Hello Eagle Wealth Community,
As financial planning month continues, it’s time to talk about taxes. Specifically, tax strategies in retirement. Tax rules change often, and there’s no guarantee that the tax landscape will stay the same. A smart tax management strategy is a key component of sound financial management.
Some people enter retirement with investments in both taxable and tax-advantaged accounts. Which accounts should you draw money from first? We may sound like a broken record, but to answer that question, we must consult your unique financial plan. Here are some frequently asked questions we can answer today.
Will you pay higher taxes in retirement? It’s possible. But that will largely depend on how you generate income. Will it be from working? Will it be from retirement plans? And if it does come from retirement plans, it’s important to understand which types of plans will be financing your retirement.
Another factor to consider is the role Social Security will play in your retirement. When do you plan to start to take Social Security benefits? If you have a spouse, when do they plan on taking benefits? It’s critical to answer key Social Security benefits questions so you have a better understanding of how it will affect your taxable income.
What’s a pre-tax investment? Traditional IRAs and 401(k)s are examples of pre-tax investments that are designed to help you save for retirement.
You won’t pay any taxes on the contributions you make to these accounts until you start to take distributions. Pre-tax investments are also called tax-deferred investments, as the money you accumulate in these accounts can benefit from tax-deferred growth.
- For individuals covered by a retirement plan at work, the tax deduction for a traditional IRA in 2021 is phased out for incomes between $105,000 and $125,000 for married couples filing jointly, and between $66,000 and $76,000 for single filers.1
- Keep in mind that once you reach age 72, you must begin taking required minimum distributions from a traditional IRA, 401(k), and other defined contribution plans in most circumstances.
- Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
- What’s an after-tax investment? A Roth IRA is the most well-known. When you put money into a Roth IRA, the contribution is made with after-tax dollars. Like a traditional IRA, contributions to a Roth IRA are limited based on income.
- For 2021, contributions to a Roth IRA are phased out between $198,000 and $208,000 for married couples filing jointly and between $125,000 and $140,000 for single filers.2
- 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.
Here’s the good news — we don’t expect you to remember all this. There’s a reason you have a team of professionals that you can trust. We’re here to provide resources and the most up-to-date information that you may need. As always, please make sure to reach out if you have questions.
Your Eagle Wealth Team
P.S. Remember, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to talk with us (or your tax or legal professionals) before modifying your retirement strategy.
Now Offering Tax Preparation and Planning Services
Taxes aren’t much fun, and we’ve seen the stress they cause many of you. We’re in the business of making lives easier, so we’re offering the chance to streamline your taxes by using our new tax preparation and planning services.
If you choose, your financial planning team will work together with our new accounting team to prepare and file your taxes as seamlessly as possible. No more back and forth, trying to get all the information your accountant needs and explaining your situation over again.
Our job is to know your financial life better than anyone. To know what happened this year AND the big picture . . . your long-term plans and goals. Integrating tax preparation with our financial planning streamlines taxes, making your life easier, and setting you up for success.
- There’s no obligation to use our new tax services. This is simply an offer to you.
- We're happy to continue consulting with your outside tax professionals. There is a separate fee for tax services, based on the complexity of your situation.
- If you’re interested in using our tax services for the 2021 tax season, please complete this form and we’ll contact you. As we’re expecting significant demand for this new service, we recommend you reach out to us by the end of December.
- If you’re already a Doorn Accounting client then there’s nothing you need to do. Your information will transition seamlessly.
Adding tax services to our firm is one more step in our journey to provide you with all the financial solutions you need. We’re so excited to expand our offering to you. Sign up below.
Last month Emily and Tyson finally made it down the aisle after their postponed 2020 wedding. They held a small ceremony with family in northern California. They spent the rest of the week at the beach, wine tasting, and soaked up the best that Sonoma County has to offer.
In Eagle Wealth style, the team gathered in the conference room to virtually attend over Zoom!
The Week on Wall Street
Stocks rallied last week on a stream of positive corporate earnings surprises.
The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 advanced 1.64%. The Nasdaq Composite index gained 1.29% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, was up 0.23%.1,2,3
Earnings Ignite Rally
Fears over inflation, supply shortages, and slowing economic growth in China were pushed aside last week as investors reacted to a daily succession of positive corporate earnings surprises. After the Dow Industrials reached an all-time high intraday on Wednesday, fresh earnings reports, an increase in existing home sales, and a new pandemic low in initial jobless claims–and continuing claims–propelled the S&P 500 index to a new record high the following session.4,5
Disappointing earnings before the market opened on Friday hurt a few social media stocks, resulting in a choppy trading session and a selloff in the Nasdaq to close out the week.
Solid Start To Season
Investors came into the earnings season anxious about whether businesses could extend the earnings growth momentum of recent quarters amid an increase in Delta infections, inflation, labor shortages, and supply-chain bottlenecks. The early results were encouraging. Of the 23% of companies comprising the S&P 500 index that have reported, 84% beat Wall Street consensus earnings estimates by an average of more than 13%.6
The earnings season may get more uneven in coming weeks since many of the companies potentially affected by labor shortages and inflation have yet to report. Nevertheless, these better-than-expected earnings buoyed investor spirits and allowed stocks to build on their October gains.
THE WEEK AHEAD
Key Economic Data
Tuesday: New Home Sales. Consumer Confidence.
Wednesday: Durable Goods Orders.
Thursday: Gross Domestic Product (GDP). Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, October 22, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements
Companies Reporting Earnings
Monday: Facebook (FB), KimberlyClark Corporation (KMB).
Tuesday: Microsoft Corporation (MSFT), General Electric Company (GE), Advanced Micro Devices, Inc. (AMD), Twitter, Inc. (TWTR), Visa, Inc. (V), Alphabet, Inc. (GOOGL), Lockheed Martin Corporation (LMT), Eli Lilly and Company (LLY), Texas Instruments (TXN), United Parcel Service (UPS), Capital One Financial Corporation (COF).
Wednesday: The Boeing Company (BA), Ford Motor Company (F), Bristol Myers Squibb Company (BMY), General Motors (GM), Twilio, Inc. (TWLO), CocaCola Company (KO), McDonald’s Corporation (MCD), GlaxoSmithKline (GSK), ServiceNow, Inc. (NOW), Spotify Technology (SPOT), General Dynamics Corporation (GD).
Thursday: Apple, Inc. (AAPL), Mastercard (MA), Caterpillar, Inc. (CAT), Starbucks Corporation (SBUX), Merck & Company, Inc. (MRK), Shopify, Inc. (SHOP), Northrop Grumman Corporation (NOC), Comcast Corporation (CMCSA), Illinois Tool Works, Inc. (ITW).
Friday: AbbVie, Inc. (ABBV), Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), LyondellBasell Industries N.V. (LYB).
Source: Zacks, October 22, 2021
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
1. The Wall Street Journal, October 22, 2021
2. The Wall Street Journal, October 22, 2021
3. The Wall Street Journal, October 22, 2021
4. CNBC, October 20, 2021
5. The Wall Street Journal, October 21, 2021
6. FactSet, October 22, 2021
7. IRS.gov, June 8, 2021
8. hellomagazine.com, June 24, 2021