth.403b. 401A or any other retirement vehicle, the vehicle is not as important as participation!.
We will help you optimize from a tax standpoint which vehicle is best. and of course with the allocations as well!
Great News for corporate and similar retirement plans as we get a 5% (actually 5.13%) bump in contribution limits…yay
Not sure what happened to the cost of living adjustments (COLA) for regular IRA’s, Roth’s and our catch up provisions as they are stuck once again at the same levels? Maybe they are only going to increase them every four years which puts an increase next year? Maybe they (IRS) does not want to confuse us? Either way, here are the updated rules from the IRS latest release for year 2022 !
The following from this IRS.GOV announcement and hot links are live back to the IRS website if you have deeper questions on each subject!
Deferral limits for 401(k) plans
The limit on employee elective deferrals (for traditional and safe harbor plans)is:
$20,500 in 2022 ($19,500 in 2021 and 2020; and $19,000 in 2019), subject to cost-of-living adjustments
Catch-up contributions for those age 50 and over
If permitted by the 401(k) plan, participants age 50 or over at the end of the calendar year can also make catch-up contributions. You may contribute additional elective salary deferrals of:
$6,500 in 2022, 2021 and 2020 and $6,000 in 2019 – 2015 to traditional and safe harbor 401(k) plans
Deferral limits for IRA Roth
For 2022, 2021, 2020 and 2019, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:
Retirement plan at work: Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels.
No retirement plan at work: Your deduction is allowed in full if you (and your spouse, if you are married) aren’t covered by a retirement plan at work.
These charts show the income range in which your deduction may be disallowed if you or your spouse participates in a retirement plan at work:
With 2019 Taxes delayed filing to mid year this year 2020, it seems like tax season was a constant over the last 4-6 quarters. Add to that, there was a COLA (Cost of Living Adjustment) from 2019 to 2020 but not very many changes from this year, 2020 and next tax year 2021 and it seems like a puzzle.
Not to worry, here are the few changes from 2020 to 2021, again the most popular (bolded) by a long shot had very little adjustments
Note, there are limitations on certain deductions from above as well as income oriented phase outs, please check with your tax professional for your specific sitiation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
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January 2023 – YES Already One Month Down – Financial Planning and Capital Market Review – Roth Donation – Homestead – Contra Rally reminder – By John Kvale CFA, CFP
Hello and Welcome to our January 2023 … YEP 2023 !!! Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!
Newbies –
We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets thoughts and current events!
Hope you enjoy!
New Laptop – Looks Like the Old One – But not so much!
January 2023 Video – Note New Intro and Theme Music
YouTube
Financial Planning Tip(s)
Give a kid/Young Adult a Roth if they Meet the restrictions
By blending a couple of Tax laws and having at least $6500 in earnings, a young adult may be just the right recipient of a gift, but to a Roth Retirement plan rather than for spending….
Gifts up to $17k per person are free of gift/estate tax issues – blend that with at least the Roth amount of earnings and a donation directly to a Roth can be a super gift, all of which we discuss here in our January post!
Purchase a New Home last Year – Check that Homestead Exemption
In one of our annual reminders, in this post we once again remind those that purchase a new home last year, that if they are in the home as of January 1 in most/many cases, you may be eligible for a Homestead Deduction aka – Property tax savings….
We also updated a large but not complete slew of state related adjustments – thanks Wikipedia!
Capital Market Comments
Watch the Contra Rally – They can be very deceiving!
With a suddenly happy faced Capital Market, we remind ourselves and everyone else Contra Rallies can seem very soothing, but often times their main result is to have you let your guard down and draw one into a sudden overconfident situation… NO biting…
Have a Great Day, Talk to You at the End of February!
John A. Kvale CFA, CFP
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Posted in Audio, FOMC, General Financial Planning, Investing/Financial Planning, Market Comments, Monthly Review, Podcast, Retirement Planning, Video
Tagged Contra bounces, Contra Rally, Homestead, Homestead Property, John Kvale, Monthly Review, Roth, Roth Donation, Roth Gift