IronBridge Private Wealth

Forward with Confidence

tax planning

Retiring in a Volatile Market: Control What You Can

Loving mature wife embracing husband from behind while writing in book. Happy middle aged couple making to do list of purchases and discussing future plans. Cheerful senior man working at home on wooden table with beautiful woman hugging him from behind, copy space.

Retirement during a volatile market is unsettling.

Whether you are on the cusp or have already made the leap, a market downturn’s impact on your savings will be felt now and potentially for years to come. How do you keep your plan on track and your desired lifestyle in place?

If you can’t control income, you’ll need to control expenses. And that means budgeting and taxes. You can deploy tactics and strategies to optimize these factors no matter what stage you are in on your retirement journey.

Set a Realistic Budget – And Stick to It

Lifestyle creep is real.

No matter how carefully you budget, somehow, the numbers on the spreadsheet don’t mean much when confronted with fun, deliciousness, seeing family, a quick weekend trip, or anything else. You get the idea.

A volatile market means that drawing income from investments will likely result in selling into a down market. This not only crystallizes the loss, but you may also have to sell greater amounts to make up for lower prices. This will hamper your recovery, and your assets may not grow as much over time.

Reviewing your budget to ensure you keep your spending at a level that is commensurate with your income is critical.

Plan Proactively to Reduce Taxes

Planning strategically for taxes can help you keep more of your income.

This can compensate for budget shortfalls or help you give long-term capital growth investments the time they need to recover. There are a lot of things you can do to keep yourself in the lowest possible tax bracket.

Maximize Tax-Free Social Security Income

Social security benefits have a tax-free component of at least 15%. Whether you pay taxes on the other 85% depends on your overall income level, but you can increase your tax-free income by maximizing your benefits.

Waiting until age 70 to claim increases your annual benefit by 8% for every year from your full retirement age (FRA). If you are married, it may make sense for the spouse with the highest income level to wait until age 70, while the lower-income spouse claims at early or full retirement.

Deploy an Asset Location Strategy

Asset location refers to the types of accounts where you hold investments. They are tax-deferred such as 401(k)s and IRAs, taxable brokerage accounts, and tax-free Roth accounts.

Using all the accounts together to create a tax strategy that lowers lifetime taxes is the goal. The general principle is to match the asset up to the account’s tax treatment. Stocks receive tax-favorable treatment on qualified dividends and long-term capital gains, so one option is to put them in a taxable account.

If you hold municipal bonds, they also go into a taxable account. Higher yielding corporate bonds would be held in a tax-deferred account, as the lower growth rate compared to equities will help reduce required minimum distributions, which are based on the account value.

Using the Roth IRA account as a flexible source of funds can help keep you in lower tax brackets. In years when taxable income is higher, using funds from the Roth account for living expenses can reduce income taxes and help you avoid the IRMAA Medicare Part B and Part D premium surcharge.

Take Advantage of Lower Asset Values with a Roth Conversion

The drop in value of 401(k) and IRA accounts is painful – but it also means that you can convert those assets to a tax-free Roth account with a lower tax liability.

This can set you up for a more effective asset location strategy and can help you control future income and taxes by eliminating RMDs on the assets that are converted.

The Bottom Line

Retiring in a volatile market adds a layer of complexity to all the choices you need to make.

It means emphasizing controlling your expenses, whether lifestyle or the taxes on the income you draw from retirement accounts.

The critical thing to remember is that you do have options, and you can control several important levers that can help you keep your retirement plans intact.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Women and Money: An Evolved Approach

Inspired mature grey-haired woman fashion designer thinking on new creative ideas at workplace. Smiling beautiful elegant classy middle aged older lady small business owner dreaming in atelier studio.

Women at all age levels are redefining how they think about their financial journey. This includes career paths, planning for flexibility, taking charge of family finances, or being successful on their terms.

There are some generational differences among Gen Z, Millennial, Gen X, and Boomer women—but not as much as you’d think. And two main differences that set them apart from men hold across generations:

  1. Women are better investors than men1
  2. Women are more likely to approach financial planning as a partnership with a trusted advisor2
  3. Women value a financial advisor that listens to them more than men do3

Women tend to outperform men partly because they are more patient investors and trade less. This results in better performance over time and lowers costs.

As to the second result, the easy reach is to point out the men are reluctant to ask for directions when driving too. But it’s a little more complicated than that, and the reasons why women seek financial advice change as they move through their lifecycle.

How they want to partner with a financial advisor is also different. Women want to be sure that the advisor listens to them and understands and respects their priorities.

Gen Z and Younger Millennials

Younger women (Gen Z and younger Millennials) are generally comfortable and confident about money and financial planning.

They’ve grown up with more salary transparency, the proliferation of money-related apps to help with budgeting and investing, and the optimism of youth. They are interested in financial planning that fits their busy lives. They make good salaries, still have debt, are single or newly partnered, and want to get a good foundation in place.

They gravitate to financial planners that offer the planning they need in a way that they can relate to. This includes cash-flow planning, debt reduction strategies, maximizing employee benefits, and above all – helping them improve their financial literacy.

This generation of women understands the value of starting early on the path to financial independence and wants financial planning advice that can help them build a solid foundation.

Older Millennials and Gen X

Portrait of smiling beautiful millennial businesswoman or CEO looking at camera, happy female boss posing making headshot picture for company photoshoot, confident successful woman at work

As women approach the mid-point of their careers, money becomes more complex.

Careers are in full swing, and growing wealth brings to the fore the costs of making a mistake.

These women may not have worked with a financial advisor before. Whether single or partnered, they realize that all the different pieces of their financial lives need to come together in a comprehensive plan.

For them, it’s about creating the option to stop work, scale back work, start a business of their own, or do more meaningful work that may not be as highly paid – while maintaining a current lifestyle and still save for financial goals in the future.

They realize the value of working with a financial advisor that can help them put together all the pieces of their lives:

  • Equity compensation
  • What to do with an annual bonus
  • Tax planning
  • Saving for education
  • Taking the right amount of investment risk
  • Buying a second home or income property
  • Creating opportunity with their wealth

These women want a trusted partner that explains the “why” to them, and guides them to make choices that are right for them.

As things change, they value being able to make changes to a plan to accommodate new goals or different circumstances.

Older Gen and X-Boomers

These women are driving the decision to work with a financial advisor for themselves and their families. Very often, something has sparked the need to partner with a financial advisor to solve an immediate problem.

  • A change of job
  • A spouse’s health issue
  • Aging parents
  • Imminent retirement
  • Death of a spouse
  • Tax issues

Having a trusted partner to help them sort through the issue calmly in a non-judgmental way is paramount. They want someone to help them fix problems, provide solutions, and ensure that no other avoidable situations are on the horizon.

They may realize that a spouse has always done the financial planning and that it may be time for them to understand the specifics of their wealth. They may want to plan for a retirement that allows them the time they have always wanted with their family.

This group has the most anxiety around money and the least excitement.4 They need to develop trust and have an investment plan that helps them achieve their goals – without taking on too much risk.

The Bottom Line

Women are taking control of their and their families’ wealth at all points on the age spectrum.

They value working with a financial advisor, but they are clear in their need to have someone who listens, prioritizes their goals, is a trusted partner, and truly understands how they want to build and maintain wealth.

1.Fidelity 2021 Women and Investing Study.

2, 3, 4. U.S. Bank. Women and Wealth: Exploring the Gender Gap. 2021.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Thinking Through “Life-Changing” Wealth

my new life chapter one. planning considerations when selling a business, receiving an inheritance or a successful investment.

Incorporating a large lump sum of money into a financial plan requires thinking through a series of impacts that happen over time.

There are financial, emotional, tax, legacy, employment and a host of other issues to be addressed.

Whether the influx is due to an inheritance, an asset sale, or an IPO, taking some time to adjust before making any decisions is a good idea.

We get into some immediate implications, and then some further down the road.

Take Time to Breathe

Before you address the changes a large sum of money will bring, you may want to process the events that led to the inflow.

The loss of someone you care about, the sale of a business you’ve built, the monetization of the work you’ve put into a career are all emotional events.

The cardinal rule of investing is to remove as much emotion as possible. So taking time to work through the underlying feelings before you think about the ongoing changes to your life is a healthy approach.

Prioritize

By far the most important part of this process is to prioritize your actions.

There are some issues that require your immediate attention:

Following the death of a loved one, for example, there is the ugly “business” of processing and settling the estate. Good planning can help make this transition a smooth one, but there are still steps you must take those first few weeks and months.

Selling a business or having a large inflow of stock options require careful tax analysis, which we discuss below.

With any inflow of wealth, you’ll need to address these immediate deadlines.

However, you shouldn’t feel that you need to develop an investing plan right away. Yes, there may be opportunity costs of not immediately getting funds invested, but it is far more prudent to develop a disciplined investment plan to avoid making costly investment mistakes with large sums of money. And the volatility you may be used to with your portfolio takes on a different meaning when you add a zero or two to the end of the values.

Also, if possible, you should avoid any large amounts of spending right away. Your needs, wants, goals, etc. may change as you get used to your new reality, and you don’t want to do anything that can’t be undone.

By prioritizing what decisions you need to make first, you can more easily process the inflow of wealth to help you avoid costly mistakes.

Understand the Cost of Taxes

The money may be yours – but the government most likely has a claim on some of it.

Having a very clear accounting of how much tax is due and when, and how you are going to pay it, is the first step. The taxes due may come out of the lump sum, or it may be more advantageous to pay the taxes from other sources of funds. You’ll need a plan to understand the right choice for you.

For example:

  • An inheritance may include very low-basis stocks that you do not want to sell. But it could have a step-up in cost basis that may warrant selling them first. Tax laws change over time, and understanding what you need to do to is critical.
  • You may choose to structure the sale of a business in a deferred sales trust, so that you can minimize taxes. You’ll need to set up and implement that structure, and plan for gaining access to the funds over time.
  • Post-IPO, you’ll be subject to taxes on your shares, and you’ll have some timelines you need to be aware of and taxes you’ll need to pay, whether you hold on to the stock or not.

Be sure to identify all tax strategies with a tax professional, because there may be ways to reduce your overall tax bill in the year that the event happens.

For example, if you have charitable inclinations, you might want to consider a gift in the year you received the lump sum. One example is via a Donor Advised Fund. Learn more HERE.

The ideal situation is to discuss potential tax implications prior to a large liquidity event when possible.

Rethink Your Approach to Risk Management – Both Investment Risk and Asset Risk

Adding a large sum to your overall financial picture will change how you think about risk.

You’ll need to assess your liability and protect your overall assets. This may mean an umbrella policy, structuring or titling assets differently, or in the case of an inheritance, it may mean a different insurance strategy.

Your investment goals may also change with time.

If you’ve sold a business and this is your retirement fund, your risk profile will look different than it did when you had a business creating income.

With an inheritance, an IPO, or other lump sum, you may decide to change, cut down, or stop work. This will create different time horizons for investing and different risk tolerances.

It may take time to understand what you want to do and put a plan in place.

Keeping assets as flexible as possible is the key to giving yourself choices as you move forward. You’ll want to minimize risk and avoid locking up funds until you have a clear understanding of your new goals.

Create a New Path Forward

Once you get used to your new situation, many people decide to make big changes.

These could include creating a legacy, actively gifting to help others, or using your funds to provide income for yourself so that you can devote your most valuable resource – your time – to causes you care about.

Or it may mean making a big purchase you’ve always wanted, travel, or just taking time to spend with family.

Most likely it is a combination of these dreams.

In the case of a business owner, you worked hard to get to where you are. You most likely made sacrifices that no one sees or knows about.

It is okay to enjoy your new wealth while still using it to positively impact others in whatever way you choose.

The Bottom Line

Thinking through your options means working carefully to create a financial plan that maximizes your assets, minimizes your taxes and provides for you and your loved ones.

The new plan may be bigger and more complicated, but the basic principles will still apply. You’ll still need to take the time to work with your team to set out what you want, and then put it into action.

We’re always here to talk it through with you.

Planning for 2022: The IRS has Increased Several Key Deductions, Exemptions and Contribution Limits

The spike in inflation we’ve seen this year has impacts beyond having to pay more for goods and services. The IRS uses consumer price inflation (CPI) to determine certain increases to exemptions and deductions for federal tax purposes. These are automatic and calculated from the rise in CPI.

That means that the increased inflation this year may actually end up saving you money.

While the changes are for 2022 and you won’t be paying the associated taxes until 2023, it’s a good idea to be aware of the new limits.

You may be able to make changes as you go that can help you maximize the benefit.

For example, the amounts for Flexible Spending Accounts (FSAs) and the commuter benefit increased. You may want to have more taken out of your paycheck to reflect this change. This saves you money by paying with pre-tax dollars for expenses you’re likely to pay anyways.

The income levels at which AMT applies also went up. If you have stock options, AMT very often comes into play. The increase amounts to $2,300 over the 2021 level for a single filer. While it doesn’t seem like much, it may be enough to allow you some flexibility in structuring them that will save you on taxes.

As always, we are not tax advisors. Please consult your tax professional on how these changes may affect your individual situation.

Retirement Contribution Limits

For workplace retirement accounts (i.e. 401(k), 403(b), amongst others), the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500.1

Eligibility for Roth IRA contributions has increased, as well. These have bumped up to $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples.1

Another increase was for SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), which increases from $13,500 to $14,000.1

Unfortunately, not everything changes in 2022.

Traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.1

Taking the Standard Deduction

The standard deduction increased in 2018, and many taxpayers now opt not to itemize. For 2022, this choice becomes even more attractive as the deduction for a married couple filing jointly increased by $800. Taking the standard deduction simplifies tax preparation, but if you have deductible expenses such as medical expenses, property taxes, mortgage interest, charitable giving, or others (and there are hundreds), you may be passing up tax savings.

If your total itemized deductions are close to the amount of the standard deduction, there are strategies for charitable giving that can increase your tax deductions in any one year. This can be done without increasing your overall plans for giving. Giving some thought to your deductions as you move through the year can help you keep track of where you want to be.

Alternative Minimum Tax

The alternative minimum tax was created to limit the amount that high-income taxpayers can lower tax amounts through deductions or credits. It sets a floor on the amount of tax that must be paid. The AMT is particularly relevant if you have been granted incentive stock options (ISOs) as part of your compensation.

The AMT is adjusted based on the price you pay for the shares (the strike price) and the fair market value when you exercise. Because you can choose when to exercise, you have some flexibility in avoiding or minimizing AMT, but it requires careful planning of your income.

Flexible Spending Accounts and Commuter Benefits

The dollar limit for 2022 contributions to a flexible savings account is $2,850, an increase of $100 over 2021. If your plan allows carryovers, the new carryover limit is $570.

The monthly commuter benefit contribution limit for 2022 to your qualified parking and transit accounts increased to $280.

Gift and Estate Tax Exclusions

The annual federal exclusion for gifts was bumped up $1,000 to $16,000 for 2022. For a married couple, this means they can gift $32,000 to any individual without using their lifetime exemption.

The lifetime exemption also went up, to $12.06 million per person.

The Takeaway

Increases in deductions and exemptions are one of the few areas that inflation can help out investors – but you’ll need to plan ahead to take advantage of some of the increases.

There are lot of moving parts to a comprehensive plan that can save you money on taxes, and it’s never too early to get started in making the right moves.

1. CNBC.com, Friday, November 5, 2021

The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Charitable Giving and Donor-Advised Funds

The impulse to help others in need and to share good fortune is universal. It has never been solely the province of the very wealthy; charitable giving at all income levels, whether by donating time, money, or expertise, is a part of many people’s life plan.

When it comes to giving plans that involve donating wealth, the elements of several different dimensions – demographic trends, market performance, advances in financial services, increased need, and potential changes to the tax code – are combining to create unprecedented amounts of giving. And further, the way we give is changing.

We break down the recent data and the reasons behind the changes to philanthropy.

The Need of Last Year Resonated

According to a June 2021 study by Giving USA, American charitable giving hit $471 billion in 2020, a 3.8% increase from 2019. The largest increase in percentage terms was to local giving. Vanguard Charitable reports that homeless shelters and food pantries saw a rise of 147% in donations over 2019. Being able to help and make an impact in your community – the aphorism “charity begins at home” – clearly motivated donors.

But the Trend is Likely to Continue

However, there are many other reasons that played into giving that are likely to continue as we move forward in recovery. This will likely keep charitable dollars flowing. The more than decade-long strong performance of the equity markets means that wealth has increased dramatically. Stimulus programs that helped keep the economy moving also boosted consumer balance sheets as consumers elected to pay down debt. Confidence that the economy will recover and a strong labor market is also likely to result in more giving.

At the same time, a wealthy older generation is acting on their desire to leave a legacy of positively impacting their world. The difference with Boomers is that they are responding to younger generations’ priorities. Boomers see charitable giving as a way to involve their families, share their values, and create stronger bonds.

And finally, the likelihood that tax rates will increase and tax code changes will potentially alter existing tax-advantageous strategies is making it a priority to take advantage of the tax benefits available now by compressing a timeline for giving.

There’s an Efficient Way to Give

For many financial giving strategies, setting up a trust makes sense. Trusts avoid probate and they are very customizable. And they are not just vehicles for the extremely wealthy – there are many situations in which investors at all income levels can benefit from a trust structure. However, they are complicated legal structures with expense involved. Many investors who want who do not want a trust-based giving strategy are now turning to donor-advised funds (DAFs).

DAFs allow for donations of highly appreciated stock or other assets. The donor receives an immediate tax deduction but does not have to apportion the money to different charities right away. The money can stay in the account for years, be invested according to the donor’s wishes, and then ultimately be allocated to charity.

The National Philanthropic Trust cites data from 2015 – 2019 to underscore the increased popularity of these vehicles. Contributions to DAFs totaled $38.31 billion in 2019, up 80% since 2015. And people are increasingly allocating the money in their donor-advised funds to charities they have selected. More than $25 billion in grants to charitable organizations were made from DAFs in 2019, a 93% increase over 2015.

The Bottom Line

Increased need, a strong equity market, and the likelihood of losing tax advantages are propelling charitable giving. As the older generation makes their mark, they are including family – and not just adult family- in the process.

Donor Advised Funds: Tax Benefits, Growth and Control

Alphabet letter wooden blocks with words GIVE in child and parents hands. Family and charity concept

Donor advised funds have been around for decades, but they’ve only become wildly popular vehicles for charitable giving over the last several years. They offer immediate tax benefits as the assets or funds in the donor advised fund convey a tax deduction in the year in which they are gifted. Inside the fund, the assets can grow tax-free and not have to be distributed immediately to a charity. 

How popular are they? Total assets in donor-advised funds have more than quadrupled over the past decade, to more than $140 billion. Roughly $1 of every $8 given to charity in America now goes to a donor-advised fund.1

The funds offer an extremely flexible way to craft a gifting strategy that can allow for the gift to be invested and managed, to potentially grow over time, and for the gifter to maintain control over the assets.

Understanding Donor Advised Funds

A donor advised fund (DAF) is a savings vehicle that allows for charitable donations and tax benefits, all while the donor still has control over where the assets are to be donated. Donor advised funds are irrevocable, meaning that you can’t withdraw funds after donating. Still, you can specify how the donation is to be invested and to which charity you’d like to donate.

Given their versatility and flexibility, DAFs have become a popular choice for those with a charitable heart. According to research from the National Philanthropic Trust, contributions to DAFs in 2019 totaled almost $39 billion, an 80% increase since 2015.2

With donor advised funds, you aren’t limited to donating just cash. Acceptable donations range from stocks and bonds to bitcoin and private company stock. Donors can deduct up to 60% of adjusted gross income if donating cash and up to 30% of adjusted gross income if donating appreciated assets.3

To make sure a donation qualifies for the full benefits, the fund administrator must be a public charity that falls under the qualifications of a 501(c)(3) organization.

How They’re Managed and How to Contribute to One

First, it must be opened at a qualifying sponsor. After selecting a sponsor, donors must make an irrevocable contribution to the fund. At that time, they can take the immediate tax deduction and begin naming beneficiaries and successors for the account.

After making a contribution, the sponsor firm then has legal control over the funds. It can invest the money in accordance with the donor’s recommendations, until the donor is ready to decide which charity they’d like the distribute funds to. Since the fund manages the money and handles the administrative tasks that come with donating to charities, administrative fees need to be considered when deciding on which sponsor to use, as those fees are deducted from the donor’s contributions.

When Does It Make Sense to Contribute to a Donor Advised Fund?

There are many situations where it may make sense to contribute to a donor advised fund, but some of the most common are:

  • If you own highly appreciated assets
  • If you’re looking for a tax-deductible transaction
  • If you want to make a sizable future donation

For example, let’s say someone bought Amazon stock when it was $10/share, and it grew to $3,000/share and they didn’t want to pay capital gains tax on the appreciation. With a donor advised fund, they could donate the stock, and no capital gains would be due.

The Pros and Cons of Donor Advised Funds

When contributing money to a donor advised fund, the donor receives an immediate tax deduction on the amount they contributed, even though the funds may not be distributed to a charity until a future date. This allows for greater control and flexibility when compared to making a regular donation directly to a charity.

Additionally, contributing to a donor advised fund makes record-keeping simpler than making multiple donations to different charities and keeping track of all the documents. This is because the fund can act as a “hub” for all donations, and it will record all contributions and provide a single tax document containing all information needed.

Though versatile, a concern amongst many donors is the fees associated with donor advised funds. For example, the fund might charge a 1% administrative fee, which is being taken directly out of the funds to be donated. The underlying investments may also have fees, so it’s important that you carefully evaluate where your money is going and how fees play a role in the donation.

The Takeaway

Overall, donor advised funds are a versatile tool when it comes to making donations. They provide tax benefits and allow donors to choose where their money goes, all while those donations can grow tax-free until a charity is chosen. However, there’s more to consider than just the benefits, so to make sure it’s the right move to make for your financial situation, it’s recommended to talk with a financial advisor before establishing a donor advised fund.

  1. Frank, Robert. Billionaire philanthropist John Arnold says donor-advised funds are ‘wealth-warehousing vehicles’. CNBC. August 11, 2021.
  2. National Philanthropic Trust. The 2020 DAF Report. NPTrust.org
  3. What is a Donor Advised Fund? Fidelity Charitable.

The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

Tax & Estate Strategies for Married LGBTQ+ Couples

The 2015 Obergefell v. Hodges Supreme Court decision streamlined tax and estate strategizing for married LGBTQ+ couples. If you are filing a joint tax return for this year or are considering updating your estate strategy, here are some important things to remember.

Keep in mind, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your tax strategy.

You can file jointly if you were married at any time this year. Whether you married on January 1st, June 8th, or December 31st, you can still file jointly as a married couple. Under federal tax law, your marital status on the final day of a year determines your filing status. This rule also applies to divorcing couples. Now that marriage equality is nationally recognized, filing your state taxes is much easier as well.1

If you are newly married or have not considered filing jointly, remember that most married couples potentially benefit from filing jointly. For instance, if you have or want to have children, you will need to file jointly to qualify for the Child and Dependent Care Tax Credit. Filing jointly also makes you eligible for Lifetime Learning Credits and the American Opportunity Tax Credit.2

You can gift greater amounts to family and friends. Prior to the landmark 2015 Supreme Court ruling, LGBTQ+ spouses were stuck with the individual gift tax exclusion under federal estate tax law. As such, an LGBTQ+ couple could not pair their $15,000-per-person allowances to make a gift of up to $30,000 as a couple to another individual. But today, LGBTQ+ spouses can gift up to $30,000 to as many individuals as they wish per year.3

You can take advantage of portability. Your $11.7 million individual lifetime estate and gift tax exclusion may be adjusted upward for inflation in future years, but it will also be portable. Under the portability rules, when one spouse dies without fully using the lifetime estate and gift tax exclusion, the unused portion is conveyed to the surviving spouse’s estate. To illustrate, if a spouse dies after using only $2.1 million of the $11.7 million lifetime exclusion, the surviving spouse ends up with a $9.6 million lifetime exclusion.3

You have access to the unlimited marital deduction. The unlimited marital deduction is the basic deduction that allows one spouse to pass assets at death to a surviving spouse without incurring the federal estate tax.3

Marriage equality has made things so much simpler. The hassle and extra paperwork that some LGBTQ+ couples previously faced at tax time is now, happily, a thing of the past.

We are monitoring how potential tax legislation working through Congress right now may affect these strategies. Remember to check the tax laws in your state with the help of a tax or financial professional.

1. Internal Revenue Service, October 14, 2020
2. Internal Revenue Service, March 12, 2021
3. Internal Revenue Service, April 12, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.