Financial Planning

S5E5: Mastering Medicare with Boomer Benefits Co-Founder Danielle Roberts

Danielle Roberts Medicare

Medicare Expert Danielle Roberts Shares Her Expertise

My guest today is Danielle Roberts, founding partner at Boomer Benefits and author of the best-selling book 10 Costly Medicare Mistakes You Can’t Afford to Make. Danielle is a well-known professional in the Medicare insurance industry, having personally helped thousands of beneficiaries with their plan decisions. She’s also specialized in Medicare-related insurance products for over 15 years and is a member of the prestigious Forbes Finance Council.

As a Medicare Supplement Accredited Adviser, Danielle is well versed in all issues currently affecting Medicare. She is also a regular contributor to several industry publications and has written extensively about Medicare and Medigap plans.

In this episode, we talk about all things Medicare, including the common mistakes beneficiaries often make and how to avoid them. Whether you’re new to Medicare or simply want to learn more about it so you can make an informed decision this open enrollment season, this episode is packed with useful information and unique insights.

With that, I hope you enjoy this episode of Financial Finesse with Danielle Roberts.

Links Relevant to this Episode & More Tips from Ruth

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Single Women and Longevity Risk Part 3: Planning for Expenses in Retirement

Planning for Expenses in Retirement

In Part 2 of this three-part blog series on single women and longevity risk, we discussed the importance of investing to supplement your income in retirement and minimize the risk of outliving your financial resources. In Part 3, we’ll explore why planning for expenses in retirement—both expected and unexpected—is essential when it comes to managing longevity risk.  

Estimating Your Expenses in Retirement

Failing to consider and plan for the various costs you’re likely to incur in retirement can lead to a savings shortfall, increasing the risk that you’ll outlive your assets. Thus, creating a retirement budget is necessary to ensure you’re saving enough and investing appropriately.

Of course, there are always uncertainties when it comes to planning for the future. Nevertheless, with the right guidance, it’s possible to project your retirement expenses with a reasonable degree of accuracy.

For example, basic living expenses like food, housing, utilities, and clothing tend to remain relatively steady in retirement and are therefore easier to anticipate. Yet other items like healthcare, travel, and entertainment often rise significantly once you stop working.

In fact, a recent report by the Center for Retirement Research at Boston College found that in 2018, 12% of the median retiree’s total retirement income went toward medical expenses. Moreover, since 2000, the price of medical care has increased at a faster rate than the overall inflation rate.

Meanwhile, with more free time on your hands, you may wish to travel more and take longer, more expensive trips in retirement. Plus, you’re more likely to spend money on other types of entertainment once work no longer demands so much of your time.

No matter your retirement plans, it’s important to consider how your lifestyle goals will impact your budget and plan accordingly. This can help you determine what size nest egg you’ll need to retire successfully and mitigate longevity risk.  

Planning for Unexpected Expenses in Retirement

In addition to the expenses we can reasonably project, others can crop up as we age and our homes, children, and spouses age along with us. Unfortunately, unexpected expenses can mess with the best-laid plans when you’re living off savings and fixed sources of income like Social Security.

Therefore, it’s best to expect the unexpected and prepare for these expenses as best you can. Here’s a list of unexpected expenses you may face in retirement:

Home Repairs & Maintenance Costs

Many Americans own their homes when they reach retirement age. (When I say “own,” I mean they own their homes outright or are still paying down their mortgage as opposed to renting.)

It’s easy to overlook or postpone home maintenance, especially if everything looks fine on the surface. But homes age just like we do, and putting off necessary repairs can become a significant financial expense down the road.

A recent personal experience drove this point home when a routine paint job turned into a major dry rot mitigation project costing tens of thousands of dollars!

When it comes to planning for unexpected expenses in retirement, here’s a best practice to prevent a surprise cost like mine: hire a professional to inspect your home for hidden problems such as dry rot, termites, mold, foundation issues, leaks, and outdated plumbing and electrical systems. Then, develop a multi-year plan to fix the problems and schedule ongoing routine maintenance.

Remodeling Expenses

In addition to the unglamorous fixes a home occasionally needs, it’s not unusual to grow tired of your home decor over time. You may decide to buy new furniture or appliances or update the exterior of your home in retirement, all of which can be costly.

In some cases, you may simply want your home to maintain its value if you plan to eventually sell it. For example, kitchen and bathroom styles tend to change every 10-20 years, prompting homeowners to make major updates.

Or you may need to alter your home so you can age in place comfortably and safely. While no one likes to think about the possibility of losing mobility, it’s one of the realities many of us must face as our bodies age.

Regardless of the impetuous, remodeling costs are common in retirement and can be substantial. Thus, it’s best to expect them and manage your finances accordingly.  

Unexpected HealthCare Costs

The first time many retirees realize Medicare isn’t as cheap as they thought it would be is when they receive a notice from the Social Security Administration about IRMAA. IRMAA, which stands for Income-Related Monthly Adjustment Amount, is an extra charge added to your Medicare Part B and Part D premiums if your income exceeds a certain threshold.

When on Medicare, you pay monthly premiums for Part B, which covers doctor services, outpatient care, and preventive services, and Part D, which covers prescription drugs. But if you’re a high-income earner according to your tax return from two years ago, the government says, “Hey, you can afford to contribute a little more.”

So, they add an extra charge (IRMAA) to your monthly premiums. And the more you earn, the higher your IRMAA charge will be.

Also, Medicare doesn’t cover all healthcare-related expenses in retirement. You’ll still be responsible for co-pays, deductibles, and coinsurance, as well as long-term care, dental, hearing, and eye care. These out-of-pocket costs can add up quickly if you have a significant health issue or need extensive care.

Again, proper planning is essential to mitigate these costs. To avoid IRMAA, you can work with a financial planner to develop a retirement income plan that keeps your taxable income below the threshold.

In addition, you may want to consider buying a Medigap or Medicare Advantage policy to defray the healthcare costs Medicare doesn’t cover.

Medigap policies fill in the gaps in original Medicare coverage, including medical care when traveling outside the U.S. Just keep in mind you’ll still need a separate prescription drug plan (Medicare Part D).

Alternatively, Medicare Advantage (Part C) offers an “all-in-one” alternative to original Medicare. However, these plans are generally in HMOs or PPOs, which may limit your access to certain healthcare professionals or facilities.

Long-Term Care

Another common misconception is that Medicare covers long-term care costs. It doesn’t. This can be problematic, since most older adults will likely need long-term care during their lifetimes.

In fact, the U.S. Department of Health and Human Services estimates that 70% of those turning 65 this year will eventually need long-term care. Meanwhile, women are more likely to need long-term care than men and for a longer duration, according to data from Morningstar.

These services can be costly—typically thousands of dollars a month in expenses. Unfortunately, long-term care insurance is also expensive, and the rigorous eligibility requirements put it out of reach for many.

If you qualify for long-term care insurance and can afford it, you may want to consider your available options, including hybrid policies that include a life insurance component. Otherwise, self-funding long-term care by saving and investing enough money during your working years is likely your best option.

Family Obligations

It’s not uncommon for adult children or other relatives to need financial help occasionally. These requests can be tough to negotiate, especially if your loved ones don’t understand the strain an unexpected loan or gift can have on your finances in retirement.

Although discussing money is taboo in many families, it’s wise to be transparent about your financial circumstances and create boundaries around financial requests. If this isn’t a viable option, be sure to include potential loans and gifts when planning for expenses in retirement.

Losing a Spouse

Morningstar estimates that 90% of women will manage assets on their own at some point during their lifetimes. Many women experience this for the first time in retirement due to the death of a spouse.

Losing a spouse can be emotionally devastating, no matter your stage of life. Yet failing to prepare financially for this possibility can make an already challenging situation even worse.

If you depend on your partner financially, there are steps you can take now to safeguard your financial independence if you unexpectedly lose them. For example:

  • Consider purchasing a life insurance policy to replace lost income or cover funeral costs and other outstanding expenses.
  • If your spouse has a pension, explore your survivorship options before retirement to ensure continued payments.
  • Understand Social Security survivors benefits, especially if your spouse has the higher earnings record.
  • Consult an estate-planning attorney to ensure your estate plan is current and organized for a seamless transition of assets.

With Proper Planning, Single Women Can Minimize Longevity Risk and Thrive Financially in Retirement

Planning for expected and unexpected expenses in retirement is crucial for maintaining financial stability and peace of mind. Yet minimizing longevity risk requires more than managing your expenses. Meeting your savings targets and investing for your long-term goals is also essential.

Remember, the earlier you start preparing financially for retirement, the better off you’ll be long-term. Moreover, you don’t have to go it alone. A fiduciary financial planner like Curtis Financial Planning can provide expert guidance and help you implement the right strategies to secure your financial future. To learn more, please explore our services and free financial planning resources.

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Single Women and Longevity Risk Part 2: The Importance of Investing

Single Women and Investing

Saving and investing are both crucial for financial health. Yet investing is particularly important when it comes to mitigating longevity risk.  In Part 2 of this three-part series about single women and longevity risk, we’ll delve into the significance of investing and explore how understanding risk and reward can empower women to become better investors.

Differentiating Saving and Investing

When it comes to personal finance, many conflate saving and investing. While both are crucial for financial stability, they serve different purposes.

Saving entails setting aside a portion of your income for near-term expenses or potential emergencies. In other words, your savings should be a safety net that’s liquid and risk-free.

Investing, however, implies allocating money to stocks, bonds, and other assets in anticipation of a potential return in the future. Despite the inherent risks, investing is an essential strategy for single women to increase wealth over time, so you don’t outlive your financial resources.  

Understanding the Risk-Reward Relationship

While investing offers the potential for a higher return on your money, it’s also inherently riskier than saving. That’s why many women hold too much cash relative to their financial goals.

If you tend to be risk averse, you’re not alone. In fact, one Northwestern Mutual study found that in general, U.S. adults prefer to play it safe with their money than take risks.

However, understanding the risk-reward relationship is crucial for overcoming the confidence gap that many women experience as investors. Each investment carries a different level of risk, and effectively managing these risks is essential to achieve your financial goals.

Typically, investments with the potential for higher returns carry a higher degree of risk (although high risk doesn’t guarantee high returns). For example, higher-risk investments like individual stocks and equity funds generally offer the potential for higher returns over time. Conversely, lower-risk assets like savings accounts and short-term Treasury bonds tend to yield more modest returns.

Navigating the Risk vs. Reward Dilemma

Many women face the dilemma of whether to keep their money safe in a bank account or invest it for potential growth. Indeed, research suggests that men are generally more willing to take risks with their finances than women.

However, studies also indicate that as women gain confidence through education and experience, they become better investors. Moreover, women investors are more likely to exhibit traits such as reduced trading, increased patience, openness to advice, more diversified portfolios, and a healthy skepticism towards “hot” investments.

Ultimately, your financial goals determine the level of returns you need from your investments. Saving for a house down payment in the next few years, for example, might require safer investments with less risk. In contrast, saving for retirement that’s several decades away allows for higher-risk investments with the potential for more significant returns.

But you also need to weigh your return objectives against your comfort level with taking on risk. In this case, risk generally refers to the possibility of losing your money. Taking on more risk than you can tolerate can lead you to make rash investment decisions that impede your progress toward your financial goals.

Single Women and Investing: Mitigating Longevity Risk

To mitigate the risk of running out of money prematurely, women must embrace some investment risk. By profiling four different investors, we can illustrate the outcomes along the risk spectrum.

Assume the following savers/investors invest $50,000 for ten years and reinvest all interest and dividends.

  • Investor #1 places her $50,000 in a savings account earning an average annual return of 1.5%. Her account grows to $57.815 in 10 years.
  • Investor #2 places her $50,000 into a certificate of deposit (CD) with an annual yield of 3%. Her account grows to $67,196 in 10 years.
  • Investor #3 places her $50,000 into a diversified portfolio* of 60% stocks and 40% bonds earning a 6% average annualized return. As a result, her account grows to $89,542 in 10 years.
  • Investor #4 places her $50,000 into a diversified portfolio* of 100% stocks, and it earns a 9% average annualized return. As a result, her account grows to $129,687 in 10 years.

A Note on Volatility

While the 100% stock portfolio generates the highest outcome, it also experiences substantial fluctuations over the 10-year period. Meanwhile, the 60% stock/40% bond portfolio exhibits less volatility due to the lower risk associated with bonds. 

Consider the following hypothetical annual return patterns for these two portfolios:

The graphs above illustrate how Investor #4 experiences larger swings in performance over the 10-year period by investing exclusively in stocks than Investor #3. In other words, the price of higher returns is generally increased volatility.

Thus, investors who are unable to weather the ups and downs of the stock market may need to sacrifice return potential to stay the course over time.  

*Diversified portfolio returns were generated using Vanguard Total Market Funds, both U.S. and international.

Striking the Right Balance to Reach Your Financial Goals

The challenge for many independent women investors is understanding their risk tolerance in relation to their need for return.

For example, if Investor #1 doesn’t invest in stocks, will she reach her financial goals and manage longevity risk, or will she run out of money before the end of her life? On the other hand, does Investor #4 need to take quite so much risk, or can she beat longevity risk by investing in a less volatile portfolio?

These are the answers I seek when working with my female clients. Ultimately, my aim is to keep my clients invested for the long term to experience the magic of compounding returns and reach their financial goals.

In the third and final article in this blog series, we’ll look at the other side of the equation: minimizing longevity risk by managing your expenses in retirement.

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S5E2: Here’s What Savvy Donors Need to Know About Strategic Charitable Giving

Strategic Charitable Giving Tips for Savvy Donors

Strategic Charitable Giving Ideas to Maximize Your Tax Savings

Cathy shares her strategic charitable giving tips, from deciding how much to give to maximizing your tax savings.

A lot of my clients are charitably inclined and want to include giving in their financial plan. 

Of course, I thoroughly understand my client’s personal finances. Thus, I can provide specific guidance as to how they should think about giving and how to incorporate it into their financial plan.

However, if you’re listening to this podcast episode because you’re also looking for answers to these questions, I can still offer some nuggets of wisdom without knowing the details of your financial life.

In this episode, we’re going to talk about:

  • How much to give to charity
  • Which charities to support with your donations
  • Strategic charitable giving methods to maximize your tax savings.

Naturally, everyone’s goals and personal finances are unique. Therefore, it’s best to consult a financial professional if you have specific questions on this topic.

Nevertheless, I hope this episode gives you a framework for how to think about giving, so you can continue to make an impact while also reaping the associated financial benefits.

Episode Highlights

  • [01:36] How much should you give to charity?

  • [03:17] Which charitable organizations should you support with your donations?

  • [06:52] Who can reap the tax benefits of donating to charity?

  • [07:51] How to use “bunching” to increase your tax savings from charitable giving.

  • [10:06] How donor-advised funds (DAFs) can support your strategic charitable giving goals.

  • [13:04] Why donors who have reached RMD age may want to consider making qualified charitable distributions (QCDs).

  • [15:44] The potential advantages and drawbacks of a charitable gift annuity.  

  • [16:46] Why you may want to consider a charitable remainder trust (CRT).

Links Relevant to this Episode

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S5E1: Overspending? Here’s How to Get Your Spending Habit Under Control This Year

Spending Habit

Take Control of Your Spending Habit Once and For All

In this episode, Cathy shares her tips and strategies for getting your spending habit under control once and for all this year.

Welcome to Episode 1 of the 5th season of the Financial Finesse podcast!

Today I’m going to talk about spending—specifically, how to get your spending under control. Many of my clients told me that one of their goals for 2023 is to get their spending on discretionary items under control. (In other words, the things you really don’t have to have.)

And they may not have a spending problem per se. But they know their spending is probably one of the things that’s keeping them from reaching their longer-term financial goals, and/or it’s just making them uncomfortable. They don’t feel right about their spending habits.

I have to admit, I can relate to this because I have a little bit of a clothing infatuation. I love anything new, and I love clothing and accessories. So, I’m going to be right there with you in working on getting my own spending habit under control this year.

Episode Highlights

  • [02:11] What do habits have to do with spending?
  • [03:23] Identifying your biggest spending weakness or weaknesses.
  • [06:05] What are your spending triggers?
  • [08:45] Setting your new budget for the year ahead.
  • [10:32] How to find ways to support yourself in reaching your goal.
  • [16:23] Determining your values and aligning your spending accordingly.
  • [17:33] Download our free e-book, How to Take Control of Your Spending This Year.

Links Relevant to this Episode

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How to Take Control of Your Spending This Year, Part 2: Identifying Your Spending Weakness

Identifying Your Spending Weakness

This article is part two of a four-part series to help you reduce your spending this year. In part one, I shared a simple hack to help you create healthier spending habits. This week, I’ll take you through an exercise to help you identify your spending weakness.

It’s common wisdom that the way to complete a big task is to break it down into smaller parts and then tackle each task one at a time. Otherwise, overwhelm can set in, and nothing gets done. I’ll suggest a similar approach to tackling the “big task” of overspending.

What Is Discretionary Spending?

We all spend money on a lot of things, necessary and discretionary. For this exercise, we’ll define discretionary spending as spending on items you could survive without if you wanted to.

Examples may include an extensive collection of clothing, art, household knick-knacks, jewelry, shoes, accessories, make-up, books, or electronics. Alternatively, you may overspend on discretionary experiences such as excessive travel, entertainment, or dining out.

First, Identify Your Biggest Spending Weakness

Your first task in cutting discretionary spending is to identify your biggest spending weakness. For example, if you feel shame (or at least discomfort) about the amount of money you spend on something, it’s likely your spending weakness.

Most of you know your spending weakness, so choosing will not be difficult. However, for those who need more clarification, analyzing your past expenses can help you find your answer.

I encourage you to choose only one spending category at a time to keep things simple. (Breaking down a big task into smaller tasks helps get things done, remember?) That way, you are more likely to make progress. Of course, if you want to, you can add more categories or items and follow the next steps for each.

Next, Calculate How Much You Spent Over the Last 12 Months

After identifying your spending weakness, the next step is to write down how much you spent over the last 12 months on this item. While you can estimate this dollar amount, it’s better to look at your credit card and checking account statements to determine your actual spending. Otherwise, it’s easy to rationalize and make excuses when you’re guessing.

Got your number? Congratulations. I know that confronting money issues is hard, especially if it brings up uncomfortable feelings like regret, remorse, or shame. So let the feelings happen, but then let them go. Thank yourself instead for starting this journey to get back on track.

Continuing Your Journey

In the next article, we’ll go through an exercise to help you discover what triggers your overspending.

In the meantime, I invite you to check out these free resources to help you better understand and take control of your personal finances.

Download my FREE E-BOOK: How to Take Control of Your Spending This Year

Love this blog series? Download my free e-book, How to Take Control of Your Spending This Year, for tips and strategies you can quickly put into action to get your spending habit under control.

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How to Take Control of Your Spending This Year, Part 1: Reduce Your Spending by Creating Healthy Habits

Reduce Your Spending by Creating Healthy Habits

This article is the first in a four-part series to help you reduce your spending this year. I’ll be sharing the knowledge and experience I’ve gained over the last 20 years creating financial plans and guiding women to take control of their finances to help you develop healthier spending habits.

I know many people scoff at the idea of New Year’s resolutions. But I don’t. I believe it’s an opportunity to try and jump-start new habits.

Yes, you can start a new behavior in March or September, but something about a new year motivates me—and maybe you, too. Plus, it helps if the habit you’re trying to change causes you distress, so you’re motivated to work on it throughout the year.

For example, many people want to reduce their discretionary spending. They intuitively know that their spending is getting in the way of achieving their financial goals, but they don’t know what to do about it.

In part one of this series, I’m sharing the simple mindset shift that can help you reduce your spending once and for all.

January is an excellent month to begin a new spending plan.

You may have noticed that I’ve been using the word “habit” a lot. But what do habits have to do with spending?

Many of our behaviors become habits. Overspending or unconsciously spending is a habit, which is actually good news if you’re trying to reduce your spending.  

Many experts—for example, James Clear, who wrote the book Atomic Habits—have shared their wisdom and strategies for breaking bad habits and replacing them with new ones.  We’ll be leveraging the wealth of information available on this topic, as well as my own experience as a financial planner, to help you get control of your spending in 2023.

What does it take to develop new habits?

If you want to change your habits and reduce your spending this year, living in denial isn’t the answer. Your brain won’t like that. It will fight back too hard.

Instead, you’ll need to make thoughtful decisions about where to allocate your resources moving forward. Eventually, cutting back on spending will be something you want to do because you know it will get you to a better place.

Ready to reduce your spending? Let’s get started.

Each blog post in this series will focus on getting you to think and then take action. You will be writing, so get a pen and paper out, or boot up your laptop. By week four, you’ll have a new attitude and plan in place to help you reduce your spending and get back on track towards your financial goals.

Are you ready to get started? Great. In the next article, we’ll work on identifying your spending weaknesses.

In the meantime, I invite you to check out these free resources to help you better understand and take control of your personal finances.

Download my FREE E-BOOK: How to Take Control of Your Spending This Year

Love this blog series? Download my free e-book, How to Take Control of Your Spending This Year, for tips and strategies you can quickly put into action to get your spending habit under control.

If you found this information interesting, please share it with a friend!

Clean Energy Tax Credits: What to Know Before You Buy

Inflation Reduction Act & Clean Energy Tax Credits

The Inflation Reduction Act introduces several clean energy tax credits and rebates that may benefit environmentally conscious taxpayers.

As a California-based financial advisor who works primarily with women, I frequently have conversations with clients about socially and environmentally responsible investment strategies. But with the recent passage of the Inflation Reduction Act, many environmentally conscious investors are seeking new ways to put their values into action while potentially benefiting financially in the process.

If you’re considering making climate friendly upgrades to your home or vehicles, you may be eligible to claim thousands of dollars in potential tax credits and rebates. However, before purchasing a rooftop solar panel or electric vehicle, it’s important to understand the various clean energy incentives available—and how to use them to your advantage.

Clean Vehicle Credits

The Inflation Reduction Act extends the Clean Vehicle Credit through 2032. It also introduces new credits for purchasing used electric vehicles.

Specifically, if you buy a new electric vehicle (EV), you may be eligible for a tax credit worth up to $7,500. For a used EV, your tax credit may be worth 30% of the purchase price or $4,000, whichever is less. You may also qualify for additional incentives from state and local governments, depending on where you live.  The caveat is that the new credits don’t go into effect until 2023. So, if you’re planning to purchase a used electric vehicle, you’ll likely want to wait until after the new year to maximize your potential tax benefit. 

For new EV purchases, it’s a little more complicated. If you purchase a new EV in 2022, the Inflation Reduction Act stipulates that the final assembly of the vehicle must take place in North America. However, purchases of General Motors and Tesla car models aren’t eligible for a tax credit until 2023.

Car manufacturers must also meet two battery-related requirements for consumers to receive the full credit in 2023 and beyond. That means some EVs won’t immediately qualify for a tax break as manufacturers work to meet these rules.

Lastly, beginning in 2024, car buyers can transfer their tax credit to dealers at the point of sale. That way it directly reduces the purchase price. This can be particularly valuable for two reasons:

  • First, you won’t have to wait until you file your tax return to benefit financially.
  • In addition, transferring the credit to the dealer at the point of sale ensures you’ll receive the full benefit since the credit amount can’t exceed your tax liability. Meaning, if you owe $6,000 in taxes for the 2023 tax year and take the Clean Vehicle Credit worth $7,500, you lose the remaining $1,500.

Keep in mind there are new adjusted gross income (AGI) thresholds to be eligible for a new EV tax credit. In 2023, the AGI limit is $150,000 for single taxpayers and $300,000 for married couples filing jointly.  

Residential Clean Energy Credit

The Residential Energy Efficient Property Credit was previously set to expire at the end of 2023. Now the Residential Clean Energy Credit, the Inflation Reduction Act extends it through 2034 and increases the credit amount, with a percentage phaseout in the final two years.

The Residential Clean Energy Credit is a 30% tax credit that applies to installation of solar panels and other equipment that makes use of renewable energy through 2032. The percentage falls to 26% in 2033 and 22% in 2034.

In addition, the credit is retroactive to the beginning of 2022. That means if you install a solar panel or similar equipment this year, you can qualify for the 30% tax credit on your 2022 tax return.

Energy Efficient Home Improvement Credit

The Inflation Reduction Act also extends the Nonbusiness Energy Property Credit and renames it the Energy Efficient Home Improvement Credit.

This is a 30% tax credit on the cost of eligible home improvements, worth up to $1,200 per year (as opposed to the previous $500 lifetime limit). The annual cap jumps to $2,000 for heat pumps, heat pump water heaters, and biomass stoves and boilers. In addition, roofing will no longer qualify for a tax credit.

Specifically, the annual tax credit limits for qualifying improvements are as follows:

  • $150 for home energy audits
  • $250 for any exterior door (up to $500 total) that meet applicable Energy Star requirements
  • $600 for exterior windows and skylights that meet applicable Energy Star requirements
  • $600 for other energy property, including electric panels and certain related equipment

The enhanced credit is available for projects you complete between January 1, 2023 and December 31, 2033, with some exceptions. Any projects you finish in 2022 aren’t eligible for new incentives. However, if you incur costs in 2022 for a project that you complete in 2023, these costs can count towards your tax break.

Additional Financial Incentives for Investing in Clean Energy  

Finally, the Inflation Reduction Act creates two rebate programs to incentivize clean energy and efficiency projects. Unlike many clean energy tax credits, these rebates are offered at the point of sale. Thus, consumers can reap the financial benefit immediately.

The HOMES rebate is worth up to $8,000 for consumers who make energy efficient upgrades to their homes—for example, HVAC installations. Ultimately, the rebate amount depends on the amount of energy you save and household income.

Meanwhile, the High-Efficiency Electric Home Rebate Program offers taxpayers up to $14,000 for buying energy efficient electrical appliances. This rebate is only available to lower income households, and the rebate amount varies by appliance.

The timeline for these rebates to go into effect is less clear than the three tax credits mentioned above. Many experts believe they won’t be broadly available to taxpayers until the second half of 2023 as the Energy Department issues rules governing the programs.

How to Invest in Clean Energy Strategically

The Inflation Reduction Act creates a variety of financial incentives for taxpayers to invest in clean energy and energy-efficient projects. Those who take advantage of these clean energy tax credits and rebates can potentially save thousands on their taxes while doing their part to fight climate change.

However, to maximize these incentives, it’s important to time them correctly and use their constraints to your advantage. A trusted financial advisor like Curtis Financial Planning can help you incorporate these purchases and investments into your financial plan, so you can reap the greatest benefit. We invite you to connect with us to find out more.

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7 End-of-Year Tax Planning Tips for 2022

End of Year Tax Planning Tips for 2022

With the end of the year fast approaching, Tax Season may be the last thing on your mind. Yet in many ways, the final months of 2022 may be your last chance to reduce this year’s tax liability. To avoid overpaying Uncle Sam and preserve more of your hard-earned income, consider the following end-of-year tax planning tips for 2022.

To minimize your tax liability, consider these end-of-year tax planning tips for 2022:

Tip #1: Identify Changes to Your Tax Situation

In 2022, the standard deduction is $12,950 for single filers and $25,900 for married taxpayers filing jointly. The standard rule of thumb is if you can deduct more than the standard deduction amount in eligible expenses from your taxable income, you should itemize. Otherwise, it’s generally easier and more valuable to take the standard deduction. 

If your income and circumstances have been relatively stable since last year, you likely know already if you plan to itemize or take the standard deduction this year. However, if you’re on the fence, there are end-of-year tax planning strategies you can utilize to reduce your taxable burden.

For instance, consider pre-paying certain deductible expenses—for example, charitable donations or out-of-pocket medical expenses—this year so that itemizing makes more sense.

Let’s say you plan to donate $5,000 to charity each year for the next several years. If you have extra cash on hand this year, you may want to consider donating $10,000 or more to your charity of choice so you can itemize your deductible expenses. Then, next year, you can skip your regular donation and take the standard deduction.

The same is true for out-of-pocket medical expenses. If you know you have certain expenses looming for 2023, you can pay them this year to make the most of the associated tax benefit.

Tip #2: Harvest Capital Losses

Capital gains taxes can eat away at your investment returns over time—specifically in non-qualified investment accounts. Fortunately, the IRS allows investors to offset realized capital gains with realized losses from other investments.

That means you can realize profits on your top-performing investments while selling poor performers to reduce this year’s tax bill. If you have substantial losses, you may be able to completely offset your gains and potentially reduce your taxable income. And in years like 2022 when markets have struggled, you may have more losses than you think.

Keep in mind if you work with a financial advisor, you may not need to initiate this strategy on your own. Most fiduciary financial planners proactively take advantage of tax-loss harvesting to help clients with end-of-year tax planning.

Tip #3: Review Your Charitable Giving Plan

Currently, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on this year’s tax return.

You can also deduct up to 30% of your AGI for donations of non-cash assets. In addition, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years.

When it comes to end-of-year tax planning, donor-advised funds (DAFs) can provide opportunities to meaningfully reduce your tax liability relative to other giving strategies. For example, if you plan to donate $10,000 each year to your favorite charitable organization, it may be more beneficial to take the standard deduction when you file your taxes.

On the other hand, you can front-load a donation of $50,000 to a donor-advised fund and request that the DAF distribute funds to your chosen charity each year for five years. In year one, you can receive a more favorable tax break by itemizing on your tax return. Meanwhile, you’ll still be meeting your charitable goals each year via the DAF. This strategy can be particularly beneficial in above-average income years.

And better yet, you can donate non-cash assets like highly appreciated stock to a DAF and avoid paying the capital gains tax. This strategy can also help you diversify your investment portfolio without triggering an unpleasant tax bill. Plus, you can take an immediate deduction for the full value of the donation (subject to IRS limits).

Tip #4: Look for Opportunities to Reduce Income

Maxing out your qualified investment account contributions is indeed important for meeting your future financial goals like retirement. However, this can also be a valuable end-of-year tax planning strategy.  

First, be sure to check the contribution limits on your employer-sponsored or self-employed retirement plans for 2022. You can also contribute up to $6,000 to an individual retirement account in 2022 (or $7,000 if you’re age 50 or over).  

In addition, individuals with qualifying high deductible health plans are eligible to contribute to a health savings account (HSA). An HSA can be a great way to save and grow your money on a tax-advantaged basis.

In fact, these accounts offer triple tax savings. Contributions, capital gains, and withdrawals are all tax-free if you use your funds for eligible healthcare expenses. And like qualified retirement accounts, you can deduct your contributions from your taxable income in most cases to reduce your overall tax liability.

Meanwhile, depending on your compensation plan, you may want to consider deferring part of your income to reduce your taxable income in 2022.

Employees with deferred compensation agreements typically pay taxes on the money when they receive it—not as they earn it. That means if your employer pays you a lump sum per your distribution agreement, you could potentially get hit with a hefty tax bill.

There are different ways to structure income from a deferred compensation plan. Your options typically depend on your agreement with your employer. The distribution schedule can usually be found in your plan documents. So, if you haven’t reviewed your plan details recently, you may want to revisit them during end-of-year tax planning to avoid any surprises.

Tip #5: Take Advantage of Lower Income Years and/or Down Markets with a Roth Conversion

The IRS allows individuals to convert a traditional IRA to a Roth IRA via a Roth conversion. A Roth IRA conversion shifts your tax liability to the present. As a result, you avoid paying taxes on withdrawals in the future. In addition, Roth IRAs don’t require minimum distributions.

With a Roth conversion, you pay taxes on the amount you convert at your current ordinary income tax rate. That’s why it can be a particularly powerful end-of-year tax planning strategy in tax years when your income is below average.

At the same time, a down market can be an opportune time to take advantage of a Roth conversion. Since account values typically decline in a negative market environment, so does the amount on which you pay taxes when converting to a Roth. Meanwhile, there’s greater potential for future appreciation and withdrawals that tax-free.

After you convert your traditional IRA to a Roth, any withdrawals you make in retirement will be tax-free. However, you must be over age 59 ½ and satisfy the five-year rule. And since Roth IRAs don’t have RMDs, you can leave your funds to grow tax-free until you need them.

While Roth conversions can be beneficial for many, they don’t make sense for everyone. Be sure to consult with a trusted financial advisor or tax expert before leveraging this strategy.

Tip #6: Strategically Transfer Wealth

If you expect to leave significant wealth to your heirs, proper estate planning is key. Fortunately, there are end-of-year tax planning strategies you can leverage to help minimize your estate’s potential tax burden.  

In many cases, gifting is one of the simplest ways to efficiently transfer wealth while reducing your estate. Each year, the annual gift-tax exclusion allows you to gift a certain amount (up to $16,000 in 2022) to as many people as you like without incurring the federal gift tax. Moreover, spouses can combine the annual exclusion to double the amount they can gift tax-free.  

Indeed, cash gifts are most common. However, you can also use the annual exclusion to transfer personal property or contribute to a 529 college savings plan. Alternatively, the IRS allows you to pay educational and medical expenses on behalf of someone else without incurring federal taxes. However, you must pay the institution directly.   

Trusts can also help you transfer wealth strategically while reducing your family’s taxable burden. However, trusts are varied and complex. It’s important to consult your financial planner or estate planning attorney to determine if a trust may be an appropriate end-of-year tax planning strategy.

Tip #7: Donate Your Required Minimum Distribution (RMD)

To keep people from using retirement accounts to avoid paying taxes, the IRS requires individuals to begin taking minimum distributions from certain qualified accounts once they reach a certain age. As of 2020, required minimum distributions (RMDs) kick in at age 72.

You can withdraw more than your RMD amount in any given year—but be prepared for the potential tax consequences. On the other hand, the IRS imposes a penalty of up to 50% if you fail to take your full RMD before the deadline.

Both scenarios can be costly. Fortunately, careful end-of-year tax planning can help you manage your RMDs to avoid high taxes and other penalties.

For example, if you don’t need the extra income, you can donate your RMD to charity. This is a tax planning strategy called a qualified charitable distribution (QCD). A QCD allows IRA owners to transfer up to $100,000 directly to charity each year.

QCDs can satisfy all or part of your RMD each year, depending on your income needs. You can also donate more than your RMD amount up to the $100,000 limit. And since QCDs are non-taxable, they don’t increase your taxable income like RMDs do.

It’s important to note that the IRS considers the first dollars out of an IRA to be your RMD until you meet your requirement. If you take advantage of this tax planning strategy, be sure to make the QCD before making any other withdrawals from your account.

For More End-of-Year Tax Planning Tips, Consult a Trusted Financial Advisor

This isn’t an exhaustive list of end-of-year tax planning strategies. However, these tips can help you determine if there are opportunities to reduce your taxable burden in 2022.  At the same time, a trusted financial advisor or tax expert can help you identify which strategies are right for you within the context of your overall financial plan.

To learn more about how Curtis Financial Planning helps our clients take control of their finances, please explore our services and client onboarding process.

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S4E5: The Insurance Lady Ruth Stroup Answers Your Biggest Questions About Insurance

The Insurance Lady Answers Your Biggest Questions About Insurance

Your Biggest Questions About Insurance Answered

My guest on today’s episode is Ruth Stroup. Ruth, AKA “The Insurance Lady,” is a Farmer’s agent in Oakland, California. Voted Best of Oakland seven times, The Ruth Stroup Insurance Agency is a community-oriented agency offering customized insurance solutions to businesses and families.

In this episode, Ruth and I discuss all things insurance, from what it covers and doesn’t cover to choosing the right policies and the obstacles that can get in the way of that. Specifically, we talk about wildfire risk in Northern California and how it may cause you to lose your homeowner’s insurance or your premiums to skyrocket. We also discuss what Ruth can and can’t do as an agent to help her clients navigate claims.

Later in the episode, Ruth provides a helpful overview of umbrella insurance, including common misconceptions about what it covers and how to determine if you need additional coverage. She also shares a little-known strategy she uses with her high-earning clients to protect their personal assets.

And be sure to listen to the end, when we talk briefly about earthquake insurance, another potential risk factor for California residents, and many of the common misconceptions surrounding it. Ruth also shares her tips for how she believes people should approach earthquake insurance and how to decide if it’s worth the high premiums.

And lastly, Ruth offers her response to people who believe insurance is just a racket. I learned so much during this conversation and Ruth shared so many great gems that I believe will benefit a lot of you listeners. I hope you enjoy the episode as much as I did.

Episode Highlights

  • [04:02] Ruth Stroup explains what homeowner’s insurance covers and doesn’t cover if someone burglarizes your home.

  • [07:03] How to insure different types of jewelry, whether it’s costume, gems and metals, or fine jewelry.

  • [12:31] What people can do to mitigate the damage if they get burgled or their home is destroyed by fire.

  • [16:22] What to do if your policy goes into non-renewal because you live in a high-risk zone for wildfires.

  • [19:51] How reinsurance companies impact the insurance industry.

  • [22:29] Ruth Stroup shares the reasons besides wildfire danger that a policy may be non-renewed.

  • [26:45] What Ruth can and can’t do as an agent when helping her clients navigate claims.

  • [33:11] Cathy asks Ruth Stroup to give a mini tutorial on liability and umbrella insurance.

  • [38:54] Ruth Stroup shares what she believes is the best kept secret in the insurance business.

  • [42:02] Cathy and Ruth talk earthquake coverage.

Links Relevant to this Episode

Ruth Stroup Insurance Agency’s website

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