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Tax Planning Is a Year Round Concern

 Tax Planning Is A Year Round Concern

 

Income tax planning is something you need to be aware of year-round and should continuously evaluate.  Although your tax returns are not due until April 15th each year, without extensions, it is important to make sure you are aware of your tax situation all year.  Decisions made over the course of the year that have a financial impact could hinder or improve your tax liability and a little extra work during the year can save you hours of review and alleviate your tax burden too.

When it comes to taxes, it is important to have the right financial team in place. You need to have your wealth management firm, CPA and other advisors on the same page working in your best interest. While you are in the process of, or shortly after, filing your most recent tax return there are several things you can review to make sure you are making the most tax efficient use of your investable assets.

One of the easiest ways for you to alleviate your income tax burden would be to take advantage of investment accounts that can provide a tax deduction. It is easy to see from your previous year’s W-2 how much you took advantage of your company’s retirement plan, be sure to read 2019 IRS Limits Affecting Qualified Plans and IRA’s for specific limits. It may make sense for you to consider increasing your contributions in order to lower your income tax liability and concurrently help you increase your retirement savings. Should your company not have a 401(k) or company retirement plan be sure to explore the possibility of using an IRA in a similar manner.

Utilizing different types of retirement savings vehicles would make sense too. It is important for you to understand that all of the money that is being saved on a tax-deferred basis towards retirement will be taxable in the future when you withdraw it. It may make sense for you to utilize a Roth 401(k) option, if available, or a Roth IRA which would enable access to funds in retirement that would not be taxable. By taking advantage of both forms of savings, it will allow you flexibility down the road to have more control over your income taxes.

In addition to retirement accounts, it is also important to have investment accounts that will allow you access to your money at any time without penalty, unlike most of the retirement accounts mentioned thus far. Investment accounts can generate different forms of taxable income, such as dividend income, short term capital gains and long-term capital gains, and you should have a basic understanding of what they are and how they work. Simple things like holding investments for at least 12 months and one day will turn a short term capital gain into a long one, which can mean a significant tax savings. Have you ever sold an investment only a few days prior to the one-year mark only to pay short term capital gains instead of long term, when there was no imminent need to sell? Mutual Funds should be reviewed carefully as they can produce taxable income and capital gains. It is especially important to know when mutual funds will be distributing their capital gains. We have seen clients purchase funds in early November, only to receive a significant capital gain distribution after only owning it for a few weeks. In these cases, it may make sense to wait to make the purchase or purchase an equivalent investment that has no distribution scheduled.

You will also want to make sure that you have the right investments in the right accounts. It would be ideal for you to place investments that would have the highest tax implications in your tax deferred accounts. Simply placing the highest income producing investments or those you plan to hold short term in the most ideal accounts could save you quite a bit in taxes. When making investments, it is best to place them in the type of account that will help your tax situation based upon their propensity to produce taxable income.

Lastly, you should be reviewing your accounts on an annual basis, around November, to see if there are any opportunities to harvest tax losses. As the end of the year approaches it is important to see if there are ways to mitigate your income tax liability for the year. We know most people do not necessarily like taking losses, but many times it will make sense to take the loss and reduce your tax liability. Should you feel really convicted about the holding, you can always double up the position thirty plus days before the end of the year and on day thirty one sell the initial lot for the loss. This will provide you the opportunity to capture the loss and still own the position, while participating in the upside potential of the holding.

This type of planning is how we assist our clients regularly. In many cases we will coordinate with their CPA to make sure everyone is on the same page and the portfolio changes will indeed be of help to the client. Having an open dialogue between your financial team is important to make sure everything is being done to put you in the best position possible.

Please feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know has encountered tax issues with regards to their investments or simply does not feel their CPA and advisor are on the same page. We look forward to helping you, and them, make the decision that is best for all.

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Mitlin Financial Nominated for Long Island Business News Reader Rankings as "Best Wealth Advisers"

 Mitlin Financial, Inc. is please to annouce that it has been nominated for the Long Island Business News Reader Rankings as "Best Wealth Advisers" for their 2019 Reader Ranking Awards.  We would really appreciate your vote and hope you can take the few seconds out of your day.

We do not take nominations like this lightly and really appreciate your support.  You can vote simply by clicking this link: https://mitlin.us/VoteMitlinLIBN or by clicking the photo below.  You can also have the opportunity to win $250 from Long Island Business News. 

 

LIBN Reader Rankings

 

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.  Mitlin Financial, Inc. did not pay a fee to be considered for this award, nor will it win any form of compensation if they win.

To Rollover or Not Rollover, That is The Question

To Rollover or Not Rollover That Is The Question

 

There are many decisions that need to be made when changing employers or retiring. One of the key decisions that you may need to make is whether or not to rollover your retirement plan, 401(k), from the previous employer. As mentioned in Top Five Things to Review Before Changing Jobs, you have several options when separating from service and it is important to do a careful review upon your departure.

Depending on your account balance you may not have any choice and may be required to take a distribution. It is important that you read your company’s summary plan description to see if there is a minimum level, such as $5000, where they force you to take a distribution. It is common for companies to impose this minimum so they are not burdened with maintaining what is needed for many smaller accounts for employees that are no longer with the company. When faced with this distribution, you will have the option to roll over the assets to your own IRA, your new employer’s 401(k) or simply have a check cut to you. Be aware of the tax consequences of simply taking the check. The options and consequences are very similar to those that are not forced to rollover, so keep reading.

Assuming that you are not going to be forced to take a distribution, you will be presented with several options for your 401(k) assets and we will discuss each of them here:

  • You will be able to maintain your 401(k) account with the current provider at your previous employer. This would not require any changes and your account would continue to be managed as it was previously, by you. The main difference would be that you would no longer have any contributions being deposited into the account.
  • Rolling over your 401(k) to a current (or newly opened) Individual Retirement Account or IRA. This would be a non-taxable event as long as you perform the movement of monies as a direct rollover. This would then allow you to take over management of the assets or hire a wealth management firm or advisor to assist you with investing these funds. You would not be limited to the investment menu presented by your previous company and now would have the ability to invest the funds however you see fit.
  • Another option you may have, depending on the plan provisions for your new employer, would be to roll the assets over into your new employer’s retirement plan. Like rolling it over to your own IRA, this would be a non-taxable event if you handle it as a direct rollover. You would still be in a position to manage these assets on your own and would be limited to whatever investments the new employer offers in their plan.
  • The last option you would have is taking a distribution. This would be a taxable event and depending on the size of the 401(k) could cost you a considerable amount in taxes. A distribution or withdrawal would be taxable as ordinary income in the year you take the distribution. When taking this type of withdrawal there is a 20% mandatory federal tax withholding by the plan. This is used to offset your tax liability for the year. Essentially, if your 401(k) at the time of distribution is worth $100,000 you would only receive a check in the amount of $80,000. The $20,000 would be sent in as a Federal tax withholding to offset your liability for the year. Keep in mind, this does not mean that this is all the tax you owe. Depending on your tax bracket for that given year, you may owe more or you may end up getting a refund because you withheld too much over the course of the year. Before exercising this option it is very important to consult with your tax advisor to make certain there are not any unintended consequences down the road.

The choices here are not easy ones to make and should be considered very carefully. It is important to speak with a fiduciary advisor that can outline and walk you through the pros and cons of each option. As an example, one of the tremendous benefits of rolling the assets into your own IRA would be the freedom and flexibility of the investments you can choose. In addition, it would provide you with the ability to have an advisor assist you with the investments as well. These two benefits may come with a cost and it is important to understand what the cost/benefit is of making this transition. You want to make sure that you are making a change for the right reasons and the decision will ultimately benefit you and your family in the end.

This decision making process is something we have walked many clients through before and we are confident we can help you as well. Please feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know has changed jobs recently, plans to change jobs, retire or simply has a 401(k) plan with a previous employer. We look forward to helping you, and them, make the decision that is best for all.

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Top Five Things to Review Before Changing Jobs

Top Five Things to Review Before Changing Jobs

 

The days of working for a company for 40 plus years, being handed a gold watch for your tenure, and collecting a pension for the remainder of your life is long gone. It is more likely that today’s workers will hold ten to fifteen jobs, spending less than five years at each employer according to a recent report from the Bureau of Labor Statistics. In addition to the stress and anxiety associated with finding a new job, there are important financial aspects that should be reviewed with each change. 

  • Do you have a financial plan in place? It would make sense that you should have a financial plan in place, especially if you are looking to make a job change. Using the plan, you could easily determine how the employment change will ultimately affect your financial situation-whether positive or negative. Although you may not be changing jobs for financial reasons, it would be a good idea to know going in what the effects will be. 
  • How are you protecting yourself, and your family, from death or disability? You need to evaluate how you are covered for life and disability insurance. Often times we see younger employees, even older ones, only having group coverage through their employer. Many times this coverage is not portable and cannot come with you when you separate from service. It is a good idea to research if your new employer has these coverages available for you. Whether they make it available or not, it may make sense for you to explore obtaining your own individual coverage that is yours to have regardless of your employer. This is especially worthwhile if you plan on having the number of employers mentioned in the report above. 
  • What are you going to do with your retirement monies at your previous employer? It would not make too much sense to have ten to fifteen different retirement accounts when you finally look to retire. You may create a job just to keep track of where all your assets are, how they are invested and how they are performing. Upon leaving an employer, you usually have the ability to maintain the account where it is, unless you do not satisfy certain minimums and they force you to move it or roll it over. Typically you would want to roll these assets over and that can be done by rolling them into your new employer’s retirement plan, if the plan provisions allow, or into your own IRA. There are several things to consider when trying to determine which method to use when rolling over your assets. We will review this particular topic in a future post, as this is a topic of its own. 
  • Are you contributing to your 401(k) and changing jobs mid-year? It is important to note that there is a maximum, for 2019 it is $19,000 for those under 50 years of age and $25,000 for those over, that you can contribute to your 401(k) on an annual basis. You will want to make sure that you do not violate these thresholds if you contribute to both the old and new employers’ retirement plan. This amount is not a maximum per employer, but actually a maximum on the amount you can defer annually from your earnings. Putting too much in over the course of the year will give you extra work to unwind what was done and remove the excess amount. 
  • Are you in the process of looking for a new home and would need a mortgage to purchase it? Looking for a new home is a great experience and also a stressful one. Buying a new home ranks up there with looking for a new job, so you may not want to try doing both of these at the same time. In addition to saving yourself stress, you may not want to do both of these at the same time due to your need of a mortgage. It will be important that the mortgage company see stability in your work history and they certainly will want to make sure you are with your employer for a specific period of time. The time period they are looking for will be dependent upon the type of loan you would be looking to secure. It would be wise to consult with a mortgage consultant prior to making any job changes while in the home buying process. You certainly will want to make sure you are with your employer when you are about to close because the mortgage company will call them around the closing to verify you are still employed. You will not want to risk your home purchase over a job change, so it is important that you research this in advance. 

Changing jobs brings a certain level of stress with it and there are certainly ways to mitigate it. Ideally you would want to have a financial plan in place, in advance of any change, and this will put you ahead of your fellow job changers. The advisor who helped you develop the plan will be in the unique position to walk you through these top five things you should review, as well as others not mentioned here. Having the right advisor on your side, that is a good fit, will alleviate much stress and make the transition go much smoother.

We have helped many clients through this process and would welcome the opportunity to help you or someone you know. Please feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know has plans of changing jobs in the foreseeable future or they simply want to put a plan in place. We look forward to helping you, and them, make this a smooth transition.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Are Your Adult Children Still On Your Payroll?

Are Your Children Still On Your Payroll

There has been a tremendous spike in financial support given by families to their adult children in the last twenty years. This can come in the form of a place to live, paying expenses like cell phone bills and care insurance and even paying off debt. We all want the best for our children, but at the same time this may present a tremendous burden to the parents if they do not have enough income or assets to continue this level of support.

The days of children leaving the home and being responsible for their own personal and financial wellbeing seems to have gone the way of the rotary phone. According to the U.S Census Bureau, 34.1 percent of people aged 18-34 lived under their parents roof in 2015. This is up from 26% in 2005. An astounding 25% of young people living in their parents’ home do not work or go to school. These are staggering statistics and yet another contributing factor to people working longer. The financial dependence of their children are draining resources that otherwise would have been available for their own retirement.

It is important for our kids to be prepared to take on the world and be financially prepared for it. Financial education is a key to their success and the earlier you begin the better. I remember when my kids were young we wanted to teach them about money. One of the best tools we used to help educate the kids was a piggy bank, but not your ordinary piggy bank. The bank we provided to our kids had three slots, instead of one. There were slots for savings, spending, and charity and when they would receive money they would portion out the funds to each of these areas. It created a great opportunity to discuss the concepts of needs, wants and helping others. Educational ideas like this will stay with a child for a long time. We find that many financial habits of adults come from what they learned as children and how they observed their parents with money.

The help provided to adult children come at a price, far more than the dollars you spend on their behalf, and have the potential to put them in a bad financial position for much of their adult life. What happens when you are no longer here? How will they be able to support themselves? Take a look at your household bills and see what type of support you are currently lending to your child. Sit down and provide them with a list of the current expenses you are paying and develop a game plan to shift those expenses from you to them. In addition, this will offer an opportunity to work to educate them about the importance of long term financial stability and independence for themselves. You will see that this is a gift that will help them immensely in their life going forward.

Helping your children become and remain financially independent will not only be a gift to them, but you as well. It will put you in a better position for retirement, remove worry and stress from your life and most likely help your marriage, if you are married. We find that usually when a child is being support by their parents one spouse is typically in favor, and the other not, of helping them out financially leading to stress in the relationship.   I think financial independence is summed up best by this proverb, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”. Provide your child with support, and you help them now. Teach your child how to handle money, and you help them for a lifetime.

We would welcome the opportunity to help you get your children on the road to financial independence. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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