Year-End Tax Planning
Yes, it’s that time of year again: When it starts to get a bit nippy in Southern California and we have to wear long-sleeve shirts with our shorts and sandals. The time of year when things start to get a little cheerier and we look forward to the promise of a new year ahead (especially after 2020). Yes, you guessed it—it’s time for tax planning!
This year has been an eventful one, to say the least. Amid the social, medical, and political turmoil of 2020, there have been two laws passed that may affect your year-end tax-planning: the CARES Act and the SECURE Act (passed a lifetime ago in January). Let’s take a look at some key opportunities in the new laws, as well as some oldie-but-goodie strategies, to see what’s best for you.
- Maximize your retirement savings
- Did you turn 50 this year? If so, you’re entitled to a $6,500 catch-up contribution for your 401(k) plan and an extra $1,000 for traditional and Roth IRAs.
- If you’ve already maxed out your 401(k) contribution, and your company retirement plan allows you to, consider contributing additional funds to your plan on a non-deductible basis. For 2020, the total contribution limit is $57,000 (made up of your first $19,500 employee elective deferral + any employer matching + any additional contributions you make).
- If you’re over 70.5 and still working, the SECURE Act increased the age limit to contribute to your traditional IRA to 72.
- Note, though, if you’re considering making a qualified charitable distribution (QCD), making a deductible IRA contribution may reduce how much of the QCD you can deduct.
- Take advantage of deductions
- Charitable deductions
- The CARES Act increased the limit on charitable deductions in 2020 to 100% of AGI for cash contributions made to public charities.
- Note: contributions made to a private foundation or a donor-advised fund do not qualify as qualified charitable contributions (QCCs) so the 60% AGI limitation for cash would apply.
- If you don’t itemize deductions, the CARES Act also permits an above-the-line deduction of $300.
- Consider a Roth conversion
- If your income is lower this year—either due to COVID-19 and/or the CARES Act waiver of required minimum distributions for 2020—consider doing a Roth IRA conversion since you’ll already be in a lower tax bracket.
- The SECURE Act requires that IRAs inherited by non-spouse beneficiaries be distributed within 10 years. Mitigate the tax impact on your heirs by converting funds from a pre-tax IRA to a Roth so the distributions to your heirs will be tax-free.
- If a Roth conversion is appropriate for you, you can pair it with your QCC to offset the income recognized from converting pre-tax funds into a Roth.
If you’re interested in discussing any of the above strategies further, contact your wealth advisory team now. The last couple months of the year can get very busy with tax-planning requests, so processing times can be delayed at brokerage account custodians. If you and your advisor decide that one (or more) of these strategies is right for you, start early to ensure any transactions are processed by year end. The holidays are going to look a lot different this year, so perhaps a silver lining is the opportunity to be more strategic when it comes to another December tradition—tax planning.
Disclosures: This information is presented for educational purposes only. It is not written or intended as financial or tax advice and may not be relied on for purposes of avoiding any federal tax penalties under the Internal Revenue Code. You are encouraged to seek financial and tax advice from your professional advisors before implementing any transactions and/or strategies concerning your finances.
Schwab IMPACT Video & Sharkpreneur Podcast
Featuring our CEO, Jeff Sarti
Our CEO, Jeff Sarti, was featured at Charles Schwab’s virtual IMPACT conference. Thousands of investment advisory professionals gathered remotely to learn about how to think differently about the issues that matter most to their practices. This year Schwab highlighted four firms based on the impact they are making in the industry. In a year that has brought so much change, we are honored to be chosen. Watch the video below as Jeff shares his personal thoughts on serving our clients during these uncertain times.
Jeff was also featured on a recent episode of the Sharkpreneur podcast with host Seth Greene, one of the original sharks from the hit TV show Shark Tank. Jeff discusses Morton’s market outlook given the challenging economy and also explains how our three core beliefs drive our business decisions and empower our internal teams.
To watch Jeff’s video from the Schwab IMPACT conference or listen to his podcast with Seth Greene, click below or visit our Insights page on our website.
Schwab IMPACT video link: https://mortoncapital.com/schwabimpactvideo/
Sharkpreneur podcast link: https://mortoncapital.com/sharkpreneur-podcast-featuring-jeff-sarti-growing-to-2-billion-aum/
What Does “Money Printing” Really Mean?
In recent years, the term “money printing” has become commonplace with investment professionals, economists and politicians. But what does it actually mean? While the specific execution can be highly nuanced and rather complicated, at its core, money printing is when assets suddenly appear on the balance sheet of the Federal Reserve (Fed), which then facilitates the distribution of those assets to privately held banks. Contrary to its name, money printing doesn’t constitute the use of a physical printing press, but, in our electronic world, just requires the push of a button to make digital assets appear. To better understand what money printing is and why we should care about it, let’s take a look at money printing in action over the last two global economic recessions.
Money printing during the Great Financial Crisis (GFC)
To ensure they can meet their obligations, banks must hold a certain amount of cash as reserves. In 2008, according to the FRED economic database, U.S. banks had very low cash levels (only around 3%!), which meant that, as millions of Americans defaulted on their mortgages, banks didn’t have the cash on hand to remain solvent on their own. The Fed stepped in and essentially created “cash” in banks’ accounts with a few keystrokes. The hope at the time was that this move would shore up bank balance sheets and allow them to start lending again to stimulate the economy. While the first objective was accomplished, the higher level of lending activity didn’t materialize, leading many to cite this example as evidence of how money printing was not economically stimulative or inflationary.
Money printing during COVID-19
Over the last several months, the financial media has highlighted numerous ways in which banks are now in better shape than in 2008. However, total debt as a percentage of the gross domestic product in the U.S. economy remains very high. High debt levels make the economy fragile to external shocks—COVID was an example of such a shock. As millions of people lost their jobs and businesses struggled to remain solvent, it quickly became clear that this round of money printing needed to channel money directly into people’s pockets rather than shore up the cash reserves of banks.
To provide the economy with trillions of dollars, the government passed a large fiscal package, which included increased unemployment benefits, stimulus checks and paycheck protection loans. To fund these fiscal outlays, the government had to issue even more Treasury securities, which the Fed stepped in to purchase as the buyer of last resort. Unlike during the GFC, money was poured directly into the economy. As a result, the money supply sharply increased.
The real risk of all of this money printing and fiscal stimulus is that there are now more dollars out there chasing the same number of goods. While money printing may not be obviously inflationary in the short term, it’s essentially adding powder to the inflation keg. Just because it hasn’t ignited yet doesn’t mean that all that extra powder won’t ultimately matter. While some investors may choose to ignore this risk, we’ve turned increasingly to real assets such as real estate and gold to protect client portfolios. Money printing may seem like a harmless push of a button, but its prevalence as the stimulative tool of choice for those in charge makes it especially important to understand and monitor.
Disclosure: This information is for educational purposes only. It should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class. This document expresses the views of Morton Capital and such views are subject to change without notice. Any investment strategy involves the risk of loss of capital. It should not be assumed that MC will make investment recommendations in the future that are consistent with the views expressed herein.
Welcome Judy and Cameron
Private Investments Administrator
Judy Lee came to Morton Capital in March of 2020, after previously working in graphic design, copy editing, and project management for over 20 years. She brings a wealth of experience and organizational skills, having worked in the fields of publishing, product design/manufacturing, corporate/marketing design, and education. Judy graduated with a Bachelor of Arts degree in English from the University of California, Los Angeles. When not at work, she enjoys spending time with her family, collecting children’s books, cooking, watching Dodgers and Bruin sports, and serving at her church.
Client Service Administrator
Cameron Meek joined Morton Capital in May 2020 as a Client Service Administrator. Cameron is originally from North Dakota, and moved to California to pursue work in the entertainment industry before attending Pepperdine University. She graduated from Pepperdine with a degree in communications. Cameron enjoys spending time at the beach with friends, hiking, and trying new recipes.
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