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Trending Today The Better Build Back Better Bill Tax Changes

Towerpoint Wealth December 17, 2021 No Comments

Will You Pay More or Less? The Build Back Better Bill Tax Changes! 12.17.2021

The Build Back Better Bill tax changes – do you stand to pay MORE, or less?

''Everybody has a plan until they get punched in the face.''

Will the Build Back Better bill tax changes translate to an unexpected de-facto holiday bonus, or instead, an unwelcome lump of coal? Read on to find out more!

While Build Back Better is a good marketing slogan, it is obviously important to unpack and better understand what this 2,135 page (click HERE to read the whole thing!), $1.75 trillion piece of spending and legislation might mean for YOU. What exactly are the key provisions of this signature bill, and importantly, will the proposed Build Back Better Bill tax changes cause you to pay MORE or LESS to Uncle Sam if the proposed legislation passes?

Days versus Decades. Decide which to focus on...

Let’s briefly “unpack” the Build Back Better Act, discuss which provisions are NOW being negotiated in the Senate, and importantly, evaluate the potential Build Back Better bill tax changes, and the tax consequences of what a final package might look like.

First, a brief background. The Build Back Better Act is the third and most economically significant part of President Biden’s Build Back Better Plan. Originally an immense $3.5 trillion social spending package, lawmakers in the House of Representatives have scrambled and negotiated over the past six months, finally ending up here – approving and sending to the Senate a “slimmed-down” (but hardly modest) $1.75 trillion (!) version of the plan. Now, the REAL debate and negotiations begin.

With two noteworthy holdouts…

Stick to your investment strategy - Do not turn temporary declines into permanent losses.

…Senate Democrats are mostly united in passing this major legislation, but haven’t yet been able to agree on what should be kept and what should be scrapped to obtain the two needed votes from the aforementioned holdouts. On the flip side, and unsurprisingly in today’s partisan political atmosphere, all 50 Senate Republicans are aligned against it.

Now, regardless of whether you are a Democrat or a Republican, and regardless of whether you agree or disagree with the need to pass this IMMENSE bill, at Towerpoint Wealth we believe that it is a when, and not an if, some version of this legislation ultimately DOES pass and become law, even if it isn’t until 2022. And while the final terms are obviously still unclear, the bill is proposing to make MAJOR changes to four main areas:

1. Social services and programs
2. Clean energy
3. Immigration
4. Build Back Better bill tax changes

And as Joe Manchin, Senator from West Virginia and one of the two Democratic holdouts who is squarely in the middle of this debate, said earlier about the bill, “We should be very careful what we do. We get any of these wrong, we’re in trouble.”

If you are interested in a deeper breakdown of the first three areas (as well as Build Back Better tax changes highlighted below), we encourage you to click the thumbnail below and watch our newly-produced educational video:

Today’s Trending Today is specifically focused on the proposed Build Back Better bill tax changes, which would raise a SIGNIFICANT amount of tax revenue from the very wealthy and corporations, and also offer a proposed tax cut for those who live in high income and mostly blue tax states.

The Congressional Budget Office (CBO) estimates the bill will cost a total of almost $1.7 trillion, and add $367 billion to the federal deficit over 10 years. Adding in $207 billion of revenue that is estimated to result from increased tax enforcement in the bill, and the net total increase to the deficit is projected to be $160 billion.

Originally, President Biden’s initial Build Back Better plan was to raise taxes on families earning more than $400,000/year, which would have overturned the Tax Cuts and Jobs Act passed in 2017. However, this provision was dropped in the final version of the bill passed by the House of Representatives on November 19, as holdout Democratic Senator Kyrsten Sinema of Arizonabalked at it, saying she wouldn’t accept any additional higher tax rates: not for individuals, not for capital gains, and not for corporations.

Instead, a significant and updated House-passed Build Back Better bill tax change imposes surtaxes on taxpayers with extremely high incomes. When would this surtax kick in? When adjusted gross income eclipses $10 million, a 5% surtax on income would be applied. Additionally, taxpayers would be subject to an additional 3% surtax on any income over $25 million. Clearly these proposed Build Back Better bill tax changes would only be punitive to very high income earners.

Something else to keep in mind – the new surtaxes applicable to the $10 million and $25 million adjusted gross income thresholds INCLUDES capital gains taxes. So, if you have owned highly appreciated securities (think Apple or Tesla or Amazon stock) for a long time, and then sell your shares and realize a large capital gain, that income is also included when calculating whether or not you would be subject to them.

Additionally, another major Build Back Better bill tax change would be to INCREASE the state and local income tax deduction, commonly known as the SALT deduction.

The SALT deduction is a tax deduction that allows taxpayers of high-tax states to deduct local tax payments on their federal tax returns. Before 2017, there was no limitation on the SALT deduction. However, under the Trump administration’s Tax Cuts and Jobs Act, the SALT deduction was CAPPED at $10,000. The Build Back Better bill tax change to SALT proposes a new INCREASED deduction limit of $80,000, benefitting wealthier residents of high-tax blue states like California, New Jersey, and New York.

This change would cost the government $229 billion in revenue, and was not part of Biden’s original BBB plan – it was added later in the House negotiations.

Backdoor Roth IRA conversions, a popular technique oftentimes used to fund a tax-free Roth IRA without being subject to the Roth IRA income limitations, would also be eliminated as another Build Back Better bill tax change.

And lastly, income recognized on cryptocurrency transactions would be subject to 1099 reporting by crypto brokers and custodians.

Here is a visual summary of the Build Back Better bill tax changes:

Head spinning yet? Obviously the myriad of proposed Build Back Better bill tax changes is a lot to keep track of. However, at Towerpoint Wealth, that is exactly what we continue to do on a regular basis.

Considered by some to be the most consequential economic legislation in the past 50 years, negotiations on the Build Back Better bill are far from over. And any tweaks to this massive legislation will then require another vote in the House. However, regardless of how and when this situation plays itself out, we feel it is safe to say that YOU WILL feel the effects of at least one component of the proposed Build Back Better bill tax changes, and encourage you to contact us (click HERE to do so) to have an objective conversation about how you will be positively or negatively affected by the tax changes you will personally see from this bill.

What’s Happening at TPW?

A huge thank you to Ascent Builders for the AMAZING holiday wreath, and perhaps an even better gift, the personal delivery from their esteemed controller, Patty McElwain (holding the wreath and standing next to our phenomenal Client Service Specialist, Michelle Venezia)!

Spreading cheer is an Ascent Builders specialty, and they are a firm we feel very fortunate to have such a long and productive partnership with.

Our President, Joseph Eschleman, spent some time earlier this month celebrating Christmas (yes, that is a Griswold Family Christmas t-shirt he is wearing!) with close Towerpoint Wealth friend and business partner, Niki Dawson. Niki is the President of TaylorMade Web Creations, and she is absolutely amazing if you have any web design and/or digital marketing needs!

Graph of the Week

Tesla’s market value is now more than General Motors, Ford, Volkswagen, and Mercedes-Benz, COMBINED!

The below chart indicates that electric vehicle sales will exceed gas-powered vehicles by 2040 – do you agree? Disagree? Click HERE and message us – let us know your opinion!

Cartoon of the Week

We came across this gem that provides a different and unique “take” capturing the essence of what perseverance means, and felt compelled to share!

Illustration of the Week

Surprisingly, in the wealth management industry, there are two different standards of care for clients:

The fiduciary standard – a legal obligation requiring a financial advisor to act solely in a client’s best interest, 100% of the time, when offering personalized financial advice, counsel, and planning
The suitability standard – a much lower legal hurdle to clear than fiduciary, not obligating a financial advisor to put their client’s best interests first, and instead only requires a reasonable belief that a recommendation is “suitable” for a client

While we believe that consumers and clients are harmed with the absence of a uniform fiduciary standard that applies to ALL financial professionals, this is the world we live in. A non-fiduciary is legally allowed to sell you a product or investment that pays the highest commission, as long as it is considered suitable.

Click HERE for a full list of the major Wall Street firms and banks. If you have an advisor who works for any of these firms, he or she is NOT a fiduciary to you. Conversely, if you are working with an advisor at a fully-independent, SEC-regulated investment advisory firm (such asTowerpoint Wealth), he or she IS a fiduciary to you!

Put differently…

Trending Today

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

We love social media, and are always actively growing our social media community!

Follow us on any of these platforms you use, and then message us with your favorite charity, and we will happily donate $10 to it!

Click HERE to follow TPW on LinkedIn

Click HERE to follow TPW on Facebook

Click HERE to follow TPW on Instagram

Click HERE to follow TPW on Twitter

Trending Today Tax-Saving Solutions For RMDs

Towerpoint Wealth November 5, 2021 No Comments

Tax Saving Solutions for Required Minimum Distributions 11.05.2021

How would you like to be FORCED to take extra, unwanted, and unnecessary taxable income that would ADD TO your taxable income for the year and potentially catapult yourself into a higher income tax bracket?

If you are 72 or older and own an IRA or tax-deferred retirement account and receive required minimum distributions (RMDs), this may be happening to you every single year. If you are not yet 72, take this as fair warning – you have time to plan and put some tax saving solutions in place!

Towerpoint Wealth | Sacramento Financial Advisor near me | Money Bucket Tax Saving Solutions

Many individuals know well enough that RMD taxes are a “necessary evil” of contributing to, and investing in, retirement accounts such as 401(k)s, IRAs, 403(b)s, etc. However, what investors often fail to realize is that there are impactful and proactive tax planning strategies that can materially lessen the sting of these RMD taxes.

As discussed below, short of enacting a QCD every year for the full amount of your RMD (do the acronyms have your head spinning yet??!!), there is no way to outright avoid paying income taxes on your IRA and retirement account RMDs. However, at Towerpoint Wealth, we are proactive in working with our clients to reduce the pain associated with RMD taxes if and when possible, usually utilizing one or more of the following three planning opportunities, each of which can help:

Tax Saving Solutions

1. Accelerate IRA withdrawals

We get it, as this sounds counterintuitive. Take more money out to save on taxes?? The short answer – yes.

Subject to certain exceptions, age 59 ½ is the first year in which an individual is able to take a distribution from a qualified retirement plan without being subject to a 10% early withdrawal tax penalty.

Consequently, the window of time between age 59 ½ and age 72 becomes an important one for proactive RMD tax planning. By strategically taking distributions from pre-tax qualified retirement accounts between these ages, an individual may be able to lessen their overall lifetime tax liability by reducing future RMDs (and the risk that RMDs may push them into a higher tax bracket) by reducing the retirement account balance.

This strategy becomes particularly opportune for an individual that has retired before age 72, as it often affords the individual the ability to take these taxable distributions in a uniquely low income (and lower income tax) period of time.

2. Execute a Roth conversion

A Roth conversion is a retirement and tax planning strategy whereby an individual transfers, or “converts,” some or all of their pre-tax qualified retirement plan assets from a Traditional IRA into a tax-free Roth IRA.

While ordinary income taxes are owed on any amounts of tax-deferred contributions and earnings that are converted, a Roth conversion, when utilized properly, is a powerful tax planning strategy to reduce a future IRA RMD, and concurrently, RMD taxes, as Roth assets are not subject to required minimum distributions since they generate no tax revenue for the government. Further, Roth conversions also 1) maximize the tax-free growth within a taxpayer’s investment portfolio, 2) provide a hedge against possible future tax rate increase (as Roth retirement accounts are tax-free), and 3) leave a greater tax-free financial legacy to heirs.

Towerpoint Wealth | Sacramento Financial Planner | Graph Tax Savings Solutions

3. Use the IRA RMD to make Qualified Charitable Distributions (QCDs)

When an individual becomes subject to an IRA RMD, in lieu of having the IRA distributions go to them, they may consider facilitating a direct transfer from their IRA to one, or more, 501(c)3 charitable organizations (up to $100K annually). This is known as a Qualified Charitable Distribution (QCD).

As long as these distributions are made directly to the charity, they 1) satisfy the RMD and 2) are excluded from taxable income.

This strategy, when executed property, results in a dollar-for-dollar income reduction compared to a “normal” RMD.

Towerpoint Wealth | Sacramento Wealth Management | Charitable Giving Required Minimum Distributions

Fortunately or unfortunately, there is no magic bullet nor panacea when it comes to RMD taxes and the income tax obligation you will have when taking RMDs. However, we feel that you still have an obligation to be aware and/or mindful of the planning opportunities mentioned above, as potentially reducing your income tax liability is certainly better than paying “full boat” every year!

Video of the Week

As a follow up to the subject focus of our most recent 10.15.2021 Trending Today newsletter, click the thumbnail below to watch the educational video we just produced last week, featuring our President, Joseph Eschleman, as he discusses the THREE key ingredients that are crucial when working to successfully build and protect your wealth, and SEVEN specific long-term investing strategies and philosophies that need to be developed and internalized if you truly want to be a successful long-term investor.

What’s Happening at TPW?

We love and are proud of the work hard, play hard culture we have built here at Towerpoint Wealth, and in the spirit of that philosophy, the TPW family took a ½ day “Teambuilding Tuesday” earlier this week, enjoying lunch together at The Station Public House in Auburn, followed by fun and games (literally!) at Knee Deep Brewing Company!

Towerpoint Wealth Family Lori Steve Michelle

Our President, Joseph Eschleman, gave two (!) pints of A- last week, with a “Power Red” blood donation at the American Red Cross in Sacramento.

Graph of the Week

There are just under two months left in the year, and from strictly a seasonal perspective, November and December have historically been two of the better months on the calendar. The chart below shows the S&P 500’s performance during the last two months of the year in the post-WWII period. Overall, the median performance has been a gain of +3.72%, with positive returns just over three-quarters of the time (76.3%).

The S&P 500’s 22.6% gain this year is the strongest year-to-date reading through October since 2013. 2021 is just the tenth year since 1928 where the S&P 500 has been up more than 20% YTD through October. In the chart above we have highlighted each of those years in dark blue.

Quote of the Week

It is easy to be an investor when things are relatively “normal” and calm; it becomes much more difficult to be disciplined and stay objective when things get crazy…

Trending Today

As the 24/7 news cycle churns, twists, and turns, a number of trending and notable events have occurred over the past few weeks:

– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

Towerpoint Wealth Sacramento Independent Financial Advisor

We think social media is fun, and are always actively growing our social media community!

Follow us on any of these platforms you use, and then message us
with your favorite charity, and we will happily donate $10 to it!

Click HERE to follow TPW on LinkedIn

Click HERE to follow TPW on Facebook

Click HERE to follow TPW on Instagram

Click HERE to follow TPW on Twitter

Matt Regan February 16, 2021 No Comments

Funding a “Backdoor” Roth IRA

Do you have the enviable problem of NOT being able to contribute to a tax free Roth IRA every year because you make too much money?

Click to watch the video below from our Wealth Advisor, Matt Regan, to learn how you can go through the back door and still fund a *tax-free* Roth every year!

Sacramento Wealth Towerpoint Wealth One Minute Tax Tips

Towerpoint Wealth November 20, 2020 No Comments

One Minute Tax Tips – Roth IRA conversions

Wealth advisor Matt Regan, with the first in a weekly series, One Minute Tax Tips, discussing Roth IRA conversions.

In today’s low (and possibly temporary) current income tax environment, considering paying some tax *this year*, in 2020, to do a partial Roth conversion and gain the benefit of having sheltered additional money in a tax free Roth IRA may make sense.

Watch Matt’s 60 second video to better understand what this strategy entails, and email us at info@towerpointwealth.com to discuss if this strategy may make sense for you.

Towerpoint Wealth September 20, 2020 No Comments

The Unreal Real Estate Market of 2020

For a myriad of reasons, 2020 has been both a surreal and unreal year, and the growth in the value of residential real estate is illustrative of that. According to USA Today and the National Association of Realtors (NAR), despite the hard economic times caused by the COVID-19 pandemic, home prices rose in the first quarter of 2020 in 96% of U.S. metro markets. A few of the local Sacramento-area agents we work with have commented that “this [real estate] market is even hotter and crazier than it was at its peak in 2006.“

The environment 14 years ago was very different – during the U.S. housing bubble, real estate prices were artificially inflated due to speculative fervor, lax lending standards, and arguably negligent regulations. But when we fast forward to 2020, we find four reasons for this red hot market:

Historically LOW interest rates. Money is extremely “cheap” right now, as interest rates on mortgages continue to hit record lows.

Cheap money is analogous to low interest rates, meaning it doesn’t “cost” much to borrow. Mortgage rate cuts have given house hunters ~ 25% more buying power in less than two years, and that does not appear to be ending soon. The less it costs to borrow, the more a buyer may be inclined to do so when buying a home. Alternatively, the less it costs to borrow, the lower the homebuyer’s monthly mortgage payment. Adding this all up provides major stimulus to and demand for buying real estate.

Urban exodus. Just a few years ago, demand for city living was high, and people were piling into major metropolitan areas throughout the United States; now, the opposite is happening, and they are filing out in favor of suburban life.

Rent decreases are accelerating, as seven of the top ten priciest rental markets saw apartment prices drop 5% over the same time last year. Cultural and social opportunities that often draw people to metropolitan areas have largely shut down due to coronavirus. The perceived health concerns associated with public transportation and dense city living, high city taxes, the safety concerns and stress caused by demonstrations devolving into riots and other increases in crime, the desire for more space, and the ability to work remotely have all created a huge outflux from the cities, and concurrently, an influx of cash that has pushed up real estate prices in the ‘burbs.

Telecommuting / virtual working. Before COVID-19, only about 5% of workers did their jobs remotely. That figure has jumped to nearly half. Google, Twitter, and Facebook have led Silicon Valley in announcing plans to let, or even require, employees to work from home, at least for the next year, if not indefinitely. New York-based financial giants J.P. Morgan and Morgan Stanley have offered their employees a similar option. Telecommuting is no longer a trend, it is a full-blown movement. And that has allowed, or better put, freed people to live where they desire, and not feel geographically-tethered to their job location.

Inventory shortage. There is an imbalance. There are more buyers than sellers. Postponed purchases from March and April due to home-buying restrictions have created intense demand. Families are looking to upgrade, and, understanding we are all spending more time in our homes that before, people simply want more space. There was a nationwide industry shortage even before the pandemic hit, and the COVID-19 crisis has only exacerbated the problem. U.S. home values grew to $256,663 in August, an 0.7% increase from July, the largest increase since 2013, and inventory is 29.4% lower than a year ago! Builders are racing to catch up with demand, and rising prices should encourage more potential sellers to come off of the sidelines and list. But until those things occur, the shortage of inventory will continue to tilt the housing market in favor of sellers. Economics 101: When demand outstrips supply, prices go up.

How long this lasts remains to be seen. At Towerpoint Wealth, we believe that things will only begin to change in the real estate market when the uncertainty surrounding the job market, economy, and COVID-19 epidemic begin to subside.

What’s Happening at TPW?

The TPW crew enjoyed a “robust” teambuilding potluck earlier this week, highlighted by grass fed tri-tip marinated in “The Sauce for All Seasons,” Pearson’s Premium!

Our Partner, Wealth Manager, Jonathan LaTurner, our Director of Research and Analytics, Nathan Billigmeier, our new Wealth Advisor, Matt Regan, and our Director of Tax and Financial Planning, Steve Pitchford, enjoyed an early morning TPW team-building golf outing at William Land Golf Course!

TPW Service Highlight – Roth IRA conversions

While 2020 will rightfully be remembered for the challenging and unprecedented COVID-19 battle we have all been impacted by, at Towerpoint Wealth, we have continued to proactively work with clients to identify economic opportunities presented by the coronavirus crisis. Specifically, we have identified a “silver economic lining” tax planning strategy this year, one that is designed to take advantage of today’s low income tax rates, which we feel are temporary, while at the same time leave our clients better positioned for tomorrow’s higher income tax rates, which we feel are inevitable.

Below you will find 2020: The Perfect Year for a Roth Conversion, our newly-published white paper that discusses what a “Roth conversion” is, who may benefit from a Roth conversion, why 2020 is a potentially great year to do a Roth conversion, and how to utilize important tax planning tools to evaluate this opportunity.

Graph of the Week

While we obviously need to continue to remain disciplined, and understanding there is still more work to be done, the United States COVID-19 hospitalization numbers below, from Bespoke Investment Group, are encouraging. Less than one person per 10,000 population (or less than 100 people per 1MM population) is currently hospitalized with coronavirus.

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Nathan, Raquel, Steve, Joseph, Lori, Jonathan, and Matt

Towerpoint Wealth Team : Sacramento Financial Advisor

Steve Pitchford September 2, 2020 No Comments

2020: The Perfect Year for a Roth Conversion 09.02.2020

While 2020 will rightfully be remembered for the challenging and unprecedented COVID-19 battle we have all been impacted by, at Towerpoint Wealth we have continued to proactively work with clients to identify economic opportunities presented by the coronavirus crisis. Specifically, we have identified a “silver economic lining” tax planning strategy this year, one that is designed to take advantage of today’s low income tax rates, which we feel are temporary, while at the same time leave our clients better positioned for tomorrow’s higher income tax rates, which we feel are inevitable. This white paper will discuss what a “Roth IRA conversion” is, who may benefit from a Roth conversion, why 2020 is a potentially great year to do a Roth conversion, and how to utilize important tax planning tools to evaluate this opportunity.

Roth IRA Conversion

A Roth conversion is a retirement and tax planning strategy whereby a taxpayer “converts” some, or all, of their “regular” pre-tax retirement assets into tax-free Roth retirement assets. It is important to note that ordinary income taxes are owed on the tax-deferred contributions and earnings that are converted.

While the most common Roth conversion strategy is a pre-tax IRA to a Roth IRA, two other popular methods exist:

Convert pre-tax employer-sponsored retirement plan assets (401k, 403b, 457, etc.) to Roth IRA assets (if the taxpayer has separated from service from the employer).
Convert pre-tax 401k assets to Roth 401k assets (if the employer retirement plan allows for an in-plan conversion).

A Roth conversion, when utilized properly, is a powerful tax planning strategy for the following reasons:

• It maximizes the tax-free growth within a taxpayer’s investment portfolio.
• As distributions from Roth retirement accounts are tax-free, a Roth conversion provides a hedge against possible future tax rate increases.
• As Roth IRAs do not have required minimum distributions (RMDs), it reduces taxable RMDs on pre-tax retirement assets that a taxpayer is annually subject to after reaching the age of 72.
• It leaves a greater tax-free financial legacy to heirs.

However, even understanding these benefits, a Roth conversion may not always be in a taxpayer’s best long-term economic interests if:

• The current tax cost of the conversion is prohibitively high. A Roth conversion, in its simplest sense, is a trade-off between paying taxes now vs. paying taxes later. For the strategy to be impactful, the current tax cost of the conversion should not be so expensive that it outweighs the benefit of any expected future tax-free investment growth.
• The taxpayer is making regular and material withdrawals from their pre-tax IRA.
• The taxpayer does not have the cash to pay the tax due on conversion.

Towerpoint Tip:

We recommend converting shares of investment positions rather than selling investments in the IRA and then converting cash proceeds. This ensures that the taxpayer continues to have market exposure during the conversion process, and also saves on the transaction fees that may be levied when selling an investment position.

2020 – A Perfect Year for Roth Conversions?

There are three reasons why we believe 2020 is a great year for Roth conversions:

While no one has enjoyed this year’s market volatility, material intra-year market pullbacks, such as the one we experienced in March, provide a unique opportunity to convert pre-tax investments to Roth IRA at a time when their value is, we believe, temporarily depressed.
Performing a Roth conversion with these temporarily depressed assets “locks in” the income taxes owed at their lower value upon conversion. While we are humble in recognizing we do not have a crystal ball, we strongly believe that crisis events are temporary, and given time, these assets will recover in value. Thus, this tax strategy results in paying a lower tax price when converting investments to a tax-free Roth IRA.
Understanding the uncertainty surrounding the upcoming Presidential election, and given the government’s need to raise funds to offset its massive 2020 stimulus packages, there is certainly no guarantee that income tax rates will stay this low in future years.
Given that the CARES Act eliminated RMDs for 2020, this is a uniquely low tax year for those taxpayers who are ordinarily subject to RMDs, allowing them to convert a greater amount of assets while remaining in low income tax brackets.

Towerpoint Tip:

At Towerpoint Wealth, pairing a Roth conversion with the “frontloading” of a Donor-Advised Fund (DAF) has been a powerful tax planning strategy, allowing our clients to convert more to tax-free Roth assets at lower tax rates, while also allowing taxpayers who would not ordinarily itemize deductions to “hurdle” the standard deduction – this ensures that they receive at least a partial tax deduction for their charitable contributions.

Executing a Roth conversion

When determining the optimal amount to convert to tax-free Roth assets, there is no “one size fits all” approach.
A taxpayer’s unique personal and financial circumstances should drive the conversion discussion. For one taxpayer, recognizing any amount of conversion income may not make tax or economic sense, while for another, particularly those who want their heirs to inherit assets tax-free, converting a sizeable amount (even at a material tax cost) may be attractive.

One window of time in which we look to help clients aggressively execute a Roth conversion is immediately upon retirement, before they begin filing for Social Security benefits. This is often a uniquely low income-tax window of time, where a taxpayer is still young enough to potentially enjoy many future years of tax-free growth that Roth assets allow.

If a Roth conversion is worth evaluating for a client, many CPAs and tax professionals assemble customized tax projections to optimize the decision-making process.

And while Towerpoint Wealth is not a public accounting firm, we regularly utilize BNA Income Tax Planner, a powerful tax projection software, to assemble Roth conversion tax projections for our clients, in order to streamline collaboration with their CPAs and tax professionals. If our client prepares their own tax returns, we work directly with them to evaluate these Roth conversion scenarios.

Towerpoint Tip:

Under the Tax Cuts and Jobs Act (TCJA), the IRS eliminated the ability to recharacterize (i.e. undo) a Roth conversion after it has been made. For this reason, we generally recommend waiting until closer to the end of a tax year, when taxable income is clearer, prior to executing a Roth conversion. However, in unique tax years such as 2020, we have been strategically executing Roth conversions throughout the year to ensure we are taking advantage of market volatility and pullbacks, while also looking for an opportunity to “top up” the conversion later in the year.

How Can We Help?

At Towerpoint Wealth, we are a legal ﬁduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to discuss whether a Roth conversion may make sense for you, we encourage you to call (916-405-9166) or email (spitchford@towerpointwealth.com), Steve Pitchford, to open an objective dialogue.

Towerpoint Wealth July 6, 2020 No Comments

President Joseph Eschleman Cited As Expert

Our President, Joseph Eschleman, recently penned a white paper for Towerpoint Wealth that discussed 14 different strategies to consider during the coronavirus crisis. Joseph was cited as an expert by MutualFunds.com for his work and content on the subject, who published his commentary on their website on June 11.