Planned Solutions

In this episode of the Planned Solutions Incorporated Podcast, the US tax system is complex with many moving pieces that can lead to tax surprises. Changes in income, deductions, credits, or tax withholding can all lead to a taxpayer owing more tax than expected. Some of these changes can be anticipated by taxpayers so that they can plan to increase their tax withholding, make estimated payments, or at least make sure to have the money set aside to pay the tax due at tax time. Also, The latest inflation report revealed that several repeat offenders’ categories continued to be sources of inflation, especially shelter prices. However, several smaller sources of inflation have been less obvious including auto insurance, food away from home, hospital services, and motor vehicle maintenance and repair. As well, The Personal Residence Exemption (Section 121) is one of the largest tax breaks in the tax code. It allows an individual to exclude up to $250,000 ($500,000 for a married couple where both spouses quali

In this episode of the Planned Solutions Incorporated Podcast, In a real-life case study, we explore just one way that a financial advisor can use strategic timing along with the integration of investment and tax planning to increase the long-term financial benefits from a savings and investing strategy. Here we explore the intersection of long-term investing (the compounding of returns), counterintuitive tax strategies (tax-gain harvesting), and estate planning an efficient transfer of wealth to the next generation. Also, Earnings for the S&P 500 companies increased by 21.7% year-over-year in the fourth quarter. Most companies beat their earnings expectations and analysts predict that earnings will continue to climb in 2024. However, the pace of earnings growth has slowed recently with earnings still more than 10% below the high from the fourth quarter 2021. And, Higher interest income has led to an increase in income tax for taxpayers who have a significant balance in savings or money market accounts. Thi

In this episode of the Planned Solutions Incorporated Podcast, Interest rates are often referred to generically when referencing the Federal Funds Rate (the overnight lending rate between banks that the Federal Reserve manages). However, many interest rates are impacted by the term of a loan and the risk that the loan will not be paid back. To fully understand the bond market investors must understand the implications of the interest rate curve (interest rates paid for different terms) and interest rate spreads. Also, Health Savings Accounts (HSAs) can be useful financial planning tools for those who have a high-deductible health insurance plan and therefore qualify to make contributions. However, like other similar plans, HSAs have contribution limits that must be monitored to make sure the limits are not exceeded. Otherwise, an excise tax on over-contributions may apply. And, 529 educational savings plans are often thought of as just that, an education savings vehicle. However, due to some of the peculi

In this episode of the Planned Solutions Incorporated Podcast, The IRS charitable contribution rules are complex. The rules differ depending on the type of property donated (cash, check, credit card, or in-kind), the amount donated, the taxpayer’s income or other tax deductions, whether the taxpayer receives goods or services in return for the donation, and how the donations are made. Therefore, taxpayers need to plan their charitable contributions if they are seeking a tax benefit. Also, The Federal Reserve is sending mixed messages to investors and some Fed Governors advocate a proactive approach to lowering short-term interest rates in anticipation of lower inflation rates. While others warn investors that interest rate cuts may not come as soon as they expect and may not be as aggressive as the financial markets are predicting And, Many employers offer retirement plan matching funds as an employee benefit and to encourage employees to save for their retirement. However, employees who cannot afford to f

In this episode of the Planned Solutions Incorporated Podcast, Mortgage rates have declined recently from very high levels. This has caused some homeowners who purchased a new home last year during the higher interest rate environment to consider refinancing their mortgage to capture the lower rates. While mortgage interest rates are a big factor in determining whether it makes sense to refinance a mortgage other factors should be considered as well. Also, US Consumer Sentiment surged to end 2023 as yet another positive sign that US consumers will continue to support US economic growth. Consumer Sentiment is an inverse indicator meaning that investors often want to buy when it is low and reduce risk when it is high. Now, the Consumer Sentiment is no longer at bargain price levels but still is well below its peak from past economic and market cycles. And, 529 educational savings plans now offer several options for plan owners who have funds left over after higher education expenses for the beneficiary are

In this episode of the Planned Solutions Incorporated Podcast, The Magnificent Seven (the seven most valuable companies included in the S&P 500 index) increased in value by 75% in 2023, whereas the remaining 493 stocks in the index increased by 12%. This has captured the attention of investors and the financial press. However, what is often ignored is the large losses these stocks reported in 2022. In fact, over two years these seven stocks have had an overall performance very similar to the S&P 500 index as a whole. Also, The US stock market dipped to start 2024. However, the decline was just a small fraction of the gains realized over the final two months of 2023. In addition, the dip may just be the result of the normal ups and downs of the market, investment risk management activities, or tax planning. And, The new electric vehicle tax credits offer taxpayers up to $7,500 in tax savings. However, this credit is very complicated when it comes to determining which vehicles will qualify for the credit. In

In this episode of the Planned Solutions Incorporated Podcast, There is a discrepancy between the official government price data for shelter (rents) and the data reported by multiple private data providers. The US government numbers show rents increasing 6.5% over the past year while private data reports a 2.1% decrease in rents. Many economists and investors believe the private data to be more accurate and up to date causing them to price in a sharp decrease in inflation in the next three to six months. Also, Early signs show that consumers continued to increase their spending during the holiday season, albeit at a slower pace than the prior year. This is a good sign for the economy as consumer spending represents approximately 70% of US economic output. However, there are indications that US consumers are becoming more price-conscious. And, The IRS has announced that it will not enforce penalties on owners of inherited IRAs that fail to take Required Minimum Distributions (RMDs) in 2023. However, the IRS

In this episode of the Planned Solutions Incorporated Podcast, The federal tax code offers several tax credits for the purchase and/or installation of energy-efficient property. These credits generally fall into three categories: Residential Clean Energy Credits (credits for clean energy generation), Clean Energy and Vehicle Credits (credits for buying electric or fuel cell vehicles), and Energy Efficient Home Improvement Credits (credits for improving the energy efficiency of home heating or cooling). Also, The S&P 500 has rallied recently and is now at a new high for the year. The index needs to increase less than 5% to reach a new all-time high. However, several other market indexes have further to go to achieve a full recovery. Yet the overall market momentum has been positive causing some to speculate that a full market recovery may be just around the corner. And, The amount that can be contributed to a Health Savings Account will increase in 2024. To contribute to a Health Savings Account an individu

In this episode of the Planned Solutions Incorporated Podcast, As the last several months have demonstrated, the future path of interest rates is unknown. However, the expected path of interest rates can be discerned by examining the futures markets where investor thinking is reflected in prices and expectations for rate changes. Currently, the market is predicting that the current interest rate cycle has peaked and the Federal Reserve will start to lower interest rates by May 2024. Also, The federal standard deduction for income taxes will increase for all tax filers in 2024. However, many of the itemized deductions may have also increased due to increased mortgage rates and property taxes. Therefore, it is important for taxpayers to review their filing options, especially when it comes to state taxes, which often have a lower standard deduction than the federal level. Plus, The amount that an individual can gift to another individual in a given tax year without owing gift taxes, or being required to file

In this episode of the Planned Solutions Incorporated Podcast, The official inflation rate ticked down to 3.2%, the same level as the July report, and the lowest inflation rate in several years. All the major categories, including food, energy, and shelter declined over the past twelve months creating hope that inflation will now continue its downward trend that started over a year ago. This is also positive news for the Federal Reserve which now may be able to hold interest rates steady next meeting. Also, The Social Security Administration announced good news for people collecting benefits and bad news for some people still paying into the system. The good news is that the Social Security benefit will increase by 3.2% in 2024. The bad news is that the wage limit which is subject to Social Security taxes on earned income will increase by 5.24% in 2024. Plus, In the past, the Free Application for Federal Student Aid (FAFSA) used a parent or guardian’s gross wage income to determine a student’s eligibility f

In this episode of the Planned Solutions Incorporated Podcast, The US Treasury is becoming a larger and larger focus of Wall Street as the US Government has been borrowing very large amounts from the private sector. With the current large federal deficit, the need to roll over short-term borrowing, higher interest rate costs, and reduced lending from foreign entities have caused the US Government to borrow more and more from the domestic markets. This creates a risk that there will be too little debt available to fund the private sector. Also, When an employee leaves their employer, they often have the option to keep their money invested in the employer’s retirement plan. However, employees with small balances may be “forced out” of the plan by having their money transferred to an IRA. The definition of a small balance will be increasing from $5,000 currently to $7,000 in 2024 making it so the “force out” may impact more employees in the future. Plus, Credit cards can be a valuable tool for processing paym

In this episode of the Planned Solutions Incorporated Podcast, Trend following is often used by investors in an attempt to profit by predicting market price trends. The effectiveness of this is unproven at best. However, trend following may be used as an effective risk management tool by highlighting time periods when investors may benefit from reducing investment risk or investing more cautiously during periods of heightened market risk. Also, the likelihood of a recession in the US appears to be decreasing. The Weekly Economic Index (WEI) has been increasing, signaling a higher rate of economic growth in the future rather than a decline in growth. In addition, the yield curve has flattened signaling slow economic growth ahead rather than a decrease in economic activity. Also, Subscriptions have become a popular way for businesses to charge for their products or services. Businesses prefer this pricing method because it can create a more stable and consistent cash flow and, once signed up, consumers ofte

In this episode of the Planned Solutions Incorporated Podcast, Interest rates have increased sharply in the past 18 months as the Fed attempts to slow the economy and bring inflation down to its 2% target. However, several areas of the economy have reacted in unusual ways as the job market has remained strong and single-family home prices remain elevated, while commercial real estate prices have dropped. In addition, the level of household debt, commercial business debt, and even government debt have all increased despite higher interest rates. Also, The interest rate applied to tax balances that were not paid within the quarter that the income was earned was 7% for the third quarter and increased to 8% for the fourth quarter. These high interest rates may lead to substantial tax underpayment penalties for taxpayers who do not monitor their taxable income and tax withholdings during the year, making it more important to engage in tax planning during the tax year Also, Collectibles can be an attractive inve

In this episode of the Planned Solutions Incorporated Podcast, The annual inflation rate ticked up to 3.7% in August which is a 0.5% increase from the 3.2% in July and up 0.7% from the 3.0% reading in June. The primary cause of the increase in prices in August was that energy deflation appeared to be subsiding while shelter prices declined but at too slow of a rate to offset the monthly increase in energy prices. In total, the inflation report is a mixed bag with some positive signs for the future but also some areas that should raise some concern that inflation may be more stubborn than expected. Also, The Personal Residence Exemption allows a taxpayer to exclude up to $250,000 of gain on the sale of their personal residence. A married couple may combine their exemptions to exclude a total of $500,000 in gain. However, there are several requirements that must be met to benefit from this generous tax provision. In addition, in limited cases, a taxpayer may qualify for a partial exemption even if the requirem

In this episode of the Planned Solutions Incorporated Podcast, Student loan payments and interest charges are set to start once again on September 1st. However, the new SAVE Plan has expanded the rules for income-based student loan payments to reduce the payment amount for many borrowers. The definition of low-income borrowers has been expanded so more borrowers will qualify for zero payments under the new plan. In addition, those with income over the zero-payment threshold will be required to pay just 5% of their income rather than the 10% required previously. Also, Utility stocks used to be considered low-risk investments that offered good income yields. However, times have changed, and many utility stocks face elevated risks due to high debt ratios and increased legal risks while the dividend yields have not kept pace with rising bond yields. This makes utilities a risker investment category that should be analyzed carefully before investing. As well, In the past, employer-sponsored retirement plans only

In this episode of the Planned Solutions Incorporated Podcast, Central banks have increased interest rates around the globe in an effort to bring down inflation. Now the Federal Reserve may be at the end, or getting close to the end, of its interest rate hiking cycle. However, the impact of higher long-term interest rates is not fully reflected in the financial or economic data, which will only occur when low-interest rate debt must be paid off or rolled over at higher interest rates. This impact will depend on debt management at the business and household level and the future path of interest rates. Also, Long-term interest rates have moved up recently as investors fear that large government deficits will require significant borrowing in the coming months. When government borrowing increases it often pushes up interest rates as the government must offer to pay higher rates to attract the funds it needs to borrow. This can also push out private borrowers as they are unable to compete with the government for

In this episode of the Planned Solutions Incorporated Podcast, There are a wide variety of employee benefits offered by different employers. In many cases, the value of these benefits may add up to a large percentage of the employee’s overall compensation. Therefore, it is important to review these benefits as well as their tax benefits or consequences to extract as much value as possible to help fund financial planning goals. Also, In the past, distributions from a 529 plan that were owned by someone other than the student’s parent were considered income of the student for federal financial aid purposes. In many cases, this could reduce or eliminate the student’s eligibility for federal financial aid. Fortunately, starting in the 2024-2025 school year this rule will be changed so that distributions from a 529 plan owned by a relative other than a parent will not have an adverse impact. And, High demand for travel abroad has created delays in the processing of new US passport applications. Under normal cir

In this episode of the Planned Solutions Incorporated Podcast, The rate of inflation declined by two-thirds from a year ago when it peaked at 9.1%. The June inflation rate was just 3.0%, a 1.0% decline from May. The decrease in prices was led by a large drop in energy prices, while food and shelter inflation remained persistently high. However, the average inflation rate for many households that own their home, and therefore are insulated from the increase in shelter prices, is likely below the Federal Reserve’s target of 2.0%. Also, A new rule takes effect in 2024 that will allow unused funds in a 529 college savings plan to be transferred to a Roth IRA in the name of the 529 plan beneficiary. This is a great opportunity for college savers who do not use the funds in a 529 plan to fund college expenses or have funds left over after college. However, there are a number of detailed provisions in the law that must be followed in order to qualify for the transfer. And, This is expected to be the biggest travel

In this episode of the Planned Solutions Incorporated Podcast, The yield curve is currently inverted meaning short-term term deposits are paying a higher interest rate than longer-term deposits. So, why would savers commit to longer-term deposits at a lower interest rate? It all comes down to the expectation for the future path of interest rates. If rates are expected to fall in the future it may be better to lock in longer-term rates today rather than roll over short-term deposits which may pay more today but could pay lower interest in the future. Also, A year ago, Series I Savings Bonds with no fixed rate and a high inflation rate were popular investments. Since then, the inflation rate on these bonds has declined sharply while newer bonds are now paying a fixed rate in addition to the inflation rate. So over the long term, the bonds purchased when inflation rates were high will likely yield less than the bonds issued before and after the frenzy will likely offer higher returns. And, Medicare premiums a

In this episode of the Planned Solutions Incorporated Podcast, The S& P 500 earnings season is right around the corner. This could be a key earnings season for the stock market following the sharp rebound in earnings reported in the first quarter. Should earnings continue to rebound, and possibly exceed their peak from the fourth quarter of 2021, it may support the stock market rally that began in October 2021. The key sectors will likely be financials and technology given their large contributions to S& P 500 earnings. Also, All money market accounts are not equivalent to each other. This is especially true when comparing bank money market deposit accounts with investment money market funds. For example, bank money market accounts are typically FDIC insured whereas investment money market funds are not. This does create an additional risk that savers should be aware of when choosing where to hold their savings. And, Higher mortgage rates have made homeownership less affordable in the US. However, despite a