Prevent Blindness - Personal Planning Ideas

Gift Annuity Rates increased

Donors establishing charitable gift annuities after June 30 will enjoy higher gift annuity rates. The American Council on Gift Annuities announced the boost to recommended rates at its meeting in May. A gift annuity is an arrangement in which charity, in exchange for a donor’s gift of cash or appreciated assets, agrees to make payments for life to one or two individuals. The donor is entitled to an income tax charitable deduction for a portion of the gift amount and receives payments that are partially tax free for the annuitant’s life expectancy.

Higher gift annuity rates mean slightly lower charitable deductions. For example, a 75-year-old donor who establishes a gift annuity for $10,000 cash will be entitled to a payout of 6% ($600 annually) for life. Previously, the recommended rate was 5.4%. The donor’s deduction with the higher rate is $4,818, compared with $5,336 using the lower rate.

Starting sometime later this year, the IRS is expected to issue new actuarial factors that will also affect the calculation of deductions for charitable gift annuities. The factors, based on the 2010 census, will reflect longer life expectancies. These will generally result in lower charitable deductions for charitable gift annuities and charitable remainder trusts.

Investments Dropped? It’s Time To Review

Recent dips in the stock market are a signal to review investments as well as estate plans. What should you look for and how should you respond if your IRA and brokerage accounts have suffered a decline?

Review your portfolio to see that it is still in balance. Are you too heavily invested in stocks? Do your overall holdings still reflect your risk tolerance level? Ask your broker to review your accounts and suggest changes if needed.
Determine whether a Roth IRA conversion makes sense. With stock prices down, you’ll owe less in income taxes when you convert shares in a traditional IRA to a Roth. All future growth in a Roth will be tax-free when withdrawn. Unlike a traditional IRA, account owners are not required to take annual withdrawals from their Roth IRAs at age 75.
Talk to your tax advisor. If your accounts need to be adjusted, ask your tax preparer how any sales will affect your situation. If you sell shares at a gain, you’ll owe capital gains tax of 15% or 20% and possibly a 3.8% net investment income tax. Shares sold at a loss can be used to offset capital gains and up to $3,000 of other income. Excess losses can be carried over to future years.
Consider charitable opportunities when adjusting your investments. Contributing appreciated stock you’ve owned more than one year entitles you to an income tax charitable deduction for the full value of the shares on the date of the gift, completely avoiding the capital gains tax. You can even retain payments for life from your gifts through a charitable remainder trust or charitable gift annuity.
If you use the proceeds from the sale of shares that have dropped in value to make your charitable gift, you can claim both a capital loss deduction and, if you itemize, an income tax charitable deduction.
Ask your attorney to review your estate plans. If you’ve included gifts of specific amounts to beneficiaries, those gifts might represent a greater portion of your overall estate than you anticipated. Likewise, a gift of a specific asset, such as shares of a particular stock, might not provide the gift you want to make to certain individuals or charities. Make sure beneficiary designations on life insurance and IRAs are coordinated with gifts passing under your will or living trust.

Ready for Retirement?

Those nearing retirement should consider the next phase of their lives as a new “job.” In preparation for that new career, there are several questions to ask yourself:

How much is in my portfolio and how is it held? Your investing goal up to now might have been growth, or growth with some fixed income, but in retirement, the focus may shift. Now is the time for a review, with the help of your financial advisor, to see if changes are needed. You want to avoid being too heavily invested in one company. That may be a concern for those who have a significant amount of their employer’s stock in a 401(k) account.

Do I have enough to cover long-term care needs? A long-term care policy may offer peace of mind of knowing that some of the costs of a nursing home or home health services will be covered. Ask your insurance agent not only about long-term care but for a review of all your insurance coverage, including home and auto. An umbrella policy provides added protection against any liability that might deplete your nest egg.

Do I need to update my estate plan? As you near retirement, you should review your estate plan or have a will drafted if you don’t already have one. This is especially true if you plan to relocate to another state. Although federal estate taxes are not a concern for most people (only estates in excess of $12,060,000 in 2022), the state in which you live might have an estate or inheritance tax to consider in your planning. This is also the time to review all your beneficiary designations. These assets pass to the named beneficiary, not through your will. Keep in mind that assets such as IRAs, 401(k) plans and U.S. savings bonds are subject to income tax in an estate. If you name a charity as the designated beneficiary or leave the bonds to charity in your will, income tax can be avoided.

Squeezing Cash From Collectibles

Whether you collect stamps, beer steins or baseball cards, the day may come when you want to turn your treasures into cash. Before putting the items up for sale, consider the tax consequences of owning and disposing of your collectibles.

Any gain on the sale of collectibles is subject to capital gains tax. The top rate for items held more than one year is 28%, compared with 15% or 20% for the sale of stock.
Items sold at a loss generally don’t qualify for a capital loss deduction.
If the items are included in the estate, heirs take the fair market value, even if this is less than what the pieces originally cost.
A collection may be insured for loss due to fire, theft or other casualties, but if insurance proceeds exceed the price paid for the pieces, there will be a taxable gain. The gain can be avoided, however, if the insurance payout is used to purchase like-kind property.
If a collection is given to charity, the deduction is the fair market value of the items, provided they can be put to a use “related” to the charity’s mission. Otherwise, the deduction is limited to the donor’s basis. Items left to charity through a will or living trust qualify for an estate tax charitable deduction equal to the fair market value.
Collectibles contributed to a charitable remainder trust can be sold without loss to capital gains tax. Sale proceeds can be reinvested to provide lifetime payments to the donor or others, although the charitable deduction is calculated on cost basis, not fair market value. The deduction may also be postponed until the pieces are sold by the trustee.

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