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March 6, 2019

Financial Planning Ideas that Investors should Consider for Turbulent Political Times

Over the past few years, we Americans, have seen our share of political ups and downs. From a historic tax cut, to tariffs, to the rise of Populism, many investors seem frozen over what to do concerning their finances and investment portfolios. Here are a few items that investors may be overlooking and should consider if their circumstances warrant it:

  1. HSA’s: Funding a Health Savings Account may seem insignificant but it could pay off handsomely later in life. First, you need to be under the age of 65 and have a High Deductible Health Plan to qualify for contributions. Single people can contribute up to $3,500 and married people can contribute up to $7,000 for 2019. If you are over the age of 55, you can make an additional $1,000 “catch-up” contribution. Most people do not realize that you can invest these funds and can treat an HSA as another retirement savings account. You can use the funds in your HSA for qualified medical expenses later in life (tax-free) or like an IRA distribution (taxable). However, unlike a retirement account, you are never required to take a minimum distribution at any specific age. It is now common to see some HSA balances in the $20,000 to $40,000 range and with regular contributions, it is not inconceivable to see these accounts grow to the six figure range down the road.
  2. Roth Conversions: Implementing a partial conversion of an IRA to a ROTH may be suitable depending on one’s situation. It is both an investment function and a tax function. On the investment side, it is better to convert when there is downside volatility. If you were going to hold the investment anyways and still like the investment thesis, converting when values are down gives one a better chance to capture greater tax-free upside. On the tax side, the conversion is taxable for the year that you convert. Therefore, if you think tax rates will rise and you will be in a higher tax bracket, it may be wise to implement a conversion. Partial conversions (i.e. $25,000 a year for 4 to 6 years) are also recommended as a way to hedge your bets.
  3. Bunching Charitable Contributions: The new tax code has increased the standard deduction to $12,000 for singles and $24,000 for married couples and eliminated personal exemptions. Investors may be able to get themselves over the new standard deduction and itemize if they “Bunch” charitable contributions. You can give the same amount of dollars you would over a two or three year period but bunch them into one year. Charitable Donation Accounts are a tool for this as you can take the deduction in the year that you put the money into the account but you can give away the money over time.
  4. Qualified Charitable Distribution: IRA owners that are over the age of 70 ½ have to withdraw required minimum distributions (RMDs). These distributions are taxable and the owner may not want or need the money. A qualified charitable distribution is a distribution from an IRA directly to an eligible charity. This bypasses the owner and it is not taxed. The maximum in one year that you can distribute is $100,000.

These are a few planning techniques that investors can take advantage of in these turbulent times. Please consult a financial planner to see if these strategies can benefit you or your family’s financial situation.

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Disclosure: This material is provided by TrinityPoint Wealth for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable, however, TrinityPoint Wealth cannot guarantee the accuracy or completeness of such information. TrinityPoint Wealth does not provide tax or legal advice.