Advisor Articles

Five Financial Actions for Early 2022

The New Year is often a time for reflection, resolutions, and resets. New commitments to our diet and exercise routine, as well as getting or keeping our financial house in order are among the most common. It’s not unusual that by the end of January, however, that many of our New Year’s intentions have given way to the hustle and bustle of our normal lives. So, with that in mind, here are five simple actions that one can take to help keep their investment plan and investment objectives on track.

  1. Revisit Your Goals – Despite the traditional recommendations to make all goals specific, measurable, attainable, realistic, and with a specific timeframe ("SMART"), not all goals need to be quite so fully defined. If you haven’t mapped out your goals at this point, set some general short-term and long-term goals. They might include taking time to travel this year, or retiring within the next five. It’s not necessary to have the specific destination or retirement date defined, but knowing that you plan on using resources to take a trip within the next year or that you may stop trading time for dollars in a few years, helps to start aligning your resources appropriately.
  2. Align Your Resources Appropriately – One of the most important things we can do is to make sure that money we are going to need in the near term in conservative investments, while money we are not going to need for several years in long term investments where we can accept some short-term volatility for the longer-term growth we aim to achieve. Whether you are already retired, or have targeted some near-term spending for things like a new car, home remodel, or travel, it’s wise to shift funds out of the market and into savings. While we are giving up potential growth, we are pursuing conservation of principal and the confidence of knowing the funds can/should be there when needed. We believe in keeping money you anticipate needing within two years or less in cash reserves as described above.
  3. Consider Rebalancing your Long-Term Investments – For those participating in a retirement plan, such as a 401(k) or 403b, this is an easy process that should take 15 minutes or less, and can be done with a few clicks through your plan sponsors website. For long term assets outside of retirement plans, this is still a recognized strategy, but just takes a little more time to determine the adjustments needed. Rebalancing your investments can help take profits from the areas that have appreciated the most while increasing the balance of the areas that may have decreased, or appreciated the least – essentially selling "high" to buy "low." While it is often difficult to acknowledge in the moment, we all know intuitively that today’s winners may not always be tomorrow’s. By rebalancing, we take the emotion out of the equation and keep our investments and objectives in line.
  4. Reset Savings Objectives – A good investment plan aims to balance getting as much out of today as we can without jeopardizing the goals we have for tomorrow. A good plan will help define the amount required to save each year to pursue your future goals. Once you know the amount you should save to meet your longer term objectives, any resources above that amount can be used to enhance your lifestyle today. For example, if you know that in order to meet future college expenses for your 12- and 10-year-old, and your retirement goals in 15 years you need to save $30,000 during the year, you can set up a savings strategy to pursue that during the year through a retirement plan and 529 Plan. If you happen to obtain extra income or a bonus during the year, you can feel comfortable doing something fun or different with the funds since your longer term goals are on track to be achieved.
  5. Work with a Qualified Guide – In addition to helping you with some of the topics above, one of the ancillary benefits of using an advisor is keeping you accountable and on track to pursuing the financial priorities important to you. Just like going to the gym with a partner can improve the odds of sticking with it, using a financial professional can improve the odds of achieving your goals on time or ahead of schedule. When seeking a financial professional, consider using an Advisor with the CERTIFIED FINANCIAL PLANNER™ certification and one that is committed to your success over theirs. You can find qualified CFPs® by visiting www.letsmakeaplan.org/find-a-cfp-professional. You can also check a financial professional’s background by visiting https://brokercheck.finra.org.

Adam M. Brooks, CFP®
Senior Financial Advisor, Managing Director

We are quickly approaching the time of year where it is no longer timely to wish a friend Happy New Year. However, it is not too late to implement some simple steps to potentially take advantage of the change of the calendar and keep our financial goals on track. As for the diet? We can start that next week.

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Introduction to Medicare – Medicare Enrollment

Are you nearing age 65? If so, you are probably being inundated with information about Medicare. Unfortunately, Medicare can be confusing, so in this article we will cover some of the basics about Medicare and Medicare enrollment.

In its simplest form, Medicare is a form of health insurance coverage designed for those who are disabled or 65 years old.

For those who are enrolling into Medicare for the first time, "age 65" actually means "the 1st of the month in which you turn age 65." In other words, if your birthday is on May 12th, you are eligible for Medicare coverage effective May 1st.

Further, there is a three-month period prior to the month in which you turn 65 when you are allowed to enroll. Using the above example, you could enroll any time between February 1st and April 30th for coverage beginning May 1st. There is also a three-month post-birthday month grace period, where you can enroll without any future penalties. In the same example, if your birthday is May 12th, you could enroll as late as August 31st for Medicare coverage beginning the 1st of the month following your enrollment, without any penalties.

What happens if you enroll after the three-month grace period? In short, unless you or your spouse have qualifying group health insurance, as defined by the IRS, you may have to pay up to a lifetime penalty in the form of higher premiums for Parts A, B, and D coverage. For this reason, if you are not yet 65, we strongly recommend you make an appointment to enroll in Medicare as soon as possible – the first of the month, three months before your 65th birthday.

What are the parts of Medicare, and what are the costs? There are four parts: A, B, C, and D.

Part A is sometimes called hospital insurance. For most people, this is the part of Medicare you have paid for throughout your working career. If you have ever seen your paystub, and you saw a deduction for Medicare, that deduction is effectively your premium for Part A coverage. You or your spouse typically need to work about 10 years in order to qualify for Part A coverage. Since the vast majority of Medicare beneficiaries qualify for Part A due to their work history, meaning there is no additional premium required, you should plan to enroll in Part A at age 65, even if you have supplemental employer coverage.

Part B is sometimes referred to as medical insurance. Everyone pays a premium for Part B coverage. The standard premium for 2022 is $170.10 per month, based on your modified adjusted gross income from two years ago (2020). If you are married filing jointly, and you earned more than $182,000 in 2020, then you may have to pay a higher Part B premium. If you are taking Social Security benefits, this Part B premium is usually deducted from your income before you receive your check. If you are deferring Social Security, then you will receive a bill for your Part B premiums.

Part C is also known as Medicare Advantage. While Parts A and B are Original Medicare, they do not cover all your medical expenses. Part C plans are optional. They are Medicare-approved from a private company that often bundles Parts A, B, and D into one plan. Depending on the plans available in your area, they may sometimes have lower out-of-pocket costs, as well as extra benefits including vision, hearing, and dental services – these are not included in Original Medicare. In exchange, you may need to receive services from the plan’s network. Because Part C is optional, it is not a requirement to enroll at age 65, although you may want to consider doing so.

Part D refers to prescription drug coverage. It is strongly recommended that you also enroll in Part D at Age 65, unless you have creditable coverage through you or your spouse’s employer. Otherwise, like Parts A and B, there could be a late enrollment penalty in the form of lifetime higher premiums once you do enroll. Like Part B, there is a monthly plan premium; however, for Part D that premium is set by the plan providers – usually you will have a choice of private companies. The 2022 national base beneficiary premium is $33.37 – your monthly cost should be close to that. Also, like Part B, the cost for Part D premiums is tied to your income from two years ago – if married filing jointly, and you earned more than $182,000 in 2020, then you may have to pay a higher Part D premium.

In sum, while Medicare can be complex, it is also a powerful part of retirement and financial planning. In future articles, I plan to cover more information about what services Parts A, B, C, and D cover, as well as introduce Medigap, also known as Medicare Supplemental Insurance. If you have any questions about your Medicare enrollment options, please let me know – I am happy to review your individual options with you.

Brandon Perlow
Associate Financial Advisor

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.

Are the Prestigious Universities Worth the Money?

My job as a financial advisor is to guide my clients into making sound investment decisions. Not only do I help them with where to invest their money in their retirement accounts but I am also asked to help them plan and save for their children’s future college education. Many of my clients are in a position to pay for most if not all of their children’s expenses for college, but sometimes that becomes a difficult decision when their kids are really intelligent and can get accepted to the most prestigious universities in the country. When this happens my clients often ask for my opinion on whether it is worth the extra money to send their child out of state to one of these top ranked universities.

One argument for trying to attend a top ranked university is that the learning experience will be better. But is that really the case? There have been over 1800 peer-reviewed research studies on this topic and the consensus is that there is little evidence that attending one of these top schools increases student learning. Think about it. Do they really teach the fundamentals of math or science any differently? Now you may have smaller classes or smarter professors at some of the top schools, but the material is the same. What does make a difference in learning? In the book, Academically Adrift, which consolidated dozens of studies on this subject, the answer is pretty simple. The key is the amount of time spent studying. That’s right, the more time you spend studying, the more you will learn.

The other reason that most parents want to send their kids to the top tier colleges is the belief that a degree from a top schools will guarantee their child will have a higher starting salary when they graduate. This question is very specific to which institution and which field of study your child chooses to pursue. Luckily the Department of Education now publishes a database of this information which you can find here: www.jobsearchintelligence.com/etc/counselors-majors 

In the long run, we all want our children to grow into happy adults with jobs that are fulfilling. Most people assume that having a degree from a prestigious university will help in that endeavor. However studies have found that the most important factor is whether your child enjoyed their college experience. How well will they fit in? Will they join clubs, sororities, fraternities, work on campus, or volunteer in the community? There is an often cited study produced by Gallup-Purdue by Julie Ray and Stephanie Marken that attempted to measure 30,000 people’s engagement at work and well-being after college graduation. What they found was that a person’s happiness in the workplace had very little to do with where they went to college. By far the most important factor was their experience in college. If they had a professor that cared about them and encouraged them to follow their dreams, an internship that allowed them to apply what they were learning in the real world, and they were involved in extracurricular activities they turned out to be much happier well-adjusted adults.

After looking at these studies my conclusion is that if you can manage to attend a prestigious university and if you can do it without incurring a large debt, then it can be a good financial decision. If attending a highly ranked university is going to cause a major financial burden, there are plenty of other schools with a lower price tag that may be a better fit for your child’s personality and areas of interest. In the long run, if your child has good study habits and works hard, they will be successful at whatever they choose to pursue.

Larry Van Quathem, CFP®
Senior Financial Advisor

Please note that we are not responsible for the information contained on the listed Web site. The site is provided to you for information purposes only. Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.

What Happens to Your Assets After the Loss of a Spouse?

The difficulty and heartbreak of losing a spouse is often times accompanied by financial uncertainty. What happens to your spouse’s assets is largely dependent on if their property is transferred through or around probate. The probate process proves the validity of the will, and allows assets to be transferred from the descendant to the rightful beneficiaries. Property passing by will, or by law of intestacy are two methods in which property of the decedent passes through probate.

A person who dies with a valid will is said to have died testate, while someone who dies without a valid will is said to have died intestate. A will is probably the most widely recognized means of transferring assets at death. Assets owned outright by the decedent (Fee Simple titling), or their share of property owned as either Tenancy in Common or Community Property are types of property that pass by will. When someone dies without a will, or if the will does not properly dispose of a decedent’s property, probate court is involved in the distribution of the decedent's estate. Each state has an order for disposition to the heirs of the decedent. Typically, the surviving spouse is given primary consideration under the laws of interstate succession.

Although probate provides orderly administration of a decedent's assets, it can be very costly and complex. Avoiding probate can help speed up the asset transferring process to the descendant’s loved ones. Two methods of avoiding probate include passing property by contract, or by operation of law. Both methods must have a process of designating who will receive the property after the current owner’s death.

Property passing by contract makes use of a beneficiary designation. Life insurance is the most common beneficiary designation. Traditionally, the life insurance contract gives the owner the incident of ownership to designate a beneficiary, with the designation being revocable up until the death of the insured. Other common beneficiary designations include naming a beneficiary on their employer retirement accounts or IRA, or having payable of death (POD) or transfer on death (TOD) accounts.

Assets passing to their heirs by operation of law also avoid probate. One way this can be accomplished is by assets passing by the terms of a trust. Assets that are transferred to living trusts prior to the death of the grantor, avoid probate. Property titling is another way probate can be avoided. Assets passing by Co-Ownership with Survivorship, Joint Tenants with Rights of Survivorship (JTWROS), and Tenancy by Entirety, are all forms of property ownership that can act as will substitutes by using the operation of law principal.

Laurel Buchanan
Associate Financial Advisor

Wells Fargo Advisors Financial Network is not a legal or tax advisor. Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.

Three Important Factors to Consider Before Beginning Social Security Benefits

If you’re like most people, as you approach age 62, you begin thinking about taking Social Security benefits. After all, you’ve spent years and years watching your paycheck reduced by Social Security Taxes, it’s time to reap the benefits. The main question is, how do you get the most out of your benefits? There are a few considerations to make before you decide.

  1. The most influential factor in the amount you’ll receive is what age your benefits start. You can claim benefits as early as age 62. If you’re nearing 62, and you need the Social Security benefits to support yourself, there isn’t much more to think about. However, if you have other sources of income, there could be advantages to waiting. Each year you can hold off will increase your benefit, until you reach age 70. A common saying in the financial industry is "Tell me when you’re going to die, and I’ll tell you exactly when to take Social Security!" It sounds like a sick joke, but there is a breakeven that determines the optimal time to begin. Your health and family history can affect this calculation. Talk to your financial advisor to determine the best time for YOU!
  2. Earned income may reduce your monthly Social Security benefit. As stated above, taking your benefit before full retirement age (FRA) will reduce the benefit received. If you plan to continue working, your benefit could be reduced even further. The 2022 limit on your annual earned income is ​$19,560. When you exceed this amount, SSA reduces your retirement benefit by​ $1 for every $2 ​you earn. It is important to note this is only a temporary reduction. Once you reach FRA, you can earn any amount of money, and it won’t reduce your monthly benefits.
  3. Deferring your benefits can also open up planning opportunities. Once you retire, your taxable income should decrease significantly. That is, until you add in cash flows like Social Security and required minimum distributions (RMDs) from IRAs. You could potentially open up a window of ten years or more in a lower tax bracket. This window of time can be used to fill the lower tax brackets with Roth Conversions, or realizing capital gains in taxable accounts. Talk to your financial advisor to see how you could benefit from these strategies.

The bottom line is that Social Security benefits are an important tool in your retirement planning toolbelt. Knowing how they work, and what strategies can be used around them, can turn a good plan into a great plan. It’s important to discuss potential strategies with a financial professional, to understand how they will affect YOUR plan.

Matthew Cherry, CFP®
Financial Advisor

Annuities

An annuity is a contract where an insurance company agrees to pay the holder of the annuity either a lump sum, or a regular series of payments over time. The two broad types of annuities are Immediate and Deferred. As implied, the immediate annuity begins or makes the payments immediately, and the deferred annuity defers those payments and has a period of accumulation and deferral. Most people save for retirement through a qualified retirement plan, like 401(k)s and IRAs, but when you retire, you need to convert that retirement savings into income, and annuities can be a good way to both save for retirement and then at retirement, create an income stream to support you in retirement. Annuities are unique, in that the income stream that is generated can be structured to be guaranteed for the life of the annuitant, regardless of the underlying value of the annuity. They have been described as a “personal pension” in which the income stream is guaranteed by the insurance company, regardless of what might happen to the invested principal.

There are three types of deferred annuities:

  1. Fixed annuities pay a rate of interest that is guaranteed for a period of time, from one year to the life of the annuity policy. The account value of the annuity is guaranteed by the insurance company. The premiums are invested in the insurance company’s general account portfolio of bonds and other investments. Fees and expenses for fixed annuities are generally limited to surrender penalties and optional rider charges.
  2. Variable annuities have a menu of investments to select from that are like mutual funds called sub-accounts. The policy values reflect the performance of the funds and are not guaranteed. Fees and expenses for variable annuities generally include mortality and expense charges, fund management fees, administration fees, surrender penalties, and optional rider charges. Variable annuity fees and expenses can be 2% or more.
  3. Indexed annuities have a menu of financial indexes to select from, like the S&P 500 or the Russell 1000. The account value and performance of the annuity is measured by the performance of the index. If the index is positive, a portion of the gain is credited to the account. This portion that the investor receives is unique to the insurance company and usually involves a calculation that can include cap rates, spreads, moving averages, threshold rates, or participation rates. If the index is negative, with most index annuities, the account value remains the same, there are no losses. Some of the newer indexed annuities are considered variable indexed annuities in that the caps and participation rates are higher in return for the investor taking on some of the potential for loss. For example, the insurance company will offer a “buffer” rate in which any losses incurred by the index are covered by the company, but any losses in excess of the buffer are incurred by the investor. For example, a buffer of 10% means that the investor will be protected for any losses between 0% and 10% but will suffer a loss of any incremental amount over the 10% for the period chosen. With most indexed annuities, while the performance of the account is measured by the index selected, the premiums are invested in the insurance company’s general account, not indexed mutual funds.

Indexed annuities may offer investors more upside potential than fixed annuities while still offering guarantees. Calculating how the gain is credited, however, can be complicated depending on the method used.

According to FINRA, one of the most confusing features of an index annuity is the method used to calculate the gain in the index to which the annuity is linked. There are several different ways that this can be calculated which makes it difficult to compare one indexed annuity to another. Fees and expenses for indexed annuities are generally limited to surrender penalties and optional rider charges.

One of the more attractive features of newer annuities are the “Living” benefit riders. Instead of offering a death benefit (which annuities still offer) that protects the investor against a premature death, the new riders protect the investor against living too long and outliving their money. Riders are optional benefits the insurance company offers at an additional cost and generally protect and guarantee income but can also protect and guarantee principal. The most common riders are:

  1. Guaranteed Minimum Income Benefit (GMIB) – The GMIB rider provides a minimum guaranteed lifetime income at retirement based on a GMIB amount, and not the general account value. The minimum income is based on the original investment accumulated at an interest rate specified in the policy. Like annuitization, once the option is selected the owner has no access to policy values. The GMIB can be based on one or two people.
  2. Guaranteed Lifetime Withdrawal Benefit (GLWB) – The GLWB rider also provides a minimum amount of lifetime income when you retire regardless of investment performance. Unlike the GMIB, the owner does have access to the account values. Withdrawing money in excess of the withdrawal limit (such as 5%) will, however, reduce or eliminate the guaranteed income. The GLWB benefit can be based on one or two people.
  3. Guaranteed Minimum Accumulation Benefit (GMAB) – The GMAB rider also guarantees a minimum account value regardless of investment performance. The rider guarantees that you can access a percentage of your premium payments, such as 90% or 100%, after a holding period, such as 5-10 years.

Annuities can be a great way to participate in stock market returns, while protecting against loss. They can also provide a guaranteed, lifetime stream of income that is difficult to replicate anywhere else.

It’s important to note that while an annuity can be an important part of a retirement plan, there are complexities that need to be understood and an annuity may not be for everyone. Not all annuities are created equal and not all situations would benefit from an annuity. The investor needs to understand the factors involved in using an annuity, including cost, methods of growth calculation, surrender schedules and penalties, income features, tax consequences, and generally make sure the annuity “fits” their needs. Regulators are keenly aware of the increased use of annuities and are becoming more vigilant in making sure that annuity investors are aware of the risks, costs, and suitability for each individual annuity investor. However, the regulatory environment is not consistent, and investors need to be careful. Some annuities are considered both insurance products and “securities”, and the regulatory component falls to FINRA (Financial Industry Regulatory Authority) and the SEC (Securities and Exchange Commission), as well as individual state insurance departments. Other annuities are considered to just be insurance products and are regulated solely by individual state insurance departments. Because of this, agents and advisors that sell and recommend annuities can be, and frequently are, licensed differently depending on whether they are selling securities or insurance products, and therefore held to different standards. The term Buyer Beware applies to annuities maybe more than any other financial product.

Lane Reynolds
Senior Financial Advisor

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies. Guarantees are based on the claims-paying ability of the issuing insurance company. Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.

Changes are Coming to the FAFSA

It is back to school time for everyone, which if you have a teenager means worrying about them driving to school, staying on the honor roll, and figuring out how they will find the time to get all of their homework done. If you have a junior or senior in high school, you are also probably worried about financial aid for college.

In order to apply for any financial aid, you must fill out the Free Application for Federal Student Aid (FAFSA). This form can be found at www.studentaid.gov. Once you have completed this form, you can then calculate your Expected Family Contribution (EFC) with each college that your son or daughter is interested in attending.

The thought of filling out government forms applying for financial aid is scary for just about anyone, but I am here to tell you, that it is not too bad. Amazingly, they are even trying to make it easier for you. Here are some recent changes to the FAFSA and when they will take effect.

  1. The Expected Family Contribution (EFC) is actually changing its name to the Student Aid Index.
  2. The FAFSA is condensing its number of questions from 99 to 36.
  3. Your taxed and untaxed income will automatically transfer from your tax return at the IRS rather than you manually inputting it on the form.
  4. Divorced Parents: the rule used to be whichever parent had more than 50% custody was required to fill out the FAFSA. When this change takes place, it will now be whichever parent provides the most financial support or has the largest Adjusted Gross Income.
  5. The discount for having multiple children in college at the same time is going away.

These changes were announced by the Department of Education and were supposed to go into effect for the 2023-2024 school year. However, with Covid causing all kinds of delays and disruptions, they recently announced that these changes will apply in the 2024-2025 school year.

If you have a child in high school right now and would like to learn more about financial aid and choosing a good college, please give us a call at ABLE Financial Group.

Larry Van Quathem, CFP®
Senior Financial Advisor

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.

Charitable Giving Strategies to Consider Before Year End

While progress is being made in the fight against COVID-19, the impact to many of our community’s non-profits has been significant and they face a long road ahead to realize a full recovery. More than ever, these organizations will need to rely on contributions from individual donors so that they can continue to provide valuable services to those in need.

For many organizations, programs such as the Paycheck Protection Program was a necessary lifeline to stay afloat. The program offered two opportunities for non-profits (and businesses) to obtain loans and subsequently apply to have them forgiven. However, it is unlikely that there will be another round of funding for this program, and non-profits have a long way to go to return their budgets to levels seen before the pandemic. It will be up to these organizations to find ways to fill the gap, and donations from individuals stands to be among the top of the list.

For those inclined to help, here are a few strategies one may consider when contemplating making donations – helping the organizations that help support our neighbors, while helping the donor a bit, too.

Donate Appreciated Stock

As of the writing of this article, the S&P 500 is up 20.7% year to date (9/1/2021), following two consecutive years of significant growth. For investors that have seen stock prices rise, it may be an opportune time to take some profits. One way of doing so would be by making donations from positions that have risen in value. By donating the appreciated stock, the investor avoids realizing taxable gains on that position, while at the same time obtaining a deduction for the gift made.

Qualified Charitable Distributions

Although the age requiring mandatory distributions from an IRA increased to 72, for individuals over 70, gifts can be made directly from their IRA up to $100,000 per year to qualifying charities. These distributions are tax-free distributions and qualify towards satisfying required minimum distributions when applicable. There is no minimum gift that needs to be made, and no limit to the number of qualifying distributions in a given year.

Bunching

Because charitable contributions are only deductible if one itemizes, if the total itemized deductions are less than the standard deduction, the charitable contributions one makes during the year may not be deductible. Consolidating multiple years’ gifts into one year may be a valuable strategy for realizing a charitable deduction. Through the use of a Donor Advised Fund (DAF), one could make a large contribution in a given year, only to disperse the funds in subsequent years when desired.

Arizona Tax Credits

For individuals that expect to pay Arizona State Income Tax, there are five separate tax credits available whereby one will receive a dollar-for-dollar tax credit supporting certain public-school programs and extracurricular activities, private school tuition organizations, qualifying charitable organizations, qualifying foster care organizations and the Arizona Military Family Relief Fund. Learn more about the various credits and how to take advantage of them by visiting the Arizona Department of Revenue website, Tax Credits | Arizona Department of Revenue (azdor.gov), for details.

Of course, giving cash directly is never a bad idea, either. The strategies above, however, are simple ways of leveraging the gifts one intends to make and do so in a way that can create additional benefit to the donor. These simple strategies are not limited to the ultra-high-net-worth, although they often utilize them, too. These strategies are available to those that have the will and means to give.

As always, the devil is in the details, and no two circumstances are identical. It is wise to seek guidance from a tax professional to see how, or if, these strategies can apply to individual circumstances. It may also be useful to engage a financial advisor to help manage a comprehensive approach to an individual’s giving strategies.

No one has been immune from the impact of Covid-19. The organizations charged with helping those less fortunate have felt the impact tremendously, and the work ahead will be challenging. For those that wish to help, giving a donation of any kind will be more meaningful than ever. Utilizing one or several of the strategies above will provide an additional benefit for the donor, too.

Adam M. Brooks, CFP®
Senior Financial Advisor, Managing Director

Wells Fargo Advisors Financial Network is not a legal or tax advisor. Any discussion of taxes represents general information and is not intended to be, nor should it be construed to be, legal or tax advice. Tax laws or regulations are subject to change at any time and can have a substantial impact on an actual client situation.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. ABLE Financial Group is a separate entity from WFAFN.