When it Comes to Taxes, Plan for Your Future Self

future self

Retirement is a major event that can drastically change your day-to-day life, your financial strategies, and even your tax burden. Retirees may no longer receive taxable income from an employer, but they will likely receive income from other sources that can be taxed. This is why when it comes to taxes, it’s important to help plan for your future self.

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3 Things to Do if the Stretch IRA Dies

three things

The House of Representatives voted in favor of the Secure Act 417-3, and the bill is now on a fast track to vote in the Senate. The bill would do away with the tax-planning strategy for inherited IRA commonly referred to as the “stretch IRA.” “Stretching” an IRA allows beneficiaries to take required minimum distributions (RMDs) from an inherited IRA based on their own, longer life expectancies. The Secure Act proposes that beneficiaries must deplete inherited IRAs within 10 years of the original owner’s death. This could cause a bigger tax burden on beneficiaries and cause them to lose the advantage of continued tax-deferred growth. However, there will be exceptions to the proposed new rules, and alternatives to a stretch IRA.

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A Plan to Help Minimize Your Taxes in Retirement

A Plan to Help Minimize Your Taxes in Retirement

Your steady source of income might disappear in retirement, but unfortunately your taxes probably won’t. Did you know that up to 85% of your Social Security benefit could be taxed? And, retirement account distributions are taxed differently than investment income. If you’ll have multiple income sources, you should know how each is taxed so that you can best plan to minimize your taxes in retirement.

Social Security benefits

The federal government only taxes Social Security benefits if your income exceeds $25,000 as a single filer, or $32,000 when married filing jointly. 50% of your benefit is then taxable, and 85% is taxable if your income exceeds $34,000 as a single filer or $44,000 when married filing jointly. Your income is calculated by adding up half of your Social Security benefit and all other taxable income, and some tax-free income like municipal bond interest. The state of California does not impose an additional state tax on Social Security benefits.

Retirement Account Distributions

Distributions from traditional 401(k)s, IRAs, 403(b)s, 457s, and thrift savings plans are taxed as ordinary income, and factor into whether your Social Security benefit will be taxed. This is why if you have a retirement account you should be prepared for RMDs. Required Minimum Distributions from your traditional retirement accounts may push you into a higher tax bracket and or over the limit for Social Security benefit taxes. Unlike distributions from traditional retirement accounts, distributions from Roth accounts are not taxed.


Just like before retirement, you’ll be taxed on your interest income, dividends, and capital gains. Most interest is taxed as ordinary income, except for government issued bonds. Investments held for under a year are taxed at regular tax rates, but investments held for over a year are taxed a preferential rates, and are not taxed if your income as a couple is under $78,750 or under $39,375 as single filer.

But, some sources of cash flow are not counted as taxable income: If your bank CD matures in the amount of $5,000, only the interest earned is taxed, not the whole $5,000. If you sell your home in retirement and lived there for at least two years, you likely won’t have to pay tax on gains from the sale less than $250,000 for single filers, or $500,000 for those married filing jointly.

Taxes can constitute our largest expense in retirement. That’s why we believe tax minimization strategies are an important part of a comprehensive retirement plan at Peak Financial Freedom Group. If you’re interested in learning how you could minimize taxes on all your sources of income in retirement, click here to schedule a complimentary review.

Do You Need to File a Tax Extension?

Do You Need to File a Tax Extension?

Doing your taxes might be complicated, but thankfully filing for an extension can help give you some more time to prepare. There are many decisions to be made when preparing your taxes, such as whether you should itemize or take the standard deduction, and finding out how new changes to the tax code affect you.

If you need more time to figure these things out, simply fill out an IRS Form 4868. This is the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, and you can submit it either in paper form, online, or through a tax software program. It’s free and most people who request an extension are granted one. If you’re granted an extension, the new deadline is October 15th. Americans living abroad automatically have a six month extension.

While it’s easy to get more time to file your taxes, this doesn’t mean you get more time to pay your taxes. You still have to estimate how much you owe in taxes, and pay that full amount by April 15th. April 15th is also the last day to contribute money to an IRA, so if you have an IRA don’t forget about this important deadline. If you don’t send a payment by April 15th, you could get hit with a penalty, even if you didn’t realize you owed the IRS money. For the 2018 tax year, if you fail to pay less than 80% of what you owe in taxes, you will owe an additional penalty of 5% of the amount you owe per year, compounded daily. You would normally incur the penalty if you failed to pay 90% of what you owe, but because of the changes to the tax code, the IRS is being more lenient for the 2018 tax year only.

Note that the penalty for failing to file your taxes is much more severe than the penalty for failing to pay. The penalty for failing to file or request an extension is 5% of the unpaid amount per month, up to 25%. So, even if you cannot pay your taxes by the deadline, you should definitely still file or file for an extension to avoid this steep penalty.

Doing your taxes can be stressful, and tax minimization strategies can be complicated. If you need more time to consult a professional as to what deductions you’re qualified to take, whether you should itemize or take the standard deduction, or how the changes to the tax code affect you, contact the professionals as Peak Financial Freedom Group. Click here to schedule your no cost, no obligation financial review.

Saving for Retirement While Reducing Your Taxes

Saving for Retirement While Reducing Your Taxes

This tax season will be the first time Americans are filing under the new tax code, adding complexity, and possibly stress, to the already complex and stressful filing process. But, like with most things in life, a little preparation goes a long way. As you prepare for retirement, you’ll want to think about ways to decrease your tax burden and save money for the future. Maxing out your retirement account contributions, saving in a Health Savings Account, and taking advantage of deductions are some ways to help lower your tax bill.

You can lower you tax bill and save for retirement by maxing out your traditional 401(k) or IRA. The 401(k) contribution limit was raised to $18,500 for 2018, and to $19,000 for 2019. Those over 50 can contribute an additional $6,000. The limit for combined employer and employee contribution is $55,000. You can contribute up to $5,500 to an IRA for 2018, and up to $6,000 for 2019. Those over 50 can contribute an additional $1,000. If you haven’t maxed out your contribution yet, you can still do so by April 15th. So, if you have an IRA don’t forget about this important deadline.

You can use a Health Savings Account to help you save for the rising cost of healthcare in retirement, and there are benefits to pairing your IRA with a Health Savings Account. Your money is not taxed when it goes into or comes out of a Health Savings Account if you withdraw it to pay for qualified medical expenses not covered by insurance. You can let the funds grow in the account tax-free for as long as you want. If you wait until you are 65, you can spend the funds on anything you want without incurring a 10% penalty normally incurred for spending on something other than a qualified medical expense.

If you’re nearing the age where you’re thinking of selling your home, you know what a valuable asset it is. There are a few ways to use your home to decrease your tax burden: You can take a standard deduction for home-business expenses instead of calculating each individual expense. You can take a $5 deduction for every square foot of office space, up to 300 square feet. If you installed alternative energy equipment such as solar panels, geothermal pumps, and wind turbines on your property, you can take a tax credit worth 30% of what you spent on the equipment and installation.

At Peak Financial Freedom Group, we understand the value of the money you’ve worked so hard to earn. Let us help you create a comprehensive retirement plan that makes saving for retirement easier by taking your tax burden into account. Click here to schedule your no cost, no obligation financial review.

Did You Make a Qualified Charitable Distribution this Year?

Did You Make a Qualified Charitable Distribution this Year?

Did you make an IRA charitable distribution this year? If so, you’ll want to report it on your tax return. Charitable contributions are a great way to reduce your taxable income and build your legacy. Do you have a retirement account? Be prepared for your RMDs! After you turn 70 ½, you must take required minimum distribution (RMDs) from your traditional IRA, and you can transfer up to $100,000 per year to charity tax free to count towards your RMD. This is called a qualified charitable distribution (QCD), and there are a few things to know about the process of reporting it during tax time.

You must make a QCD by December 31st, which is also the deadline for RMDs, unless it is your first time taking one. The money must be transferred directly from an IRA to the charity, and the charity must cash the check before the end of year. This way, the contribution can be excluded from the adjusted gross income (AGI) whether you are itemizing or taking the standard deduction. Excluding the charitable contribution from your AGI allows more AGI-based tax benefits, resulting in lower taxes. Now that the standard deduction has increased to $24,000 for couples and $12,000 for individual filers, QCDs can especially help lower retirees’ tax burdens. The limit is $100,000 per person, so you and your spouse can each contribute that amount from both of your accounts.

Your IRA administrator doesn’t specify whether your contribution was a withdrawal or a tax-free transfer to a charity on your 1099-R. So, when you file your Form 1040, you report the total distribution amount, then the amount of that you kept, and then enter “QCD” to indicate the remainder, which is your charitable contribution. Also, keep a record from the charity documenting your contribution. Before contributing to a charity, make sure it is eligible to receive a QCD, meaning it is a 501(c)(3) charity and not a Donor Advised Fund or private foundation.

Qualified charitable distributions can be a good way to make the most of your RMDs. It’s important to follow proper procedures when making a QCD, and understand how it works to decrease your tax burden in retirement under the new tax code. Knowing about when to make a QCD and the process of reporting it is important for those 70 ½ and older who face taking required minimum distributions (RMDs).

If you want to make charitable giving a part of your retirement plan, contact the professionals at Peak Financial Freedom Group. We can help you throughout the whole process – from finding a qualified charity to specifying a QCD on your tax form. Click here to schedule your complimentary, no obligation review today.  

Your Tax Burden in Retirement

Your Tax Burden in Retirement

Even in retirement, taxes are a guarantee. Your Social Security benefit, capital gains, and retirement account distributions can all be taxed, leaving you with less retirement income than you planned on receiving. Your tax burden is important to consider when planning for retirement, and can be your most significant expense. Here is how common retirement income sources are taxed.

While you will gain a new source of income in retirement through Social Security, it could also add to your tax burden. There are many reasons why you can’t rely solely on Social Security in retirement, so you will probably have other sources of income. Half of your Social Security benefit is taxable if your adjusted gross income, nontaxable interest and half of your Social Security benefit equals over $25,000 for individuals and $32,000 for couples. If these equal over $34,000 for individuals or $44,000 for couples, up to 85% of your benefit can be taxed.

You may sell an investment to add to your nest egg. Investment dividends, as well as investment sales can be taxed. Investments held for less than a year are taxed at ordinary incomes tax rates. Investments held for over a year are taxed at the long-term capital gains rate, which is 15% for individuals with an income of over $39,375 and couples with an income of over $78,750, and 20% for individuals with an income of over $434,550 and couples with an income of over $488,850.

Distributions from retirement accounts count as income, and are required after age 70 ½. If you turned 70 ½ in 2018, you must take your first required minimum distribution (RMD) by April 1st of this year and going forward, you must take RMDs by December 31st. If you delay your first RMD, you might need to take two withdrawals in the same year, resulting in a larger tax burden. At 70 ½ you also lose the ability to defer tax on new IRA contributions, unless you are still working or have a Roth IRA.

Keep in mind that your Social Security benefit, capital gains, and retirement account distributions can be taxed in retirement. Factoring in taxes as an expense in retirement will help you create a better plan with fewer surprises. Rather than wait until retirement to deal with new tax burdens, start strategizing now to avoid them when possible.

Don’t let your tax burden derail your retirement goals. Let the professionals at Peak Financial Freedom Group help you create a retirement plan that minimizes your taxes. Click here to schedule your no cost, no obligation review today so you can start strategizing as soon as possible.


Wrapping Up 2018

Wrapping Up 2018

While it’s easy to get caught up in the holiday spirit, running out to grab last minute gifts, baking dozens of gingerbread men and trimming your tree, don’t forget about your retirement plan. The end of the year is an important time for retires, and there’s a few things you should wrap up before it ends.

One thing that comes with the end of a year is deadlines. An important deadline that can be costly to miss is your required minimum distribution. If you’re over the age of 70 ½ and have an IRA account, you have to withdraw a set amount by the end of the year. The tax penalty can be up to 50% of the amount you were supposed to take. Avoid this penalty by taking your RMD now, don’t put it off until after the holidays.

In the spirit of the holiday, and on the topic of RMDs, you might be thinking about giving to charity and a qualified charitable distribution can be a tax-friendly way to do so. The amount of your QCD can be used towards your RMD and will not count as income, making it a tax deduction in addition to the standard deduction. This is something to consider if you were looking to donate to charity anyways.

If you haven’t retired yet, spending down your flexible spending account or FSA could be a good way to end your year. You can make pre-tax contributions into an account that can be used to pay medical expenses.  Basically, you can pay health expenses with tax-free dollars. The only issue is that you have to use it all before the year ends unless your plan allows you to carry any over. Don’t let this money disappear, figure out some way to use it in the last weeks of 2018.

Like an FSA, you could consider contributing to your health savings account. If you have a qualified high-deductible health insurance plan, you can utilize an HSA. You make pre-tax contributions into an account that you can then use to pay eligible medical costs. This differs from an FSA because you have unlimited time to pay yourself back. Until you’re retired it might be smart to pay these health costs out of pocket, but once you reach retirement, your account will have grown, and you can cover larger expenses that are bound to come up.

The best way to end the year is by sitting down with your financial advisor to wrap up your portfolio. We cover everything from investing and finances to lifestyle and estate planning. Click here to schedule your complimentary, no obligation financial review and start 2019 off right.

Tax Efficient Strategies for Charitable Giving

Tax Efficient Strategies for Charitable Giving

As the seasons start to change and the holidays approach, we are reminded of how fortunate we are and how much we have to be grateful for. We are also reminded that the season of giving is upon us. But, if you’re retired, you may be worried about where extra income will come from and how you can continue to support the charities that are important to you. For retirees, there are some strategies that you can use for giving to charity that may make charitable giving to your schools, religious organizations, cultural causes and neighborhood charities more tax efficient.

Just like with most things, before you begin you should have a plan. Knowing how much you want to give and the charities you wish to give to, can give you a better idea of how much you will be spending overall. Next, you should review your selection and follow the tax rules closely so that you are sure you’re getting full credit for your gift.

One of the tax-efficient strategies you could start with is using qualified charitable distribution or QCDs. These reduce your taxable income without itemizing and can satisfy and required minimum distribution. You may even be able to write a check straight from your IRA in order to satisfy your QCD. But, before you make any IRA moves, you may want to first check with your IRA custodian to make sure that you don’t miss any necessary steps. It’s also important to note some guidelines for QCDs, if you take out your required minimum distribution and then decide to do the QCD, it won’t count towards your RMD. You also have to correctly report your qualified charitable distribution on your tax return and know that there is a limit of $100,000 per individual.

Another option is looking into a donor-advised fund. This fund groups your deductions so you can itemize more easily. The money also grows tax free, and you have the option of donating anonymously. However, even though they are set up in your name, these funds are controlled by a large nonprofit organization. You can donate different things such as real estate, cash or assets just to name a few. But, although you may suggest grants to charities, you won’t have full control, and these accounts might come with additional fees.

Lastly, you should consider donating your appreciated assets in order to avoid long-term capital-gains of up to 20%. Before doing this though, you should consider your heirs who are looking their chance for a step-up basis by inheriting appreciated assets.

The world of charity and taxes can be overwhelming, which is why it’s important to talk over all your options with your financial planner before making any decisions. We want to make sure you’re making smart tax moves to protect your portfolio. Click here to schedule your no cost, no obligation financial review and make sure you have a tax efficient strategy for charitable giving

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Roseville, CA 95661

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