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Charitable Giving & Your Retirement Plan

Charitable Giving & Your Retirement Plan

The average individual spends less during their retirement due to a budget. The exception is giving to charitable causes. A study by the WPI (Women’s Philanthropy Institute) looked at how households in America spent money as they retired. The results revealed that both single women and married couples spent the same amount of donations on charities before and after they retired. The charitable giving of single men decreased once they retired. 
 
The report from the WPI also showed both married and single women have less confidence regarding their financial health upon retirement than men. Their focus is not on outliving their savings. This fear is justified as women live considerably longer than men. There are numerous ways for both women and men, married and single, to donate to charitable causes without being concerned about running out of money. Using savings meant for retirement to make donations is most likely to cause the individual to outlive their savings unless they use proper care. 
 
A much better way to use retirement savings is as a portfolio. This will generate a retirement income to last the life of the individual. One of the most important aspects of the retirement portfolio is the monthly retirement paychecks. These are guaranteed and will last for a lifetime. If the stock market crashes, this income will not decrease. These paychecks can then be supplemented with either yearly or monthly retirement bonuses. These may have fluctuations depending on the investment performance, but they will last for life. 
 
When the portfolio is properly in place, charitable giving can be funded with these bonuses and paychecks. It is important to allow for charitable giving as part of the budget in addition to the other living expenses. This will enable the individual to give to charities while ensuring the person will not outlive their savings. There is another excellent method for planning to increase the effectiveness of charitable giving. Many individuals have concerns that the recent changes made to the tax laws may decrease their income and impact their charitable giving. Also, there will be a significant decrease in the taxpayers itemizing their deductions. This makes it harder to use the taxable income to make donations. Any individual age 70 ½ or above has another option. A traditional IRA can be used for a qualified charitable distribution, which will not be included in the taxable income. The distribution will also apply towards the minimum required distribution. 
 
There is an annual limit of $100,000 for qualified charitable distributions. This cannot be funded from both 410 (k) plans and IRAs. If the 401 (k) plan contains substantial savings, these funds can be used for charitable giving by rolling over the savings into an IRA. The IRA platform must enable the individual to be able to write checks. 
 
The report from the WPI also revealed that married couples and single women have a higher likelihood of volunteering once they retire than single men. There is a lot of research showing volunteers enjoy financial security and health benefits while providing their communities with substantial contributions. The documentation for this research is located in the Hidden in Plain Sight report prepared by the Center on Longevity located at Stanford. Anyone not currently volunteering may want to give some thought to pursuing this activity once they have retired.
 
Planning for both volunteering and charitable giving may be important when determining retirement planning. This will not only enable the individual to give something back to their community, it often increases the enjoyment of life. 
 

Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.

Grand Rapids Office
Okemos Office
Avoid Tapping Retirement Savings This Holiday Season

Avoid Tapping Retirement Savings This Holiday Season

If you are like many people, you may easily spend hundreds of dollars or more on holiday gifts and related holiday purchases each year. Some sources (For example, Forbes)indicate that consumers may spend more money over the holiday season this year than they have in previous years. The cost of gifts is only one seasonable expense. For example, you may have plans to host a party, travel or decorate the house elaborately. When you are preparing to spend a large sum of money within a short period, financial planning is necessary. Some people may be thinking about taking money out of a retirement account to cover seasonal expenses, but this is not advisable for many reasons. 
 
The Tax Penalties
When you take money out of your retirement account before the withdrawal date, you face the expensive prospect of having to pay an early withdrawal penalty. More than that, if you are taking money out of an account that used pre-taxed funds, you will also need to pay taxes on the amount of money that you withdraw. In some cases, this extra income that you are taxed on will bump you into a higher tax bracket. This can magnify the impact on your tax liability for the year. As you can see, it can be very expensive to pay for your expenses during the holidays through this type of funding.
 
The Impact on Your Financial Future
The impact on your finances is more far-reaching than simply having to pay a higher income tax bill. When you take money out of an account that was earmarked for the later years in life, you are decreasing the amount of money that you will have access to at that point. More than that, you miss out on the benefits of compounded interest, dividend reinvestment and other methods for growing your money exponentially over time. The impact on your financial security can be stunning. Because of these factors and the expected tax penalties, the actual cost associated with an early withdrawal may be much more substantial than what you may think. 
 
A Better Solution for Shopping During the Holidays
Planning is vital to avoid taking money out of a retirement account in order to pay for holiday gifts, décor, travel plans and more. One idea is to begin setting aside money or even shopping for gifts several months ahead of time. By doing so, you are spreading out this expense over several months rather than several weeks. Layaway is available at some stores as well. You can also consider using credit cards or even different types of loans to pay for the expenses. Loans and credit cards do have fees associated with them, but you may discover that these are more affordable options to consider than dipping into your 401k or IRA. Remember that you can always downsize your holiday experience or buy more affordable gifts if you lack the funds necessary to pay for everything without reaching for your IRA or 401k.
 
Paying for gifts, travel, and more this season can be burdensome to your budget, and you need to approach this season with a solid financial plan. Rather than dip into a chunk of money that you have earmarked for your senior years, develop a better plan that may be more affordable for you over the long run. Before you start shopping and decorating your home, create a budget to know exactly how much money you will need. Then, create a feasible plan to pay for these expenses with ease.
 

Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.

Grand Rapids Office
Okemos Office
Tax Time Guide. IRS has made some changes!

Tax Time Guide. IRS has made some changes!

Internal Revenue Service has come with an initiative to assist elderly taxpayers. Tax Counseling for the Elderly (TCE) would feature individuals of 60 years and above only. There have been Cooperative agreements between IRS and relevant organizations that would work annually during the taxation period for the initiative’s success. Some community partners taking part include non-profit agencies, faith-based organizations, community centers and large employers. This in-place training, which provides free tax help will be initiated for low-income individuals who need assistance filing their tax returns.
 
IRS provides funds for organizations to compensate volunteers for some of their out-of-pocket expenses, including transport, meals and other expenses incurred during tax counseling assistance. From January 1st to April 15th of each taxpaying year, tax return preparation for the elderly will be conducted effectively. This, however, comes with maximum practice all year round with program activities that will ensure all the individuals to be sorted for the Federal Income Tax returns’ year.
 
On October 12th, 2021, the IRS awarded $41 million for the TCE and Volunteer Income Tax Assistance (VITA) grants to organizations providing free federal tax returns. With over 379 applicants requesting over $70 million for the initiative, IRS awarded grants to 34 TCE and 300 VITA applicants this year. Visit TCE Webpage or VITA Webpage to apply for the programs or go to IRS Tax Volunteers to view details on becoming TCE or VITA volunteer.
 
IRS has been the leading organization in offering tax returns services for our clients, thanks to the Comprehensive Customer Service Strategy (Section 1101) that guides our strategies to provide the best services. The act dictates that IRS should offer an in-depth system for customer service and submit the plan to Congress. Together with the program, updated guidance and training materials should be available to the public. The plan for action practices for customer services in the private sector should include online services, telephone call back and employee training.
 
The strategy’s main objective is to provide a dynamic, timely, logical, customized, and effective interaction with taxpayers. This is motivated by six long-term goals that come with the redefined taxpayers’ experience that should be achieved by the next ten years. The pillars include:
  1. Expanded Digital Services
The plan is set to modernize IRS Information Technology and provide an improved experience through digital channels. We will build on existing online accounts and create accounts for tax professionals and business taxpayers for an easier and more effective taxing process.
  1. Smooth Experience
Taxpayers will be automatically led to relevant resources to help them sort out issues. This is through a centralized point on the system that would create reports to make more informed decisions.
  1. Educate
IRS is willing to educate taxpayers on the importance of all services offered. This will be spread to other individuals who are not yet set in the system by providing proactive information on taxpayers’ needs and preferences.
  1. Community of Partners
In the ten years, IRS is set to bring together different firms and relevant organizations all around the globe, including the whole tax ecosystem, for a more significant impact.
  1. We are reaching out to underserved communities
An integrated system is to be brought up to account for inadequately served communities around the globe that have been left out of many privileges. It focuses on addressing common issues, Education, Communication, Clarity and limited access to products and services.
  1. Enterprise Data Management and Advanced Analytics.
IRS aims to manage its data securely and get the organization on board and propagate the data from various sources. This comes from a cross-enterprise understanding of customer’s experience, transpiring needs and expectations and operational data.
 
IRS went ahead and supported individuals during the Coronavirus pandemic. They did this by offering tax help, including health plans for individuals, families, businesses, tax-exempt organizations, and others who are financially affected by the crisis.
 
 

Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.

Grand Rapids Office
Okemos Office
Are There Tax Breaks for Different Generations?

Are There Tax Breaks for Different Generations?

Getting older has its nuisances as your health starts to decline, eyesight and hearing can deteriorate, you start having aches and pains in unexpected body parts. However, it does have its perks. Some of those benefits are in the form of tax breaks that come as you get older.
 
Seniors have a larger tax deduction.
If you are over 65, you get a $1,550 higher standard deduction than someone younger. Furthermore, if your total income as an individual is less than $25,000, you do not pay any taxes on your Social Security. While above that, you start paying income taxes on half of your Social Security above $34,000, you still have 15% that remains untaxed. Even this is a nice little tax break over someone younger. The effect is that seniors pay less in income taxes per dollar of income.
 
Seniors can deduct medical expenses at a lower percentage.
If you are under the age of 65, you can only deduct medical expenses that exceed 10% of your income. However, when you reach age 65, that figure goes down to 7.5% of your income. What makes this a particularly good deal for seniors is the fact that your medical expenses also tend to increase when you get over age 65. This makes this a double tax break because the non-deductible percentage decreases when your expenses increase.
 
Seniors can earn more without filing taxes.
Another tax break for seniors is that an individual over 65 can earn $1,550 more than a younger person before they even have to file taxes. This means that you do not need to take the time or expense to file an income tax return unless you make more than $11,850 as an individual senior or $23,100 as a couple. While you still must file an income tax if you make more, this is still a significant benefit for most seniors.
 
Those 50 and older contribute more to retirement plans
If you are over 50, you can contribute $6,000 more to a 401(k) plan that is tax-deferred. Now, you do have to pay income taxes on what you withdraw, but deferment does give you a larger account to withdraw from. Consequently, if you are over the age of 50, you can contribute more to your retirement without paying taxes on it as you do so. This is a major tax break because it allows your account to grow even bigger than it would if you had to pay those taxes.
 
No more early withdrawal penalty at age fifty-nine and a half.
Once you reach fifty-nine and a half, you no longer have to pay the 10% penalty for early withdrawal. You can also avoid this penalty at age 55 on a 401(k) associated with a job that you just left. This is a significant tax break if you need the money at this time. You will have to pay income tax on any money you withdraw, but not having to pay the penalty can make a real difference. It is extra money that you do not have to withdraw from your account.
 
So yes, there are tax breaks for different generations. This is because as you get older your situation changes. Your income changes, your opportunity for income changes, your sources of income change. As a result, there are going to be tax benefits you get at some ages that you do not get at others. If you are younger, remember that most seniors do not get a mortgage deduction or the opportunity to deduct children. So, in general, various ages will get tax breaks that other age groups do not.
 

Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.

Grand Rapids Office
Okemos Office
Budget for Retirement Travel

Budget for Retirement Travel

For many people, the dream of traveling in retirement is strong. You may want to plan trips to see your adult kids and grandkids a few times per year, and likewise, you may have bucket list trips in mind. Because you do not have a job to rush back home to, retirement is an excellent time of life to travel more. However, many people do not properly budget for their trips. This inevitably means that trips simply do not happen or that financial stress makes them less enjoyable. Learning how to budget properly for your trips is essential if you want to enjoy them fully.
 
Add Traveling Expenses to Your Budget
The first step to take when planning for trips is to properly fund them. One of the easiest ways to accomplish this is to incorporate traveling expenses into your regular budget. Many retirees create an annual budget, and they break this down into a monthly budget. Even when retirees incorporate a line for traveling expenses into their budget, they often fail to allocate enough money for these experiences. Depending on your plans for various trips, a single trip may easily cost you several thousand dollars or more. If you plan to travel at least a few times per year, your budget will need to be adjusted accordingly. 
 
Prioritize Your Trips
If you are like most retirees, you may have a lengthy list of desirable amazing destinations. However, you may only be able to visit a few of these destinations each year. Prioritize the trips that you wish to take so that you can cross those off of your list first. Remember to factor in costs for your trips to visit family with your recreational trips. Determine which trips that you want or need to take each year. This is essential if you want to properly allocate funds in your budget for all of your planned trips.
 
Research Expenses
The expenses for each of your planned trips will vary substantially. For example, you may have plans to drive to a few national parks and to take a trip to Europe a few months later. The Europe trip will be much more expensive. With both types of trips, you need to essentially create a detailed itinerary. Research accurate costs for each aspect of your trip to set a realistic budget. Remember to factor funds for food and gas. 
 
Look for Savings
Seniors often qualify for special savings at restaurants, theaters, stores, hotels and more. When you begin planning each of your trips seriously, spend time analyzing all discounts available. Look for alternatives, such as staying at a different hotel that may offer a senior discount. Take advantage of senior discounts, but be aware that other discounts and savings may also be available. For example, you can travel during a non-peak season to save a substantial amount of money. You can buy plane tickets on non-peak days or in the very early or late hours of the day. These are only some of the many ways that you can potentially save hundreds or thousands of dollars on your trips.
 
Traveling may be one of your primary goals in retirement, but your dreams of taking amazing trips will not happen if you do not have money available. As you can see, you will need to budget properly for them in various ways have funds available for your trips. You can get started today by adjusting your budget and researching desirable destinations that you want to visit within the next year. By doing this, you can get the wheels in motion for taking exciting trips to amazing locations.

 

Does your plan meet all your retirement needs? Schedule an appointment now with one of our advisors for a complimentary review of your retirement plan.

Grand Rapids Office
Okemos Office