When Should Millennials Start Retirement Saving?
Total Page：16
File Type：pdf, Size：1020Kb
What’s The Step-Up In Basis Worth? First Quarter 2015 hen you’re developing an gain (on assets you’ve held longer than generous exemptions for estates will estate plan for your family, a year) is 15%, or 20% for investors in help your heirs avoid estate taxes, too. W several elements factor into the top ordinary income tax bracket. In Consider this example. Tom, the equation, including a lot of tax addition, you may be liable for a 3.8% a resident of Florida, bought an ramiႡcations—which may include both surtax on net investment income (NII), apartment building for $900,000 that estate taxes and income taxes. They’re including capital gains, that exceeds an is currently worth $2.2 million. If not mutually exclusive and, in fact, annual threshold. Tom sells the they’re often intertwined. That adds up to a building now, A case in point is the so-called possible effective he must pay an “step-up in basis” on inherited assets. tax rate of 23.8% effective tax rate When Should Millennials That can be a reason to keep some on capital gains at of 23.8% on a Ben's Banter assets in your estate rather than trying the federal level. $1.3 million Start Retirement Saving? to reduce the estate’s value. But if you capital gain, or Slimming down an estate, bequeath $309,400 (23.8% his is a true story about Jane X, 1. Budget and save. It’s difႡcult ver the last few months, the particularly by making gifts to family appreciated assets of $1.3 million). who graduated from a to be diligent about setting aside money O US dollar increased in value members during your lifetime, is often to your heirs, they But what if he T prestigious university Ⴁve years for retirement when you’re young by about 25% versus the Euro. a good idea. However, there’s a marital can largely avoid keeps the ago. She’s on her third job, but she’s and have a million things you’d rather In early September 2014, the cost to deduction that normally allows you to capital gains taxes. Those taxes are property and leaves it to his heirs? now communications director at a do with your money. But if you’re purchase one euro was over $1.30; as I leave unlimited assets to your spouse calculated according to how much the The basis of the property is stepped private foundation and Ⴁnally earning able to set objectives for saving and write this today, one euro costs free of estate tax, while transfers to price has gone up from your “basis” in up to the full $2.2 million, and they’ll decent money. you do your best to approximately $1.05. The good news is other heirs are sheltered by a generous the asset—basically what you paid for owe capital gains taxes only if it Jane’s student loans stick to them, it could that if you have the ability to plan a individual estate tax exemption that’s it, subject to adjustment. When you appreciates further before they sell it. are paid off, and her good pay off beautifully quick trip over the Atlantic, you may be inႢation-indexed. Each person can die, the basis of the assets your heirs What’s more, the estate tax exemption salary leaves her some down the road. Try to able to obtain a 25% discount shield $5.43 million from estate and receive is “stepped up”—increased to means they won’t owe estate taxes on money to invest. train yourself to live compared to about 6 months ago. The gift taxes in 2015, up from $5.34 their value on the date of your death. their inheritance. However, like many of within your means other side of that coin is that with the million in 2014. That eliminates tax liability on the Note that Florida doesn’t have a her millennial friends, she while you move ahead dollar’s strength, the value of Meanwhile, if you sell real estate appreciation of the assets during the state income tax. If Tom resided in a doesn’t know a lot about in your career and your investments overseas has been or other assets before you die, you’ll time you owned them. Of course, high tax state, such as California or investments or the personal life. negatively affected and volatility has owe capital gains tax on your proႡts. those assets have to be in your estate New York, the savings would be even differences between various retirement 2. Take advantage of employer returned to the US markets. Despite the The maximum tax rate on a long-term to qualify for that beneႡt, but the more pronounced. ● plans. But she is thinking about her retirement plans. Your company strong dollar, the beginning of 2015 has future and wonders when she should probably offers a tax-deferred started with the overseas markets start saving for retirement. retirement plan—a 401(k) or a outperforming the US markets. Millennials Retirement the best-laid plans of retirement saving favor by deferring part of your salary to There’s a short, simple answer: 403(b)—and your employer may On a totally different note, we (Continued from page 1) can be derailed by an emergency such an employer plan at the same time that NOW. provide matching contributions (for have seen a disturbing trend relating to as a hospital stay or the loss you’re charging luxury The best time to begin saving for example, up to 3% of your clients’ adult children. Unfortunately, 4. Invest wisely. This is good of a job. Try to leave enough items on a credit card with retirement is as soon as you can. compensation) to go alongside the pre- the number of children who have advice not only for money in tax- wiggle room within your sky-high interest rates. Granted, relaxing on the deck of a tax earnings you put into the plan. With disabilities as well as adult children, advantaged retirement accounts but budget to account for some That’s not to say that retirement cottage overlooking the all of that money invested for the long who for one reason or another, are not also for money you invest in taxable unforeseen Ⴁnancial trouble. borrowing isn’t warranted ninth green isn’t Ⴁrst and foremost in haul, it can grow and compound and able to support themselves seems to be brokerage accounts. We can help you Rather than put yourself in a at times—perhaps to help the minds of most 20-somethings. you won’t be taxed on the growth until increasing. Both of these situations can Ⴁnd the investment balance that best position to have to skip or buy a home or car—but But you can’t ignore the sheer weight you pull out funds during retirement. affect one's retirement both from a suits your personal needs, objectives, slash retirement plan make sure it Ⴁts into your of the saving numbers. Let’s go back 3. Don’t forget about IRAs. Ⴁnancial perspective as well as a risk tolerance, and other circumstances. contributions, remember to overall plan. to Jane, who’s 27. If she manages Regardless of whether you participate personal perspective. Happily, we have Although there’s no foolproof put aside cash in a “rainy 7. Educate yourself. to save $5,000 a year in a 401(k) in an employer-sponsored retirement also seen other adult children who have method, you should have more leeway day” fund. Most experts Finally, you can improve for the next 40 years—until she’s 67, plan, you also can set up an IRA. With successfully managed to support to be aggressive now than you would recommend building up the chances for a secure, the Social Security full retirement age a traditional IRA, the money you put in themselves despite various hardships. when you’re nearing retirement or enough to sustain you for at comfortable retirement by for her generation—and she earns an may be partly or wholly tax-deductible, If you are in one of these situations and already retired. Of course, past least half a year during which you may learning all of the rules of the road, average annual return of 7%, she will if your salary is relatively low. But think we could help, please do not performance is no guarantee of future have no other income. including the nuances of investments end up with $1,035,632. But if she here, too, you’ll be taxed on hesitate to contact us. results, but you can use historical stock 6. Avoid debt like the plague. One and the tax differences between various waits 10 years to start saving, when withdrawals during retirement. Another Remember no one plans to fail; market trends to help shape your of the biggest impediments to accounts. Knowledge is your friend. she’s 37, her accumulated savings option, a Roth IRA, doesn’t give you a many simply fail to plan. investment strategies. retirement saving is a crushing debt Rely on us to give you a solid will be just $490,027. tax deduction on money going in but 5. Expect the unexpected. Even load. You’re not doing yourself any foundation for going forward. ● If you’re convinced that now may provide 100% tax-free would be a good time to get started, distributions in retirement. Thanks, consider these seven steps that could Ben help you reach your goals: (Continued on page 4) CPA/PFS, CFP®, CIMA® ©2015 API Unused Estate Tax Election 7 Steps To Take After A Spouse’s Sudden Death DSUEA” sounds like a top-secret is $5.34 million and increases to we will avoid any gains or losses in the he funeral is over, the mourners loop the entire way.