If you’re getting ready to retire, you’ll soon experience changes in your lifestyle and income sources that may have numerous tax implications.

Here’s a brief rundown of four tax and financial issues you may contend with when you retire:

Taking required minimum distributions

These are the minimum amounts you must withdraw from your retirement accounts. You generally must start taking withdrawals from your IRA, SEP, SIMPLE and other retirement plan accounts when you reach age 73 if you were age 72 after December 31, 2022. If you reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025, for 2024. Roth IRAs don’t require withdrawals until after the death of the owner.

You can withdraw more than the minimum required amount. Your withdrawals will be included in your taxable income except for any part that was taxed before or that can be received tax-free (such as qualified distributions from Roth accounts).

Selling your principal residence

Many retirees want to downsize to smaller homes. If you’re one of them and you have a gain from the sale of your principal residence, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return, you may be able to exclude up to $500,000.

To claim the exclusion, you must meet certain requirements. During a five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.

If you’re thinking of selling your home, make sure you’ve identified all items that should be included in its basis, which can save you tax dollars.

Getting involved in new work activities

After retirement, many people continue to work as consultants or start new businesses. Here are some tax-related questions to ask if you’re launching a new venture:

• Should it be a sole proprietorship, S corporation, C corporation, partnership or limited liability company?
• Are you familiar with how to elect to amortize start-up expenditures and make payroll tax deposits?
• Can you claim home office deductions?
• How should you finance the business?

Taking Social Security benefits

If you continue to work, it may have an impact on your Social Security benefits. If you retire before reaching full Social Security retirement age (65 years of age for people born before 1938, rising to 67 years of age for people born after 1959) and the sum of your wages plus self-employment income is over the Social Security annual exempt amount ($21,240 for 2023), you must give back $1 of Social Security benefits for each $2 of excess earnings.

If you reach full retirement age this year, your benefits will be reduced $1 for every $3 you earn over a different annual limit ($56,520 in 2023) until the month you reach full retirement age. Then, your earnings will no longer affect the amount of your monthly benefits, no matter how much you earn.

You may also have to pay federal (and possibly state) tax on your Social Security benefits. Depending on how much income you have from other sources, you may have to report up to 85% of your benefits as income on your tax return and pay the resulting federal income tax.

Tax planning is still important

There are many decisions to make after you retire. Speak to your financial advisor to help maximize the tax breaks you’re entitled to.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

© 2023

Welcome to the world of personal finance – where everyone strives to make it big, and few actually do.

Why is it so hard to build wealth?

Well for starters, we humans are wired to make the wrong decisions when it comes to money. We are an emotional species, and when common sense comes into conflict with that, emotion usually wins.

For example, we have a tendency to buy high and sell low, which is the exact opposite of what we should be doing. As Mark Yusko famously said, “Investing is the only place where, when things go on sale, everyone runs out of the store.” And it’s true. When the stock market takes a dip, most people panic and sell their stocks, which is the worst thing they can do. Instead, they should be buying more stocks at lower prices.

In the race to build lasting wealth, being able to overcome our emotions and remain levelheaded is the single most important component. Morgan Housel, in his book, The Psychology of Money, puts it best: “Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.”

It’s not about how much you know about the economy, the stock market or investing. It’s about your ability to control your emotions and make rational decisions. The road to success begins by checking your biases at the entrance of the investing arena.

And let’s face it, checking our biases when it comes to money is no easy task. Money is tied to our sense of security, self-worth and even happiness. When we see our investments taking a hit, it’s hard not to panic. But this knee-jerk reaction (or lack thereof) is what separates successful investors from those who never make it.

So what’s the key to succeeding in personal finance?

First and foremost, you need to understand your own emotions and how they impact your financial decisions. That means taking the time to reflect on your own biases and tendencies and making a conscious effort to overcome them.

Secondly, you need to have a plan in place. That entails setting financial goals, creating a strategy and investing in a diversified portfolio. Having a plan will help you stay on track and make rational decisions, even when the market takes a dip.

Another reason why you should be working with an advisor. A skilled financial advisor will help you tailor a proper plan – and hold your feet to the fire so you stick to it no matter what. An advisor will reinforce your backbone and help you resist the urge to react in those temporarily comforting ways that may negatively impact your wealth goals. Financial advisors can be the voice of reason to help you steer clear of the latest “hot stock” or get-rich-quick scheme, and encourage your commitment to diversified investments for the long-term.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

The traditional corporate ladder is no longer.

It used to be that an employee’s career would be at a single firm. As an employee proved themselves, they gradually moved into a better office, gained more responsibilities and earned a bigger paycheck. The path was clear and often linear. While titles changed and responsibilities grew, employees would measure services to their company in decades. The pinnacle of professional achievement was the corner office situated neatly at the top of a clearly defined corporate ladder.

Today, significant employee turnover has become a byproduct of the modern career path. Most employees spend 3 or 4 years at an organization before moving on. Despite this, most companies still see employee turnover as a negative attribute. During interviewing and onboarding, there is an underlying assumption that the employee will stay with the employer indefinitely, even though the average tenure of a modern worker is about four years, according to the U.S. Department of Labor. When the employee does leave, the process feels awkward – with neither side acknowledged or prepared for the inevitable moment.

In today’s world, employers need to closely review the real value of employee retention. Here are some reasons why employers should rethink their focus on employee turnover:

1. Retention does not equal engagement. Companies that focus too much on retention often get stuck with people who show mediocre (or even low) performance and have minimal ambition. Employees who want challenging, engaging jobs leave quickly when they see average performance being rewarded.
2. Lengthy employee tenures can be counterproductive. After a certain point, unless the employee has moved up in an organization, the longer an employee stays, the more likely they are to be unproductive, unengaged and unfulfilled. Businesses with a high percentage of long-tenured employees are less likely to be exposed to innovative ideas from new employees coming from other companies and industries.
3. Turnover is out of your hands. Employees leave companies all the time to pursue completely different career tracks and personal goals. No matter what you do or offer, employees may leave.

Some employers have embraced the notion of intentional attrition, often known as an “up-and-out” system. For example, at companies like McKinsey & Co., attrition isn’t negative. It’s normal. Employees know at the beginning of their time with McKinsey that they might not progress upward. With only a few senior positions available, McKinsey team members are encouraged to leave after a finite amount of time.

Like with any organizational change, it takes time and effort to push through the setback of losing great people. In the modern business world, the majority of employees are going to resign from their job at some point, but if you can create a culture that doesn’t penalize workers who resign, you can create an organization where highly successful people will want to work and grow. According to Bryan Adams, CEO and founder of Ph.Creative, here are several steps to consider:

1. Acknowledge that this isn’t forever from the beginning. Be honest from the start and acknowledge that your company may be a “stepping stone” to help your employees gain the experience and skills to find better opportunities elsewhere in the future. In return, expect exceptional performance from your employees and for them to be honest once they are ready to move on.
2. Focus on promoting internal candidates and boomerang employees. Some of your employees will want to stay at your organization for more than two or three years. However, they won’t stick around if you can’t offer them mobility. Be sure to show that you’re serious about recognizing impressive work by promoting from within whenever possible or rehiring former employees who have upped their skills and credentials.
3. Engage your alumni. Many people leave their jobs only to be replaced and forgotten by their former bosses. Another example from McKinsey, though, is that the firm proudly publishes articles on alumni and even offers alumni special recognition in the company. Consider putting together a program that encourages former employees to stay in touch and share news and events.
4. How you offboard people is key. Bid a positive farewell, celebrate their future successes and opportunities, and be grateful for their specific contributions. Keeping in touch and celebrating personal wins — and maybe even reaching out to feature or profile alumni as they move through their careers — encourages people to fondly remember their time at your company.

Rather than fighting to hold onto employees, companies are better positioned for success if they develop a culture that benefits from a healthy influx of people, ideas and practices. Employers must develop strategies that promote employee engagement, career development and succession planning to bring out the most appreciation and value from their employees. Employers who are willing to embrace this model of work – where employees give organizations 100% when they are there, and readily transfer knowledge to the next generation when they move up or on – will provide a significant competitive advantage.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

With concerns about inflation in the news for months now, most business owners are keeping a close eye on costs. Although it can be difficult to control costs related to mission-critical functions such as overhead and materials, you might find some budge room in employee benefits.

Many companies have lowered their benefits costs by offering a high-deductible health plan (HDHP) coupled with a Health Savings Account (HSA). Of course, some employees might not react positively to a health plan that starts with the phrase “high-deductible.” So, if you decide to offer an HSA, you’ll want to devise a strategy for championing the plan’s advantages.

The Basics

An HSA is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses. As mentioned, to provide these benefits, an HSA must be coupled with an HDHP. For 2023, an HDHP is defined as a plan with a minimum deductible of $1,500 ($3,000 for family coverage) and maximum out-of-pocket expenses of $7,500 ($15,000 for family coverage).

In 2023, the annual contribution limit for HSAs is $3,850 for individuals with self-only coverage and $7,750 for individuals with family coverage. If you’re 55 or older, you can add another $1,000. Both the business and the participant can make contributions. However, the limit is a combined one, not per-payer. So if your company contributed $4,000 to an employee’s family-coverage account, that participant could contribute only $3,750.

Another requirement for HSA contributions is that an account holder can’t be enrolled in Medicare or covered by any non-HDHP insurance (such as a spouse’s plan). Once someone enrolls in Medicare, the person becomes ineligible to contribute to an HSA — though the account holder can still withdraw funds from an existing HSA to pay for qualified expenses, which expand starting at age 65.

3 Major Advantages

There are 3 major advantages to an HSA to clearly communicate to employees:

1. Lower Premiums

Some employees might scowl at having a high deductible, but you may be able to turn that frown upside down by informing them that HDHP premiums — that is, the monthly cost to retain coverage — tend to be substantially lower than those of other plan types.

2. Tax Advantages x3

An HSA presents a “triple threat” to an account holder’s tax liability. First, contributions are made pretax, which lowers one’s taxable income. Second, funds in the account grow tax-free. And third, distributions are tax-free as long as the withdrawals are used for eligible expenses.

3. Retirement and Estate Planning Pluses

There’s no “use it or lose it” clause with an HSA; participants own their accounts. Funds may be carried over year to year — continuing to grow tax-deferred indefinitely. Upon turning age 65, account holders can withdraw funds penalty-free for any purpose, though funds that aren’t used for qualified medical expenses are taxable.

An HSA can even be included in an account holder’s estate plan. However, the tax implications of inheriting an HSA differ significantly depending on the recipient, so it’s important to carefully consider beneficiary designation.

Explain the Upsides

Indeed, an HDHP+HSA pairing can be a win-win for your business and its employees. While participants are enjoying the advantages noted above, you’ll appreciate lower payroll costs, a federal tax deduction and reduced administrative burden. Just be prepared to explain the upsides.

© 2023

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

A common question for people planning their estates or inheriting property is: For tax purposes, what’s the “cost” (or “basis”) an individual gets in inherited property? This is an important area and is too often overlooked when families start to put their affairs in order.

Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property that’s equal to its date-of-death value. So, for example, if an individual bought shares in an oil stock in 1940 for $500 and it was worth $5 million at his death, the basis would be stepped up to $5 million for his heirs. That means all of that gain escapes income taxation forever.

The fair market value basis rules apply to inherited property that’s includible in the deceased individual’s gross estate, whether or not a federal estate tax return was filed, and those rules also apply to property inherited from foreign persons, who aren’t subject to U.S. estate tax. The rules apply to the inherited portion of property owned by the inheriting taxpayer jointly with the deceased, but not the portion of jointly held property that the inheriting taxpayer owned before his or her inheritance. The fair market value basis rules also don’t apply to reinvestments of estate assets by fiduciaries.

Lifetime Gifting

It is crucial to understand the fair market value basis rules so as to avoid paying more tax than legally required.

For example, in the above scenario, if the individual instead decided to make a gift of the stock during his lifetime (rather than passing it on when he died), the “step-up” in basis (from $500 to $5 million) would be lost. Property acquired by gift that has gone up in value is subject to the “carryover” basis rules. That means the person receiving the gift takes the same basis the donor had in it ($500 in this example), plus a portion of any gift tax the donor pays on the gift.

A “step-down” occurs if someone dies while owning property that has declined in value. In that case, the basis is lowered to the date-of-death value. Proper planning calls for seeking to avoid this loss of basis. Giving the property away before death won’t preserve the basis. This is because when property that has gone down in value is the subject of a gift, the person receiving the gift must take the date of gift value as his or her basis (for purposes of determining his or her loss on a later sale). Therefore, a good strategy for property that has declined in value is for the owner to sell it before death so he or she can enjoy the tax benefits of the loss.

These are the basic rules. Other rules and limits may apply. For example, in some cases, a deceased person’s executor may be able to make an alternate valuation election. And gifts made just before a person dies (sometimes called “death bed gifts”) may be included in the gross estate for tax purposes. Speak to your financial advisor for tax assistance when estate planning or after receiving an inheritance.

© 2023

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.