Diversified Asset Management, Inc. - 2019 4th Quarter Newsletter
A New Risk to Converting to a Roth IRA
Converting to a Roth IRA is appealing if you think Federal taxes will go up, but now carries a new risk. Roth conversion is still a good idea but it's important to understand how the rules changed and could come into play.
Phantom Income. The new risk to converting stems from a change in tax rules and it's probably not going to make you decide against converting a traditional IRA to a Roth, but it is a material new factor in the equation, a risk of being taxed on "phantom income."
Roth vs.Traditional IRA.
Roth conversions are likely to grow more popular because a Roth is taxed differently from a traditional IRA. You contribute pre-tax dollars to a traditional IRA, which lowers your taxable income each year you contribute. In retirement, you pay taxes on withdrawals to live on. In contrast, a Roth IRA allows you to contribute after-tax dollars and grows tax-free. Withdrawals in retirement are also tax-free. That's why converting to a Roth now looks smart if you think tax rates will be higher in your retirement years.
Five Key Factors In Funding A Child’s Education
The Tax Cuts And Jobs Act (TCJA) changed funding a child's education significantly.
Here are the factors to consider.
You can now pay tuition for kindergarten through 12th grade at private, public or religious schools with money saved in tax-advantaged 529 college savings accounts.
You now can draw up to $10,000 federally tax-free per student from a 529 plan. While contributions are not deductible, earnings grow free of federal income tax on withdrawals used for qualified school expenses.
There are 3 more factors. Please read the enewsletter for the rest of them.
Risk And Tax Effects Of An Installment Sale Of A Home
An installment sale of real estate is a variety of seller financing in which the buyer is borrowing from the seller. Why would a seller want to do this? Isn't it better to get the money up front? No, not always, especially when a sizable real estate capital gain would push you into a higher tax bracket.
An installment plan can give a home-seller a way to unload homes in bad market conditions and enable buyers who otherwise would not qualify for a mortgage to buy a home.
Installment financing is a familiar concept for big-ticket consumer items, like cars and furniture, but handily applies to dwellings.
As A Final Act of Love, Plan Thoughtfully
Everybody wants to go to heaven," according to a classic blues song, "but nobody wants to die." Nor does anyone like to think about dying. And that must be why some people don't put much thought into estate planning, much less in drawing a schematic for distributing one's earthly possessions to those you love the most.
But this is important. It's something you want to do diligently. It's something you want to get right. Your heirs and the executor of your estate - the person you choose to oversee that your wishes are carried out
- will remember you kindly for your clarity of purpose; it's good for all involved.
Otherwise, you risk setting off a family feud. Resolving not to leave your property open to legal dispute, here are three key rules for further planning your estate:
The Big New Tax Break For Pre-Retired Professionals
Pre-retired dentists, doctors and lawyers as well as other independent professionals may be able to save tens of thousands of dollars in income taxes annually during their peak income years under the new federal tax regulations. The new rules are complex. Here are 10 things pre-retired business owners need to know about qualifying for a 20% reduction in qualified business income under Section 199(A) of the new Internal Revenue Code:
1. Sole proprietors, LLCs, S corps, partnerships and other pass-through entities qualify.
2. Real estate and rental business income - including self-rentals -
may qualify.
3. Some businesses are specified as ineligible and you may need a professional to determine if you qualify.
4. Service-business owners could get a deduction on 20% of their income, subject to income limitations.
5. A business owner with $315,000 in taxable income owes tax on only $252,000 - saving more than $12,000 of income tax.
The New Math Of Renting Out A Vacation Home
If you've ever thought about becoming a landlord, here's an update on recent tax breaks that changed the equation for weighing whether to rent a property or be the sole tenant throughout the year.
If you bought a home in 2018 or 2019, only the first $750,000 of the mortgage interest is deductible, down from $1 million under the old rules. But a rental property is not subject to these limits.
To read the full newsletter, click the link.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.