Diversified Asset Management, Inc. - 2018 3rd Quarter Newsletter
Newsletters
Dive into considerations regarding college funding, Stretch IRAs, Tax Credits, and Health Savings Accounts in this Month’s Newsletter.
Strategic Considerations In Funding College
Federal tax laws can help you fund a child or grandchild's college education in a variety of ways. Some key strategic considerations are outlined below:
529 gets broadened, the pro and con. Named after a section of the tax code, 529 college savings plans have been a revolutionary tool in the struggle to pay for higher education, which for decades has risen in cost much faster than the U.S. rate of inflation. 529s enable you to contribute an unlimited amount of after-tax dollars. 529s grow tax-free and withdrawals are also tax free, if used to pay for books, tuition, room and board. The Tax Cuts and Jobs Act extended the 529's reach, so starting in 2018 you can use a 529 to pay for private pre-college education, K-12. Religious, military, gifted, and other specialized primary and high schools are, thus, more affordable.
Keep in mind, paying for a child's education earlier could hurt savings for college. College and graduate schools generally cost much more than K-12 at a private school college. College and graduate schools generally cost much more than K-12 at a private school.
Say Goodbye To Stretch IRAs And Get A New Plan
Bid adieu to stretch IRAs! A new tax law widely expected to become law by the end of 2019 will kill this strategy for passing on your IRAs to the next generation while minimizing the amount that goes to Uncle Sam. Adoption of the legislation is not sure, but it is highly likely, making it wise to plan now for the demise of the stretch technique.
If you previously planned to enable your IRA beneficiaries - this does not include your spouse - to inherit your IRA and stretch out distributions over their lifetime, your plan for minimizing the tax impact to your heirs is likely to become obsolete on January 1, 2020.
Sun Starts Setting On Solar Tax Credit From Uncle Sam
The sun is shining on the tax credit for solar power but this federal tax credit that lightens your tax burden significantly starts sunsetting in 2020.
The good news is that the cost of solar panels and equipment is dropping, down about 6.5% in 2018, and putting in solar panels can cut your utility bills by a lot. The bad news is the upfront cost isn't cheap - an average of $13,188 in 2018, according to EnergySage, a marketplace for solar equipment.
Luckily, federal tax credits can cut your cost. That $13,188 upfront cost is after taking the tax credit. Far more valuable than a deduction against your taxable income, a credit reduces your tax dollar for dollar. But you better hurry to beat the phase-out of the credits.
Sidestepping New Limits On Charitable Donations
If you think you're no longer allowed to deduct items like charitable donations on your income tax return, think again.
The new tax law doubled the standard deduction, slashing the number of Americans eligible to itemize deductions from 37 million to 16 million.
However, if you are among those who will lose your ability to deduct charitable donations, there is a simple strategy for managing the new limits on charitable giving, and it enables you to continue doing good while doing well for yourself by reducing your tax bill
HSA Or FSA: Which Is Better For Medical Savings?
Health insurance deductibles and co-payments, plus uncovered items like your child's braces, can put a dent on your bank account.
That's why flexible spending and health savings accounts, where you put money away tax-free to pay for out-of-pocket health-care expenses, generally are good ideas. What's better, the saved money from an FSA and an HSA lowers your reported taxable income, just like contributing to a retirement account.
Which is the best for you, though, an FSA or an HSA?
Give To Charity From An IRA To Lower Your Tax Bill
To keep your tax bill down, if you are over 701'2, consider a qualified charitable contribution, which makes donations of up to $100,000 from an Individual Retirement Account (IRA) to a fully deductible charity.
A qualified charitable distribution (QCD) lets you donate from a traditional or inherited IRA, provided you meet the age requirements.
A QCD can help you eliminate, or at least reduce, taxes owed on your required minimum distribution (RMD). That's the amount you are required to take out of your IRA account annually after turning 70.5.
Example: Your yearly RMD is $20,000, which counts as taxable income. But if you donate that amount to a charity, it's not counted as income, which may drop you into a lower tax bracket.
To read the newsletter click on the link below:
Diversified Asset Management, Inc. - 2019 3rd Quarter Newsletter
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.