Tips for Closing Out Your 2023 Tax Year

The New Year often leads us to look to the future, but, until your taxes are filed, there’s some looking back that becomes necessary.   Though 2023 is likely to bring some changes to the U.S. tax codes that may affect your filing next year, you may consider seeking professional advice to ensure that you file the optimal tax return for last year.

For starters, it’s important to note that Tax Day won’t be on April 15 this year thanks to the federal Emancipation Day holiday in Washington, DC. The holiday means that tax returns will be due on April 18, though there may be exceptions in your state for state tax returns.

To ensure that your 2022 tax filing is accurate, consider the following.

Do a “financial health” checkup. Just as you should check in with your primary care doctor once a year, you should also consider a health checkup for your financial affairs. This will allow you to ensure that you’re not paying too much or too little in taxes during the rest of the year. The IRS offers an online tool that will help you check your federal income tax withholding.  Consult your state tax guides or with the authorities to check your state tax withholding guidelines.

Evaluate your IRA/401K/HSA Contributions. If you haven’t revisited the amount you contribute to your retirement accounts, now is the time to do so.  Annual contribution limits frequently change, or you may have aged into a group that is allowed to put more aside.  IRA limits for 2021 and 2022 are $6,000 ($7,000 if you’re over 50) per individual, with Roth contributions subject to an earnings cap.

In addition, if you have access to a health savings account (HSA) through your health plan, contribution limits are $3,600 for individuals and $7,200 for families for 2021 and $3,650 and $7,300 for 2022, with $1,000 more in catch-up contributions for those over age 55. Contributions are by tax year, so you may be able to make a 2021 and a 2022 contribution if you haven’t already met your 2021 contribution limit.

Understand your work-from-home deductions. If you’ve been working from home for your employer, you may be prepared to write off your home office expenses. The bad news is that you can no longer deduct your out-of-pocket expenses as an employee. The new tax law eliminated deductions for unreimbursed employee expenses that might have previously been claimed for home office costs on Schedule A as Miscellaneous Deductions.  If you’re self-employed, you may be able to deduct home office expenses.

Maximize your deductions. If you’re looking to reduce your tax burden, be sure you’re claiming all the deductions and credits that are available to you. The process of looking for deductions may also prompt you to make different financial decisions for 2022 and potentially help you reduce your taxes in the future.

Consult a financial services professional. To ensure that you’re maximizing your deductions and getting the most out of your tax filing, consult an experienced tax preparer or financial adviser with extensive hands-on tax history.

At Toomey Investment Management, Inc. (TIMI), our business model is designed to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capture money from prospective clients but very little to require that their advisers develop tax expertise.  At Wallingford, Connecticut-based TIMI, we changed that.  We strive to achieve your objectives, keep in touch, and return your calls and communications quickly.  So you can count on us. We will work effectively to optimize your financial situation and solve your problems. Call us at 203-949-1710 or visit our website for more information.

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What is Phased Retirement and Should I Consider It?

Retirement rates have skyrocketed since the COVID-19 pandemic began. Many baby boomers and older-aged employees left their jobs earlier than they originally had planned.

During what should be a happy milestone in one’s career, many were faced with hard decisions on how to maintain finances without their full salaries. Dipping into savings is an option for some. But not all. Social security payments are also lower for those who initiate benefits before the program’s full retirement age.

Beyond just the financial implications of retirement, there is also an emotional aspect that factors into how someone feels when they’ve worked 5 days a week for 30 plus years with a company and then suddenly they no longer have that piece of their life.

Phased retirement is trending more and more today as the workplace landscape also shifts.

Employer pension plans have dwindled and people are living longer overall today. With a phased approach, one is easing into retirement by keeping an income stream during the transition. Many are now even “retiring twice” as a result of finding work they can do to fill their spare time or to increase income after their initial retirement.

Some may have a workplace retirement incentive plan offered. These often require benefits-eligible employees who have completed a certain amount of years with the company. They include the ability to work part-time instead of full-time for a fixed period and allow employees to begin to withdraw retirement benefits.

The other option is to retire and then find a part-time job.

And 45 percent of U.S. workers agree. A recent Transamerica Retirement Survey of Workers found that almost half of respondents plan to reduce their work hours as they move closer to retirement.

Whether the reason is for physiologically easing into the shift in lifestyle, or to help financially support yourself after retiring, it’s important to understand phased retirement options so you can make the most informed decision.

Consider speaking with a trusted advisor about your specific circumstances. You should know for sure if you can afford to retire soon and the impact that retirement will have on your income/lifestyle.

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  • toomeyinvest
  • Estate
  • October 13, 2021

5 Practical Estate Planning Tips

Planning for what will happen as you approach the end of your life and after you pass away can make it easier for your loved ones to cope. Where indicated, an estate plan can help them avoid much of the probate court processes and fees and also provide instructions for taking care of their minor children. If you haven’t yet created an estate plan, here are some issues to consider.

1. List your Assets

Everything you own is includable in your gross estate. There are some assets that are more vulnerable to unforeseeable events, and some that are more shielded. It is important that you list everything you own and chart out whom you would like to inherit these assets. Whether your goal is to create multi-generational wealth, or you are charitably inclined, having this high-level conversation sooner than later can make a substantial difference.

2. Create a Living Will

You may become unable to make medical decisions for yourself and unable to communicate your wishes to doctors and loved ones. A living will allows you to make your preferences known ahead of time so that others will be able to take actions that reflect your wishes. A living will addresses matters such as whether you want to receive life support, pain medication, blood transfusions, and other forms of care.

3. Granting Power of Attorney/Appointment

Power of Attorney (POA) or appointment gives a person you trust the authority to make financial or medical decisions on your behalf if you become physically or mentally incapacitated. This can also be an effective tool in getting the clock ticking on assets you may not want to leave inside your estate. You can select one person to handle both types of issues, or you can designate multiple agents.

The individual to whom you grant a financial POA will be authorized to make financial decisions on your behalf and will have access to your accounts. The person you give a medical POA will be authorized to make medical decisions on your behalf.

4. Draft a Will

A will is a legal document that lays out how you want your assets to be divided after your death. If you have minor children, your will can make clear whom you want to be their guardian.

If you pass away and you haven’t created a will, those matters will be decided by a probate judge in accordance with your state’s laws. A judge may make decisions that are not what you would have wanted. Drafting a will can help you ensure that your affairs will be handled in accordance with your wishes after you pass on.

5. Periodically Review and Update Your Estate Plan

Your circumstances will change in the years ahead, so you should review your estate plan every 3-5 years. You may decide to allocate your assets in a different way after the birth of another child or grandchild. You may change your mind about who should be your children’s guardian after your death or the person you initially chose may no longer be able to fulfill that role for some reason. Most importantly, all estate plans are subject to legislative risk, so it is imperative that you keep your plans current with evolving estate law.

Get Help with Estate Planning

Toomey Investment Management, Inc., has a team of professionals who can work together to handle all aspects of your estate planning. Keep in mind that this article represents the basics of estate planning and high net worth individuals with diverse asset bases usually require more intricate planning measures. We can discuss your current situation and your wishes, and connect you with an attorney to draft legal documents that reflect them. Contact us today to learn more.

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Manage Your Risk with Insurance

Many people don’t think about how their family would get by if they experienced a sudden loss of income due to a disability or an untimely death. Even those who have insurance may be underinsured, which can leave their loved ones at risk.

Let’s take a look at how you can prepare for these future circumstances without leaving yourself, your heirs, or your family in difficult situations.

First, keep in mind that the insurance that employers offer is often not enough to fully cover a family’s needs. The good news is that you can have one or more forms of additional insurance coverage to make sure that you and your family will be able to cover the bills if something unfortunate occurs.

Types of Insurance to Consider

Disability insurance is one type of insurance that can provide financial protection if you are unable to work or if you experience a drop in income due to a disability. It’s important to note that disability insurance will only cover a portion of the amount you earned prior to becoming disabled.

Oftentimes, it is higher earners that need disability insurance the most. This can be due to a number of factors like higher living expenses or massive student loan debts that will need to be satisfied regardless of your ability to earn. Making sure you understand the cost-to-value and the number of different options available usually serves as a good starting point.

Long-term care insurance can be very expensive but can cover a significant chunk of costs incurred in a long-term care facility. Like most insurance products, the sooner you inquire, the more affordable it is likely to be. You should always read policy documents carefully before choosing a plan or work with a trusted adviser who can consult and recommend the best options. Before making a decision on insurance, you should understand the exclusions, waiting periods, and other provisions.

Life insurance is another common type that provides financial support for your family if you pass away. With this insurance, they will be able to cover the mortgage and other living expenses. A financial professional can help you figure out how much money your loved ones would need so you can purchase adequate coverage.

Umbrella insurance  Another thing to consider is if you’re found liable for an accident that injured someone. Often times your homeowners or auto insurance policy may not fully cover the medical bills and other expenses incurred. If the injured party begins a lawsuit over the incident, it may subject your home, retirement savings, and other investments to great risk.  As UMBRELLA insurance can protect you by providing extra coverage that goes beyond the limits of your homeowners or auto policy, it is a wise plan to consider.

Get Help Choosing the Right Coverage to Protect Your Income and the Future of Your Family

TIMI advisers have been insurance licensed for over three decades. We will provide a comprehensive in-house analysis to identify household vulnerabilities and piece together a plan to reduce your risks. Once we’ve reviewed your existing annuities, medical, and life insurance policies, we can work with our network partners to help you find the combination of insurance policies that will provide your family with financial protection.

If you’d like to discuss your current financial situation, future needs, potential risks, and available options for one or more types of coverage, give us a call!

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A Retirement Crisis in America

For most of those in the workforce today, dreaming about when they can retire and start to enjoy more time for themselves and with their families is a given. The goal to work hard, save and then retire has always been in place – but what the retirement years will look like for many is changing drastically compared to the plans that some of our elders had access to in the past.

In addition to starting to save late in life and access to potentially less federal funding for retirement in the future, we find ourselves in what many experts are calling a “retirement crisis” in the U.S. But what does this really mean and should you actually be concerned?

Let’s take a closer look.

Currently, age 62 is the earliest you can claim Social Security retirement benefits. This is when you would be able to get replacement income based on factors such as your earnings history, the year you’re born, and what age you’ll start to claim Social Security. According to the AARP, the estimated average Social Security retirement benefit in 2021 is $1,543 a month.

In the past, workers had access to additional sources of income to help boost that monthly number. For example employer-sponsored pensions or other retirement savings plans, and personal savings that they accumulated.

Today, most of those defined benefit (DB) pension plans for employees have been replaced. So instead of getting a guaranteed monthly income in exchange for the years of work they’ve put in, they have a defined contribution plan (DC), such as a 401k, 403(b), 457, etc., that allows specific monetary contributions deferred from the employee’s paycheck – and sometimes with an employer match, usually based on a percentage of the employee contributions.

With the move to more self-directed retirement plans, figuring out how much you’ll need to withhold to save enough for retirement is very difficult and salary deferrals always reduce your net spendable income. This may be why an astounding number of employees forego participation in available retirement plans. This is partially where the retirement crisis begins.

Add to this the fact that the current Social Security benefit recipients are “paid” by the Social Security payroll taxes of the current workforce; effectively, a pay-as-you-go system.  There are ominous undertones about the equity and long-term viability of the Social Security system, as we know it today.

Then there are the small businesses and private-sector workers that may not have access to a retirement plan through their employer at all due to them being too costly to manage and fund. This often leaves many failing to have any plans for how they’ll survive financially after retirement.

The reality here is that people are living longer and having fewer kids. That means a longer average duration of Social Security benefit payments but fewer workers paying into the Social Security system. So without having enough saved for their retirement years, individuals are depending much more on Social Security benefits to live – and this likely creates additional public assistance expenditures to further strain federal resources and inevitably leading to the potential for higher taxes and lower benefits.

So what can we do now?

It’s up to us as individuals to think about our retirement years now – before we’re close to the age where we are approaching retiring. Having a broad understanding of your options to efficiently and effectively save for your future can make an immeasurable difference. Our financial professionals can help ensure that you work towards securing your financial future. We understand risks, how to properly allocate assets, and help you determine how much to start saving now. Don’t wait until it’s too late – reach out today.

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Tips to Protect Retirement Income

With Americans living longer, healthcare costs rising, and many people beginning to save later in life, it’s possible to enter retirement unprepared. If you’re currently saving or planning to retire in the near future, here are some tips to help you get and stay on track.

Diversify Your Investments

Some financial investments will perform better than others and it can be difficult or impossible to predict how an individual investment will fare over the long term. That’s why it’s important to diversify.

Having a mix of assets in your portfolio can increase the likelihood that your money will grow in the long run and help shield you from the impact of an economic downturn. Of course, it’s impossible to completely insulate yourself from risk, but diversification may provide a greater measure of security than putting all of your retirement savings into one investment type or objective.

Plan to Live a Long Time after You Retire

It’s common for retirees to live well into their 80s or 90s. That means that your retirement savings may have to last for 20 or 30 years. You will have to plan accordingly to make sure that you don’t run out of money.

Factor healthcare costs into your retirement planning. As people age, they tend to require medication, as well as in-home assistance or care in a nursing home or assisted living facility. You may want to think about purchasing a long-term care insurance policy, or educate yourself about other protective strategies so you won’t have to drain your retirement account to cover those expenses.

Think about Inflation

Inflation gradually decreases the purchasing power of money. Each year that you’re retired, your cost of living will likely increase, but your savings may not grow enough to keep pace. Some types of investments, such as stocks, commodities, real estate securities, and Treasury inflation-protected securities (TIPS) may help your retirement savings keep pace with inflation so you don’t run out of money as the years go by.

Be Strict When It Comes to Withdrawals

You may accumulate a sizable nest egg by the time you retire and may be tempted to make a major purchase, such as a new car, or take a long and expensive vacation. It’s important to be disciplined when withdrawing money from your retirement account. The fact is, you don’t know how long you’ll live or whether you’ll need expensive healthcare in the future. If you withdraw too much money early in your retirement, you may come to regret it later.

Get Professional Help to Plan for Retirement

Toomey Investment Management, Inc. can work with you to develop a diversified investment portfolio to attempt to optimize performance and minimize risk. Our team can develop an integrated plan that also considers insurance and taxes. Contact us today to learn more.

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  • toomeyinvest
  • Wealth
  • May 11, 2021

Wealth Transfer? Here’s What You Need to Know

When it comes to planning the distribution of your estate, there are many questions clients are often asking themselves. Are my heirs responsible? How can I avoid the probate court? How can I make sure my grandchildren are taken care of? Then after considering the moving pieces associated with these complex decisions, clients seldom know where to start. Our answer often starts with one thing: taxes.

In fact, not many people think about the tax treatment of different accounts for their heirs, but it is one of the most important estate planning topics that should be considered. If you’re leaving an inheritance, or are an heir yourself, the tax code can have a substantial effect on the how the assets are to be distributed. Here are some of the basics you should consider as you’re planning your estate.

Consider Individual Tax Liabilities

Do you have a large amount of your estate in an IRA? Well, whenever there is a pretax account granted to someone, they also inherit a tax liability. Do you own a non-qualified annuity? People seldom realize that all of the gains in that annuity are taxable to their heirs upon distribution. And the tax they will pay on that inheritance will be based on; you guessed it, that individual’s own marginal income tax rate. So even if you are intent on dividing your estate equally amongst siblings, the actual net inheritance can change drastically due to personal tax circumstances. Understanding the rules for distributions after life will help you make more prudent choices that best suit you and your family.

Understand Other Tax Liabilities

If the inheritance being passed to someone is in the form of property or an estate there may also be taxes to consider that could also significantly change the inheritance amounts. For example, in some circumstances, a state estate tax will be levied on any property left to heirs. In many cases, this tax may be taken from the value of the estate before the assets are distributed. A capital gains tax may also come into play if a property that’s inherited is sold for a profit after the date of death. It’s important to understand the state and federal tax laws that will apply to your inheritance.

Tax Mitigation Strategies

There are many ways we can plan your wealth transfer in a more tax efficient manner.  Utilizing life insurance, converting a portion of your pretax assets during life, or creating a comprehensive gifting program to your family members are all viable strategies. There are also ways to define how and when assets can be inherited with private trusts. It’s always important that prior to taking any meaningful steps, you have a firm grasp on all of the options available. This will ensure you are making decisions with conviction.

Speak with a Trusted Financial Adviser

Meeting with a financial advisor to discuss your future financial plans is critical if you want to create a tax-efficient inheritance strategy. Optimizing in this way requires strategic insight, advice, and planning. Call Toomey today!

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The Importance of Simultaneous Investment & Tax Planning

Planning for your future is a big deal. Whether you’re just starting out in your career, building your family and want to develop your retirement still years away or you’re at the age when retirement is finally coming closer, it’s always the right time to get serious about your finances.  We cannot stress enough the importance of working with an experienced and qualified team of financial experts to come up with a plan that works.

Tax Planning

One thing we speak about often with our clients is the importance of tax planning while you’re assembling plans and establishing goals for the future. Doing this at the same time will help to ensure that you’re choosing accounts that will work for you and that won’t likely generate exorbitant tax bills when it’s time to retire.

A wise investment plan will incorporate tax liability strategies alongside investment planning.

When might your plans break down? This is a complicated question, but a common situation which can impact future financial gains may occur if a vast majority of your net worth is sitting in a 401(k) or IRA.  Suddenly when retirement comes, your distributions are treated as ordinary income on the tax return which means higher taxation, per-dollar.*

Tax Loss Harvesting

With assets in a taxable account, a qualified, tactful adviser may help you structure a plan to offset taxes you’ll face on both gains and income so you have optimal asset allocation and minimal surprises.

A better plan could be to contribute to a ROTH IRA and a taxable brokerage account. This may provide ample flexibility to source funds during retirement without a large tax burden. (* per current, general tax law)

This planning should also include a design for inheritance and passing on a financial legacy in a tax-efficient way. All of the parts of the puzzle are interconnected and should be treated that way when coming up with a solid financial plan that will work for you.

Remember, having diversity across the tax registration of accounts is often overlooked and it’s something you should focus on now.

If you want to talk to someone who can help you create a healthy financial plan for your future, call Toomey Investment Management, Inc., today. 

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  • toomeyinvest
  • Wealth
  • March 15, 2021

A Wealth Transfer Boom is Coming – Here’s What You Should Know

Talking about the untimely passing of a loved one is never easy. However, having these important conversations early and taking the time to responsibly plan for how wealth is transferred to heirs is a critical topic.

As baby boomers are soon expected to pass on trillions of dollars in wealth to their families over the next few decades, this very topic has become a key area of focus for many.

It’s about more than just mapping out a plan you feel good about, but also keeping it up to date over the years and having your heirs in on the conversation early so they can make future plans as well.

At Toomey Investment Management we can help you to understand the different methods available to effectively leverage, pass and distribute wealth to your heirs. An estate plan is unique to every client and because of that, the process may benefit from a firm with an independent approach. Our clients can expect a transparent experience as we analyze the market for investment vehicles that correlate with your goals.

If you’re on the cusp of entering your retirement years or have started to think about more effective management of your assets, we have some key things you’ll want to consider when it comes to wealth transfer.

The event of this money shifting has already been referenced by many as the “Great Wealth Transfer.”

First, a little background. As we mentioned, the generation born between 1944 and 1964 – also known as Baby Boomers, spent the decades of their core working years amassing a lot during economic strong years and are now moving into the retirement years. Market projections indicate they’ll be transferring around $60 trillion in wealth to millennials and Gen X by 2061. The effects of these inheritances are far-reaching and without a solid plan, those funds – even large sums – could easily be squandered.

Unexpected wealth can happen quickly and beneficiaries may not be able to keep a solid perspective when it happens. By making them aware of the future wealth and giving them time to speak with an advisor there is time to make a solid foundation and plans for preserving and growing those inheritances.

So what can you do now? Start having these conversations about money and future inheritances with your Gen X and Millennial kids and grandkids if you plan to pass money down in the future so that they can start planning early.

A trusted financial advisor can assist with understanding tax obligations, planning for expenses, and even allocating inheritances to meet their own financial goals.

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  • toomeyinvest
  • Finance
  • March 1, 2021

Capital Gains Tax in Mutual Funds – What You Should Know

Investing in mutual funds is something you may have heard about before. Those looking for a solid way to invest their assets will often choose these types of investments because they can offer the chance to invest in a more diversified portfolio.

Even if you’ve never looked into options for managing your finances before, there are some important things you’ll want to keep in mind as you pursue Mutual Funds.

Understanding Capital Gains Taxes

Capital Gains Taxes, which you may be responsible for, are something many dismiss when they’re first getting started but there are many reasons to factor this in as you plan for your future.

Both long-term and short-term capital gains should be considered. When these are in a taxable account, and depending on how much you’ve earned for the year, your tax bill could come as a surprise.

Currently, there are some benefits to keeping the investments for longer than one year as it may provide greater tax savings versus selling quickly.

Understanding these different working parts may require working with a trusted investment management firm. At Toomey, we can help our clients create tax-efficient portfolios. That means using more than actively managed mutual funds – like ETFs, individual stocks/bonds, and index funds – that may minimize unfortunate tax surprises at the end of the year.

Planning for the Future

Of course, we can’t talk about Capital Gains Tax without also talking about the hot topic issue in the press right now that many investors are keeping an eye on. And that is the emerging threat of taxation of long-term capital gains which the current administration has hinted at possibly enacting.

If this were to pass and become reality, there are a number of different things that could occur in the larger market you would want to be aware of.  For example, substantially higher rates could spark mass selling in 2021 and impact the market as many become leery and take money off the table before 2022. And that’s only the start.

So what should you do? Work with a team that understands all of the parts working together and that can implement strategies that will mitigate your tax burdens for the long term.

Talk to Toomey Today!

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