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Wealth Column: A look ahead to the fourth quarter

Consider options to increase savings, plan for long-term care and look at end of year gifting and charitable giving.

Bruce Helmer and Peg Webb sit next to each other at a table.
Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.
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This has been a crazy year for the economy and markets, with inflation the highest it’s been in 40 years.

But as we advise our clients, you need to control what you can control and forget everything else. By sticking to a well-conceived plan, you remove a lot of market-related stress from your decision making. This quarter we’re focusing on tips for increasing your savings, planning for long-term care and giving to charity .

Increasing your savings

The IRS usually announces changes to tax brackets, 401(k) plan contribution limits, estate- and gift-tax thresholds and Social Security payouts in mid-October. Since these limits are indexed to inflation, the adjustments could be the biggest in decades. They’ll affect your 2023 taxes in the following areas:

  • Lower tax liability. An odd gift of inflation may actually be lower tax bills. Most Americans’ income will be taxed at lower rates next year, when the thresholds for income-tax brackets and the standard deduction will be raised. The top federal income-tax bracket could climb $50,000 for married couples next year. The 37% bracket may kick in at $693,750 (couples) and $578,125 (individuals). Consensus estimates that other tax-bracket break points will rise about 7% from 2022 levels, more than double the previous year’s increase. Unless you expect your wages to rise significantly higher than inflation, you may pay less in taxes for 2023, and be able to sock away more savings.
  • Retirement plan contributions. Maximum contribution amounts for a traditional or Roth IRA are expected to increase to $6,500 for 2023, up from $6,000 (where they’ve been stuck since 2019). According to benefits consultant Milliman, maximum contribution amount for a 401(k) or similar employer-sponsored plan could rise from $20,500 this year to $22,500 in 2023, with catch-up contributions for workers aged 50+ bumping up from $6,500 to at least $7,500. This is a good time to consider increasing your deferrals during your company’s open enrollment season, especially if you’re not already taking advantage of the maximum employer matching contribution.
  • Estate and gift taxes. Lifetime estate and gift-tax thresholds could increase next year. An individual’s federal estate-tax exclusion amount may increase from $12.06 million this year to $12.92 million in 2023 (nearly $26 million for couples, allowing them to shelter nearly $2 million more from estate and gift taxes). In addition, the annual limit on tax-free gifts could rise from $16,000 to $17,000. This could benefit wealthy families, who will be able to give away more without gift or estate tax consequences.
  • Social Security COLA. Social Security is likely to see the biggest increase in benefits payouts from mandated cost-of-living adjustments. Social Security payouts are expected to be 8.7% higher in 2023 — the largest bump in benefits in decades.

Planning for long-term care

November is National Long-Term Care Awareness Month. At some point in our lives, about 60% of us will need some help with things like getting dressed, driving to appointments or making meals. Fully 78% of adults receiving care at home rely on family and friends as their only source of care and the average care giver is a 46-year-old woman, who spends 21 hours a week caring for a loved one.

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Many people think Medicare or Medicaid will pick up the tab for this, but this isn’t the case. That’s why considering the possibility of needing long-term care at some point in your life is a key element of financial planning. Long-term care insurance is designed to provide funds for you to live on when you’re not able to care for yourself. More specifically, Long-term care insurance may help keep you from having to go into a nursing home. Indeed, some policies allow you to pay a family member to provide care in your home, giving you more control and choice over the type of care you wish to receive.

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There are many types of policies, designed for multiple purposes, such as supplementing your retirement, paying for in-home or nursing home care, providing a death benefit to your loved ones. One caveat: Long-term care insurance tends to be expensive and complicated. Talk to a financial adviser before you buy.

Gifting/giving to charity

As the end of the year approaches, you may want to share your good fortune with the people and causes you care about. Giving cash is your simplest option. However, if you are giving to family members, you need to consider tax implications. Lifetime exemptions are higher than they have ever been, but if future tax laws reduce that exemption amount, it could affect your gifting plans.

  • Gifts to charity. You can give cash to charities and still claim a deduction. For any gifts over $250, you must have a written acknowledgement in order to earn a deduction. You also have the option to gift appreciated securities that may have some embedded long-term cap gains. You can donate these shares to a non-profit and you and the charity will both avoid paying a capital gains tax. But if you are thinking about gifting stocks that have lost money, it might be smarter to sell them and donate the cash.
  • Donor Advised Fund. The fund is a good option if you know you want to give to a 501(c)(3) charity, but aren’t sure which one, or want to make a gift anonymously. You get an immediate tax deduction for any assets you transfer to the fund, and you free your estate of any cap gains those assets have accumulated or will accumulate in the future.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Wealth Enhancement Group and LPL Financial do not provide legal advice or tax services. Please consult your legal adviser or tax adviser regarding your specific situation.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on News Radio 830 WCCO on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL.

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