Mitigating Surtaxes Faced by High-Income Earners

Thoughtful, proactive planning can help high-earning taxpayers reduce their net investment income tax and additional Medicare tax bills.

Every investor should have a thoughtful tax strategy, and for those that exceed certain income thresholds, proactive planning is all the more important.

Individual taxpayers with modified adjusted gross income (MAGI) of $200,000 face a 3.8% net investment income tax on the lesser of their net investment income amount or the amount by which their MAGI exceeds that $200,000 threshold. For couples filing jointly, the threshold is $250,000. These taxpayers are also subject to a 0.9% additional Medicare tax on wages and self-employment income over the same amount.

Talk to your financial advisor, along with your accountant or tax advisor, to identify and implement the strategies that are most advantageous for your situation.

Here are some options to consider.

Improve your portfolio’s tax efficiency

To get a sense of your annual tax liability, review your portfolio’s turnover ratio (the percentage of your holdings that have been replaced in a given year) and historical distributions. Then, work with your advisor to evaluate your investments, review your after-tax returns and consider opportunities to improve efficiencies.

Steps that may help to reduce taxes include tax-loss harvesting – selling securities at a loss to offset capital gains taxes – and rebalancing your portfolio to include more tax-advantaged investments, such as municipal bonds, in higher-taxed locations.

Capitalize on employer benefits

If your employer offers a salary deferral plan like a 401(k), SIMPLE IRA, 403(b) or 457 plan, maximize your contributions to reduce your adjusted gross income and taxes over the long term. Similarly, if you’re eligible, maximize contributions to an employer Supplemental Employee Retirement Plan (SERP) to reduce your taxable income now and defer the compensation into later years when your tax rate may be lower.

Another often-overlooked benefit is an employer health savings plan or flexible spending account. Contributions use pre-tax dollars, reducing your taxable income.

Develop a charitable giving plan

Charitable giving can reduce your tax burden while benefitting your favorite causes. Consider:

• Giving appreciated securities to avoid capital gains, which increase your net investment income
• Bunching several years’ worth of donations into one year to exceed the standard deduction, making itemizing advantageous, and taking the standard deduction in the years that follow
• Establishing a donor-advised fund to make future donations and claim the current income tax deduction
• Contributing highly appreciated assets to a charitable remainder trust (CRT) to defer recognition of income over time

While these tax planning strategies may help you to reduce your overall tax bill, don’t lose sight of your risk tolerance and long-term financial goals.

The process of rebalancing may result in tax consequences. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Withdrawals from qualified accounts may be subject to income taxes, and prior to age 59½ a 10% federal penalty tax may apply.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Raising Smart Spenders and Savers

Key financial lessons to teach your children as they grow.

Talking to kids about money can be awkward, but it’s important. That’s the takeaway from a recent T. Rowe Price survey, which showed that parents consider topics like death and politics easier to discuss with kids than saving for a goal. A full 85% wanted to avoid the issue by signing their kid up for a personal finance course.

Though a class might help – and your advisor can be a valuable teacher’s aide – your kids are still taking their cues from you.

“Parents are the number one influence on their children’s financial behaviors,” Beth Kobliner, author of “Make Your Kid a Money Genius,” told Forbes. “It’s up to us to raise a generation of mindful consumers, investors, savers and givers.”

Here we offer essential financial lessons to teach your kids at each age and stage.

Ages 3-6

Don’t underestimate them – at 3, your kids can grasp basic financial concepts, and by age 7, they have already formed money habits, according to a Cambridge University study. Start with the basics, including the idea that you work to earn money in order to pay for what you want and need – and help your kids understand the difference.

Create a wants vs. needs collage: divide a sheet of paper in half and have your child cut and paste photos from magazines into the two categories.

Other money milestones mapped out by the experts at the Consumer Financial Protection Bureau include the ability to focus and persist through tasks. Saving for retirement takes large amounts of patience and self-control, so we might as well start teaching them early.

Recognizing tradeoffs is another important early milestone. Try thinking aloud when you’re grocery shopping about the amount of money you’re exchanging for a product, or have them help you compare the unit price of similar goods. Whether a trade involves money, treats or time, discuss with your child how every decision has consequences.

Around age 5, it’s important to give kids some cash to manage. A regular allowance allows them to start thinking in terms of financial tradeoffs, and you can offer them a three-part piggy bank (save, spend and share) so they begin to understand the different functions of money.

By age 6, your child should be able to focus on completing small chores to earn money and understand the value of different coins and bills well enough to sort and count them.

Ages 7-12

As your child grows, help them develop values such as empathy and gratitude. Knowing that some families live in poverty and need assistance is part of financial literacy. Using a site like Dollar Street that shows photos of different families around the world living on a variety of incomes can help. So can letting your child have a say in where the family’s charitable dollars will go.

It’s also a good idea to pass down family stories to the next generation – how your parents pitched in to help you build your business, your first big purchase, or how spending habits helped you weather the ups and downs of life. These tales can help them understand their place in the world and develop perspective on what has value in life.

These years are also a good time to have your child open a bank account, which can help them claim the identity as a “saver” and associate positive emotions with it. You should also help them track what they are earning in interest. “There’s nothing like receiving an interest payment (even if it is a few cents) in your name for the first time,” Asheesh Advani, CEO of Junior Achievement Worldwide, told Inc. magazine.

Ages 13-18+

Credit cards, investing, taxes: As your child becomes a young adult, it’s time to step up your game to help them with these complex topics and more. You can help them get started with the SIFMA Foundation’s annual Stock Market Game simulation, let them take control of buying their school supplies on a budget, or help them calculate credit card interest.

Before your teen racks up any credit card debt of their own, consider adding them as an authorized user on your card. Show them that interest accrues unless the balance is paid off – and that any late payment hurts your credit score.

Talk about which data sources can be trusted. Share how you vet financial decisions, and urge your teen to keep digging if what they’re being told doesn’t add up. For example, if your child is researching colleges, encourage them to do research beyond reading a school’s brochure.

Many successful people trace their money skills back to a formative moment: getting a job as a teen. There’s no better way to experience firsthand the effect of taxes, having a boss, being part of a team and managing your time to fit in schoolwork. A seasonal job during school holidays or a part-time gig could help your teen better grasp the working world – and how they picture themselves in it.

Finally, come up with a savings plan for long-term goals, like a car or college tuition. You can use a budgeting app (try Goalsetter or Mint) that helps them visualize their progress, keeps spending in check and gives them a sense of ownership and confidence in their future.

Start the conversation

Whether your kid is 7 or 17, they are ready to hear money talk from their parents and grandparents. After all, financial literacy is not just about dollars and cents. You’re really showing them how to think for themselves, develop values and make sound decisions. In the space of a few teachable moments, you can empower them to take control of their future – a worthy investment.

Sources: T. Rowe Price 2019 Parents, Kids & Money Survey; Forbes; Inc. magazine; CNBC Millionaire Survey; U.S. Consumer Financial Protection Bureau; Sallie Mae’s 2019 Majoring in Money report; mtmfec.org

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

How Cyber Savvy Are You?

Cyberattacks are America’s fastest-growing crime. Review these tips for keeping your personal information safe.

Do you know the difference between a vishing and a smishing attack? Or that spear phishing doesn’t happen in the ocean? Cyberattacks are the fastest-growing crime in the U.S. – and they cause personal and business devastation every day.

Because technology – and the schemes to manipulate users – changes so quickly, it’s important to be in the know. See how well you stack up:

What’s the No. 1 type of cyberattack?

Ransomware, and experts say it’s a growing concern. A type of malware that encrypts a victim’s files, ransomware allows the attacker to demand money to restore access to important documents or photos saved on your hard drive.

What’s the difference between phishing and spear phishing?

Phishing is the attempt to gain usernames, passwords and credit card numbers by impersonating a trustworthy sender in an email or other digital communication. This might entail disguising their email to look like someone you know or including a link to a fake website to trick you into entering private information.

Spear phishing is tailored to one individual and may mention an upcoming trip or a child’s name, for example.

How many different versions of phishing are there?

Unfortunately, there’s a growing list of phishing scams. But there are two popular ones to be aware of:

Vishing is a voice version of phishing. The caller pretends to be from law enforcement, the government or a bank and will try to gain access to Social Security numbers, account numbers or other personal information by asking the victim questions for “verification” purposes.

Smishing is an SMS (or text) version of phishing. You know those automated alerts from the credit card company or PayPal? It might be disguised in that way.

Next steps: How to protect yourself

Criminals are getting more sophisticated. But you can combat the risk by putting these protections in place:

• Be diligent about not sharing information. It might be fun to answer a silly quiz on Facebook, but criminals can use this to gain access to security question answers, like your first dog’s name or the street you grew up on.
• Use multifactor authentication, which requires two or more authentication factors to access devices, applications or online accounts.
• Browse in “incognito” mode so local search history is not stored and cookies are blocked.
• Use secure passwords that include a mix of uppercase and lowercase letters, numbers and symbols. Make sure each password is at least 12 characters and doesn’t contain personally identifiable information. Pro tip: Use a password management app to help you create and organize them.
• Use a virtual private network (VPN) to create an encrypted connection between your devices and the internet that hides your online activity.
• Regularly back up files to a local external server or a cloud server. At least you’d have access to all your files in case of an attack.
• Look for the “s” in “https.” It stands for secure, and it must be there when you’re entering your credit card or banking information to make a purchase. This alone does not mean a site is secure, but it certainly should be a red flag if it is not there.
• If you are unsure if a call you answer is a vishing scam, hang up and dial the company you believe is trying to reach you – for example, your bank – directly.

Sources: pcmag.com; us.norton.com

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Day One of the Rest of Your Life

Visualizing what you want in retirement before you get there may lead to greater fulfillment.

Like all major life events, transitioning to retirement will be an adjustment. It’s important that you’re ready for that change, so you can step into your new life with confidence. One day you may go from your seat at the top as a powerful executive to a lounge chair in your living room. Without your career to define you, you’ll want to discover new meaning.

Finding the answer takes a lot of preparation – emotionally, physically and financially – and a lot of thought. While the financial component is critical to a sustainable retirement, so is your quality of life. Too few people consider the psychological factors. If you can start visualizing your ideal retirement now, you’ll set yourself up for a more satisfying and fulfilling day one.

Thinking ahead

Experts say a steady transition into retirement makes for a more successful one. One psychologist suggests focusing on these key areas to consider the life you’re looking for.

Focus on enhancing relationships. Establish weekly game nights with friends or Sunday dinners with family, for example. Be sure to maintain or expand your social life and stay connected. Studies show having friends and family for entertainment and support significantly enhances a retiree’s quality of life.

Keep your mental and physical health a priority. Set up and keep wellness appointments and exercise daily. And don’t forget to relax. You’ve earned it! Take time for yourself when you need to, and nap when you feel like it.

Make sure you feel as financially secure as possible. Ideally, you’ve been working toward this goal throughout your career. If you need to clarify your retirement income stream, do that now with the help of your professional advisor.

Stay young at heart. Take up an old hobby or find a new one, learn welding or Spanish, play a new instrument. Or, if you really want to dive in, consider that Harvard and Stanford have established learning programs for leaders who had distinguished careers. The point is to plan and embark on a new adventure every week, even if that’s tutoring an elementary student in math or trying a new restaurant. Find something that keeps your brain firing.

Be kind. Acts of kindness make everyone feel good. Volunteer, donate time or money, or contribute to your community in another way.

As you work to home in on the activities that will help you live well on a day-to-day basis, you’ll want to make sure your family and advisors can picture your vision too, and that the details are included in a well-documented financial plan. Being able to clearly articulate your vision helps to prioritize your needs, wants and wishes in order to figure out how to make them a reality.

Next steps

As you approach retirement:

• Visualize how you’d like to spend your days in retirement without a schedule to dictate your day
• Consider each psychological/emotional aspect of your life to ensure it’s being fulfilled by your retirement plans
• Speak to your advisor to ensure the financial plan you have in place will make your vision a reality

Sources: ucsfhr.ucsf.edu

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Rigatoni alla Carbonara

Cooking Time: 30 minutes

Serves: 4

Difficulty Level: Easy

This is a classic Roman recipe. It’s impossible to go to a random ‘trattoria’ in Rome and not find Carbonara on the menu. Nevertheless, did you know that this dish was actually born in the US? In fact, its first recipe appears in “An Extraordinary Guide to What’s Cooking on Chicago’s Near North Side”, in 1952! If you think about it, the combination between bacon (Guanciale) and eggs, it’s something really American. Here is the recipe for the authentic Carbonara, the only one, that you need to follow carefully to turn out perfectly for your guests!

Ingredients

380 gr (13.4 oz) Rigatoni dry pasta

 150 gr (5.2 oz) Guanciale DOP – whole piece best; alternatively, 0.25 inches thick slices. If you can’t find Guanciale, go for Pancetta or Bacon.

 5 egg yolks

 30 gr (1 oz) Pecorino romano DOP cheese

 20 gr (0.7 oz) Parmesan Reggiano DOP

 Black Peppercorns (half tablespoon)

 Mediterranean Sea Salt

Directions

Bring the water to a boil in a large-sized pot.

On a cutting board, cut the Guanciale (or Pancetta) into strips of about 0.5 inches long and ¼ inch thick, taking care to dispose of the rind.

With the help of a meat mallet, crush the black peppercorns to get a coarsely ground black pepper.

Separate the yolks from the egg whites. Pour the 5 yolks into a bowl and add almost all of the Pecorino Romano DOP cheese (leaving about a tablespoon for the final garnishment), the Parmesan Reggiano DOP and the black pepper. Mix the sauce with a whisk until you get a thick cream.

In a large-sized sauté pan, add a tablespoon of EVOO and the Guanciale strips. Cook over medium heat until the Guanciale is golden brown. Turn off the burner and set aside.

Salt the boiling water, and add the rigatoni. After about 3 minutes, add half of a ladle of cooking water to the yolk sauce and mix with a whisk until a semi-liquid sauce is reached.

Drain the rigatoni when it is “al dente” (firm to the tooth) with the help of a skimmer (do not dispose of the cooking water) and put the pasta in the pan with the Guanciale, add one or two ladles of cooking water and stir on high heat for about 1 minute. Now turn off the burner (the rigatoni must have absorbed almost all the sauce). Let it cool for about 45 seconds, then pour the yolk sauce and stir with a wooden spoon (this will prevent the egg yolks from becoming scrambled).

Serve and enjoy your Carbonara immediately with the final garnishment of Pecorino and ground black pepper.

This dish pairs perfectly with Chardonnay or Frascati Superiore.

URL to article:  https://www.lacucinasabina.com/recipe/rigatoni-alla-carbonara/

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.