Financial Planning

single-parent-estate-planning-what-you-need-to-know

Single Parent Estate Planning: What You Need to Know
Single Parent Estate Planning: What You Need to Know 1600 941 smolinlupinco

According to the Pew Research Center, nearly 23% of children in the United States live with only one parent—more than three times the number of children from around the world. 

Estate planning for single parents is similar to estate planning for households with two parents in many ways, as they both involve providing for children’s care and financial needs down the road. When there is only one parent involved, though, certain aspects of the estate plan require additional foresight. 

If you live in a single-parent household, here are some things you will need to address in your estate plan. 

Guardianship

If you become incapacitated or pass away unexpectedly, your children will need an appropriate guardian. In the event that the other parent is unwilling or unable to take custody, does your estate plan identify a suitable, willing guardian for your children? 

Additionally, will that guardian need financial assistance in caring for your children and providing for their education? Depending on your circumstances, you may want to consider keeping your wealth in a trust until your children reach a certain age. 

Trust planning

Trust planning is one of the most effective ways to ensure your children are cared for financially. With a trust, you can specify when and under what circumstances the funds should be distributed to your children. In the meantime, you can designate a qualified, trusted individual or corporate trustee who can manage those trust assets. 

This is particularly important if your children are minors—without a trust, your assets may end up being controlled by a former spouse or court-appointed administrator. 

Incapacitation 

As a parent, your estate plan should include a living will, advance directive, or health care power of attorney. As a single parent, this is essential, as these documents allow you to confirm your health care preferences and designate someone to make medical decisions on your behalf, should you become incapacitated. 

It’s also a good idea to have a revocable living trust or durable power of attorney who will manage your finances if you cannot do so. 

Need to revise your estate plan?

If you’re a single parent, it’s critical to have an up-to-date estate plan in place. Our financial advisors are happy to help you review and revise your estate plan. Contact us to get started today.

save-for-your-childrens-college-education-the-tax-wise-way

Save for Your Children’s College Education the Tax-Wise Way
Save for Your Children’s College Education the Tax-Wise Way 1600 941 smolinlupinco

If you have children, you’ve likely got college savings on your mind. Here are some tax-favored ways to save for future education costs so that you can take advantage of your options. 

Savings bonds

When used to finance college expenses, Series EE U.S. savings bonds offer two tax-saving benefits: 

  1. Until the bonds are cashed in, you don’t have to report interest on them for federal tax purposes. 
  2. If the bond proceeds are put toward qualified college expenses, interest on qualified Series EE and Series I bonds may be exempt from federal tax. 

To qualify for the college tax exemption, bonds must be purchased in your name or jointly with your spouse—not in your child’s name. Additionally, proceeds must be used for education-related expenses only (i.e., tuition and fees but not room and board). If only some of the proceeds are used for qualified expenses, then only some interest will be exempt. 

Note that if your modified adjusted gross income (MAGI) exceeds certain thresholds, the exemption will be phased out. For example, the exemption for bonds cashed in 2023 begins to phase out when MAGI hits $137,800 for married joint filers (or $91,850 for other returns). The exemption is completely phased out when MAGI is at or above $167,800 (or $106,850 for others).

529 plans

Qualified tuition programs, or 529 plans, are established by state governments or private institutions. These programs allow you to purchase tuition credits or contribute to an account specifically designed for your child’s future education costs. 

These contributions are not deductible and are calculated as taxable gifts to the child. They are, however, eligible for the 2023 annual gift tax exclusion of $17,000. Donors who contribute more than the annual exclusion limit for the year may treat the gift as if it were given in increments throughout a five-year period. 

Until college costs are paid from the funds, earnings on these contributions accumulate tax-free. Distributions from 529 plans are also tax-free to the extent that the funds are used to pay for qualified higher education expenses, including up to $10,000 in tuition costs for elementary or secondary school. 

Distributions of earnings not used for qualified higher education expenses will generally be subject to income tax in addition to a 10% penalty. 

ESAs 

For each child under the age of 18, you can establish a Coverdell education savings account (ESA) and make contributions of $2,000. Note that this age limit does not apply to beneficiaries who have special needs. 

Once AGI is above $190,000 on a joint return ($95,000 for others), the right to make contributions will begin to phase out. If the income limit becomes an issue, the child can then contribute to their own account. 

Despite contributions not being deductible, income in the account is not taxed and distributions are tax-free when put toward qualified education expenses. If the child does not pursue higher education, the money must be withdrawn when they turn 30, and any earnings will be subject to tax plus penalty. However, those unused funds can be transferred to another family member’s ESA if they have not yet reached age 30. (This age requirement does not apply to those with special needs.)  

Talk to a financial advisor today

This is not an exhaustive list of all the tax-wise ways to save for your children’s college education. If you would like to discuss these options or learn about others available, contact us to speak with a certified CPA. 

getting-the-most-out-of-your-401k-plan

Getting the Most Out of Your 401(k) Plan
Getting the Most Out of Your 401(k) Plan 1594 938 smolinlupinco

The best way to reduce taxes and set yourself up for a comfortable retirement? Putting money toward a tax-advantaged retirement plan. If you’re not already making the most of an employer-offered 401(k) or Roth 401(k), now is the time to start. The sooner you start contributing to your retirement plan, the more substantial your nest egg will be. 

Looking to build up that nest egg even more? Consider increasing your contribution (if you’re not already contributing the maximum amount allowed). Thanks to tax-deferred compounding—or, in the case of Roth accounts, tax-free—boosting contributions can significantly impact the amount of money you’ll have once you retire. 

Retirement plan contributions in 2023

With a 401(k), an employee can elect to have a certain payment amount deferred and then contributed to their plan by an employer on their behalf. Due to inflation, these amounts are unsurprisingly increasing—the contribution limit in 2023 will be $22,500, compared to $20,500 in 2022. 

Employees who will be 50 years of age or older by the end of the year will also be able to make additional “catch-up” contributions of $7,500 in 2023 (compared to $6,500 in 2022). As a result, these employees can save a total of $30,000 in 2023 (compared to $27,000 in 2022). 

401(k) contributions

There are many benefits to contributing to a traditional 401(k). For example: 

  • Contributions are pre-tax, which reduces your modified adjusted gross income (MAGI), and can also help to reduce or avoid the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred, which means you don’t have to pay any income tax until you take distributions.
  • All or some of your contributions can be matched by your employer pre-tax. 

If you’re already contributing to a 401(k) plan, you may want to take a closer look at your contributions for 2023, aiming to increase your contribution rate to get as close to the $22,500 limit as possible—with an extra $7,500 for those aged 50 or older. 

Note that your paycheck will be reduced by the amount of contribution only, as these are pre-tax and income tax is not withheld. 

Roth 401(k) contributions

High-income earners may benefit from Roth 401(k) contributions, as they don’t have Roth IRA contributions as an option. This is because if your adjusted gross income exceeds a certain threshold, your ability to contribute to a Roth IRA is reduced or eliminated. 

If your employer offers a Roth option in their 401(k) plans, you can designate some or all of your contributions as Roth contributions. While these contributions won’t reduce your MAGI, qualified distributions will be tax-free. 

Plan your financial future with Smolin

If you’re not sure how much to contribute, or how to determine the best combination of traditional and Roth 401(k) contributions, our knowledgeable tax advisors can help. 

Contact us to get the most out of your 401(k) plan or to discuss other tax and retirement-saving strategies.

5-ways-to-update-your-accounting-practices

5 Ways to Update Your Accounting Practices
5 Ways to Update Your Accounting Practices 1594 938 smolinlupinco

When you think about the internal workflows and processes of your business, are you able to pinpoint why you do things a certain way? If the answer is “because we’ve always done it that way,” it might be time to make some changes. 

In fact, with all of the new developments in the financial and accounting realm, sticking to those traditional methods may actually be costing your business in terms of efficiency and cash flow alike. 

Here are five ways to keep your accounting processes and systems up-to-date. 

1. Streamline the payables process

When it comes to managing your accounts payable, using traditional paper processes could be costing you valuable time (and money). With automated technology solutions, you can streamline the process to improve efficiency, reduce costs, enhance security, and even obtain early payment discounts. 

Automatic payables systems can scan invoices and post them automatically based on the purchase or invoice number. Then, the payables clerk—or whoever is responsible for reviewing the invoice—can cross-reference the invoice and approve it for electronic payment based on terms negotiated with the vendor. 

2. Implement daily reconciliation

Many accounting firms wait until the end of the month to reconcile their bank accounts—but it doesn’t have to be this way. By reconciling accounts on a daily basis using automation software, you can catch in-transit payments that have been cashed but not recorded. And by eliminating that crunch at the end of the month, you can speed up other monthly closings. 

This also keeps you from having to wait for standard monthly entries that remain the same—depreciation, prepaid expenses, and property tax or insurance accruals, for example. By starting your end-of-month closing process sooner, you can improve the accuracy and timeliness of your financial statements while also taking some of the pressure off of your accounting staff. 

3. Use p-cards

Consider issuing corporate purchase cards, or p-cards, to at least one employee in each department to cover travel and entertainment expenses, or small items under $100 or so. This way, your accounting department can make a single payment for multiple purchases, rather than processing multiple small-dollar checks. 

As an added perk, most p-cards offer points and cash-back rewards that your team can take advantage of when paying back expenses. 

4. Digitize your processes

When you go paperless, you can lower expenses, increase efficiency, and maintain compliance—all in a way that’s more environmentally friendly. And when you use an electronic document management system, you can save significant amounts of physical storage space and reduce the time it takes to create and modify documents. 

While you may not be able to go completely paperless, there are plenty of documents and processes that can be digitized: contracts, invoices, payables, payroll documents, and employee records, for example. 

Consider implementing document management software solutions to help you convert your processes from paper to digital. 

5. Make the most of your accounting software

With ever-changing policies and practices, it’s more important than ever to use your accounting software to help you stay compliant and financially sound. This could involve making better use of your current account system or switching over to new software. Keep in mind that, as your firm grows, you will likely need more advanced functionality. 

To optimize your accounting software, start by making a list of your requirements, from types of activities to reporting. Then, cross-reference those needs with your software features to ensure that they’re all being met. You’ll also want to prioritize remote access so that your team can securely access real-time project information from anywhere. 

Look for integrations with other software and platforms, too, such as timecard entry and project management software, or third-party payroll software that can be used with minimal manual data entry.

Ready to upgrade your accounting practices? 

If your accounting firm’s processes and systems have been the same for years, it’s likely time for an upgrade—and our knowledgeable accounting advisers can help. Contact us to learn more.

moving-out-of-state-its-time-to-review-your-estate-plan

Moving Out of State? It’s Time to Review Your Estate Plan
Moving Out of State? It’s Time to Review Your Estate Plan 1600 941 smolinlupinco

If you’re planning a move to a different state, you probably have a long list of items to address: securing vehicle registrations, finding new primary care providers, and updating financial records, just to name a few. 

As you work your way through your to-do list, don’t forget to review your will and other estate planning documents—because a different state likely means different laws. 

State laws for estate planning

While your will is generally valid in any state, it’s worth noting that laws governing wills and most other estate planning documents can vary from state to state. Depending on where you move, you may need to take some extra steps to ensure total enforcement, such as appointing a new executor. 

Not only do you need to navigate different state laws, but you also need to stay abreast of changes, because state laws for estate planning often undergo reforms. In order to achieve the desired results and avoid forfeiting certain tax benefits—or, in a worst-case scenario, having your documents deemed obsolete—it’s important to stay up-to-date on current policies. You’ll also want to consider the impact of the new state tax on your pensions and other retirement plans. 

Review before you move

To simplify the process in the long term, we recommend reviewing your estate plan before you make the move to a different state. That way, you can determine whether any changes need to be made and revisit your documents accordingly. 

Need help? Contact us to work with an experienced tax professional.

using-a-split-annuity-as-a-balanced-approach-to-retirement-and-estate-planning

Using a Split Annuity as a Balanced Approach to Retirement and Estate Planning
Using a Split Annuity as a Balanced Approach to Retirement and Estate Planning 1600 941 smolinlupinco

Maintaining your standard of living while trying to preserve your wealth for loved ones is a tightrope walk, something you’re probably aware of if you’re close to retiring or already enjoying this milestone in life. Finding a balance between these two goals is especially challenging since your retirement years could span decades. A way to maintain your income stream and hold onto financial assets is by investing in a split annuity.  

The Basics of an Annuity

In a nutshell, an annuity is an investment contract with tax advantages that you hold with an insurer or financial services company. You have the option to pay your premiums annually or by lump sum, and your service will pay over a set term or a lifetime in return. 

For purposes of the split annuity strategy covered below, we’ll highlight “fixed” annuities. These typically provide participants with a guaranteed minimum return rate. There are other annuities options, including “variable” and “equity-indexed,” which are more volatile but have significant upside potential compared to fixed products. 

Annuities can fall into two categories: immediate or deferred. Immediate annuities give you payouts immediately, whereas deferred options begin paying at a predetermined future date. 

Another consideration for annuity earnings is that they are tax-deferred. This means they will increase in value, tax-free until paid or withdrawn. Every payment will have a portion dedicated to standard income tax rates, and the remainder is considered a tax-free return of principal (premiums). 

Deferred annuities tend to grow faster than comparable accounts because of their ability to accumulate earnings on a tax-deferred basis. This perk offsets the modest interest rates they usually offer.

Another feature of annuities that make them attractive is the flexibility of reallocating or withdrawing funds according to your circumstances. Keep in mind that you may have to pay early withdrawal or surrender charges depending on how much you take and at what point this occurs in the annuity’s lifecycle.

Understanding the Split Annuity Strategy

Split annuities are not a single product, but rather two that are often funded by a single investment source. Most split strategies will involve using some of your funds to purchase an immediate annuity, making fixed payments over a specific term, such as 15 years. The funds you have left over then get invested in a deferred annuity that won’t pay out until the initial period has ended. 

The outcome is that once your immediate annuity term has ended, you will have accumulated enough earnings in your deferred annuity to equal what you originally invested. Essentially, if set up correctly, your split annuity will create a fixed income stream for several years that preserves your principal. 

Once the term has ended, reassess what options you have available. For instance, you might decide to have your deferred annuity start sending you payments, reinvest in another split annuity, withdraw a portion of the entire cash value it holds, or consider another investment option altogether. 

If you’d like to learn more about split annuities, reach out to us. We are eager to help you determine the best strategy for your retirement situation. 

© 2022

4 Essential Estate Planning Documents College-Aged Children Need
4 Essential Estate Planning Documents College-Aged Children Need 1600 941 smolinlupinco

If your child is off to college this year, have you already set up a basic estate plan for them? If not, you’re part of the majority that answers “no” to this question. Fortunately, with summer break already here, you can take this time to sit down with an estate planning attorney to create a plan.

With your child free from school obligations, you can bring them along to learn about the importance of this process and sign off on the necessary documentation before returning to campus this fall. 

Four essential estate planning documents your child should have before next semester

If your child is college-bound, the following four estate planning documents are crucial for them to have:

  1. Last Will and Testament: Even though your son or daughter is only in their late teens or early twenties, having a will drawn up is important. This document handles how their assets should be distributed and can take care of other situations, like guardianship of your grandchild. 
  2. Financial Power of Attorney: This is another essential document that legally empowers you or your spouse to handle your child’s finances on their behalf. You can create a form with “durable” powers should your child become incapacitated. 
  3. Health Care Power of Attorney: If your child cannot make health care decisions on their own due to incapacitation, a health care power of attorney allows your child to appoint someone to do so on their behalf. 
  4. HIPAA Authorization: The Health Insurance Portability and Accountability Act (HIPAA) authorization is essential in making crucial healthcare decisions for your child. This power of attorney option authorizes physicians and other healthcare providers to share information regarding your child’s medical conditions and diagnoses. Without this document, informed decisions about your son or daughter’s condition are difficult.

Contact us right away if you and your child would like to create an estate plan that covers the essentials. We welcome the opportunity to help your family gain peace of mind knowing that your child’s best interests are protected.

© 2022

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