As the World Turns

As the World Turns from Eric Clark In the almost 3 months since I penned my commentary on the Russian invasion of Ukraine, world and market events have continued to swirl.  Some changed, others not.  Some familiar, others not so much.  What remains prevalent, in my opinion, is a level of anxiety tied to the uncertainty all around us.  Anxiety that for some, barely registers a concern as they plow through their daily lives and activities.  But for others, a level of anxiety that might lead to an inability to act.  A preference for the status quo, and the sense of control this static state of affairs might provide.  If I’ve learned anything over the years, it’s that if you remain anchored and reluctant to embrace your surroundings, you might find yourself left behind or irrelevant in ways you could regret.  That’s not to say we should follow the herd, but sometimes it can be helpful to be mindful of the situation and reflect on how to effectively navigate.  Being mindful and reflective seem appropriate when viewing the current state Read on! →

Medal Winning Savings!

You have probably heard the advice that you should maximize contributions to your employer’s retirement savings plan. Because it lowers your current income taxation by deferring pre-tax dollars to the plan and grows tax-deferred until distributed, you are encouraged to save to your employer plan (401k, 403b, etc.). Employers may also match a percentage of what you contribute. This can be a powerful way to save, but it should not be the ONLY way you save for retirement. The following medal-winning strategies might add flexibility, potential retirement tax savings and a more secure future to your retirement savings mix. Bronze Medal Winner The bronze medal winner for savings might seem too simple to have an impact but can add versatility and flexibility when trying to increase tax efficiency in retirement. Many people step into retirement with inadequate non-IRA savings.  This forces them to distribute fully taxable income from their employer plan/IRA each time they need cash and increases their tax liability. For those individuals with a mix of IRA and non-IRA savings, more control can be gained over taxation in Read on! →

Feeling like “the tax man cometh” too often?

With a recent notice from the IRS that the tax filing deadline has been pushed back to May 17th, you may be feeling a little off the hook for now. The pressure is off, at least for the moment.  However, while there is a momentary lull in the action, consider a few facts about taxation which might make you think about taxes differently. Historic Tax Rates While it’s easy to feel like you are paying too much in taxes, especially at this time of year, it’s important to put this in perspective. In 2021, the top marginal tax rate is 40.8%, which is a combination of the top marginal bracket of 37% and the 3.8% Medicare surtax for high earners. That sounds like a very high tax rate but consider that the historic average top marginal tax rate (1925-2026) is 57.5%, with rates in the 1950’s topping 90%.  The marginal tax rate considers the highest tax bracket you hit with your taxable income, while the effective tax rate is the percentage you are effectively paying when your income across all Read on! →

One positive outcome from Covid & 2020

While there are many aspects of 2020 which we might prefer be forgotten, there were a few positive outcomes from the year which need to be highlighted.  As a majority of individuals in the U.S. were sheltering-in-place during Covid-19 an interesting thing happened. Because we were unable to travel, dine out and generally entertain ourselves by spending lots of money, the U.S. personal savings rate jumped to a record 15% of gross income. As can be seen from the chart below, not since the early 80’s has the U.S. seen a savings rate even in excess of 10% and it has been as low as 3%, which occurred just prior to the Great Recession. Even though the jump in personal savings was not spread evenly throughout the population, it does represent a very positive change, one that shouldn’t be abandoned when the world returns to it’s new “normal”. It is interesting to note that in order to successfully fund retirement, it is recommended that a consistent annual savings rate of 10-15% is required. With this chart going back to 1960, Read on! →

After the Taxes are Completed

When the tax returns are completed for the year, don’t just put them in the file drawer and forget about them.  Use the data provided to make some good decisions about 2021 withholding and saving patterns. This is a good time for you to review a recent paystub from 2021.  With tax return results in hand, you can estimate whether you need to adjust your W-4 to change federal withholding, either reducing large refunds or withholding a bit more each pay period to better cover 2021 taxation. Your CPA can assist with this evaluation. Lastly, refer to your paystub to ensure you are taking full advantage of deferrals to retirement plans, using the table below to view the annual maximums allowable. Your plan administrator allows you to adjust deferral percentages throughout the year.