© 2020 Arizent. All rights reserved.

Health-related tax planning mistake most baby boomers make: Tax Strategy Scan

Register now

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

65% of baby boomers are making a huge financial mistake that could leave them broke
Sixty-five percent of baby boomers have not prepared for their medical expenses in retirement, according to a survey by the NHP Foundation, Motley Fool reports. That's because these clients think Medicare will cover all of their health-related bills, without realizing that they are responsible for most of the expenses, aside from premiums and coinsurance costs. To prepare for future medical costs, seniors should consider contributing to a health savings account, which is funded with pre-tax dollars and offers tax-free growth and withdrawals for qualified medical expenses.

Your simple guide to the new capital gains tax rates
Although the federal income tax rates on long-term capital gains and qualified dividends are the same under the new tax law, brackets for these rates have changed, according to MarketWatch. For example, single taxpayers are in the 0% tax bracket if their income is within the $0-$38,600 range, and they will move to 15% tax bracket if their income is between $38,601 and $425,800. Joint filers will be in the 0% tax bracket if their annual income won't exceed $77,200 and will be in the 15% tax bracket if their annual earnings are between that amount and $479,000.

Tax overhaul is a windfall for REIT investors
The new tax law has made REITs a more attractive option for investors, according to a U.S. News & World Report contributor. Following the overhaul, shareholders can deduct 20% of pass-through income from REITs and other pass-through entities, even if they don't itemize deductions on their federal tax return, an expert says. "The new tax bill is a boon for REIT investors, but they need to be careful not to let the tax tail wag the dog," according to a CFP. "Many investors have used tax changes to drive investment decisions, only to quickly feel the pain."

You may be surprised what retirement income is taxed and what isn’t
Seniors should avoid the mistake of assuming that their tax rate will decline in retirement, as older Americans have lost many tax breaks over the years, according to The Washington Post. “You may no longer be earning a paycheck, but don’t forget, money is still coming in the door in the form of pension payments or individual retirement account distributions, both of which are taxable,” an expert says.

Research firm Spectrem Group tracked new highs in 2017 across the mass affluent, millionaire and UHNW segments.
April 10

3 smart ways to give to charity under new tax law
Taxpayers have to change their strategies for giving to charity to make the most of the tax break for charitable donations under the new law, according to a Kiplinger contributor. As the increase in standard deduction makes itemized deduction less valuable, taxpayers may want to "chunk" two years' worth of charitable donations in a single year. Another option is to use a donor-advised fund, which allows them to transfer assets to the fund, claim the tax break and identify the recipient of their donations at a later date. Retirees who have to take a required minimum distribution from tax-deferred retirement accounts may want to donate their RMD directly to a charity through a qualified charitable distribution, as the distribution will be excluded from their taxable income.

For reprint and licensing requests for this article, click here.